When a new industry emerges, there is a natural blast of new businesses that come about with the opportunities that abound. Fragmentation soon sets in due to the high overall number of businesses and the low number of larger/dominate players. This fragmentation creates friction for provider companies and their goods and services to be found and for buyers to efficiently locate, review and purchase what they are looking for.
The cannabis and CBD industry is a great current example of a new industry facing these fragmentation challenges. Following are estimates of the total number of businesses across the different segments of the market:
We have seen some level of consolidation in the first four segments with the rise of the MSO’s and large verticals and conglomerates (Aurora, Tilray, Canopy, etc.). However, the highlighted ancillary segment is by far the largest and perhaps still most fragmented.
Aside from the natural consolidation of businesses that takes place over time, the emergence of B2B marketplace and eCommerce platforms help both provider and buyer businesses overcome many of the fragmentation challenges faced. The following diagram depicts the evolution of a market, from emergence to scale for both the players and these platforms:
During market emergence, buyers and providers connect directly, with less friction for both due to the lower numbers. As the numbers increase on both sides, that friction increases, becoming harder for buyers to efficiently locate providers, and for providers to successfully market and connect with the growing number of buyers. The introduction of marketplace and eCommerce platforms create new and more efficient ways of connection and to transact business, reducing that friction. As the market continues to expand and gain scale, these platforms become more mature and offer greater value-add to all by becoming integral parts of business connection and providing the necessary commerce channels.
There are a number of true B2B marketplace and eCommerce platforms in the cannabis and CBD market, however they are mostly focused on the cultivator, processor and dispensary segments. These include Knowleaf, Kush, Strainly, Leaflink and CanIdeal to name a few. For the ancillary goods and services segment, which is estimated to be larger than all of the other segments combined, stands to significantly benefit from the continued emergence of these platforms.
Within the ancillary goods and services segment, there are exists a few online directories (420 Businesses and Cannabis Industrial Marketplace are a couple) and some very limited coverage of this segment by other marketplaces. However, it is important to make the distinction between a directory and a marketplace or eCommerce platform. A directory is typically more of a simple “listing” of companies with content often not authored by those companies, which is less deep, more static and becomes outdated quickly. In the marketplace, the content is originated and maintained completely by the provider and buyer members so is authentic, more dynamic and value-add. Additionally, these platforms offer more mature connection, business transaction, and social functionality creating a more true business ecosystem.
Providers and buyers of cannabis and CBD ancillary goods and services should seek out these emerging B2B marketplaces and eCommerce platforms to help them navigate and connect within a significantly scaling market and to overcome the challenges brought on by the high fragmentation.
CannaMPx is a B2B marketplace and business hub focused solely on the cannabis and CBD ancillary goods and services market segment.