Why Are We Building Prelude?

Michael E. Murphy, Co-founder, Prelude

April 29, 2024

When was the first time you walked into a store only to be greeted by empty shelves? For many of us, it was 2020. Before pandemic toilet paper shortages, how many of us actually considered all that goes into obtaining the day-to-day goods we take for granted? I mean, when was the last time you truly, deeply contemplated the choreography of components, processes, data, warehouses, vehicles and relationships that go into getting any finished good — from toilet paper to clothing to computer chips to cannabis — from point A to point me?

I hadn’t. And I’d spent my entire working life in supply-chain-intensive industries, including athletic footwear, QSR, apparel, and tech hardware. Like many, I hadn’t truly wrapped my head around the complexity of the modern-day supply chains that we — once again — take for granted because, for millennia, humanity has innovated to create and transport goods and supplies whenever and wherever there was a want or a need.

In the face of death and despair, 2020 surfaced a different kind of need. Cannabis dispensaries were deemed “essential” and “in every state where marijuana legalization....was on the ballot, it won.” State governments and populations had spoken, and the world — including the Prelude team — turned their attention to this emerging and explosive $20B+ US industry that many believed would have a profound societal impact, one day be truly global, and through the former, create an economic opportunity far greater than alcohol. President Biden’s 2022 statement on marijuana reform and the recent federal legalization of cannabis in Germany — the world’s 3rd largest economy — have only underscored this realistic possibility.

Why the Cannabis Supply Chain?

Real opportunity always brings real challenges. But those of you who have been in the cannabis industry longer than us already know that taking another industry’s status quo for granted is a luxury we can’t afford. From social stigma and the prohibition of interstate commerce to limited financial options and myopic tax structures, the odds have been stacked against this industry since day zero. Yet, in spite of all these obstacles, you, the pioneers of the cannabis industry, have innovated to create great products, brands, businesses, and communities — in many cases, at an unreasonable cost. Many of these costs are not directly within your control, but understandably, they can distract from managing the costs that are.

Interestingly, when we started taking a hard look at the industry in 2021, we learned that inventory — the single largest ongoing cost for any retail organization — was not being managed with the rigor it required. Our conversations with hundreds of industry operators highlighted that managing supply was one of the industry’s biggest operational challenges due to the lack of a consistent, reliable, and transparent supply chain. We learned that this reality existed, in most part, due to  the state-specific market fragmentation (and fragmentation within each market) combined with a lack of standardized data, systems, and processes within and across operators.

To complicate matters further, we were shown that most cannabis supply chain management remained highly manual and tedious, even at the largest scale. We heard that while solving this problem was top of mind, operators often felt like solutions were too heavy of a technical and operational lift. In many cases, operators didn’t know where to begin, and other concerns, understandably, took precedence.

We all know that feeling. The unfortunate reality is that the cost of not having the right purchasing and inventory management systems in place is far greater for cannabis dispensaries — especially vertically integrated ones — than the cost of maintaining the status quo. And that cost is only compounding across the industry. 2023 highlighted that.

The $1.65 Billion Inventory Problem

$1.65B
lost revenue caused by out-of-
stocks and overstocks in 2023

In 2015, the global retail industry produced $22 trillion in revenue. In that same year, the global retail industry also lost $1.1 trillion in revenue due to out-of-stocks and overstocks. To put this another way, five percent of global retail revenue was lost due to inventory mismanagement. Assuming a proportional impact on 2023’s $33 billion US cannabis retail industry, out-of-stocks and overstocks caused $1.65 billion in lost revenue in this one year alone. And this assumes that the cannabis industry’s retail and supply chain standards have had the luxury of evolving for centuries, if not millennia, like our classic retail counterparts.

$3.8B
cannabis operators’
delinquent payments

How has this challenge actually manifested itself in cannabis? Mature cannabis markets continue to battle oversupply while new markets simultaneously battle undersupply. Ironically, as the industry has matured, the time for a new market to transition from undersupply to oversupply has shortened. While these realities were previously overlooked as an ordinary course of business, 2023 — specifically cannabis operators’ delinquent payments totaling more than $3.8 billion — forced us all to pay closer attention.

How Much Do Out-of-Stocks and Overstocks Cost You?

As a consumer, how many times have you looked for your favorite product only to find that it’s out of stock? As a buyer, how many times have you overbought (or been oversold) a product only to watch it collect dust on your shelves? As a supplier, how many times have you received a large order only to have the buyer turn around asking for a credit a few weeks later? As an industry, how many times have we heard, "I’d love to pay my bills, but I need others to pay me first so I can."? 

While the solution to all of the above problems is not easy, it is straightforward. 2023 forced us to take a hard look at ourselves and accept that in order to take this industry to the next level we need to continue evolving. We’ve accepted that while it would be great to excel at everything, great partnerships focused on division of labor and specialization of task create the most productivity. You, the future leaders of this industry, have recognized that in order for your business  — and this industry — to achieve the true, unbounded potential it deserves, you need best-in-class, data-driven processes and platforms to help decide exactly how much to buy (or produce) and exactly where it needs to go. Those who haven’t accepted this reality will become irrelevant.

Purpose-Built for the Cannabis Industry

We’ve witnessed first-hand how much time, money and energy the world’s largest retailers have invested in solving their inventory problems and have had the opportunity to help some of them with these efforts ourselves. But, as you know, cannabis is its own beast, and transferable experience alone is not enough. We’ve spent years with industry insiders quietly building, refining, and optimizing our product to help you. Why? Because we heard that improving purchasing and inventory management — and unlocking the cash tied up in it — was one of the biggest opportunities to accelerate your next phase of growth.

Prelude is purpose-built for the cannabis industry to optimize purchasing and inventory management at scale: first by helping vertically-integrated dispensaries reduce out-of-stocks and overstocks, and then by leveraging this foundational supply and demand optimization to unlock operational and capital efficiencies across the supply chain.

We accomplish this by, first, unifying data across your business to create a single source of analytical truth for your sales, inventory and demand data. Then, through our simple yet powerful interface, you tell Prelude how you’d like to manage orders, allocations and inventory. And finally, our proprietary data engine — built specifically to solve this exact problem in this exact industry — conducts layers of analysis across all of your retail and warehouse data to ensure the right products end up in the right locations. And it does so in a fraction of the time (with multiples of the analytical rigor) that any individual, spreadsheet, or platform can today.

In other words, we make it easy to keep your dispensaries stocked with more of what sells fast — and less of what doesn’t

And while this capability is powerful for operators of all shapes and sizes, we recognize that we can’t be everything to everyone, at least not today. We’ve designed Prelude to scale and for scale, specifically for vertically integrated dispensaries that need to to manage supply and demand across locations of all types.

We’re just getting started but are already seeing the immense value that can be created by bringing an automated and tailor-made solution to this space. We’ve helped vertically integrated dispensaries increase gross profit by 50%+ while cutting inventory levels almost in half. All the while reducing the time and admin spent on these high-value tasks by up to 90%. What would this additional time and money unlock in your business?

It’s easy to be passionate about what you’re building when the scale of the problem and the impact of the solution is so large and clear. This, combined with the passion that we continue to encounter in this industry, from first movers to recent entrants, is palpable and motivating. But beyond being energized by this passion, we are driven by the unique opportunity to become a tech pillar in this young and explosive industry that is influencing larger societal change.

This is exactly why we’re building Prelude.

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All rights reserved. Prelude Products Inc. 2023