Many have touted the health and tax revenue benefits cannabis can bestow. But little has been said about how the cannabis industry is leading the next industrialized revolution by building a new sector to manufacture cannabis products for a global marketplace.
A robust and efficient infrastructure is key to building a thriving cannabis manufacturing sector that includes cultivation, processing, manufacturing, lab testing, sales, and distribution. As states build manufacturing supply chains within their borders, the groundwork for a national infrastructure has begun and continues to grow as states legalize.
Thanks to Michael Sassano, CEO of Somai Pharmaceutical, and Nohtal Partansky, CEO of Sorting Robotics, manufacturers in Europe and America, for their insights on the challenges and solutions to make America a global cannabis manufacturing leader.
Seeds And Cultivation
As the industry grows, seed breeders strive to satisfy the evolving consumer palette, and cultivators continue to master the nuances of the growing process, outputs, and processing. Collaboration and communication between breeders and cultivators around the country are essential in moving the industry forward by learning from each other.
New technology is emerging daily to address the specific issues of cannabis cultivation and to make it more cost-efficient, profitable, and scalable. From automating and controlling the growing environment to harvest timing, trim process, and management software.
Extraction And Formulation
Overall, scaling up a cannabis extraction and product formulation company requires careful planning, investment in infrastructure and equipment, and a focus on maintaining product quality and consistency.
Companies can expand to other states by building partnerships and collaborations with other manufacturers to expand their reach and access new markets.
NP: The main bottleneck with extraction is getting a consistent supply of material that has passed category-three compliance testing. Usually, the manufacturing process after that is pretty closed-form and well-understood.
MS: From a global perspective, cannabis consumer products must follow GMP pharmaceutical rules. Extracted cannabis products fall into a few areas:
- Starting materials (API).
- Magisterially prepared cannabis extracts that pharmacies prepare.
- Herbal medicines.
- Acute Internal Medicine products that require clinical trials, like Epidiolex.
- Over-the-counter products.
Best practices are to style your reporting and registrations to the highest regulated market you want to enter.
Technology And Machinery
A new manufacturing sector requires custom solutions. Spending on technology and machinery to automate certain aspects of a production process will achieve quality and consistency of products, increase efficiency, and reduce costs.
NP: We need internet-connected continuous feed extraction solutions to monitor and optimize performance, as there is constant variability with cannabis. The manufacturing supply chain needs to stabilize in terms of form factors that different SKUs present in the market. However, this will take years because the market is still trying to determine what SKUs are important to the customer while new products emerge yearly.
In addition, we need a computer vision-powered quality control system that inspects every product. So many random issues can derail the cannabis value chain, like having a misprinted label in a box of jars going to a dispensary. A mishap like this will cause the entire shipment to be rejected and relabeled. Situations like this create an immense loss of value but must be adhered to because we live in a deeply regulated industry.
MS: People are the biggest source of contamination and error. Cannabis startups try to save on capital spending early with plans to spend when they have profits. But for most, profits never come because they did not invest to achieve efficiencies or lost too much product to be profitable.
Manufacturing And Co-Packing
It’s common practice, especially for startups, to outsource packaging operations to convert their biomass into a consumer-facing product. But, several inefficiencies can occur in cannabis co-packing, with the most troubling being inaccurate or inconsistent THC dosing that could lead to potential legal and safety issues.
Overall, cannabis co-packing operations must overcome a range of challenges to ensure efficient, high-quality production that meets regulatory requirements and consumer demand.
NP: The current co-packing supply chain to convert biomass into a CPG product involves an array of inefficiencies in processing a brand’s order because of the lack of communication between the brand, the co-packing facility, and the production team. The best way to solve this and improve efficiencies is to have a massive ERP system and planning tool that connects everyone in a seamless integration.
The lack of interstate commerce requires businesses to operate entirely within their state when its industry standard to have your supply chain spread throughout the country.
Testing Labs
Potency, terpene profiles, and product safety are the key areas of a lab test. Cannabis testing labs are looking to other regulated industries to build their infrastructure because they lack a federal legal framework to guide them. And as the industry scales, there is a need for established labs from the pharmaceutical and food industries to join, but they are reluctant because of the uncertainty. And the need for highly trained and qualified lab staff, including chemists, microbiologists, and lab technicians, is causing a talent shortage.
Labs must work with a complex cannabis product matrix to test its many active ingredients and cannabinoid profiles, and adding in the different consumption formats make testing even more complicated. Not all states require the same testing measures, creating a chaotic outcome once interstate commerce commences.
MS: Many CPG companies experience a bottleneck in getting their products through the testing lab and onto store shelves because waiting for a third-party lab takes time to test the various stages for GMP to ensure consistency.
Compliance can be time-consuming and expensive, and failure to comply can result in fines, legal action, and loss of accreditation.
Sales And Distribution
Cannabis interstate commerce rules have not been established yet. However, transporting regulated products across state lines requires careful compliance with complex regulations, such as security measures for a controlled substance or adhering to specific temperature storage requirements during transportation.
The benefits of working with distributors and their sales teams give you a turn-key program to warehouse, sell, and distribute products with access to their roster of store buyers, budtenders, and delivery services.
Michael Sassano: High-volume distributors generally are not interested in working with small companies in the European market. And specialized cannabis distributors connect the growers to the pharmacies but take 70-100% markups compared to 30% for traditional distributors. This has prompted bigger cannabis companies to invest in distribution licenses and create sales forces in each country. Volumes must be high to justify this cost, but it ensures you capture more margin if the volume supports it.
Investment
Regular businesses have used corporate or public bonds for decades to fund and expand their businesses. America was built on bonds, and the cannabis sector can be too.
MS: Building a new cannabis manufacturing sector requires significant capital investment. Building, certifying your facility, and creating and registering your products take time. Construction could take 1 to 3 years, certification could be one year, and making and registering products can take at least a year and a half. Having these long time gaps before seeing any revenue is a massive investment that requires precision and patience.
The industry is still relatively new and facing growing pains as it develops, including legality, product safety, quality control, and standardization.
Despite these challenges, the cannabis industry has the potential to be a significant driver of economic growth and job creation, particularly as more countries legalize cannabis for medicinal or recreational use. The industry could become a leading sector in the next industrialized revolution with careful regulation and responsible business practices. (Full Story)