Several edibles and infused products companies are aggressively expanding into multiple states as they seek to develop national cannabis brands, offering a blueprint for MMJ entrepreneurs looking to do business in more than one market.
Products such as Cheeba Chews candies, Bhang Chocolate bars and Dixie Elixirs infused sodas can be created on-site and do not require cross-state shipping. They therefore don’t face the same hurdles as dispensaries, which are largely unable to expand nationally.
Edibles and infused products companies are using two main strategies to tap multiple markets: sign licensing agreements with local manufacturers, or – depending on state laws – partner with a local cannabis business to make, sell and distribute their products.
Like all things within the cannabis industry, however, implementing these strategies is easier said than done. Differing rules and regulations can create huge headaches for companies looking to expand, and finding the right partners can be difficult.
Marijuana Business Daily spoke with two of the most successful entrepreneurs in edibles and infused products – Tripp Keber of Dixie Elixirs and Scott Van Rixel of Bhang Chocolate – to get some pointers on how to do business across state lines.
Both executives said succeeding in this business requires money, relationships and dedication.
#1. Understand Residential Requirements
Keber, whose Denver-based Dixie Elixirs produces a wide variety of infused goods, said the company’s products will be available in between four and seven states by the end of 2014.
Keber said he’s looked at both licensing agreements as well as franchising opportunities, and the crux of each deal revolves around each state’s residency requirements. But owning a stake of a business in a separate state creates a better source of income compared to a simple licensing agreement, he said.
“I can own a houseboat in Washington for three months to become a resident, and then I own the collateral license for myself,” he said. “All of my intellectual property resides in Dixie Holdings.”
#2. Choose Your Partners Wisely
Van Rixel instead signs licensing agreements with manufacturers in different states. Each licensee pays him for the license and also provides a percentage of sales.
Potential licensees submit action plans for how to do business in their home state, and then he weeds out the cream from the chafe based on each person’s team.
Van Rixel has a handful of dos and don’ts when choosing licensees.
He doesn’t license his product to more than one group per state. He tries to choose a team that includes one cannabis professional and one person familiar with the food industry, and one of the two must be an experienced businessperson. He also lays out his licensing plans to any state regulators.
“We provide each agreement to the state so they can see there is no misinterpretation that we are partners or that there is a loan with ridiculous payback features,” Van Rixel said. “It’s easier this way.”
#3. Create Consistent Packaging That Can Be Easily Modified
Both Van Rixel and Keber said consistent packaging and branding is a must in order to build a brand. Supplying the thousands of bottles, stickers and labels, however, is an expensive undertaking that requires capital from the company owner.
Van Rixel said that in the case of a local licensing agreement, each box or label needs to have space for local manufacturing information or legal language. So while Van Rixel pays for the production of the boxes for his chocolate bars, he also relies on his licensees to create local relationships with printers who can create these labels.
“The boxes are identical except for the back info panel that says made by so-and-so,” he said. “And sometimes there is a local requirement for packaging.
#4. Provide a Road Map to Success
Local manufacturers need to know every detail that goes into a recipe. After Van Rixel cuts a deal with a local licensee, he provides detailed recipes for Bhang chocolates, packaging for the products and a handbook for how to do business.
Keber said he’s created a playbook containing his recipes as well as a video library that takes the viewer through each step of his product’s creation.
“The consumer needs a level of comfort,” Keber said. “When they come to Washington they want to have the same experience as in Colorado.”