Cannabis industry veterans share measures they’ve taken to keep their companies viable amid the current economic downturn

Austin Stevenson

Chief innovation officer of Vertosa

Oakland, California

How has Vertosa reduced costs?

Oil has a long shelf life and there is an oversupply of oil on the market, reducing the costs. The looming recessionary fear has caused the cost of extracts to go down even more.

Being a company that uses those extracts has allowed us to look at our inventory and purchase a lot of extracts at discount.

We have inventory to sustain us; we’ve planned three, six and 12 months, where you’ve been able to procure inputs and hold them and then actually – because of the lower cost – you are able to sell formulations with a higher margin than in pre-recessionary times.

Do you have a system for forecasting such long-term inventory needs?

When there is looming economic uncertainty, one of the first things we do is review our inventory. Then, we create an inventory-management plan directly aligned with our revenue and sales forecast. We first look at our core customers and ask them: What’s your production schedule over the next 30, 60, 90 days? We make sure to secure inventory for that pipeline of business first.

Second, we look at what new projects we are taking on in 30, 60, 90 days and then three months, six months and 12 months. Based on our close-rate data, we ask: If we meet or exceed that close rate, how much inventory will we need? And then we make sure to procure enough for that amount.

The third step for inventory is R&D. What projects are you working on internally? What products do we want to release in that same time period? Then we make sure we have enough inventory for that piece.

Then there’s a buffer: I throw on an extra 20%-30% buffer to have more than what we need while the prices are down so that we are sustained at a low price with a presumably increased profit margin.

Do you use any metrics or indicators to see whether those input prices will go up or down?

It’s a commodities game and checking spot indices.

Our procurement manager has a running list of extractors in all markets that we serve.

We first look at their price lists and watch those on a monthly recurring basis. And if we start to see, one, prices start to erode on a month-over-month basis, obviously prices are going down.

Other indicators include increases in bulk-sales activities. I subscribe to every single extractor we’ve worked with plus others that we haven’t, and I have seen, in the last month or so, what was a 10% discount has increased to a 20% discount, 50% discount. And volume requirements to get those discounts has dropped.

So, what pre-recession was like a 10% discount for 5 liters of distillate now is a 25% discount for 2 liters of distillate.

Discounting practices by extractors, to me, is the biggest indicator that we need to move inventory, that a recession is happening.