Is the Cannabis Market Cooling?

An uncertain economy is behind decreased investments, but there’s little debate that the cannabis market represents potential for ISVs.

Cannabis-trends

Like virtually every other sector, the cannabis market is feeling economic pressure. Although the 2023 Cannabis Capital Industry Market Report from New Frontier Data states that in 2022, legal cannabis consumers spent $35 billion, with 96 percent of those sales based in the U.S. and Canada, investments are down. After a peak of $17 billion of mergers & acquisitions (M&A) activity in 2021, the market cooled to just $4 billion in 2022.  New Frontier Data analysts also point out that many cannabis businesses are running out of initial funding and, without access to bankruptcy court, could fail.

However, if you take a deeper dive into the numbers, you see that investors are still optimistic. Cultivation and retail continue to attract investors’ dollars, and although investments are smaller and more narrowly focused, investors still see the potential in the market.

Additionally, operators that have reached financial stability are looking for ways to operate more efficiently and cost-effectively, which creates opportunities for solutions providers, including innovating to bring new solutions to market in:

      • Artificial Intelligence and Data Analytics

Businesses across verticals are exploring how AI can help their operations, and the cannabis market is no exception. AI can optimize cannabis growers’ operations by automating watering, lighting, humidity, and other factors that help them produce higher yields at lower costs and with less waste.

AI can also play a role in customer service, decreasing response times when customers have a question online and tracking engagement across channels for more effective marketing.

AI can also analyze large volumes of data quickly so operators can keep a close watch on their markets, competitors, regulatory activity, and business performance.

      • Supply Chain and Inventory Management

Businesses in the cannabis industry must account for all products from seed to sale. Enhancing visibility into inventory, grower activity, distribution, and compliance is in demand, especially as businesses grow, expand, and acquire other companies.

Software for managing the cannabis supply chain can range from basic reporting to real-time inventory tracking with RFID or IoT data collection. Solutions can also include order and fulfillment management and business metrics for informed decision making and continual improvement.

      • Cannabis Point of Sale and Business Management Systems

Several cannatech providers have made a name in cannabis point of sale (POS). However, as more states legalize medicinal or adult-use cannabis, systems created specifically for the laws in those states and the processes that cannabis growers and dispensaries or retailers must follow will be in demand.

Also, keep in mind that cannabis businesses come in all sizes. While a POS system and a seed-to-sale tracking system may be adequate for a smaller business, larger companies may benefit from an enterprise resource planning (ERP) system with features designed for the cannabis industry. An ERP system can increase the efficiency of finance and accounting, reporting, production, and sales.

      • Security

Cannabis businesses need both physical security and access control and data protection solutions to guard against cyberattacks on customers’ sensitive data. Solutions designed specifically for the cannabis market can provide centralized management and meet compliance requirements.

      • Customer Relationship Management and Loyalty

Cannabis customers follow policies that customers purchasing non-regulated products are not. CRM and loyalty program software can provide insights into customers’ shopping behaviors which can help operators improve marketing ROI and personalize service.

What’s the Smart Investment for ISVs?

Although the boon of a few years ago appears to be over or at least paused, the cannabis industry is still worth investing time and resources to develop and perfect solutions. Research your specific market, for example, a state that has legalized the sale of cannabis or is in the process of passing legislation. Also, conduct market research to see if cannabis businesses would find value in your solution at the price point you’d offer it. Additionally, network to meet the players in your market and identify decision-makers.

Innovators in this space who can deliver solutions that help business owners operate more efficiently, increase production, and cut costs will find a market for their solutions, even in uncertain times.

Jay McCall

Jay McCall is an editor and journalist with 20 years of writing experience for B2B IT solution providers. Jay is co-founder of XaaS Journal and DevPro Journal.


Jay McCall is an editor and journalist with 20 years of writing experience for B2B IT solution providers. Jay is co-founder of XaaS Journal and DevPro Journal.