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5 Ways Technology Can Transform the Marijuana Industry

By Sean Williams – Updated Apr 15, 2019 at 12:40PM

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The traditional cannabis industry is evolving before our eyes.

The marijuana industry is growing by leaps and bounds, and investors have taken notice. Arguably no industry has been stronger since the year began, or over the trailing three years, than cannabis. According to various Wall Street investment banks, this is an industry that has the potential to hit $50 billion to $75 billion in annual sales in roughly a decade.

However, this is also an industry that's constantly evolving. Since legal marijuana is such a new thing to the business world, we're likely to witness a number of industry shifts. For example, we're seeing a lot of consolidation in the vertically integrated dispensary space in the U.S., and we're seeing the first signs of access to traditional banking in Canada following the passage of the Cannabis Act in June and the official launch of adult-use pot sales on Oct. 17.

But the biggest transformation in the marijuana industry is likely to be technology-based. A number of new technologies are already reshaping the industry, or are on the verge of doing so. Here are five of the most prominent and exciting means of transforming the green rush.

A smiling young woman using a point of sale system behind the counter.

Image source: Getty Images.

1. Seed-to-sale technology

One technology that's already a game-changer for the pot industry is the introduction of point-of-sale and seed-to-sale cloud platforms for growers and retailers. Shopify (SHOP 3.04%), which is best known for offering a retail sales platform for brick-and-mortar, online, and mobile weed sales, was chosen by the Ontario Liquor Control Board in February 2018, which is a government-run province, and British Columbia in June 2018, which allows private retailers, as their point-of-sale provider.

Shopify's software-as-a-service (SaaS) cloud platform brings two exciting developments to the table. First, retailers are finally able to analyze data on consumer buying habits. Remember, the illicit (and even early stage legal) cannabis industry has been dominated by cash purchases, which makes understanding consumer behaviors difficult. This makes pricing product correctly, and even ensuring that the right product mix is in stores, troublesome. With Shopify's e-commerce platform, retailers have an active middleman of sorts that can help with ordering, as well as help highlight what is and isn't working from a product or margin perspective.

In addition, since supply chain logistics can differ throughout North America, and even within Canadian provinces or U.S. towns within legal states, Shopify's cloud-based compliance software can aid in seed-to-sale documentation. This platform does everything from intricately tracking the product from planting to its sale on dispensary shelves, to ensuring the quality of the product that reaches consumers.

An up-close view of a flowering cannabis plant under an LED light.

Image source: Getty Images.

2. LED lighting

Another interesting technological development that's already being implemented in the cannabis space, albeit to a small degree, is the use of LED lights in place of high-pressure sodium (HPS) bulbs.

The marijuana industry (legal and illicit) has been leaning on HPS bulbs for a long time. These bulbs are relatively inexpensive to buy, and they produce a very predictable crop yield – and growers like predictability. On the downside, HPS bulbs consume a lot of electricity, they don't have the best lifespan, and they create a lot of heat, which often requires growers to implement a climate control system that -- you got it -- also uses a lot of electricity.

Thus enters LED lights, possibly made by the LED light and lighting system kingpin, Cree (WOLF 4.57%). LED lights last substantially longer than HPS bulbs, draw far less electricity, and would therefore impose less strain on a climate control system. The downside is that they do cost more up front, but the long-term cost-savings should more than balance out, if not lower cannabis growers' costs. Perhaps it's no surprise that Cree's revenue growth has steadily picked up following the rise of legal weed in North America. 

The only real concern here is that, unlike HPS bulbs, the crop yield on Cree's LEDs isn't well known. As more growers give LEDs a try, it would not be surprising to see this shift to more efficient lighting options pick up.

Check out the latest earnings call transcripts for Cronos Group and other companies we cover.

A Tesla Powerpack electricity storage system.

Image source: Tesla.

3. Electricity storage

Yet another energy-based innovation that could transform the cannabis space may come courtesy of electric-vehicle giant Tesla (TSLA -8.62%). And no, I'm not talking about self-driving cars that'll deliver marijuana to your door, so don't get too excited.

As mentioned, it's pretty expensive (i.e., electricity intensive) to grow cannabis. Sure, very large grow farms experience per-gram production declines as a result of economies of scale. But on the whole, the use of HPS bulbs and the need for climate control systems can create a strain on local electric grids, as well as inflate electric bills for growers.

Thus enters Tesla and its Powerwall/Powerpack solution. Both of Tesla's products offer the means for small, medium, or large growers to store electricity. While this stored energy would come in handy during an extended power outage, its real benefit is that it would allow pot growers to purchase electricity during non-peak hours for use during peak hours. Although the savings would be just pennies on the dollar, this would add up significantly over time, potentially saving weed growers a substantial amount of money.

Though Tesla hasn't made any mention of pushing into the cannabis space, its electric storage technology is a logical evolution for the industry's needs.

A researcher with a white lab coat and blue gloves testing a cannabinoid mixture with dried cannabis also on the table in front of him.

Image source: Getty Images.

4. Cannabinoid biosynthesis

Technology may also reshape the means by which cannabinoids are produced on a small or commercial scale.

Currently, almost all cannabinoids are produced by traditional extraction techniques. This tends to be fairly costly, which is why consumers pay premium prices to get their hands on cannabis oils -- either tetrahydrocannabinol (THC) or cannabidiol (CBD) -- or most alternative products containing high percentages of THC or CBD. THC being the psychoactive cannabinoid that gets a user high, while CBD being the nonpsychoactive cannabinoid best known for its perceived medical benefits.

However, a new method of extraction has taken hold: biosynthesis. Using microorganisms to create yeast strains capable of producing desired cannabinoids, including rare cannabinoids, what few companies are involved in this new extraction technique believe it'll help lower costs, improve commercial yield, and can be implemented regardless of the weather. In essence, cannabinoids could be produced on-demand and year-round.

One company taking this to heart is Cronos Group (CRON 3.90%), which forged a $100 million partnership with Ginkgo Bioworks in September. Cronos Group will get access to Ginkgo's microorganism platform to develop eight cannabinoids on commercial scale, some of which are rare. In an effort to diversify its product line away from dried cannabis flower, Cronos believes biosynthesis production costs will be lower than traditional extraction techniques, providing it a juicy return on its joint venture investment.

A police officer holding up a breathalyzer device, with his car in the background.

Image source: Getty Images.

5. Cannabis breathalyzers

Last, but not least, it'll be interesting to see what cannabis breathalyzers can do for the industry.

One of the biggest problems law enforcement officers are facing is that the guidelines for cannabis impairment aren't as firm as that of, say, alcohol impairment. When it comes to driving under the influence, there's a line-in-the-sand 0.08% blood-alcohol content level that makes it easy for an officer to determine if a driver is impaired. Testing for impairment with cannabis isn't so easy, which has probably prevented some U.S. towns in legal states from giving the OK to retail pot sales. As a reminder, THC can stay in a user's system for days or weeks, which makes recency of use also difficult to establish.

The solution could be cannabis breathalyzers. Right now, there's a small handful of companies, mostly private, working on a marijuana breathalyzer device that would allow an officer to determine impairment and recency of use. If law enforcement agencies had these products at the ready, it's possible we could see more willingness by U.S. towns to allow retail cannabis sales.

This technology is still in its early development stages. Nevertheless, it has the potential to transform the way cannabis is consumed and regulated.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify and Tesla. The Motley Fool has a disclosure policy.

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