How COVID-19 Could Accelerate Growth in the Cannabis Industry for Integrators

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Summer has always been a good time for half-year sales planning — blue skies and blue sky thinking — but 2020 feels very different. Most businesses are concentrating on merely getting through the next few months. Yet, even amidst the turbulence of this current pandemic, it’s worth taking a strategic approach to evaluating growth sectors that could underpin longer-term business.

While there are uncertain times ahead for business, there are some encouraging opportunities out there. The fast-growing cannabis sector ranks among them. It’s a sector of the economy that’s likely to keep performing well, with analysts expecting a continued CAGR of up to 20% through to 2027, driven by the increasing legalization of cannabis for medical as well as adult recreational use.

As of mid-June, medical marijuana use is legal in 29 states, while recreational use is legal in nine states as well as Washington D.C. Cannabis industry executives are currently lobbying for federal legalization to provide a much-needed economic stimulus through tax revenue and job creation.

By the end of March, 50% of U.S. states and the District of Columbia had categorized their legal cannabis companies as “essential” businesses, according to Marijuana Business Daily. As a result, those marijuana businesses were allowed — and even ordered — to remain operational amid stay-at-home orders, the publication reports.

Furthermore, in mid-March legal marijuana sales spiked 159% in California with the average purchase increasing by 47%, CNBC reported.

All this suggests COVID-19 is almost certain to accelerate growth.

The spread of production and retail premises is potentially welcome news for installing security contractors because these locations face complex safety and security requirements and, importantly, the risk of non-compliance.

Regulatory Compliance Driving Demand

At the time of writing, there is a bill pending in the U.S. House of Representatives that would legalize adult use and likely lead to standardized regulation. Today, compliance is mandated at the state level with varying physical security requirements.

The penalties for non-compliance also vary. Businesses showing a significant lack of regard to security can be penalized with revoked licenses and shutdowns, or even criminal charges leading to jail time where serious negligence or misconduct is involved.

In most cases, regulations require risks to be mitigated with video surveillance for marijuana-licensed premises and cultivation sites. Controlled access to all buildings and entry points is a standard requirement, as are locked containers for retail and storage locations.

Many states mandate full-HD video quality, with unobstructed video capture for all areas where cannabis is handled at all stages of the production and selling process, through to the proper disposal of plants. Other states require that video be monitored 24/7, and 30-days storage is also a common requirement, making failover technologies imperative.

Pressures on Profits: How Video Helps

Security is so important not only because access to cannabis is regulated, but because there is a thriving black market, even in states where it’s legal. In 2018, it was estimated there were 68,000 cannabis cultivators in California yet less than 200 were state-licensed. As a result, legal sale and production sites make attractive targets for organized crime gangs as well as opportunists, which puts product — and more crucially staff and customers — at risk.

It’s a grim fact that armed robberies are becoming more common. And thieves are not only targeting product but in-store ATMs and cash registers. The lack of federal regulation means retailers are unable to move money electronically through banking systems by taking debit or credit card payments.

To give customers easy access to cash, most dispensaries have installed ATMs. The resulting risk was highlighted during the recent civil unrest and protests, when looters seized the opportunity to target cannabis stores. Their task was made easier because online search databases list the names and location of dispensaries.

Shrinkage is another big concern for most companies — many hire low-paid and part-time staff, employees who have easy access to product and large amounts of cash passing through their hands. It’s reported that around 90% of financial and product loss is due to employee theft from both dispensaries and cultivation sites.

Reputational risk is also high. Businesses that experience a security incident are likely to find that customers go elsewhere, especially in states such as California where there is choice and competition. The same is true if customers find excessively long waiting lines or poor stock. And unlike most other established retail operations, many dispensaries are yet to implement processes for hard-count inventory, so they are often unaware of when products are running low or how and when product went missing.

Building the Business Case

While compliance is mission critical, it’s important to remember that most cannabis production companies and retailers started out by building relatively straightforward business cases based on operating costs, year-on-year yields and optimistic sales revenues and margins.

The mishmash of local and state regulations, sales taxes, and continued competition from illicit cannabis sales — with internal shrinkage thrown in for good measure — is making it harder to turn a profit.

So, owners want video solutions that pay for themselves rapidly, that work, and that give them a low total cost of ownership (TCO) by being easy to deploy and use. They’ll appreciate the benefits of affordable, high definition, comprehensive wide area coverage, and built-in failover, plus truly efficient data compression and storage options.

And they will be drawn toward affordable long-term solutions, with the scalability to add value through point of sale (POS) integration, functionality that will support inventory and stock control, and options to add analytics without replacing the entire system.

Security dealers and integrators are likely to do well if they partner with the right tech vendors — those that can deliver all these things, plus local ongoing technical support, and extended warranties against equipment failure.

Reducing Upfront Costs

Many camera and video hardware options will reduce upfront costs. For example, ultra-high definition fisheye cameras will provide a cost-effective coverage inside dispensaries and greenhouses, replacing 2-3 fixed lens cameras, while still delivering forensic level detail right to the periphery.

HDMI and VGA encoders may also prove attractive versus full integration. They enable recording of activity from the screens of almost any application (such as POS or inventory systems) to provide visual audit trails. These are particularly useful for tackling shrinkage.

For cultivation sites, it’s worth considering PoE extenders as these will eliminate network repeaters and minimize installation time.  Perimeter cameras that use light enhancing technology that delivers virtually zero noise image capture in full darkness will also mean better compression and reduced bit rates, which will be especially important if cameras rely on wireless connectivity.

And it’s worth noting that medical marijuana dispensaries are subject to the Health Insurance Portability and Accountability Act (HIPAA), which requires them to track sales and retain patient information. This means they’ve already made investments in robust cybersecurity to meet HIPPA compliance by protecting patient data and medical records.

So, dispensaries certainly won’t want their video and other security tech to make them vulnerable and will demand measures that cover access to data, transmission, storage, and endpoints along with the assurance of timely and straightforward firmware updates.

Long-term Opportunities

Sectors subject to regulatory compliance can give dealers and integrators attractive recurring revenue, from services including maintenance, remote diagnostics and system health checks, as well as upgrade opportunities where business is booming.

And where regulation allows, most firms will want to avoid the costs of 24/7 security officers, building control rooms or hiring and training in-house security staff. This will mean they are more likely to seek out third-party providers that can offer alarm monitoring, virtual guarding, and mobile response services.

Particularly important security measures that cannabis providers should put in place include surveillance both on the outside perimeter and inside the facility, intrusion detection systems and physical barriers, and video monitoring with sufficient storage capacity.

An upgrade to deep learning analytics could enhance those services because they offer higher-level detection accuracy by ignoring harmless environmental factors that tend to trigger false alarms. Deep learning algorithms classify and detect object types, such as people and vehicles, to generate accurate AI-assisted notifications which allow operators to visually verify and respond to genuine threats and suspicious activity.

Longer term, this means security benefits as well as considerable ongoing operational efficiencies through better identification, easier verification and the speeding up investigations using metadata filtering.

The key to winning this business is demonstrating better value, more effective risk reduction, and real long-term savings. Most customers will want to avoid the cost of hiring 24/7 security officers and building control rooms, and will lean toward third-party services for alarm monitoring, virtual guarding, and rapid mobile response.

Installing security contractors and service providers and are well placed to deliver.

Jason Burrows is Western Regional Director for IDIS America.

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