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Unnecessary Obstacles for the Canadian Edibles Market

By Steven Burton
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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.

CBD Blending, Transportation & Supply – How Sustainable Manufacturing Can Improve Your Cost-Efficiency at all Stages

By Rachel Morgan
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Environmentally conscious manufacturing has never been more important; for the survival of both the planet and your business. The internet makes CBD product comparisons quick and efficient, so consumers can interrogate every aspect of your product and processes before deciding to make a purchase. Sustainability credentials are now a primary decision making factor for your customers.

Water jacketed vessels are a cost-effective way of achieving more consistent blends than is possible manually

For business of all sizes, improving resource use and efficiency is a great place to start. This will reduce waste and improve your environmental impact, and has the added benefit of improving your return on investment!

I always recommend investing in stainless steel equipment for manufacturing and distributing CBD oils. Stainless steel is one of the most environmentally efficient raw materials, because of its durability and ability to be recycled. Vessels last an extremely long time, and even once their service life is over, they should never enter the waste stream. Many of our US customers transport their CBD products around the world in stainless steel vessels, which can then either be shipped back for re-use, or re-used at the recipient site.

In terms of finding your ideal equipment supplier, those who have won awards for their environmental initiatives are the cream of the crop; they can be a real asset to your business and will often collaborate on sustainability-themed social content, which is really valuable to get in front of your customers.

Once you’ve investigated the credentials of suitable suppliers, how do you make sure their blending equipment will perfectly meet your needs?

Here are my recommended four points for consideration:

  1. Adding Toggle Clamps keeps your products airtight and reduces the chance of contamination in transit

    Vessel Capacity: Vessel capacity must be considered in two ways; maximum and minimum working capacity. Standard vessels have their capacity listed as ‘brim full’ – suppliers tell you the total overall volume of space in the vessel. However, maximum capacity must allow for 10-20% free space below ‘brim full’, so that if product is being mixed and stirred, there is no overspill. For example; to blend 75L batches of CBD oil, it’s generally recommended to purchase a 100L mixing vessel.

  2. Vessel Bottom Shape: Standard vessels have flat bottoms, which makes it difficult to drain them to completely empty. An experienced supplier such as Pharma Hygiene Products has the capability to modify standard vessels, to include a sloped bottom at 3 degrees, which reduces leftover product pooling when draining your oils. Vessels can also be custom-made with a cone or dish shaped bottom, whereby a valve can be positioned in the centre of the base to allow full draining, to reduce waste and increase profitability.
  3. Stainless Steel Grade: Stainless steel blending vessels for CBD oils are generally offered in 304 or 316L pharmaceutical-grade material. A simple description of the difference is that 316L grade contains an extra 2% molybdenum, for additional corrosion-resistance. Increased regional and interna­tional legislation concerning CBD products has come hand-in-hand with tighter interrogation of hygiene practices. Contaminant-free materials such as stainless steel are ideal to ensure international pharma-quality compliance for your business’ blending processes. Critically, at Pharma Hygiene Products a comprehensive range of compliance certification is available to confirm the grade of material, to prove surface smoothness, and to guarantee that no cross-contamination from BSE or CJD diseases occurs.

    Hygienic stainless steel CBD storage & transportation vessels
  4. Lastly, don’t forget to let your supplier know in advance if you have any special requirements for your product or vessel. Some common examples include:
  • Flammable product components – Requiring ATEX certified blending equipment.
  • Temperature control – Adding a water jacket to your vessel is a simple solution for heating, cooling or maintaining the temperature of your product as it blends.
  • Toggles and seals – For airtight, contaminant-free transportation.
  • Viewing holes – For easy visual inspection whilst blending.

Your equipment supplier can be a real financial and reputational asset, so be sure to do your homework before making an investment!

Cannabis Retailers Considered Essential: Safety Tips for Running Dispensaries During COVID19

By Aaron Green
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Dispensary sales in key US markets (CA, CO, WA, NV) remain up in Q1 2020 over Q1 2019, though the end of March saw sharp declines in sales according to a recent Marijuana Business Daily report. Massachusetts is also on track for record Q1 sales despite the closure of recreational stores, according to a recent BDS Analytics report.

budtenderpic
A bud tender helping customers at a dispensary

While it is still early to say what the impact of COVID-19 will be on dispensary sales into April, it is clear that the cannabis industry’s position as an ‘essential business’ is likely to help. States like Massachusetts are just allowing medical use businesses to remain open while states like California and Washington are allowing cultivators, producers and dispensaries to remain open. Meanwhile, according to Locate.AI’s analysis of retail traffic, the rest of the retail sector is down between 44% and 99% recently, depending on the category.

On March 24, the Washington State Liquor and Cannabis Board declared cannabis an essential industry including producers, processors and retailers. For dispensaries, they are now allowing curbside pick-ups for all adult customers. Colorado has gone further to restrict adult sales to curbside pick-ups only for recreational cannabis. Medical customers are still allowed to enter stores, but must practice social distancing. Across the states, dispensaries are offering curbside and in-store pick-up. In addition, at some dispensaries, delivery fees are being waived for larger purchases.

The International Chamber of Commerce recently published “Coronavirus Guidelines for Business,” summarizing actions businesses can take to reduce risks for operations and employees. Going further, The New England Complex Systems Institute (NECSI) recently published practical business safety guidelines detailing how these essential businesses can stay open and ensure safety. The guidelines, which are typically one to two pages and easily readable, are applicable to dispensaries. Certain suggestions, such as avoiding crowded spaces and maintaining 6ft distance will be familiar. Other suggestions go beyond common advice offering sensible recommendations to reduce risk of transmission as much as possible, such as the following:

Consider setting up one or more ‘necessities only’ sections that enable a short shopping trip for most of the customers. Setting up such short shopping areas outside when weather permits, or at remote locations, can dramatically reduce the shopping density inside the store.” or

Use floor markings or other visual system to indicate a one-way loop (with short cuts, but no back way) inside the store to promote a dominant walking direction and avoid customers crossing paths or crowding.

While many cannabis businesses have already gone beyond recommendations from the local health authorities, there are some that would still benefit from adopting the NECSI Guidelines to further protect their customers and employees. The guidelines are written for laypeople and are easy to print and share.

NECSI’s coronavirus guidelines can be found on the group’s volunteer website endcoronavirus.org.

endCoronavirus.org is a volunteer organization with over 6,000 members built and maintained by the New England Complex Systems Institute (NECSI) and its collaborators. The group specializes in networks, agent-based modeling, multi-scale analysis and complex systems and provides expert information on how to stop COVID-19.

The New England Complex Systems Institute (NECSI) is an independent academic research and educational institution with students, postdoctoral fellows and faculty. In addition to the in-house research team, NECSI has co-faculty, students and affiliates from MIT, Harvard, Brandeis and other universities nationally and internationally.

How to Properly Store Plastic Cannabis Packaging

By Danielle Antos
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Your plastic cannabis packaging has a big responsibility. It contains and protects your product, communicates pertinent product information and delivers the first brand impression to your consumers. In order for plastic packaging to fulfill these important roles, you must take care to store and handle it properly.

Following storage condition requirements for plastic bottles helps protect your cannabis product, your company and your customers. It doesn’t matter if your cannabis packaging is HDPE (high density polyethylene), PP (polyethylene) or PET (polyethylene terephthalate), proper storage is imperative to maintain the integrity of the product until you’re ready to fill it.

Bottle and closure storage conditions such as time, temperature and humidity can have an effect on plastic containers. The exposure and age of a sample can also affect shrinkage, impact properties and the stress crack resistance of the container. Not to mention the potential threat of contamination to your cannabis product and the poor impression of your brand in the eyes of your consumers.

You may be wondering how to obtain storage information. The best place to start is with your cannabis packaging partner. Your supplier should be ready and willing to share all vital storage information with you. The best suppliers realize that there is more to a business relationship than just the financial transaction of buying packaging. The first step in proper storage is to identify the type of material that was used to manufacture your bottles and closures.

Know Your Bottle Material Type – HDPE

If you are utilizing HDPE for your cannabis packaging, the storage time should be minimal and a strict first-in-first-out inventory should be maintained. Many end users will re-approve bottles after two or three years to ensure they are damage-free.

In addition, elevated storage temperatures allow plastic containers to further shrink and harsh conditions can actually cause severe distortion. The degree of distortion and shrinkage depends on the design and how the bottles have been stored. Higher storage temperatures also accelerate the aging process of the container. A moderate storage temperature should be provided to safeguard consistent bottle dimensions and properties. It is routinely reported that HDPE bottles can withstand temperatures of 110°F/33°C for brief periods.

Although humidity itself will not degrade the plastic container, a humid environment can have a direct impact on the secondary packaging, such as the cardboard cartons used for shipping. If you use stretch wrap and/or control warehouse conditions, secondary packaging problems can be alleviated.

HDPE bottles and closures should be kept as clean as possible – it is best to leave them in the original sealed cartons. The storage area should be kept clean, dry and dust, odor, insect, and rodent-free. Following this rule will help to build consumer trust in your brand. No one wants to purchase cannabis products in dirty, dusty contaminated packages.

Using PET Bottles?

PET bottles should also be used in a first-in-first-out system to limit the time in storage. Long-term storage should be accomplished using a sealed polyethylene plastic bag or lined drums, totes, bins, Gaylord containers, supersacks or seabulks. The plastic liner will help prevent dust and dirt from entering the bottles.

Elevated storage temperatures (above 100°F/38°C) allow empty PET bottles to shrink, mainly due to relaxation of the oriented and partially oriented regions of the bottle. Extreme temperature conditions (above 131°F/55°C) can cause severe distortion of the amorphous areas of the bottle, including the finish and neck. Moderate storage temperature should be maintained to ensure consistent bottle dimensions and properties.

To help protect PET bottles from contamination, the storage area should be kept clean, dry and dust, odor, insect, and rodent-free. Additionally, the storage area should be approved for food storage. PET bottles should not be stored in direct sunlight, and aromatic materials such as spices, solvents, ink, cleaning supplies and disinfectants should not be stored in the same area.

When empty PET bottles are shipped to or through areas where the outdoor temperature may exceed 90°/32°C, it is recommended that a temperature-controlled container or trailer capable of maintaining a temperature of 80°F/27°C or lower be used.

Polypropylene (PP) Closures

Closures are also an important part of your cannabis packaging. The storage time of unlined closures should be minimized. As with bottles, a strict first-in-first-out inventory should be maintained.

Elevated storage temperatures allow unlined PP closures to further shrink. Harsh conditions can actually cause severe distortion. The degree of distortion and shrinkage depends on the closure design and storage conditions. High storage temperatures accelerate the aging process of the closure; moderate storage temperatures should be provided to ensure consistent closure dimensions and properties. Like HDPE bottles, this type of closure can withstand temperatures of 110°F/43°C for brief periods.

When stored in humid conditions, pay attention to the integrity of the cardboard cartons the closures are stored in. The use of stretch wrap and/or controlling warehouse conditions will help alleviate damage to the cardboard. Just like their bottle counterparts, PP unlined closures should be kept as clean as possible and it is best to store in original sealed cartons.

Proper Storage Supports Your Bottom Line

Storing plastic bottles improperly can reduce the integrity of the plastic, therefore making it unsuitable to contain your cannabis product. Poor storage can also be detrimental to filling lines and cause production problems, which can result in reduced efficiencies and added costs.

Product recalls can also be a by-product of poor storage due to increased chances of product contamination. If plastic bottles and closures are not properly stored before using, distortion and shrinkage can damage the bottle labels used to identify your product. Shrinkage of your plastic closures result in a poor sealing surface which is detrimental to the freshness of your cannabis product. All of these side-effects can be very damaging to your brand image, from which it’s hard to recover. Consumers will lose confidence in your brand – leading to reduced profits for your bottom line.

Whether your cannabis business is in the early start-up stages or established with loyal customers, properly storing your plastic packaging will help protect your brand, decrease the risk of product recalls and increase your profitability.