In the U.S., 99 percent of companies are private, with 3,000 going in and out of business every day. Access to information on these companies has been a challenge with traditional sources. “We were born out of a frustration with the lack of good insight into private companies,” explained Jim Swift, CEO of Cortera. “It’s really hard to make decisions when you don’t have any data to go on.”
Because of this, Cortera set out to make business easier by helping supply chain industries understand the various companies they interact with in order to manufacture and sell their products. Of course, the business of cannabis falls under this umbrella of “supply chain industries,” and as the sector has expanded, Cortera has been an early player, helping owners put in place better business practices.
Here, Swift explains how companies can protect themselves financially and how business owners can best prepare for the future.
Cannabis & Tech Today: How is Cortera’s platform applied to the cannabis industry?
Jim Swift: Cortera was born out of a frustration of the lack of good insight into private companies. Everyone’s trying to interact with customers and suppliers intelligently. It’s really hard when you don’t have any data to go on. That’s the basis of what we do. We power essentially all supply chain industries and help them understand the various companies that they interact with in order to create their products and sell their products to customers.
Cannabis is an area we’re excited about because it’s one of the few brand new markets really that have opened up since we’ve been around. It has a lot of similarities to other supply chain industries that our products have been developed for. We’ve been extending those into the cannabis industry, trying to be an early player and thought leader.
C&T Today: How does Cortera’s work in cannabis compare to other industries, maybe more mainstream businesses that you work with?
JS: The common element here is trying to understand companies. A couple of fun facts here that might help: There are six million businesses in the U.S. that have employees. Every day there are between 2,000 and 3,000 that close, and every day there are about the same number that start.
You have businesses that get created and they don’t work out, so they close their doors. They hit the reset button, and they go start a new business doing something similar down the street. That’s a high level of churn. That’s five percent of the businesses that have employees. Then there are millions of businesses that are really just individual people. They’re hobbyists, or they’re sole contractors, freelance graphic designers, computer programmers, things like that. That’s the common theme. Regardless of the business you’re in, when you’re trying to understand those companies, whether they’re supplying you with something or whether they’re buying from you, that’s the hard part.
In terms of similarities, ultimately cannabis is a supply chain industry that moves along from the growers all the way out to the retailers at the other end. It’s similar to industries like food, beverage, even things like building materials where you have contractors, and construction companies, and others along the way. There’s still a lot of dependencies as you go along. Someone needs to make the wood, and then someone needs to do the work, and they usually work for a contractor, and off you go.
We see a lot of similarities in the fact that you’ve got companies that supply other companies. Everyone’s buying from each other, selling to each other. It’s this whole network of interactions. Cortera’s focus is trying to provide intelligence on the other participants in the supply chain so that you can find new customers, you can understand the risk of your customers and your suppliers, you can monitor the health of your suppliers and your customers as you go. Regardless of the industry, we find that there are a lot of similarities just in the way these businesses interact.
In terms of the differences though, I think in the cannabis industry the thing that is so different is that it’s so new. In many ways, it’s still in its formative stages. A lot of the growth in areas has been stunted by this whole issue of legalization at both the state level and the federal level. An example of that is in most industries, banks are heavily involved in the financing of the businesses.
In this industry, that’s not allowed yet because of the fact that at a federal level it’s still not legalized. It creates different kinds of processes, and it also slows down the development of the muscles that you need in a supply chain, particularly as it relates to credit. Companies can’t extend credit in the cannabis supply chain as much as other industries because of just the inconsistencies in the laws and the regulations. It’s much more of a cash business than any other industry we’ve ever seen. But that’ll change. As soon as it’s legal federally, the banks will be waiting to jump into this. They’ll be all over it.
C&T Today: How do issues around legalization affect Cortera’s work with cannabis companies?
JS: It doesn’t affect us really other than the sense that since it’s cash, companies aren’t extending credit to other companies as often. You don’t have the level of sophistication in the credit analytics that you do in other industries, and that’s okay. Cortera’s solutions are designed to be usable by someone who’s just an independent contractor with no employees, all the way up to the world’s biggest companies. It is different than other industries, but it doesn’t really affect us.
I think it’s something that the participants in the cannabis industry will have to get better at over time as there’s more credit facility going on between businesses. That changes the timing of your cashflow. If you don’t do it well, you have more losses, and you can’t grow as fast. Companies that aren’t ready for that might have a harder time managing cashflow. That’ll be an interesting dynamic.
Then the banks coming in to loan money to companies that are growing will be really good. That’ll also change things because now that’s going to force a higher level of sophistication too around credit. We have tools that are there. We’re just trying to not force the issue too much in terms of giving people things they’re not ready for or don’t need yet, but not wait too long. We’re just trying to work with companies as closely as we can to give them what they need as they grow.
C&T Today: What can cannabis businesses do now to protect themselves financially?
JS: It can be a few different things, but the ones that jump out: number one is knowing the health of your customer. That’s really important, especially to earlier stage companies, because if your customers aren’t healthy, it directly impacts your sales because they can’t buy from you. Just with the number of businesses that go away in general, and the number of businesses that start up and then can’t handle it and go away, in the cannabis industry in particular, you want to know the health of your customer.
It’s not so much the credit decisions, especially since it’s more cash-oriented, it’s just knowing the orders are going to continue to come in because without that you can’t grow your business. You can’t pay your employees. You can’t pay your suppliers. You don’t know what to tell your suppliers. You can’t forecast your business. The most important thing in protecting your business overall, I think, comes from a deep understanding of your customers. What’s going on with them? Are they growing? Are they healthy? Are they still going to be around?
Then the second thing is taking the same types of analytics and looking back at your suppliers to make sure that they’re healthy because if you have a growing customer base but you have an unstable supplier base, you’re going to have a hard time preserving your reputation and delivering things and growing your business. A lot of people make it fancier than it is, I think. It really does boil down to just understanding who you’re selling to, who you’re buying from, and making sure that that chain is as efficient as possible and you know what’s going on.
If you’ve got suppliers that are having a hard time, can you help them out or do you need to hedge your bets a little bit and have backup suppliers when it’s the right time? How do you find more customers? What do your customers look like, and how do you find more that look like them? Those fundamental things are so crucial. If Cortera can help companies do a better job at that, then every link in the chain is going to be healthier.
C&T Today: As legalization continues to spread, how can cannabis businesses responsibly scale up their operations?
JS: I think the first thing is to build and document processes because as it becomes legal in more places, what’s going to happen is the volume of everything is going to go up. A lot of businesses fail or don’t grow as fast as they can because they didn’t build simple processes that would allow them to handle more volume. They always say it’s a high quality problem when certain things happen. If you aren’t ready for it, it’s the kind of problem that can crater you. Simple things like onboarding customers. A lot of these parts go hand in hand.
Picture a world where it’s legal federally, and so you can issue credit. Banks can get involved, and they can loan everybody more money. There’s more money flowing around the system, but you have this high degree of churn of businesses who aren’t going to be able to pay for various reasons. They fold, their products don’t work, they can’t manage it, whatever. You have that.
Now the stakes are getting higher. It’s not a cash business anymore, so you have timing-related. You deliver a product. You have a 30- or 60-day window before you see cash from the product. You have businesses that are disappearing. You’re adding more to the pile because now the volume is going up because it’s legal in more places. You have more orders coming in, and you have more credit building up. If you don’t have just basic processes for being able to understand, do the check, verify that the customer can pay you back, extend the right terms, follow up promptly with collections reminders and other things, if you don’t have those built in, then you start to build those processes when the volume is high and you’re going to lose more money than you need to. It may not drive you out of business, but why waste any money that you don’t have to?
I’d start with the customers. That part of it is where you can lose more than suppliers. Have simple processes for understanding every new customer that comes to you, and keep tabs on them. Have simple rules and processes in place for when you follow up. For example, they promise to pay you in 30 days. If they haven’t paid you in 30 days, what happens? Just have a process for that. Usually if it’s below a certain level, you send them a nice letter 10 days after they’re late saying, “Hey, you forgot about me.” If it’s a bigger one, then you have a process where your salespeople go and talk to them and make sure they’re okay. If you don’t put those processes in place early, they’re really hard to implement when the freight train is going 100-miles-an-hour down the tracks.
Portions of this interview were originally published in the winter 2018 issue of Cannabis & Tech Today.