Scaling a cannabis company is challenging work on the best day. On the worst days it can feel almost insurmountable, as if your business will live or die not on its own merits, but on timing and outside circumstances.
Packaging is a big part of that frustration, being one of the most tightly regulated aspects of the industry. Few can predict the next sudden regulation change or supply chain gap, which could fundamentally disrupt your product or distribution and delay your plans for growth. Still, it is the reality of cannabis commerce.
Making the right preparations is key to success and growth. Let’s dig into two essential tactics for staying ahead of uncertainty when establishing and scaling a cannabis business.
Choose the right partners
Partners can make or break a supply chain. Choosing the right partners and maintaining flexibility in your options are two of the most important moves you can make for your business. There are a few questions to consider.
If a new packaging requirement—say, a child-resistant cap—comes into effect, will your partner be available on short notice to make the necessary changes? What if they have periods of hiatus, or a time-consuming internal approval process?
Or, take the example of packaging manufacturers in China, upon which many in the American cannabis industry rely. Like clockwork, every year the Chinese New Year causes worldwide production and shipping delays. With factories across China shutting down completely and most workers taking a full week off to celebrate, businesses that are caught unprepared have their hands tied until the holiday wraps up. In past years this has led to notable losses, setting cannabis businesses back as they put out fulfillment fires and scramble to restock.
To mitigate these kinds of risks, be smart when selecting partners. Does that mean, for example, divesting from all overseas manufacturing? Of course not. But it does mean understanding the risks you and your partners face and proactively insuring against them.
Pick partners who are flexible and forward-thinking. With packaging requirements changing all the time, they should be able to adapt and grow along with you. Do they have the appropriate volume to forecast over the next three, six, and twelve months?
It is also wise to create redundancies in your supply chain. You do not want all your eggs in one basket if something suddenly knocks one of your partners out of the game. Keep a portfolio of backup options and other suppliers who can fill the gap.
Plan for financial risk
Choosing the right partners will go a long way toward hedging against regulatory risk—but that alone won’t eliminate unexpected costs and delays. Without proper financial management, sudden changes or disruptions still can be debilitatingly costly, making it nearly impossible to foster sustainable growth.
For example, last year a huge amount of money was spent on changing packaging regulations in California. The rules, released in January 2019, were a significant overhaul of pre-existing “emergency regulations.” Almost immediately, they triggered a scramble to sell off existing inventory and make necessary changes before the enforcement deadlines.
During this scramble, some companies spent so much money updating packaging to meet regulations that new product development ground to a halt. As the backlog grew and snowballed, it created a shortage of product in the market that caused additional losses. Yes, having adaptable packaging partners at this stage was crucial—but if businesses were unable to effectively manage their cash flow, the damage was done.
To avoid being trapped in this position when the next regulation change inevitably comes, it is critical for cannabis companies who can afford it to keep reserve capital. Even while scaling, which requires heavy investment, keep a slush fund for unexpected disruptions. If (when) a crisis hits, take the time to review your options and allocate resources where they are most critically needed. Whether or not you have emergency funds saved, keeping baselines covered and serving existing customers is key to sustaining growth.
When we chose to work in cannabis, each of us accepted the uncertainty that comes part and parcel with that choice. But not everything is outside our control. Choosing partners with intention and forethought will smooth the road toward sustained and reliable growth. Managing finances with unpredictability in mind will make all the difference when the next roadblock threatens to stall forward momentum. Through each step of this planning process, a team that can help find creative solutions to ongoing risk will be the most valuable tool on your belt.
As vice president of product and innovation at Vertosa, Austin Stevenson facilitates partnerships with leading brands to produce cannabinoid-infused cold-brew coffee, beer, wine, fresh juice, and topicals. Previously, he leveraged bio-tech experience building the regulatory hemp/CBD testing program for Eurofins. Stevenson is also a former management associate for Citi, where he worked to fund minority and women- owned businesses.