(This story is part of the cover package in the January-February issue of MJBizMagazine.)
When Alex Bitz joined Colorado-based Native Roots in 2015, employees at the vertically integrated company were using Google and Excel spreadsheets to input data about things such as when clones were planted and harvested, when plants were moved to a curing room and, finally, when finished products were transferred to retail outlets and sold.
Then, staff would duplicate those exact entries in Native Roots’ Metrc seed-to-sale software system.
“That tells you that, the way we were operating, we couldn’t just use Metrc to complete the whole process,” said Bitz, Native Roots’ vice president of technology.
“We had to have our own systems, our own analytics, our own processes separate from that.
“And then after that, we’d have to roll it up into Metrc, and they’d have their information. They know everything’s legitimate and nothing’s being lost or stolen.”
Track-and-trace companies such as Metrc and BioTrack do a good job helping operators meet their compliance mandates but should not be relied on to help run a company’s inventory management, point-of-sale systems and other business needs, Bitz said.
“There’s about a million things lacking in these compliance systems that are needed for companies – especially ones like ours that are fully vertically integrated,” Bitz said.
“Some companies use compliance systems that go through the whole chain. They’re running into a lot of issues. They’re just not complete enough.
“From a financial perspective, from an inventory-management perspective, from a supply-chain perspective, getting that seed to the sale, these state compliance systems aren’t there yet. They’re not going to do that for you.”
Consequently, many companies are turning to more robust software platforms to do the things that state-contracted track-and-trace companies can’t.
“We’re trying to figure it out and fiddle with all sorts of different systems to make it work from seed to sale. And that’s where ERP (enterprise resource planning) comes into play,” Bitz said.
“For us, it’s finalizing that full integration across the whole chain.”
ERP knowledge
Native Roots currently uses Microsoft Dynamics 365, “an ERP that supplements and runs our entire business,” Bitz said.
The company began implementing Microsoft’s D365 system in 2018, took a year off from the project during the COVID-19 pandemic and finished implementation in late 2022.
Native Roots started with the accounting, finance and inventory-management pieces and then moved to cultivation, post-harvest and manufacturing facilities.
The company completed the setup by fully integrating D365 with its point-of-sale solution.
“What happens is, any sort of movements or processes around any product are automatically entered into D365 rather than doing that double entry. … And then those processes are automatically pushed into Metrc,” Bitz explained.
The Microsoft D365 ERP software’s integration with Dutchie, Native Roots’ point-of-sale software, also handles purchase orders, inventory transfers and other jobs.
“When all processes happen within the point of sale (system), they actually happen in our ERP,” ,” Bitz said.
“But it also pushes to Metrc to let them know that a product was received or this product was moved from this store to this store or off-premise storage facility to this store – whatever it may be.”
“That’s the big tool that we have implemented to make everything fit and work,” Bitz said of Microsoft D365. “Dutchie is great, but at the end of the day, they have the (e-commerce) component and the point-of-sale component.
“So, if you’re looking to really be connected from seed to sale, not having to go into Metrc to do that double entry, Dutchie won’t do that alone. You’ll need something like an ERP to do that.”
ERP drawbacks
Bitz cautioned that while ERPs are likely the best solution for supplementing a track-and-trace system, they can be expensive, complicated and time-consuming to implement – and require lots of employee training.
“ERPs are not easy. It’s not easy to choose the right one, not easy to implement the right one. The change management behind it is tough. And every business is completely unique and different,” Bitz said.
“If anyone tells you they can implement an ERP in a year, hats off, kudos, that’s very, very rare. ERPs are very expensive, they’re really hard to implement across the whole entire chain – especially with a vertically integrated company.
“The change-management component is honestly the hardest part. Getting people out of the spreadsheet world and saying, ‘OK, you have to use this system now.’”
“We’re talking about growers and harvesters and producers. They just want to do their job. They don’t want to be behind computers.”
“Getting the right people, right training and right processes in place … it took a lot of time,” Bitz continued. “We’re in a good place now. We’re still working out a few kinks as we go here.”
Bitz noted that some seed-to-sale software programs are built specifically for the cannabis industry, such as Silverleaf and 365 Cannabis.
“Those are quick solutions that you could probably plug and play and run off of Day 1,” said Bitz, who added that those programs lack many of the functions that Native Roots’ Microsoft system offers.
To do the integration, Native Roots hired Massachusetts-based Sikich, a Microsoft Gold Certified partner sanctioned to provide the tech giant’s products and services, such as software integrations.
“They were one of the only ones that would work with us at that time. Nobody would play in that ERP space back then,” Bitz recalled.
Native Roots set up the basic version of Microsoft D365, Bitz said, adding, “Sikich customized it to oblivion to make it work for our business, specifically.”
Coping with costs
Setting up and maintaining ERPs has expensive upfront costs as well as ongoing maintenance and consulting costs, Bitz said.
Between the costs of a four-year integration and fees for consulting and troubleshooting help, services from Sikich have been the most expensive part of the ERP regime, Bitz said, but well worth the cost.
“You’re paying those consulting fees to get it done and get it done right. And then, if there’s any support that we can’t handle internally, we reached out to Sikich to have them help us,” Bitz said.
There are different types of consulting costs. For example, when Bitz and his colleagues can’t figure out why a purchase order isn’t posting, or when they would like to make a change to one of the processes, they call Sikich.
“They’ll do that for a fee,” Bitz said. “So, a lot of ongoing costs. A lot of costs upfront that we’re happy to be out of at this point.
“We’re mostly just paying for the cost of the actual solution itself and the licensing of the users within it.”
There is also licensed software that needs to connect with Microsoft D365, and Native Roots must pay a subscription or user fee for every individual in the company who uses the program.
For lower-level users, the monthly fee is about $10, while more sophisticated users require a cost of about $90 per month.
Bitz estimated that Native Roots has about 200 people using these tools, so the costs add up.
“We’re talking about all the harvesters, growers – everyone in our facilities working through the products and the processes,” Bitz said.
“We have all sorts of individual users at different levels, doing different things.
“Even the stores have store accounts that make sure that they can enter in their (point of sale) correctly and look at the receipts and inventory and stuff like that. It touches every person in our company from finance to supply chain.”
Native Roots tries to reduce costs by keeping the number of licensed users conservative.
Some customers host their ERPs on servers, which entails hosting costs. Other businesses, including Native Roots, host their Microsoft D365 program on Azure, which is cloud-based.
For that, Native Roots pays for the solution, the actual hosting of the application to sit on a server somewhere, the processing speed, the database, all the processing power that supports the database and other costs.
Companies that want to move away from spreadsheets should expect to pay a minimum of $200,000 to buy an ERP system, set it up and integrate it with additional software, Bitz said.
Outside help
Sikich charges by the hour for its help visits, Bitz said. Therefore, Native Roots tries to troubleshoot as many issues as it can internally.
When Bitz and his team can’t handle a problem, they call Sikich.
Bitz estimated that internal issues happen daily – orders don’t post or get transferred, a process isn’t followed, something isn’t set up correctly and more – and that Native Roots has to summon Sikich once or twice per month for help.
For a big company such as Native Roots, the frequency of problems shouldn’t be surprising, Bitz said.
While some companies might consider hiring staffers for troubleshooting roles, Bitz said qualified talent for those roles is hard to find, and staffers still won’t do all the things that a company such as Sikich can do.
“If you have an expert in your company that knows how to do all this, knows how to implement it and knows how to push it out, you could do that,” Bitz said.
“I would caution against that because, one, I think there’s going to be things that are missed.
“And two, if you need any sort of custom dev work in your company, you have to go to one of these companies to actually do that, unless you have a development team that is fully certified to work in Microsoft D365 or SAP or NetSuite.
“Those people are very few and far between, and they generally work for a partner of those companies or within those companies themselves.”
Any in-house ERP staff must not only comprehend everything about ERP, but they also must understand how a business works.
“They have to understand why we’re doing things, why are we costing things a certain way? Why are we having things flow a certain way, why items were set up a certain way, etc.,” Bitz explained.
Because, he added, if you don’t understand accounting, finance, supply chain, warehouse management and retail, “It can be very tough to implement a solution like this, if you don’t understand all the connective parts and how they work and why they should work.”
Set the stage
For operators aiming to buttress their track-and-trace systems with an ERP system, Bitz said he wouldn’t advise starting with the custom-development route like Native Roots did, because it can be expensive if it’s not well planned.
Bitz suggests getting your company’s processes and people in place first, setting your goals and knowing how you want your company to operate.
“Make sure you have everything figured out in terms of how you want the business to operate, what your goals are, Bitz said.
“Do you have a grow? How many retail stores? Do you do wholesale? Once you have all these components and know the direction you’re going, start slow with the plug-and-play solutions and see how to make them work.”
Once your component is in place, take note of the things you wish it did and then find solutions.
Bitz added that Native Roots does trial runs with software before the company goes live with it.
For example, if it’s a retail solution, the company will run it in a store for one month to make sure it works.
If it doesn’t, Bitz and his colleagues either pull it or call in Sikich for help.
“The great benefit of that is when you get bigger, you have to evolve, and you have to put in these solutions. Otherwise, you’re going to struggle to find answers,” Bitz said.
You will struggle with data security, centralized data mobility, real-time reporting, increasing operational efficiencies, scaling and more.
“As you get bigger and start to acquire businesses and get more licenses, you need these more mature solutions. I would look outside of the cannabis industry whenever you can,” Bitz said.
He explained that while there are some cannabis-centric solutions, they are still very immature for companies’ needs.
“If you can find a solution outside of the industry that’s been vetted and it’s been used for a while, go that route.” Bitz said.
“Make sure it fits and integrates. Make sure your e-commerce solution works with your point-of-sale solution and plays with it nicely.
“Make sure both of those solutions play with your loyalty solution nicely. Make sure they all work with your state-compliance solution.
“Make sure that when you’re moving product, you have a solution that fits in there.”
Bitz often sees companies with disparate solutions that don’t work well together.
“They run into a ton of issues, and as a result, their operating efficiency is incredibly low. They’re spending way too much money on labor, just trying to figure out how the heck all this is actually working,” he said.
Bitz said ERP-curious small operators should call bigger players for advice, adding that he and many other ERP-experienced cannabis executives are happy to answer questions.
“We’ve been through this. We’ve vetted these companies out there,” Bitz said.
“I get calls quite often just asking about point-of-sale solutions, ERP solutions, e-commerce solutions. It happens all the time.
“And I commend those companies that actually take the time to do that. Talk to these companies and say, ‘What do you know? What is the best?’”
Omar Sacirbey can be reached at omar.sacirbey@mjbizdaily.com.
