How do cannabis companies get their seed

Why “Seed-to-Consumer” Vertically Integrated Cannabis Companies Will Thrive

Although not as common as their non-integrated counterparts, there is a compelling case to be made for vertically integrated supply chains in the cannabis industry.

As consumer cannabis companies continue to compete amongst each other to capture market share, the businesses that have full control over the supply chain will be best positioned to take the industry by storm.

The cannabis industry is a sector where companies are constantly innovating. Whether it be in the form of new products, proprietary technology or relentless expansion, cannabis businesses are fiercely competing amongst each other for market share in their respective areas.

In doing so, most companies have chosen to focus on a specific area along the cannabis supply chain. Major cultivators for the past year have focused on growing their cultivation capacity, while other companies, such as cannabis biotech firms, have invested in expanding their research capabilities. While many companies have chosen to specialize, a number of vertically integrated “seed-to-consumer” cannabis business models are beginning to compete in the space.

Some industry experts argue that the future of the industry won’t lie amongst specialized companies. Instead, businesses that embrace vertically integrated strategies could stand the best chance of flourishing in the future Canadian marketplace. John Kagia from analysis firm New Frontier Data described this very same trend, saying “Brands which have been able to effectively identify specific consumer segments and tailor their branding and marketing strategies to reflect the priorities and preferences of those groups are best positioned to compete as the market matures.”

Vertical integration enables cannabis companies to maximize their efficiency, reliability, cost reductions and product quality in a way that sets them apart from the rest of the competition. While most companies focus on one area of the supply chain, vertically integrated seed-to-consumer businesses are able to control every aspect of their business model, avoiding the logistical nightmares that so often become a reality when dealing with multiple parties.

Seed-to-consumer cannabis

The idea of controlling multiple areas of the supply chain is a known concept in more mature industries. As a relatively new industry, the Canadian cannabis market has remained segmented across the supply chain. As such, fully integrated cannabis companies that own cultivation facilities, extraction labs, manufacturing centers and retail storefronts are a rarity in today’s environment.

The lack of vertical integration amongst these companies is understandable as adopting this approach comes with its own hurdles. For one, private companies are often strapped for cash, making the relevant acquisitions difficult to secure. Instead, it’s easier for companies to focus on scaling their strengths while pursuing a more specialized approach to business growth.

Companies with strong retail and branding presences are best positioned to become dominant in the years to come, while businesses that focus on a specific area could find themselves boxed into that market segment. For example, large cultivators such as Aurora Cannabis (TSX:ACB,NYSE:ACB) could find themselves confined to the cultivation sector, supplying cannabis to retail brands that control the downstream supply chain. In this sense, large cannabis companies are motivated to expand their operations across the supply chain into different product types. One of the best ways to make this process of product diversification as efficient as possible in terms of cost savings would be through vertical integration.

At the same time, some jurisdictions make vertical integration almost impossible. In provinces such as Quebec and Nova Scotia, province-run retail distribution systems force private companies to follow certain criteria while forbidding their own dedicated retail dispensaries from being opened.

The benefits of controlling the entire supply chain

Even with the hefty capital investments required, there are many powerful reasons why vertical integration is beneficial for a company. For one, managing all aspects of the supply chain gives a company the opportunity to maximize cost reductions and improve efficiency. This streamlining of the logistical process is impossible when dealing with third parties, which add their own costs and profit margins. Without middlemen, companies can cut costs in the long run, internalizing profit margins that otherwise would be passed along to third parties.

Aside from savings and convenience, vertical integration is perhaps the best way for a company to guarantee the quality of its product. Consumption-based industries in Canada find themselves having to comply with a variety of Health Canada stipulations where quality control is crucial.

Contaminated shipments or product batches could prove disastrous for both a company’s consumer reputation as well as its record with regulators. Health Canada has no qualms about revoking licenses for businesses, and once trust is destroyed with retail customers, it’s very difficult to build it back. When relying on third parties, there’s always the risk of potential contamination from their side of the operation. Through vertical integration, companies can monitor every aspect of product development, applying their quality standards universally without having to worry that a third party might not have standards equally as stringent as its own.

“To maintain the highest quality control, it is a business imperative that every step in the process be controlled, monitored and evaluated, especially during the rapid expansion into new distribution channels,” said Craig Goodwin, president of hemp-based health foods company Naturally Splendid Enterprises (TSXV:NSP) in an exclusive interview. “Vertical integration allows for quick reaction to market conditions, whether that is developing new products, servicing new clients or expanding distribution channels.”

In addition to quality control and expense reduction, there are other compelling advantages for vertical integration. One of these is that for vertically integrated companies it’s much easier to create economies of scale and expand rapidly. If a business relies on a third party for retailing, product development or any other service, it might not be possible to scale up as quickly due to potential constraints from other parties on the supply chain.

Current leaders in vertical integration

There are a few notable companies that are capitalizing on the vertically integrated seed-to-consumer model. Harvest Health & Recreation is a major example of this. The company has multiple separate vertically integrated operations across a variety of states, including Arizona, Ohio, Pennsylvania and Massachusetts. Around 60 percent of all products sold in Harvest’s retail dispensaries are produced by the company itself. For most cannabis companies, this is a very impressive figure that would be difficult to meet if Harvest didn’t emphasize a vertically integrated approach.

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Another company that operates this way is Next Green Wave (CSE:NGW). Operating largely in California, the company boasts some of the top award-winning seeds and clones used in cultivation and it is able to produce new premium strains not seen before amongst consumers. The company has targeted California in order to gain access to an established and well-supported industry. While Canada’s cannabis market remains in its early stages, Next Green Wave has already secured a license for distribution in California, letting the company sell not only its own products but also the products of competing companies. The company’s foothold in California could give it an edge in North American cannabis as the legalization movement sweeps across the continent.

For a company that has chosen to focus on the quality of its product, Next Green Wave’s decision to operate its own processing and retail facilities guarantees full control over its end product, a critical step when building brand loyalty.

Takeaway

Over the coming years, cannabis as an industry will shift dramatically and companies that chose to pursue a vertically integrated strategy could be best positioned to stand apart from the competition. While there are some difficulties in pursuing this strategy, a seed-to-consumer business model is one of the surest ways to reap unparalleled advantages in logistics, pricing, quality control and branding.

This INNSpired article was written according to INN editorial standards to educate investors.

INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.

Cannabis Industry Introduction

Nathan Reiff has been writing expert articles and news about financial topics such as investing and trading, cryptocurrency, ETFs, and alternative investments on Investopedia since 2016.

Cannabis has crept out of the shadows of the stoner culture and emerged as a multi-billion dollar industry that has taken root in sectors including healthcare, pharmaceuticals, consumer goods, and agriculture. Public companies with ballooning valuations are racing to be the most innovative, while established blue-chip companies are partnering or buying marijuana-related businesses to gain access to the industry.

As the legal cannabis industry continues to develop and public support for the legalization of recreational and medical marijuana use grows, an increasing number of investors have taken note. The latest Gallup poll released in November 2020 indicates that 68% of American adults support the legalization of marijuana in the U.S, up sharply from only 12% who supported it more than five decades ago in 1969. Cannabis stocks, represented by the ETFMG Alternative Harvest ETF (MJ), have soared over the past year as several more states legalized the recreational use of marijuana, including New York, New Jersey, Montana, and others.

With interest in pot stocks rising, many new and veteran investors without intimate knowledge of the business are considering making investments in cannabis companies and stocks. As with any new industry, learning about the ins and outs of the diverse and fast-growing marijuana business can be overwhelming. Below, we’ve broken down some of the most common and important terms that you’re likely to encounter as you follow the cannabis market.

Access Point

An access point is a location where medical marijuana patients are authorized to buy or pick up cannabis. The term access point is often used somewhat interchangeably with the term dispensary. In either case, the location refers to a state-authorized facility that must abide by strict processes and guidelines.

Agitation

Agitation refers to a specific procedure in the process of harvesting marijuana plants and products. In agitation, producers utilize physical contact with marijuana plants in order to break off trichomes for collection and processing. Trichomes contain most of the marijuana plant’s cannabinoids and other active compounds (see Crystals and Trichomes below).

Backcross

Successful marijuana production requires extensive knowledge of botany and biology, and backcrossing is an industry term borrowed from these fields. Producers backcross a marijuana plant when they facilitate plant breeding in such a way as to transfer one or more desired traits from a parent to an offspring. Specifically, this process typically entails breeding a plant with one of its parents in order to strengthen particular genes in rare strains.

BHO refers to butane hash oil, a potent cannabis concentrate made from marijuana plants using butane as a solvent. It contains extremely high amounts of THC, can be manufactured in a variety of ways and can have different consistencies. It is also known as honey oil or earwax.

A marijuana plant bud is a flower found on mature plants. Buds contain high levels of cannabinoids, making them a popular choice for harvesting.

Cannabidiol

Cannabidiol, commonly abbreviated as CBD, is one of the dozens of molecules found in the cannabis plant which are referred to as cannabinoids. CBD has become popular in recent years due to a belief that it provides medical benefits for patients suffering from various afflictions including seizures, pain, arthritis, and more.

CBD is unlike THC in that it does not contain psychoactive properties. This means that individuals can use CBD for its medical benefits without feeling high. CBD is most commonly delivered to users via oils, topical products, and tinctures.

Cannabinoids

This term refers to a large group of chemical compounds found in the cannabis plant. These compounds engage with receptors in the cells of the brain which are related to neurotransmission. The two best-known cannabinoids are tetrahydrocannabinol (THC) and CBD. THC is well-known for producing psychoactive effects in users of cannabis products—the compound responsible for the high associated with cannabis use.

CBD is better known for its health effects and does not include a psychoactive component. Besides these two cannabinoids, there are dozens of other compounds in the various parts of a cannabis plant as well.

Concentrate

Concentrates are highly potent extracts from the cannabis plant that contain cannabinoids like THC. All the plant material is removed in the production process. Common concentrates include hash, kief, and hash oils. They are used in both medical and recreational settings.

Cross

Multiple cannabis plants can be interbred to generate a new strain of product in a process known as crossbreeding or crossing for short. New strains of marijuana are produced in order to control for factors including appearance, potency, and more.

Crystals

The term crystals refers to trichomes—a white, crystal-like part of the cannabis plant that contains high concentrations of THC. Crystals are used to produce various concentrates.

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Dabbing

While smoking and ingesting cannabis-based products remain two of the most favored methods of consuming marijuana, a relatively new method called dabbing has become popular. To dab, a user places a small amount of a cannabis concentrate on a hot oil rig pipe. The concentrate is vaporized and the user then inhales the vapor.

Decarboxylation

Decarboxylation is a process used to transform certain inactive cannabinoids into active compounds like THC and CBD. The process involves the slow heating of marijuana at a low temperature and is commonly utilized to make edibles.

Dispensary

Stores that sell marijuana products are known as dispensaries. Some dispensaries may carry more than just marijuana itself, including items like paraphernalia or clothing as well. Because legal cannabis sales are governed differently depending upon the U.S. state or Canadian province, the specific requirements and the setup of a dispensary depend heavily on where it is located.

Edibles

Products containing cannabis-based chemicals are designed to be orally ingested are known as edibles. Some of the most popular edible products include baked goods, candy, and soda.

Feminization

The process of feminization results in cannabis seeds that produce only female plants. In the cannabis industry, female plants are often seen as more desirable than their male counterparts, because only female plants produce flowers. Producing only plants of one type also protects against undesired fertilization.

Germination

Germination is the part of the life cycle of a cannabis plant when the seed begins to sprout and develop into a seedling.

Also known as hashish, this is a highly potent concentrate of marijuana trichomes achieved by one of several extraction techniques.

Hemp is a variety of the Cannabis Sativa plant. It contains very small traces of THC and high amounts of CBD. Hemp fibers are used in various industries including the textile, paper, and automobile industries. CBD is extracted from the plant for various uses. Growing hemp was illegal on a federal level in the U.S. up until December 2018. Then the 2018 Farm Bill lifted the ban so long as it contains a maximum of 0.3% THC.

Hydroponics

A hydroponic system makes it possible to grow cannabis without the use of soil and increases the plant’s growth rate. Specifically, hydroponic mechanisms circulate both water and essential nutrients to a cannabis plant’s roots in order to facilitate growth.

Indica

There are three different species of cannabis plants—Indica, Sativa, and ruderalis. Indica cannabis plants tend to have dense clusters of buds and the strain is thought to have a sedative effect.

When trichomes are removed from a marijuana plant, kief is the result. It is a type of cannabis concentrate also known as dry sieve hash. Kief typically contains high concentrations of THC.

Live Resin

When a cannabis concentrate is made using freshly picked plants that are immediately harvested and frozen, the product is known as live resin.

QWISO

QWISO, or quick-wash isopropyl, is a method to make hash oil that involves the use of isopropyl alcohol to collect trichomes from a cannabis plant.

Resin

Resin is a term that is often used interchangeably with trichomes, though it also holds other meanings in the cannabis industry as well. After a piece of marijuana paraphernalia is used, the residue left inside is often referred to as resin as well.

Ruderalis

Along with Indica and Sativa, ruderalis is one of the three species of cannabis plants. Ruderalis plants are somewhat larger than Indica ones, and it also flowers on its own without stimulation from a light cycle. Ruderalis plants tend to have higher concentrations of CBD relative to Indica and Sativa.

Sativa

Sativa plants are the tallest of all the cannabis species, and the strain is often considered to enhance creativity and energy.

Shatter

Shatter is one of the consistencies found in butane hash oil. This product can be used for dabbing or can be smoked in combination with a flower.

Seed-to-Sale

Seed-to-sale is a term used to refer to the close watch cannabis companies have to keep on each step of the manufacturing process in order to comply with government regulations.

Topical

Topical products are among the newest forms of cannabis products. These include lotions and creams applied topically which aim to address issues like pain and skin problems. Even though some topicals contain THC, the method of absorption means they do not cause the high of other cannabis products.

Trichomes

Also known as crystals, trichomes are resin-producing glands on a marijuana plant. They have the appearance of small hairs. Trichomes are responsible for producing the large majority of a cannabis plant’s cannabinoids.

A guide to buying cannabis seeds

The first couple months of the year is a great time to start planning your cannabis garden to get a head start on the outdoor growing season, which roughly runs from March to November, depending on where you live.

Navigating the cannabis seed market can be challenging when states have different degrees of legality. This guide will answer your questions on buying seeds so you can be on your way to growing your own cannabis.

Is it legal to buy marijuana seeds?

Marijuana seeds are considered a cannabis product just like flower, edibles, and concentrates. Their legality depends on which state you live in. People living in states with adult-use legalization can buy, produce, and sell seeds within their own state, but seeds can’t cross state lines. People living in states with medical marijuana legalization can only buy seeds if they have a medical card.

Seed banks exist outside of the US and can sell them for “souvenir purposes,” but it is illegal to bring seeds into the US and Customs will seize any cannabis seeds they find in packages or on a person.

Where can I buy cannabis seeds?

Many world-renowned seed banks are overseas in the Netherlands, the UK, Spain, and other countries where cannabis laws are less restricted. Seed banks provide seeds from a variety of different breeders.

In states with adult-use legalization or a medical marijuana program, you can buy seeds within your own state, either at a dispensary or through a specific seed company’s website.

Can you buy cannabis seeds online?

Before you purchase seeds online, you’ll need to figure out what strain you want to grow and what breeder you want to buy from.

Because US federal law still prohibits cannabis, it can be hard to find information on seed banks and breeders. Breeders who have a long history and positive reputation are usually a good place to start.

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Check out our explainer and buying guide to cannabis seed banks for more info on buying seeds.

To get an idea of what well-established breeders look like, check out:

Europe

  • Sensi Seeds
  • DNA Genetics
  • Dinafem
  • Green House Seeds

US

  • Southern Humboldt Seed Collective
  • Exotic Genetix

You can also do some research and find an online grow journal that details the whole growing process of a specific strain from a particular breeder. Through these, you’ll be able to look over another grower’s specific notes and see pictures of the final results.

If you grow some seeds and like the results, try growing another strain from that same breeder and see how it goes.

Do dispensaries sell cannabis seeds?

Some dispensaries in medical and adult-use states sell seeds, but not all. Be sure to check or call ahead to see if they sell seeds. Buying marijuana seeds at the dispensary is far more straightforward, however, your options will be more limited than shopping online.

Dispensary staff should be able to give you information on the seeds they’re selling, but keep in mind that a lot of dispensaries focus on selling flower and end-products. It’s a good idea to call ahead and talk to staff to see if they are knowledgeable about seeds and can give you specific information on growing.

How to look for quality genetics when buying marijuana seeds

Breeders talk about “unstable genetics,” meaning that a seed’s origin is unknown. Make sure that when you buy a packet of seeds that it or the breeder who produced them can list where the seeds came from and how they were crossed and/or backcrossed to get the seed that you hold in your hand. If you can’t get a seed’s history, it could be anything and the result of poor breeding practices.

An inexperienced breeder might cross a male and a female one time and sell the resulting seeds as a new hybrid strain, but professional breeders usually put their strains through several rounds of backcrossing to stabilize the genetics and ensure consistent plants that reflect those genetics.

Which strain should I grow?

Even one weed plant can produce a lot of buds come harvest time, so make sure you grow a strain you like. Note strains you enjoy when you pick something up at the dispensary or smoke with friends, and look for seeds of it when you want to start growing.

Some strains are easier to grow than others because they are more resistant to mold and pests, so if you’re new to growing, you may want to try an easier strain to start.

Some strains also take longer to grow than others. Depending on whether you’re growing indoors or outdoors, you may want to grow a quicker marijuana strain if you live in a climate that get cold and wet early in the season. For example, indicas are known for having a shorter flowering time than sativas.

All of this information should be available to you when buying quality seeds.

What’s the difference between regular, feminized, and autoflower seeds?

Regular seeds

If you buy a packet of regular seeds, they’ll come with a mix of males and females. A lot of cultivators prefer to grow these because they haven’t been backcrossed—essentially inbred—as much as feminized or autoflower seeds. You’ll need to sex out the seeds once their reproductive organs show during the flowering phase and discard the males—because they don’t produce buds and will pollenate females, resulting in seeded flowers.

Feminized seeds

Seeds can come feminized, meaning you can just put them in soil and start growing for buds. These seeds are guaranteed to be bud-producing females and growing them cuts out the step of having to sex out plants and discard the males.

It also reduces the risk of having a stray male sneak into your crop—just one male can pollinate a huge crop, causing your females to focus their energies on producing seeds instead of buds.

Autoflower seeds

Autoflower plants change from the vegetative to flowering state with age, not the changing of their light cycle. They have a short grow-to-harvest time and can be ready to harvest in as little as 2 ½ to 3 months from when you put the seeds in the ground. The downside is that, typically, they are less potent, but autoflower seeds are great for people who want to grow cannabis but don’t want to spend a lot of time doing it.

How much do marijuana seeds cost?

Cannabis seeds usually come in a pack of 10 or 12 seeds and start at around $40 a pack and go up from there. Some high-end genetics can run between $200 to $500 a pack.

Feminized and autoflower seeds will cost more because more breeding work was put in to creating them and they take less time for the grower to get buds.

How many seeds should I buy? Are they all going to survive?

When you grow any amount of seeds, a percentage of them won’t germinate, even if you get them from a reputable breeder. Always count on a few not germinating or dying off, or roughly 1/4 of the total you put in the ground.

When growing regular seeds, some won’t germinate and some will have to be discarded because they’ll turn out to be males. With feminized seeds, some won’t germinate, but a higher percentage of them will turn into flowering plants because there won’t be any males.

If you want six total cannabis plants to harvest for buds and are growing from regular seeds, start with about 4 times as many, or 24 seeds. Some won’t germinate and some will turn out to be males, and then you’ll want to discard down to the six best phenotypes. If growing feminized seeds, you can probably start with about twice as many seeds in this case (about 12); a couple won’t germinate, and then discard down to the six best phenotypes.

Make sure to always stay within your state’s legal limit of growing plants.

How do I buy strain-specific cannabis seeds?

Strains like Blue Dream, Gelato, and Original Glue have gained in popularity in recent years. Check out these resources on how to buy these types of cannabis seeds: