Choosing an ERP system for your cannabis extraction and processing business is a complex task that should be carefully considered. Companies in the business of growing, processing and selling cannabis have to deal with challenging operational and technological issues along with complex regulatory requirements. Understanding and staying ahead of those challenges is important to overcome or minimize risk as much as possible for startup companies in the cannabis space or companies rapidly growing and maturing. Regulatory requirements are different based on jurisdiction and the sector the company is operating in. For example, cannabis retail companies and extraction or growing companies face a different set of regulatory environments compared to those operating in the retail sector.
Cannabis supply chain has three main components: Growing, Extraction and Retail. Each segment of the business has its own unique challenges. In this article we will be focusing on the cannabis extraction challenges and how it should affect your choice of selection of the ERP system to manage your cannabis business.
After the cannabis plants are harvested and dried, molecules inside the cannabis are converted into a usable form through the extraction process. Extraction methods have been refined over time, by improving existing methods and by using the latest equipment and technologies like hyperbaric chambers and ultrasonic distillation. The most common methods involve the usage of butane, propane or hexane. These are used to wash out the cannabis extract out of the plant after which the butane is evaporated leaving only the extract. Other methods involve the use of alcohol and carbon dioxide. Winterization, distillation and filtration are used to remove any undesirables during processing. The extracts are then further separated into pure pharmaceutical compounds like THC, THCA, CBD, CBDA, and CBN.
The cannabis industry has very tight and specific regulations when it comes to disposal, returns and production. As it is an evolving industry which was recently legalized in Canada and is still being legalized throughout the U.S, regulations are being tweaked frequently. Health Canada named cannabis products as Cannabis 2.0 which includes everything from edibles, extracts, topicals to smokable concentrates. With increasing regulations and complex products, the challenge for companies quickly becomes selecting the right start-to-end cannabis ERP solution that is flexible enough to easily and cost-effectively cater to business needs and comply with regulators.
Key Cannabis ERP Challenges to Consider for Processors
Production equipment costs and efficiencies
Extracting at a small scale is easy with the right equipment, for example with carbon dioxide and other solvent extraction methods, but the extraction efficiency is not high with these methods. The lack of available equipment can be a problem to meet large scale production. Scaling up to produce larger quantities requires more and costlier equipment. However, getting newer equipment doesn’t just increase the production revenue as with the equipment, the utilities and other supporting infrastructure increases as well. Companies often track these to factor them into the production cost .
As the scale of production increases, so does the purchasing of all the hazardous components needed. This includes carbon dioxide, ethanol, butane, propane, cooling liquids for refrigeration and fuel for generators. Methods requiring these components often require stopping and restarting the flow, which takes time and labour since workers are required to monitor the process. Your ERP system needs to be flexible enough to accommodate recording these changes to track and report and accurate cost of production.
Consistency across batches
Another problem with the above methods is that the extracts are not consistent across batches, as a result of which the potency of the product cannot be guaranteed. It is important to know the concentration of the psychoactive compounds for the supply chain. A higher concentration would mean higher prices for retailers and cultivators. Samples need to be sent to labs to test for potency for each stage of the production lifecycle.
A method known as homogenization is used to distribute the active ingredients. Molecules in cannabis products end up huddling in certain areas creating irregular concentrations. Making sure that products are homogenized correctly is important for the consumers’ safety. Irregular concentrations can lead to bad experiences by customers and can also turn into lawsuits. The testing of irregular concentrated products may show a higher or lower concentration than claimed. This increases the operational risk faced by companies. The ERP solution needs to be able to track these sometimes minute differences that can be quite troublesome when reporting to authorities, e.g. Health Canada and Canada Revenue Agency.
Contamination testing is especially important, as cannabis may be contaminated anywhere in the process between cultivation to packaging. . Methods requested by federal agencies are used to find any contaminants such as pesticides , metal etc. Any biological contaminants like microbes, pathogens, mold or yeast are found using PCR and DNA sequencing. Your ERP system needs enhanced lot tracking, traceability and product recall features compared to modules available for standard food and beverage operational requirements.
Waste removal and tracking
Waste removal is a challenge by itself since companies can’t just throw their unused stock or waste into the garbage and be done with it. The rules and regulations when disposing of cannabis products are complex and expensive. Waste products may still contain federally regulated substances and marijuana waste which is considered as a medical or a hazardous waste. All waste must be logged and labeled as unusable before it is removed from the facility. It then needs to be mixed with non-cannabis waste which must be at least 50% after which it should be stored in a secure container. After that it needs to be transported by a waste removal companies that are licensed to transport and manage cannabis material to authorized locations where it can be properly disposed of or incinerated. All waste must be tracked to confirm that it was eliminated. I f waste is not properly handled, it can cause the business to lose its operational license . Additionally, waste products must be reported on the Health Canada’s CTLS and CRA’s B300 reports on a monthly basis. This presents challenges for entry level ERP systems.
Cannabis Product Recall
Cannabis suppliers have lost millions to product recalls. A product recall is an expensive hit in which the company loses money, has to replace the product and can lose the consumer’s trust. A recall can take place due to health concerns, inaccurate marketing, defective operations, or any reason that is negative for the product. There might be some “batches” of product that can become lesser quality standards due to a defect on one of its parts, that then turns the whole batch defective as well, like growing out mold or drying out, which makes it unusable at that point. If the company realizes this, it is in its moral, ethical, and legal conduct to make its customers be aware of it so that they can either return the product and have it replaced or get a refund. Even though accidents happen, not meeting with the Act and its Regulations, or showing too much carelessness can make lawsuits a possibility, soon causing shutdown or making the license holder lose their license, by giving it to someone else.
In any case of a recall the license holder must make sure they reach out to Health Canada (Health Canada also posts a recall notice in their website, in the section Recalls and Safety Alerts). The company should keep open lines with customers, offer them refunds and customers should be educated about potential hazards of product defects. The company should be prepared and assume that any of their products could experience a recall and already have a complete process in place in their system (production line, IT structure, quality control, client communications, marketing, etc.) to be able to affront those possible recalls. The company should also cooperate with third party regulators and arbitrators.
Sales and Distribution Complexities for Cannabis Businesses
Manufacturers cannot directly introduce cannabis products into the market. Manufacturers sell their products through a distributor, which is usually a government agency such as the AGCO (Ontatrio), LCRB (British Columbia), AGLC (Alberta).
When it comes to Cannabis 2.0 products, for a more easy and steady production, the complexities in the product-making of cannabis 2.0 products need to be eliminated or minimized. Specialization resolves complex tasks in the CPG industry. Those tasks are each handled by unique groups or sections which form the supply chain industry. Inside the cannabis industry all stages, development and manufacturing are usually done by the same group or entity, requiring a more complex operation to be set up and hence the need for a robust ERP system.
Making sure of the transportation conditions for cannabis and its products is particularly important. Any wrong amount of light, heat or moisture may damage the cannabis as well as make its transportation a target for theft due to its demand being high in the streets. Any theft or damage will be a loss to the company and/or the insurer so it’s very important that necessary measures are taken so that the products can be safely transported. As far as theft is concerned companies should plan out whether they want to use unmarked trucks or armoured trucks or have security. The number of drivers in a truck, specific or blind routes and geo tracking shipments should also be considered, although those are not part of regulation, they may as well be so when it comes to risk.
Government Reporting for Cannabis Businesses
Governments have complex reporting requirements for cannabis extractors. CRA requires excise tax duty to be reported monthly on B300 report form. Excise duties are calculated as per EDN 60 and EDN 55 documents, which can be hard to understand even for experienced accountants. Similarly, Health Canada needs detailed reporting on its CTLS system of each and every inventory transaction being done at the manufacturing facility. Inaccurate reporting or missing deadlines for these government submissions can result in significant penalties or even loss of cannabis operating license. ERP systems, which can accurately generate CTLS and CRA’s B300 reports become critical as companies grow.
What to Expect with SAGE X3? Is it the Right Solution for Your Cannabis Extraction business?
Panni has taken SAGE X3 is a powerful manufacturing ERP solution for the food and beverage industry and customized it exactly for your cannabis extraction business. Here are some of the highlights of SAGE X3 Cannabis Extraction solution built by Panni:
- Complete integration between sales, finance, supply chain, and manufacturing with seamless flow of data and intelligent information across functions and teams
- Forward and backward traceability throughout your entire cannabis extraction processes that ensures product quality as well as ensures regulatory compliance.
- Intelligent features that support planning, scheduling, tracking, and reporting across all your processes and sub-processes.
- Complete regulatory compliance with CRA B300 reportion, Cannabis Tracking and Licensing System (CTLS) and product recall requirements.
So, what exactly does SAGE X3 cannabis ERP solution bring to your business?
- Complete visibility and control over internal operations and production costs which strengthens business decisions related to local manufacturing issues, raw material price fluctuations, and other significant manufacturing challenges.
- You and your executive leaders can respond faster to shifts in consumer demands, while managing any instabilities in the purchase, production, shipping, or other specific issues related to your organization.
- Greater product and process consistency that minimizes the risk or scope of batch inconsistencies, contaminants, and product recalls, while allowing you the flexibility to use every available opportunity for improvement.
- Rapid deployment, simplified management, easy web-based connectivity and access, and powerful options and variants for configuring and customizing the ERP solution for your manufacturing business.
- Versatile and flexible capabilities, specifically designed for cannabis extraction, including:
- Detailed tracking of inventory and cost movement to enable easy CTLS reporting
- Excise tax calculations as per EDN 60 and EDN 55
- Track CTLS and B300 report submissions by period
- Subcontract production management, including tolling contracts and white labeling.
- Lot, sub lot, THC and CBD tracking
- Setup complex BOMs with by-products and track process loss and efficiency throughout the entire life cycle.
- Work order release management
Track financials and operations in one system rather than having separate system for each.
Panni offers cannabis ERP systems for retailers and processors and manufacturers. Contact us for more information today.