No License? No problem! Three Ways To Get Your Cannabis Product On Shelves Near You
There are many ways to get your Cannabis product in a dispensary. You could own a processing license in every state or a full vertical in one state. But how can you get your product on shelves without owning any license at all? At a high level, licensing, co-packing and private label are three different ways you can create a cannabis product with no license at all (provided it is legal under the applicable state laws).
By far the most common in Cannabis is the license agreement. While every deal is different, the licensor owns the formula and provides little by the means of sales efforts. They are responsible for national branding, providing collateral, sharing procurement resources, and training the licensee on how to make the product. I have seen deals ranging from 6% all the way to 24+%. Each deal has its own nuance.
Pro Tip: Align your success to your partner. Remember that the more product they sell, the more you make.
Co-Packing (sometimes referred to as Co-Manufacturing)
Co-Packing is an under-utilized tool in Cannabis due to regulations that often inhibit co-packing. In a co-packing relationship, the manufacturer does not own the formula for the product. It is owned by the Product company. The Product company contracts with the Co-Packer to use the co-packers existing resources such as automation, labor, space, licenses, etc. Often, co-packers can produce a product better and cheaper because they have existing infrastructure and made investments into scale. Typically, the Co-Packer has no sales or responsibility to distribute your product. Some may store your product for additional fees.
Private Label is used even less in the cannabis industry than co-packing. In a Private Label relationship, the manufacturer owns the formula for the product and the Product Company owns the brand. There may be small alterations in the look of the product, but the formula and process are the same as the brand name. Similar to Co-Packing, the Product company is responsible for sales, marketing, and distribution. In this case, the Product company gets a proven product with a proven formula. Manufacturers get to fill the capacity on their machines and cover their fixed costs.
Why should licensed producers offer these services?
So, why would licensed manufacturers in a limited license state offer these services? Typically, they do not, but they should. Research & Development is expensive, and efforts thereof are not always fruitful. By offering these services, they can reduce their fixed cost, increase the return on investment for automation, and get more ideas flowing through their company. If a product or company looks like it is poised for success, the licensed producer can always purchase their smaller partner.
Moreover, they have an opportunity to create more social equity in the industry without being disingenuous. Allowing disadvantaged groups access to the manufacturing pipeline is mutually aligned. It alleviates the need for costly licenses, equipment, and construction for the disadvantaged party, and creates an additional stream of potential revenue for the licensed producer.
Which relationship is best?
It depends. Each relationship has its own pros and cons with shifting responsibilities. Regulatory environments dictate which avenues one should pursue. The more you need a partner to do, the more you will have to pay. Consider breaking up the relationship into functional responsibilities. For example, sourcing, producing, distributing, sales, and marketing. Do some research around margins and align yourself to your partner. How can you reduce their risk? How do you complement or benefit their existing product line?
There is more than one way to get your product to market. Read the regulations, do some research, create a plan, and find a partner. Oh, and protect yourself with a good lawyer.
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