(This story appears in the November-December issue of Marijuana Business Magazine.)
The complexity and cost of obtaining cannabis licenses has many brands turning to white-label branding.
White labeling, a practice common among mainstream businesses, is when a product is produced by one company but packaged and branded to make it appear as if another company made it.
For example, many products sold at Whole Foods Market under the 365 brand were not made by Whole Foods at all. Instead, the national grocery chain has various companies that produce the items for Whole Foods to sell under its 365 label.
The same is true for Costco’s Kirkland brand and Walmart’s Great Value brand.
‘Areas of expertise’
Daniel Yi, managing partner and chief strategy officer of Bellflower, California-based product maker Inanna Manufacturing, said opportunities for white-labeling in the cannabis space are great because few companies are doing it.
Many entrepreneurs have ideas for brands and would like to get into the cannabis industry, but they are unable to do so because they can’t get a license, according to Yi, who got his start in the cannabis industry four years ago with Los Angeles-based multistate operator MedMen Enterprises.
“There are a lot of product ideas,” he told Marijuana Business Magazine.
Inanna holds one of California’s Type 6 cannabis-manufacturing licenses, which allows the company to make everything from gummies and topicals to baked goods. The company does not provide extraction services, nor does it grow cannabis.
“There are a ton of people who are super good at cultivating cannabis efficiently,” Yi said. “Why spend a lot on that if you have a great retail concept? It’s more about segmenting into areas of expertise. Coca-Cola doesn’t bottle its own soda. The same thing will happen with cannabis.”
Uptick in demand
Boulder, Colorado-based WHT LBL takes a different approach. The company handles everything from making distillate for edibles products to brand management and manufacturing at its 15,000-square-foot facility, said Jill Lamoureux, WHT LBL’s co-founder and chief creative officer.
WHT LBL has a small indoor cultivation facility and one large outdoor grow. The company buys most of the trim it uses for extraction from Los Sueños Farms, a 36-acre outdoor cultivation facility in Pueblo County, Colorado.
WHT LBL plans to expand its cultivation facility to keep up with growing demand for its mini joints, Lamoureux said. She had been considering enlarging the company’s outdoor grow, but after an early freeze and snowfall in September, she’s now leaning toward greenhouses.
“We were barely able to meet demand on our own this year, and we don’t see it stopping,” she said. “I’m a little nervous about supply for the coming year.”
WHT LBL prefers to work with cannabis businesses that already are in the market and looking for a new manufacturing partner. They should have provable sales, packaging and labeling as well as an understanding of the unique universal stamp and warning language.
Next, the company likes to work with clients who want to expand to Colorado from other markets and enlist WHT LBL to produce their brands. Those clients should have packaging, even if it does need a little tweaking.
“Even if they don’t understand Colorado specifics, they understand the ideas around the regulations,” Lamoureux said of the type of businesses that employ white labelers.
If you’re considering going the white-label route to get into the marijuana industry, make sure you have the idea for your brand and product fleshed out and that your packaging and label design is finalized. It’s also important to select a product category where there’s room for growth, Lamoureux said.
“Vape is the most saturated category,” she said. “Unless you’re coming in as a super-low-cost producer, that product is on the market 10 times over.”
Avoiding licensing pitfalls
California-based Old Pal has avoided licensing challenges by going the white-label route.
Old Pal contracts with about 100 cultivators licensed to grow or manufacture marijuana in the markets where the company operates. Old Pal gives its producers packaging for flower and vape cartridges and then promotes its brands through marijuana retailers. The company’s products are available in about 350 cannabis stores.
Because the company doesn’t handle marijuana, it doesn’t need to have a license. That enables Old Pal to keep overhead low; it has just 29 employees and one office.
“If we had gone vertically integrated, we’d need a team of 20 drivers, 40 cultivators and a compliance department,” said Rusty Wilenkin, chief executive of Old Pal.
In the company’s early days, it took a more hands-on approach with its partners. Now that trust has been built, Old Pal gives its partners product specifications for them to follow. Old Pal’s distributor is responsible for quality assurance and control.
Old Pal teamed up with Austin, Texas-based creative agency Land to develop the brand. In turn, Land has an ownership stake in the company. “That really helped us think about brand and marketing from the get-go,” Wilenkin said.
Focusing on core business
Another company that uses white-label manufacturers is Boulder, Colorado-based edibles maker Wana Brands. While Wana manufactures its own gummies, it contracts out for extracting the distillate used in its infused products, which saves on the cost of equipment, the workers to operate that machinery and the space it takes up in the company’s 19,000-square-foot manufacturing facility.
“We used to do our own extraction, but as we’ve grown, we realized it’s more efficient to focus on the actual edibles manufacturing and become more specialized there,” said Logan Craven, Wana’s chief financial officer. “What we decided was, if we were to move away from extraction, we’d have additional edibles manufacturing capacity in our facility. We wanted to keep all the manufacturing within our control and not white label and outsource the actual edibles manufacturing. Extraction is a relatively easier process to standardize.”
Wana encourages its extractors to use multiple cultivators so that if one crop fails, there are still others that can be relied upon.
“We want to make sure it’s a grow source we’ve vetted and that we feel comfortable with their practices and procedures,” Craven said. “It makes us less dependent on an individual crop or production runs. We’re able to mitigate risk and work off of what the industry as a whole is doing as opposed to what we have in our own grow.”
Another measure Wana takes to ensure continuous production is keeping three to four months worth of THC distillate on hand.
“Our growers or the extractor would have to have long-term supply issues in order for it to impact us,” Craven said. “Luckily, we haven’t seen that.”
Because Colorado requires a certificate of analysis before cannabis products can be legally transferred to another business or consumer, quality control is built into the regulatory process. Wana takes it a step further by retesting the distillate it receives to ensure the vendors are sending what they say they’re sending.
“A big part of the brand has always been quality and consistency and trying to innovate in terms of the product itself,” said Craven, who has been with the company since January 2019. “We’ve always tried to present ourselves as very professional and clean. The product has always been the focus here.”