Since early 2020, the pandemic has shined a spotlight on the global supply chain and its shortcomings. Supply and demand have changed so much and so quickly that it has fostered shortages and delays for many of the world’s goods.
Much of this crisis is due to manufacturing plants in countries like China working at half-capacity or being forced to shut down to curtail the pandemic. A lot of those shortages can also be blamed on companies with a lack of foresight, choosing to lower costs with thin inventories rather than keeping warehouses full.
The global supply chain crisis has impacted nearly every market on earth that relies on international shipping. Everything from clothing and turkeys to cars and computer chips is in short supply, causing prices and wait times to increase.
John Hartsell, CEO & co-founder of DIZPOT
The cannabis industry is no exception; the supply chain crisis very much so impacts cannabis products getting to consumers. According to John Hartsell, CEO & co-founder of DIZPOT, a cannabis packaging distributor, the worst, when it comes to the supply chain affecting the cannabis market, may still be on its way. “Supply chain issues will continue to be challenging and may even become more challenging for cannabis companies over the next several months due to the holiday season coming up with many packages coming for Christmas, Hanukkah and other holidays,” says Hartsell. Many of those gifts arriving during the holidays are coming from overseas, which further exacerbates any current supply chain backlogs.
John Hartsell will be speaking on this topic and more at the Cannabis Packaging Virtual Conference on December 1. Click here to learn more.Adding to those issues even more is the Chinese New Year coming on February 1, 2022. “The Chinese New Year can often be a three-week downtime for manufacturing in China, causing even more significant delays,” says Hartsell. “Ultimately, these issues are only a problem for organizations that are incapable of planning a logistical timeline that meets demand.”
So how can cannabis companies get ahead of supply chain planning? Hartsell says they are working with customers to establish timelines up to eighteen months out to prevent any disruptions. “We need to stay hyper-focused on logistics, moving freight all over the world, to prevent issues that result from shortsightedness.”
The supply chain crisis impacts nearly every market on earth that relies on international shipping, and cannabis is no exception.
With new markets coming online and legacy cannabis markets expanding, the cannabis supply chain is certainly maturing and this crisis may be kicking things into high gear. In states on the West Coast, distribution channels have expanded, rules have allowed for curbside pickup and delivery and a lot more ancillary businesses are supporting a thriving market.
Still though, the cannabis supply chain falls short in other areas, namely interstate commerce, with the federal government to blame for that. Hartsell expects to see some more interstate commerce in the coming years, and with that comes a much more sophisticated supply chain. He says using logistics software to manage supplies will be the key to continued success.
The edible cannabis market in Canada is still green. Delayed by a year from the legalization of dried flower, the edibles and extracts market poses significant opportunities for manufacturers. Edibles and extracts typically have higher profit margins than dried flower (“value-added” products) and consumer demand appears to be high and rising. So, what is causing trouble for cannabis companies trying to break into edibles and extracts? Below are four observations on the market potential of edibles in Canada.
Canada’s Edibles Market: The Numbers
In 2020, Canada – the largest national market in the world for cannabis products – grew more than 60%, largely as a result of the introduction of new products introduced in late 2019, often called “Cannabis 2.0,” which allowed the sale of derivative products like edibles. Deloitte estimates that the Canadian market for edibles and alternative cannabis products is worth $2.7 billion, with about half of that amount taken up by edibles and the rest distributed amongst cannabis-infused beverages, topicals, concentrates, tinctures and capsules. More recently, BDSA forecasts the size of the Canadian edibles market to triple in size by 2025 to about 8% of the total cannabis dollar sales.
Source: BDSA
In December 2020, the Government of Canada reported that edibles made up 20% of total cannabis sales; Statistics Canada data shows that 41.4% of Canadians who reported using cannabis in 2020 consumed edibles. While sales have gone up and down over the course of the COVID-19 pandemic, there are clear indications that there is a substantial demand for edibles and extract products, which can be consumed more discreetly, with greater dosage precision and with fewer adverse effects (as opposed to smoking).
While sales of regulated edibles products continue to grow, edibles, extracts and topicals sales in Canada are facing a similar problem as dried flower sales: inventory growth is outpacing sales. Unsold stock sitting in inventory is growing at a dramatic pace, showing a clear lag in demand for these products on the legal market. How do we understand this contradiction?
1) Complex Regulatory Standards are a Major Barrier
Cannabis edibles compound the already existing problems around the conceptualization of cannabis products regulation. How should it work? Edibles can be considered in any of the following categories:
Cannabis as a pharmaceutical with medical application. Requires strict dosage and packaging requirements;
CBD as a nutraceutical with health benefits claimed. Requires specific nutraceutical regulations be followed;
Food product to be consumed. Must comply with food safety regulations around biological, chemical, physical hazards through a risk-based preventive control program. A full supply chain and ready-to-recall based system of regulatory standards need to be followed.
Incorporating elements from each of these three regulatory regimes into a single regulatory standards body is a confusing logistical and compliance challenge for both the regulators, and the producers and retailers of the product.
In mid-2019, the Government of Canada released the Good Production Practices Guide for Cannabis. This merged cannabis-specific regulations with food safety-specific regulations. Rigorous food safety requirements were combined with equally rigorous cannabis production and processing requirements, resulting in extremely laborious, detailed and specific regulations. These span everything from building design and maintenance, to pest control, to employee sanitation, to traceability – at all levels of the process. Navigating these regulations is a challenge, especially for many smaller producers who lack the necessary resources, like automation technology, to devote to understanding and tracking compliance.
2) Low Dosage Regulations Give an Edge to the Illicit Market
When edibles were legalized, THC dosage was capped at 10mg per package. For more experienced consumers, especially those who are dealing with chronic pain and other medical needs, this limit is far too low – and the unregulated market is more than able to fill this gap. One analyst from Brightfield pointed out that the dosage restriction, in combination with other regulations, will make it harder for the edibles market to grow in Canada.
It also makes the unregulated market almost impossible to beat. Barely more than half of cannabis consumers in Canada buy exclusively from government-licensed retailers, while 20% say that they will only buy unregulated products. According to a Deloitte report, 32% of legacy cannabis consumers said that unregulated products were better quality, and 21% reported that they preferred unlicensed products because there were more options available. Almost half of respondents also reported that quality was the biggest factor that would cause them to switch to regulated sources, and 28% said that higher THC content would prompt them to switch.
3) There is a Big Price Disparity between Legal and Illicit Edibles
As a result of dosage requirements and other factors, price per gram of regulated edible product is much higher than that of flower, unregulated edibles and edibles available through regulated medical distributors.
If you take the BC Cannabis Store’s price for Peach Mango Chews as an example: a 2pc package is $5.99. Since the dosage limits at 10mg per package, that’s the equivalent of $0.60/mg or $600/gram. A quick Google search reveals that an easily available edible from a medical cannabis distributor contains 300mg of THC and sells for $19.00, a price of $63.00/gram.
That means that not only is 10mg too low a dose for many users to achieve the result they were looking for, but the dosage restriction also makes the products less attractive from both a nutrition and cost standpoint. Deloitte reportsthat higher prices is the reason that 76% of long-time cannabis consumers continued to purchase from unregulated sources. The regulated industry as a whole is missing its legal market opportunity, where consumers prefer a lower price product with a greater range of dosage availability.
4) The Range of Products Available is Too Limited for Consumers
For most of 2020, chocolate edibles were the dominant product in this category in the Canadian market, garnering 65% of all edibles sales. But is this reflective of consumer wants? Despite a demand for other kinds of edibles like the ever-popular gummies, there are still only a few edible brands that offer the range of products consumers are asking for. According to research from Headset, there are 12 manufacturers in Canada making edibles but only two of them produce gummies. In comparison, 187 brands make gummies in the United States.
While some of this delay is likely due to the long licensing process in Canada and the newness of the market, there are other factors that make it challenging to bring a variety of products to market. The province of Quebec, Canada’s second-largest province, has banned the sale of edibles that resemble candies, confections, or desserts that could be attractive to children – giving yet another edge to unregulated sellers who can also capitalize on illegal marketing that copies from existing candy brands like Maynard’s.
When companies do want to introduce new products or advertise improvements to existing product lines, they are restricted by stringent requirements for packaging and marketing, making it harder to raise brand awareness for their products in both the legal and unregulated markets. Industry players are also complaining about government restrictions on consumers taste-testing products, which further compounds challenges of getting the right products to market.
In the meantime, illicit producers have also shown themselves to be savvy in their strategies to capture consumers. It is not uncommon to find illicit products packaged in extremely convincing counterfeit packaging complete with fake excise stamps. New consumers may assume the product they are purchasing is legal. Availability of delivery options for higher dosage, lower price illicit products is also widespread. All of this adds up to significant competition, even if it were easier to meet regulatory requirements.
Conclusion: Significant Room for Growth Remains Limited by Government Regulations
These four challenges are significant, but there are a number of opportunities that present themselves alongside them. A year and a half into the legalization of edibles, cannabis companies are getting a better picture of what Canadian consumers want and low dosages are proving to be desirable for Canadian consumers in some areas.
Some of the many infused products on the market today
In particular, sales of cannabinoid-infused beverages far outpaced other edibles categories last year, likely tied to the availability of these products in stores over the summer of 2020. BDSA’s research has shown that, in contrast with American consumers, the lower THC dosage for cannabis beverages is an advantage for Canadian consumers. Major alcohol brands like Molson Coors and Constellation Brands are investing heavily in this growing product area – though there the dosage limits also apply to how many products a consumer can buy at a time.
At the same time, the large quantity of unsold cannabis flower sitting in storage also poses an opportunity. While its quality as a smokeable product may have degraded, this biomass can be repurposed into extracts and edibles. Health Canada has also shown some responsiveness to industry needs when it shifted its stance to allow for Modified Atmosphere Packaging (MAP), which will help improve shelf life of products.
While strict regulatory obstacles remain, challenges will continue to outweigh opportunities and the illicit market will remain a strong player in the edibles market. As regulations become clearer and producers become more accustomed to navigating the legal space, barriers to entry into the regulated cannabis market and specifically the extracts and edibles market, will decrease. Meanwhile, those getting into the edibles market will do well to be wary of the challenges ahead.
On December 16, 2020, Aphria Inc. (TSX: APHA and Nasdaq: APHA) announced a merger with Tilray, Inc. (Nasdaq: TLRY), creating the world’s largest cannabis company. The two Canadian companies combined have an equity value of $3.9 billion.
Following the news of the merger, Tilray’s stock rose more than 21% the same day. Once the reverse-merger is finalized, Aphria shareholders will own 62% of the outstanding Tilray shares. That is a premium of 23% based on share price at market close on the 15th. Based on the past twelve months of reports, the two companies’ revenue totals more than $685 million.
Both of the companies have had international expansion strategies in place well beyond the Canadian market, with an eye focused on the European and United States markets. In Germany, Aphria already has a well-established footprint for distribution and Tilray owns a production facility in Portugal.
About two weeks ago, Aphria closed on their $300 million acquisition of Sweetwater Brewing Company, one of the largest independent craft brewers in the United States. Sweetwater is well known for their 420 Extra Pale Ale, their cannabis-curious lifestyle brands and their music festivals.
Once the Aphria/Tilray merger is finalized, the company will have offices in New York, Seattle, Toronto, Leamington, Vancouver Island, Portugal and in Germany. The new combined company will do business under the Tilray name with shares trading on NASDAQ under ticker symbol “TLRY”.
Aphria’s current chairman and CEO, Irwin Simon, will be the chairman and CEO of the combined company, Tilray. “We are bringing together two world-class companies that share a culture of innovation, brand development and cultivation to enhance our Canadian, U.S., and international scale as we pursue opportunities for accelerated growth with the strength and flexibility of our balance sheet and access to capital,” says Simon. “Our highly complementary businesses create a combined company with a leading branded product portfolio, including the most comprehensive Cannabis 2.0 product offerings for patients and consumers, along with significant synergies across our operations in Canada, Europe and the United States. Our business combination with Tilray aligns with our strategic focus and emphasis on our highest return priorities as we strive to generate value for all stakeholders.”
While we’re pleased to report that 2020 is almost over, 2021 will be a mixed bag. New jurisdictions will open their doors to cannabis and consumption will continue to rise, but competition from new operators and illicit supplies will increase. As California’s cannabis industry matures and turns the page on a bizarre year, market uncertainty will linger as the pandemic drags on and overtaxation and regulation strangle profits. But let’s remember, cannabis has been cultivated for over 6,000 years and has withstood far worse—this market isn’t going anywhere and will continue to grow and become more impactful.
Access to Traditional Finance Services
The U.S. Senate will likely pass legislation providing cannabis businesses access to traditional banking and financing services. This will be a game changer for the industry. Valuations will go up. Increased liquidity will smooth transactions. Companies will look to affordable debt to expand their footprints and capacity to compete on a new scale. Full federal legalization could be a game changer if 280E tax restrictions are lifted and interstate and international cannabis trade open up, but the timing of this is hard to predict.
Continued Quarantine-Induced Consumption
Cannabis consumption will continue to increase as Californians seek to ease pandemic-related stress, temper quarantine conditions, and sample an eye-popping array of new products. Sophisticated consumers will be open to spending more on unique and niche products. But hemp-derived cannabinoids may present a new source of competition, especially if CBD remains unregulated. By the end of 2021, cannabis beverages will begin to compete with mainstream alcohol categories. Pharmaceuticals will increasingly take notice of this industry and the increasing share of consumers turning to plant-based remedies.
Ever More Cultivation Opportunities
In pursuit of revenue, agricultural counties will liberalize their policies on cannabis cultivation by permitting more acreage and streamlining permit processes. Neighborhood groups will push back, but policymaker concerns will be assuaged when they see cannabis farms operating innocuously (and sustainably) around the state. Advances in seed breeding, pest-and-disease control, outdoor growing techniques and odor abatement technology will help too.
New Retail
Cities and counties will revisit opening their borders to cannabis retail storefront and delivery as they attempt to fill budget gaps. Many cities will allow cannabis retail for the first time and/or expand the number of licenses available. These new dispensaries will provide a much-needed outlet for the influx of licensed flower and will continue to spur innovation and consumer education. But a “second wave” of retail speculators seems poised to let optimism override judgement, setting themselves up for failure or acquisition by incumbents.
Getting Social Equity Right
2021 will be a pivotal year for social equity, which will establish a foundation for a just cannabis economy. The industry will have to grapple with how to ensure that those most impacted by the criminalization of cannabis and most often excluded from traditional financing exposure are provided with equitable access to meaningful opportunities. As California’s regulated cannabis market grows, getting social equity right will be important if the industry is to firmly establish itself as an inclusive industry that addresses impacts on marginalized communities and responds to customer demands.
Formalizing Appellations
California’s new CalCannabis Appellations Program will provide cultivators and brands a way to credibly market the value of their unique growing regions and cultivation methods. These distinctions only apply to cannabis planted in the ground, excluding greenhouse and warehouse grows. The expectation is that high-end consumers, trained to recognize place-based designations and quality certifications in other products, will reward products that boast these designations. How many consumers will be willing to pay the premium and how long full implementation of the program will take, remains to be seen.
Prices May Begin to Drop
2020 was a great year for the few fully licensed cultivators in California permitted to sell to the regulated market. 2021 may be different. Numerous licensed cultivation projects will complete the permitting processes and come online next year. While growing demand may outpace supply at first, by Q3 supplies could swamp the market. Premium flower is perhaps an exception. Adding to the pricing pain, as always, is California’s illicit market, which will continue to undercut prices, as legal growers toil to comply with a labyrinth of state and local regulations. Nonetheless, cannabis will remain the most profitable crop on a per acre basis for some time.
Business Turmoil
The drop in prices coupled with continued high taxes and regulatory burdens will result in turnover of assets and businesses. Less efficient and inexperienced cultivators will struggle, many unable to ultimately withstand pricing pressure. Others will be hit by enforcement actions for failing to comply with California’s myriad regulations. Retailers, already burdened by punitive tax structures, real estate finance commitments and onerous local regulations, will need to be disciplined and have a clear strategy to address new competition.
Consolidation
Driven by business failures and renewed investor interest, California’s regulated cannabis industry may consolidate rapidly in the second half of 2021. Institutional finance will enter the space with a much more disciplined approach than prior capital sources. Traditional agricultural interests will invest in cannabis cultivation projects. Well-run retail chains will begin to outcompete, and then acquire, mom-and-pop competitors. Big brands will continue to expand their shelf space, relegating smaller competitors to niche and novelty status.
In short, the cannabis industry will continue to be highly dynamic, exciting, enticing and risky.
Communication is key for efficient interaction between cultivation and business functions at any cannabis operator. So, what are the top four things cultivation directors should be discussing with their operations manager right now, as we face an uncertain Summer 2020 and unique COVID-related challenges (product demand uncertainty, reduced workforce, and immediate response to problems and issues):
Labor requirements
Operators should be discussing “Who, and what, do I need to operate this facility and how do I make operations more streamlined without diminishing quality, consistency, and yield?”
Efficient operations should focus on labor workflow and circulation and document a clear understanding of how employees will move through the spaces while doing their jobs.
Having a “less labor” philosophy and understanding—a ‘first in and first out’ mentality—drives down cost of production.
By limiting employees’ need to cross paths and segregating processes (e.g. harvest, distro, packaging) in a facility, you can maintain biosecurity and limit the risks of cross-contamination
When working with fewer staff members, everyone should be trained to:
A greenhouse facility that urban-gro helped bring to operation.
Operate all necessary equipment
Perform keys tasks like nutrient deliver or preventative maintenance
Supply chain
What sort of products do I use to cultivate, process, distribute and how will potential shortages affect my use/cost related to these?
Consider products and supplies that you can order in bulk
Examine and update your chemical regime to focus on products that are cheaper to freight ship, and located within the US or even your state
Mitigate the risk of availability by using products that are have no shelf-life or expiration issues, and those where the supply chain has not yet had disruptions
Automation and technology
What’s the availability to allow for remote monitoring and controls?
Cultivators can take some of the load off the reduced staff by automating critical tasks
Remote monitoring solutions will also allow for faster notification of crop issues
Integrating preventative maintenance tasks like equipment schedules and maintenance can increase efficiency
Yield expectations
Ensure that conversations on yield expectations are as transparent as possible and set realistic and achievable goals
Build business models based on the correct numbers that take into account productions numbers on ‘high yield’ genetics versus lower-yielding plants (yield versus price)
Ensure you have a detailed plan that combines both plant density and production goals
The recent decision in Germany on the reclassification of CBD (kudos to the European Industrial Hemp Association) as something other than “novel” has now opened an interesting new discussion in Germany and by extension, Europe.
It basically means that hemp plants, if they are European in origin, can be grown (under the right regulatory structure starting with organic) and even extracted without ever being considered a “novel food.”
Look for (hopefully) similar discussions now across Europe and the UK where the Food Safety Authority is also examining similar policies.
What this ultimately means, however, is that the market is clearly opening on the CBD front, but only for products that make the grade.
What should the average producer or manufacturer from North America think about when setting up a supply chain for export?
Regulations
Thanks to the new treaties in place between the United States, Canada and Europe right now, there are market openings in the cannabis industry in Europe. Starting with the fact that the cannabis bug has clearly hit the continent, but there is actually not enough regulated product to be found yet and just about anywhere.
This is keeping prices high right now, but do not expect that to last.
Member states of the EU, pre-Brexit
Regardless, pricing of imports will not be like anything you have experienced if your background is state or even national market in the U.S. or Canada. There are higher regulations in every direction in Europe. Understanding how to translate the same into equivalencies that do not bankrupt you, overprice your products, or worse, get you in trouble with authorities is a critical first step, and not one to be taken lightly.
Get professional guidance from the country you are hoping to export to, at minimum. And that includes the legal kind. Every step of the way, you have to be certified with, at minimum, federal if not at an international certification.
No matter what cannabinoid is in the mix, this is ultimately a plant-based product. All rules one would normally think about when talking about other food products (for starters) are in the room.
While it is far from “this easy” (although thanks to the USDA’s decision about hemp, not to mention the FDA update on its own deliberations, there are now federal standards), think about the problem this way: If you were the world’s best chocolate bar, or even tomato juice, how would you hit Europe right now?
They have tomatoes here, and unbelievably great chocolate already. What is it about your offering that can stand out? This is the million-dollar question. There are a few people and companies doing this right now, but it takes experience, and understanding the multiple regulatory guidelines involved. Once you figure that out, then you need to look at your supply chain, piece by piece and literally from the plant through end production for where you fit, and where you might not, into the regulatory discussion and market you hope to enter.
The Medical Discussion
There is now the possibility of exporting medical grade hemp and hemp extracts from the United States to Europe. However, everything must be GMP-certified to a medical standard, from organic production on up. This is an international standard, not an American one.
That qualification does not exist much in the cannabis industry in the United States (although ISO very much is) yet. Although it is dawning. On the Canadian side, there are plenty of companies in the discussion, because there is already a beaten path to export.
As the German cultivation bid proved, European certification, certainly is a high barrier to reach. Indeed, it is not only GMP certification in the room on the medical side but also rules about the import of all plant products.
From this perspective, it is also easier to import “finished” product rather than plant.
The Recreational Discussion
Before anyone gets too excited about recreational reform, the reality is that Europe is not going to step ahead of the UN (which has now pushed its next deliberation on the topic to the end of 2020). Yes, there are trials in a couple of places, but far from earth-shaking (recreational trials in the land of the coffee shop anyone?)
More interesting, of course, is what has just happened on the CBD side. But before American hemp farmers get too excited about this, they have hemp and farmers in Europe. And quite a few people have seen the light on this one already.
Sure New York state exports to Europe are probably in the offing, but so are hemp exports from the Southern states where the weather is warmer and the labor cheaper.
The European Union’s logo that identifies organic goods.
Certified labs, processing and extraction, and labelling are all in the mix. And every step must be documented as you go.
How to Proceed?
Whatever your crop or product is, take stock of the certifications you have now. If your plant was not organic, forget export anywhere. You are out of the international game.
However, with this taken care of, look at the certification requirements in Europe for extraction, processing and import of food and plant products and obtain production partners with the same – either in the US or abroad.
With luck, patience, skill and knowledge, yes, the doors are slowing opening, even to U.S.-based cannabis trade of the international kind.
Just don’t expect it to be easy, and leave lots of time for workarounds, pivots and even re-engineering at every point of the way.
Before you begin any large-scale cultivation project, you must necessarily consider the four factors highlighted below, among many others, to ensure your cultivation is successful. Failure to do so will cost you greatly in both time and money, and ultimately could lead to failure. While the four areas highlighted below may be the most important considerations to address, you should hire a cultivation advisor to determine the numerous other considerations you must deal with before you begin.
1. Genetics
Genetics will play a huge role in your cultivation plan, as they can ultimately make or break the success of your business. Access to quality, verified genetics will greatly affect your profits. All cannabis genetics grow differently and may require different conditions and nutrients. Further, consumers in today’s regulated market have greater awareness; they are much more knowledgeable about genetics and able to discern between quality cannabis versus commercially produced cannabis.
Market trends will dictate whether or not you’ll ultimately be able to sell your harvest at market rate. You need to project out at least one year in advance the genetics you will be growing. But often it is impossible to predict what consumers will be purchasing a year in advance so this part of your cultivation plan should be well thought out. Further compounding this difficulty is the fact that it may take six months to ramp up production of any given variety.
Genetics that are popular now may still be popular next year, but that also means there will be more competition for shelf space, as more competitors will also likely be growing these same genetics. Therefore, don’t rely on only one trendy variety as the bulk of your selection for the year, no matter how popular it is at the moment. Producing a single variety as the bulk of your crop is always risky, unless you have a contract with a sales outlet, in advance, for a set quantity of that one particular variety. Diversity in your genetics is beneficial, when chosen correctly.
Making proprietary genetics from your own seed collection can give you a big advantage in today’s competitive market. Having a variety with a distinct, unique and desirable smell, taste, effect or cannabinoid profile will allow you to distinguish your brand amongst others. Entire brands have been built off of a single variety: Cookies and Lemontree are two examples of companies that have done this. All it takes is one really good variety to attract a lot of attention to your brand. Having your own breeding project on site will allow you to look for and identify varieties that work for you and your business model, and ultimately will help to distinguish your brand apart from others.
Only buy seeds from reputable breeders! Any new varieties that you are going to be cultivating should be tested out at least three times, on a small scale, before being moved into a full production model. If you are growing from seed there is always the potential for your crop to get pollinated by male plants or hermaphrodites that went unnoticed, and therefore, they could be a potential risk to your entire harvest. Treat them accordingly, i.e. by cultivating them on a small scale in a separate, enclosed area.
Buying clones from a commercial nursery can be risky. Genetics are passed from one grower to another haphazardly, and names are changed far too easily. This can create a lot of confusion as to what variety you are actually purchasing and whether you are getting the best version of the genetics. Just because a clone is called “sour diesel” doesn’t mean you’re actually getting the real, authentic sour diesel. And to further complicate things, the same clone grown in different environments can produce a noticeable difference in flavor, smell and effect depending on your cultivation method. Always try your best to verify the authenticity of the genetics you purchase. Ask about the history and origin of the particular genetics you are purchasing. Better yet, ask for pictures, physical samples, and most importantly, certificates of analysis from a laboratory, indicating the potency. In many states anything under 20% THC is going to be hard to sell, while anything over 30% will easily sell and command the highest price. It’s a good idea to have a laboratory test the terpene profile in order to verify a variety is actually what the seller purports it to be.
Knowing the source of your genetics is imperative. It will help ensure that you actually have the variety that you were intending to grow, and therefore, allow you to achieve your intended results. Knowing what varieties you are going to cultivate, before you grow them, will also give you a better idea of the ideal growing conditions for that specific variety, as well as what nutrients will be required to achieve optimum output.
2. Automated Watering Systems
Installing an automated watering system, during build out, will by far be the most cost-effective use of your money, and will save you the most amount of time in labor. An automated watering system, commonly referred to as a “drip system” or “drip irrigation,” is necessary regardless of whether you are cultivating indoors or outdoors; it will allow you to water multiple different areas at once, or only water a few specific areas of the garden at one time. Hand watering a 22,000 square-foot cultivation site will take one person eight hours every single day, on average, to maintain. However, a properly designed drip system can water an entire large-scale garden in a couple of hours, without any employees, record all the relevant data and notify you if there is a problem. This enables you more time to spend closely inspecting the plants to ensure there are no bugs or other problems present, and that your plants are healthy and thriving. This attention to detail is necessary if you want to have consistent success.
Larger scale cultivation requires bigger and more expensive equipment.
Automated watering systems not only save a great deal of time but also eliminate the possibility of human error, like over watering, which can kill an entire crop quickly. There aresoil moisture sensors that can be placed in the soil to regulate the supply of water to the plants in a precise manner. Without an extremely skilled, experienced work force, damage to plants due to over watering is very common. A drip system will reduce the threat of human error by ensuring delivery of precisely the correct amount of water and nutrients to each plant every single time they are watered.
Not all drip systems are created equally. There are different types of automated watering systems. Designing the right drip system for your cultivation site(s) can be complicated. Make sure you do your research, or better yet, work with a cultivation advisor who has experience with automated irrigation systems in conjunction with a licensed plumber, to ensure you are installing the best system for your particular set up.
Adding a fertilizer injector to your drip system can further increase the efficiency of your operation and save you money on nutrients by using only what you need and ensuring correct application. Again, automating this process will save you time and money, and reduce the threat of human error.
3. Nutrients
The types of nutrients you use and the amount of nutrients you use, are going to directly affect the quality of your cannabis flower. Conventional agriculture and Dutch hydroponic cannabis cultivation have always used salt-based fertilizers. However, they can be toxic for the plant in high amounts. While cheap and easy to use, salt- based nutrients are made in big factories using chemical processes to manufacture. They are not good for the environment, and overall, they produce an inferior product. The highest quality cannabis, is grown with organic living soil. Although seemingly contrary to popular knowledge, when done properly, cultivating in organic living soil is more cost effective than using powdered or liquid salt-based fertilizers.
Yield and quality depend on the skills of the cultivator, more than the method they are using. Having healthy plants from the start, will always yield better results, no matter what way they were grown. In my 20 years of experience I have seen plants grown in balanced living soil yield just as much as plants grown with synthetic nutrients. Further, the quality is not comparable.
Controlling your clone supply can ensure they are healthy
Always remember, it is the quality of your flower that will determine the price it is sold for, not the yield. Even if you produce more overall weight of chemically grown cannabis, if nobody wants to purchase that product, then you are going to yield far less profit than another company growing in the same amount of space using organic practices that yield a higher quality product.
The difference in quality between plants grown in balanced living soil versus any other method of cultivation is undeniable. It is really easy to post a pretty picture of a flower on Instagram but that picture doesn’t tell you anything about what went into producing it. When flower is produced using chemical nutrients, it is likely going to be harsh and not enjoyable to smoke. Lesson learned: don’t judge a bud by an Instagram photo! There is a stark difference between cannabis grown using synthetic nutrients versus cannabis grown in living soil. Once you’ve experienced the difference you will never want to consume cannabis that is grown any other way.
4. Plant Propagation
Having the ability to propagate your own clones, from mother plants that you have cultivated, can save you a staggering amount of money. In some states, having a cultivation license allows you to produce your own clones for your cultivation, while having a nursery permit will allow you to sell clones for commercial sales to other companies. The average price of a wholesale clone is around eight dollars. If you require 5000 plants for every harvest, that’s a $40,000 expense you must bear, every grow cycle. This can obviously add up quickly. And as previously mentioned there’s the risk of purchasing inferior genetics or unhealthy plants, both of which greatly affect your profit margins.
On the other hand, the cost of materials and labor to produce a healthy clone can be as low as one dollar when using advanced cloning techniques. Controlling your clone supply can ensure they are healthy and allow you to know exactly what you are growing each time. Further, it doesn’t take a lot of space to propagate your own cuttings. In a 400 square-foot space one could produce between 5,000 to 10,000 clones per month, all of which could be maintained by one person depending on your situation.
And last but definitely not least, the most important thing you can do to ensure the success of your cultivation, is hire an experienced knowledgeable grower who is passionate about cannabis. The success of your company depends on it. You need someone with the knowledge, experience, and skills to make your cultivation dreams a reality. You need someone who can plan your build-out and cultivation to ensure success from the start. And you need someone with the skills to handle the multitude of inevitable problems that will arise in a cost effective and efficient way.
These are just some of the many considerations you must account for when planning a large scale grow in the regulated market. An experienced cultivation advisor can help you with these, and many other considerations you will need to contend with before you begin your grow. Creating a well thought out plan at the outset can end up saving you thousands, if not hundreds of thousands of dollars down the road.
There is certainly, in retrospect, much to be proud about in Canada – home of one of the most disruptive international cannabis industries in the world. And certainly an early mover.
That starts with having the national mojo to begin this journey in the first place, not to mention pivot and even admit faults along the way. For all the complaints and whinges, however on the ground, most Canadians are proud that they tackled the canna question at a federal level.
As the industry now does a bit of an annual review and revisit, what are some of the largest accomplishments, takeaways (and let’s be honest, major f*ckups) so far? And where is this all headed as the industry at least tries to gear up for another year, if not quite Cannabis 2.0?
The Big Bravos
Launching in the first place. Yes Full Monty Recreational was scary, and delayed a few months last year. And even though there have been many problems (retail outlets, online sales, privacy, supply chain issues in every direction, ex im, foreign markets and etc.), it is up and running.
In comparison, the Brits have been haranguing over Brexit for the last three years and are still not really there.
Further, it is also apparent that the agencies in charge of the new industry are themselves giving a bit of a shake after CannaTitanic (CannTrust). That was embarrassing for them too, although of course, while a bit of a negative compliment, the recall system seems to work.
Even if it needs a few jump starts via whistleblowing.
That in and of itself is a fact that is still in the room, although perhaps the pancaking of the stock price of most of the public industry of late was also another much needed wakeup call.
The Devil In The Details
Domestic Requirements. Health Canada is getting hip to the fact that the industry needs a bit more of a heavy hand. See the book thrown at CannTrust. No matter what, Canadians are demanding to know where their cannabis comes from, and further are also demanding that it be at least free of pesticides that can harm them.
Licensing. Many cannapreneuers are complaining, still, about the delays in licensing, particularly for retail outlets in the provinces who are taking the cannabull by the horns. That said, there are still lots of enterprises who are perfectly happy to dodge the requirements all together and sell to the black or gray market. No licensing fees, and no taxes is a wonderful dream, but that is not exactly how regulated democratic capitalism works – at least at this level.
Supply Chain Logistics and Related Technologies. Canadians are struggling to implement a regulated industry in a country where patient home grow is constitutionally protected, and in an environment where who can sell what, and to whom including online, is still evolving. Predictably, no matter how groovy the solution works at home, (or the U.S.), no it will not fly in Europe. See GDPR regs, for starters.
Seed Culture (Aka Strain Protection). No matter how much the lawyers in the colonies are gearing up to sue each other over Huey’s Half Baked, in Europe, there are tomato and pepper farmers who are laughing, literally, all the way to the bank on this one. While hip to be a “strain defender,” the reality in a medical market looking for cheap cannabinoids is rather different. Effective, clean product, which can be reproduced reliably and cheaply, is the name of the game. Girl Scout Cookies, and such ilks will be a long time in coming as anything but highly expensive, niche products you can find in a Dutch Coffee Shop.
Domestic Requirements Vs International Export. Canadian standards, so far, have been widely divergent in an environment where exports to Europe in particular are part of the story for the biggest companies. That said, GMP, and in particular EU GMP, has become at least a buzzword if not a standard to live up to.
Privacy. California might be considering its own form of GDPR (European privacy legislation) but so far, the industry has largely failed to protect consumers (from themselves). Ideas about owning huge data troves on cannabis users for someone else’s profit are still very much in the room. After all, data is the new oil, whether people know their data is being harvested or not. And just like big oil has done for most of its existence, those in the driver’s seat so far show little compunction about harvesting personal information, to become in the words of the now departed CEO of Canopy Growth Bruce Linton, “the Google of Cannabis.” Won’t happen. Starting with the fact that in not just Europe but now even California, people, far beyond pot users are tired of a world where privacy is a second class right.
While the issue first hit in Canada on the recreational side, the reality is that companies know who their clients and patients are in a way that is not only disturbing but increasingly being challenged.
I had dinner last night with a friend who is a senior executive at one of the largest automobile companies in the world. When I explained the industry-accepted rate of 25-30% shrinkage in horticulture he said, “Are you kidding me? Can you imagine the story in the Wall Street Journal if I gave a press conference and said that we were quite content to throw away three out of every ten cars we manufactured?”
Yet, for all growers, operators and investors who complain about shrinkage, it’s an accepted part of the business. What if it wasn’t; what if you could shrink your shrinkage by 60% and get it down to 10% or less? How much more profitable would your business be and how much easier would your life be?
Let’s take the floriculture industry as our first example. You propagate chrysanthemums in February, they get repotted at the end of April and by the end of June, you might start to see some buds. In a very short time span your job changes from being a grower who manages 10,000 square feet of chrysanthemums to being an order taker. Over a period of eight weeks, you have to unload as many of those mums as possible. The sales team at Macy’s has more time to move their holiday merchandise than you do.
If you’re like most operations, your inventory tracking system consists of Excel spreadsheets and notebooks that tell you what happened in previous years so you can accurately predict what will happen this year. The notebooks give you a pretty accurate idea of where in the greenhouses your six cultivars are, how many you planted and which of the five stages they are in. You already have 30 different sets of data to manage before you add on how many you sell of each cultivar and what stage they were in.
The future of the industry is making data-driven decisions that free up a grower to focus on solving problems, not looking for problems.Then your first order comes in and out the window goes any firm control of where the mums are, what stage they’re in and how many of each cultivar you have left. A couple of hours after your first order, a second comes in and by the time you get back in touch, check your inventory, call back the buyer and she’s able to connect with you, those 2837 stage 3 orange mums are moving into stage 4. Only she doesn’t want stage 4 mums she only wants stage 3 so now you frantically call around to see who wants stage 4 orange mums very soon to be stage 5 mums.
And, the answer is often no one. What if you didn’t have your inventory count exact and now you have 242 yellow mums that you just found in a different location in your greenhouse and had you known they were there, you could have sold them along with 2463 other mums that you just located in various parts of your greenhouse.
It doesn’t have to be like that. We had a client in a similar situation, and they are on track to reduce their shrinkage to just a shade over 10%. The future of the industry is making data-driven decisions that free up a grower to focus on solving problems, not looking for problems.
And don’t think that shrinkage is an issue only in the purview of floriculture. It’s an even bigger problem for cannabis because of the high value of each crop. The numbers don’t sound as bad because unlike floriculture, you don’t have to throw out cannabis that’s not Grade A. You can always sell it for extract. But extract prices are significantly less per pound than flower in the bag.
Here’s how one grower explained it. “Because of the high value of the crop, and the only other crop I’ve worked with that high is truffles, you’re playing a much higher stakes game with shrinkage. Even if you try and salvage a bad crop by using all of the parts of the cannabis plant. Listen, the difference between Grade A and Grade C could be $1,000 for A while a pound of B/C is less than $400. If you produce a standard 180 to 200 pounds in your grow rooms, you’ve really screwed up. No operator is going to keep you if you just cost them $120,000.”
Busy entrepreneurs often skip steps in their business development process, particularly in the cannabis space. Since this is a new industry, there isn’t a long history of marketing/advertising efforts to look back on; the standards are still being developed. But more often, businesses simply may not have a budget large enough to pay an agency, and they may not feel confident executing these efforts on their own.
Fortunately, you can do a lot independently to get your name out there. This three-part series will give you a quick primer on branding – what it is, why it’s important and how to do it. But first, we need to discuss the differences between branding, marketing and advertising so that you know what kind of tools you have at your disposal.
What is Branding?
Branding should be considered a prerequisite to marketing and advertising.
Branding: Who Marketing: What & Why Advertising: Where & When
Branding is simply thinking about your company from the inside-out. It’s asking yourself questions about the kind of person your brand would be, down to its beliefs, personality and sense of style. Ultimately, we do this to build a deep emotional connection with potential customers. When you know who you are and put yourself out in the world, you’re signaling to them that you are a good match for each other.
When you have a brand that consistently forms emotional relationships with customers, that bond converts to both income and long-term company value, making your spending on marketing and advertising go further. It gives you a competitive advantage over companies with weak or non-existent branding (and in the U.S. cannabis industry, there are plenty of those). Moreover, it’s a key factor that venture capitalists and friendly Fortune 500s look for in potential investments.
So, what should you be asking yourself when it comes to branding? Start with exploring the fundamentals. Decide on the philosophical, emotional and visual characteristics of your brand.
As far as the philosophical questions go, it’s important to codify your mission, brand values, customer promise, core competency and future vision to build a strategic brand. Think about what you’re offering, how it will change lives, and what unique qualities will help you make it all happen.
The Four Ps: Product, Price, Place and Promotion.The philosophical characteristics help you decide who you are. Your emotional characteristics are the ones that connect you with the world. These would include your creation story, your brand personality and tone of voice. How does your brand see and respond to the world? Why? People love consistency. Having a consistent presentation makes your brand feel more authentic; in turn, people are more receptive to you.
The visual qualities are how the world should see you. These assets should include your color palette, fonts, imagery and logo. Making decisions about your brand’s appearance may feel subjective and overwhelming to people, but it doesn’t have to be. Basically, evaluate these ideas and assets in terms of how your audience is likely to respond to these elements. For example, how does your happy-go-lucky audience feel about a logo that is lime green versus corporate blue? Which color best reflects your brand sensibility? You know who you are; the visual characteristics are how you plan to show it.
Marketing
As a discipline, marketing traditionally involves making strategic decisions about the four Ps: Product, Price, Place and Promotion. These decisions become significantly easier once you have defined your brand.
Essentially, marketing addresses the way your brand lives in the world. It tells potential customers what you sell, and why they should choose your brand. It involves making thoughtful decisions and having a strategy for decisions such as product names and your corporate culture.
You also need to think about your pricing strategy and how that manifests in front of customers. For example, are you a high-end product with a premium price or the Walmart of weed? What’s your customer service strategy? Are your budtenders in flannel or lab coats?By now, you know who your brand is and how you want to present it to the world. Now you need to get consumers to see it that way. That’s where advertising comes into play.
Marketing also involves decisions about collateral—namely, your product packaging, brochures, signs and trade show booths. It also impacts your brand’s in-person presence. That could include experiences like events your company attends, trade shows where you have a booth or table, sensory experiences or even AR/VR experiences with your product.
By now, you know who your brand is and how you want to present it to the world. Now you need to get consumers to see it that way. That’s where advertising comes into play.
Advertising
Generally, advertising relates to paid campaigns that are carefully written and designed to tell potential customers where, when, why and how to connect with your brand and buy your products and services.
Fortunately, you have the tools to thrive by putting in the work to get to know your brand.These campaigns are often launched within the space of owned media, such as television commercials, radio and print ads and billboards. There are tons of digital and social media options. Your job is to find the ones that your customers interact with and decide what you want to say about yourself. For example, what kind of sites would you want to place ads on? What state of mind are customers in when they go to those sites? And what message do you want them to get from you in that moment?
Normally, answering these questions would be daunting. But since you’ve already decided who your brand is, you may already know what colors you want to use for this ad. You’ve already considered what your mission is. You know how your brand should appear to the world. And since you’ve unlocked these truths, you’ll be able to develop campaigns that feel genuine, unique, and memorable.
Connecting with consumers and making them remember you isn’t optional. It’s what will ultimately decide whether your business survives or not. Fortunately, you have the tools to thrive by putting in the work to get to know your brand. It’s tough, and it may not come easily at first. But we don’t start a business because it’s easy. We accept the risks and frustrations because we love what we do. Tell everyone why they should too.
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