Getting into the legal cannabis industry can be an expensive endeavor. There are significant lead times on building out cultivation capacity for growers. Cultivators and dispensaries need to acquire licenses that can be expensive and limited by regulators. Many jurisdictions require market participants to purchase specific seed-to-sale tracking systems and follow other strict tracking protocols. On top of all of this, security is a much bigger concern than in other similar industries like tobacco and alcohol.
The current murky legal nature of cannabis in the United States makes security much riskier than for other commodities or retail goods. Even in states where recreational use is allowed, the continued federal Schedule I status of cannabis and its derivatives means that providers still exist in a murky environment. Fair or not, they are subject to higher scrutiny and more risk than someone selling baked goods or textiles.
The legal environment also adds an additional wrinkle that other retailers of valuable products don’t face as frequently anymore: significant business transactions taking place with cash. Most banks still won’t do business with cannabis companies and most sales are still done in cash. Holding and dealing with such large quantities of cash on a regular basis makes all plant-touching businesses an obvious target for criminals. This is in addition to the existing threat of employee theft and normal inventory risk during transportation.
As one company’s threats and concerns are opportunities to others, so is security becoming a big opportunity some US firms supporting the cannabis industry today, like Helix TCS (OTC:HLIX). Their recent acquisition of Tan’s International Security helps to make them one of the bigger players in the field of security catering to the cannabis industry. Helix already had their own home-grown security line operating in Colorado. Tan’s California-based operations give it the ability to apply the same business practices that led to their current foothold in Colorado to one of the largest markets in the US.
Helix has been expanding to carve out a slice for itself as a support company for the industry. Their seed-to-sale tracking platform, BioTrackTHC, is required in several large markets. Despite having several competitors, it has one of the larger footprints.
Now with their expansion into the California security market, they are even better situated to gain from the market’s continued growth without the same level of risk faced by dispensaries and cultivators as they are completely ancillary. The rising supply of cannabis products in legalized markets places strong pressure on margins. The same forces can’t act as quickly in the tracking, security, and other ancillary sub-sectors that support the industry.
The security business complements the Helix seed-to-sale tracking business. They already have the infrastructure to provide identification and tracking of individual plants and their products from the first stages of growth to the point of sale and beyond. The physical components of security can be treated as an addition to an existing business rather than a brand new approach.
The best growth opportunities are the ones that companies can defend even during periods of extreme market change. The US cannabis market is certainly a source of tremendous growth and potential, but the threat of competition from new products and supply is one that can’t be ignored. Business owners will have to find their own niche to go after. Sometimes finding one that isn’t overly saturated and obvious to everyone else is the best approach.
This story was originally published on the Daily Marijuana Observer.