CBD products may be “Vertically Integrated” or a result of “Vertical Integration”. Is that good? What is vertical integration in CBD oil? Find out what CBD Vertical Integration means to you.
CBD companies that are vertically integrated participate at each side of the cannabis market. How does that impact you as a CBD user? An example of CBD Vertical Integration is the CBD Oil company also owns the farm that grows the hemp.
Why Would Consumers Want CBD from Vertical Integration?
The result of vertical integration is the CBD buyer normally obtains a better quality, cheaper, and fresher product.
Because the CBD brand has ownership of every piece along the supply chain, and therefore they ultimately manage costs throughout, as well as dictating product pricing and seize every bit of end-to-end value generated.
There are also advantages to expertise, such as delivering a more efficient service and typically at a lesser expense.
An example of Vertical Integration is if a CBD brand owns an organic hemp farm. The CBD brand knows for certain that the hemp used in their CBD is high quality and organically farmed because they own and control the hemp farm. They can also ensure the hemp meets all the legal requirements, such as THC levels.
What is Vertical Integration? How Does it Work?
Vertical integration can be upstream or downstream.
Upstream Vertical Integration
Upstream integration means that the CBD company starts to produce what they used to buy from a farm or supplier. When a CBD product manufacturer also owns the Hemp farm. This is advantageous as the quality of the chain of production can be controlled.
Downstream Vertical Integration
A vertical integration downstream corresponds to integrating the activity of intermediaries in order to eliminate them and thus sell directly to the customer. An example would be buying a CBD online or physical store. This means controlling a larger part of the company’s value chain by adding more products to its production process. Ideally, vertical integration starts from the extraction of the raw resource, such as hemp, through the transformation and manufacturing to the sale of the final product, a CBD Oil at a store or website.
Examples of vertical integration:
- acquiring a CBD supplier to control supplies
- buying out a subcontractor to control CBD manufacturing
- creating its own distribution outlets, such as a CBD website, to secure outlets for its products
- buying a hemp farm to grown their own hemp
Vertical Integration Advantages
The primary objective of vertical integration is to have some control over the entire CBD products manufacturing process.
This business strategy can pay off if it is done efficiently. The investment required to purchase or acquire a company, whether upstream or downstream in the value chain, is quickly amortized if the decisions made are the right ones.
Vertical Integration Benefits
The main benefits of CBD vertical integration are:
Acquiring a company, especially if it is located upstream in the value chain, drastically reduces production costs since the company is its own supplier.
Vertically Integrated Disadvantages
However, vertical integration is not always an optimal solution. If the suppliers practice selling prices is barely higher than the unit cost of production that the company would be able to make, vertical integration is not a good solution for that business.
On the other hand, if the suppliers or customers are in an oligopolistic situation and their bargaining power is too great, then it may be strategic to look at vertical integration. In this case one must be very careful because the barriers to CBD market entry may be costly for the company.
Summary of What Is CBD Vertical Integration
Vertical Integration is when a CBD company controls another process of production such as they also grow the Agricultural Hemp. This gives better quality control but may result in higher priced CBD products.
Is What Is CBD Vertical Integration useful? You may also want to read How to Find a Quality CBD Vendor