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Sourcing Inventory for California’s Cannabis Market Today.. and Into the Future

Under current regulations, being able to source inventory for your cannabis business can be tricky. At the state level, California is still defining the regulations as they have been proposed and just completed the public comment period. The state regulation board strongly believes they will be make the January 1, 2018 deadline according to Lori Ajax, chief of California’s Bureau of Medical Cannabis Regulation.

Beside that, certain cities have issued licenses or are creating systems about how they would regulate the industry within their city limits. Cities are choosing the licenses they will be issuing. Long Beach is not allowing for volatile manufacturing licensing because of the fire risk associated with it.

Costa Mesa will not be allowing retail or cultivation as they would like to focus on the distribution and manufacturing in the approved industrial sectors within the city…the reason being most of these buildings are already designed for commercial operations requiring similar infrastructure to the licenses being issued.

Under the proposed regulations for California, Governor Jerry Brown seeks to combine certain regulations under the Medical Cannabis Regulation and Safety Act (MCRSA) and the Adult Use of Marijuana Act (AUMA). One benefit of the proposed regulations is that companies have the opportunity to be vertically integrated similar to other states. While it has pros and cons, small-scale startup not being forced to play into a monopoly allows for scalability and growth, which is every entrepreneur and investors ideal position.

One of the first things to consider when sourcing inventory is what does your final product mix look like? Are you producing concentrates? Selling pre-packaged flowers at retail locations? Producing topicals?

Products have different needs. For example, CBD gummies will require cbd-rich flowers to achieve the 100 mg per serving. Understanding those needs will streamline your sourcing procedures and improve your customer’s experience.

Branding will be significant because the state will require pre-packaged retail products in California. Candescent, a producer/cultivator limits its product line to 5 effect categories. Their strategy focuses more on the terpene profile in cannabis, with less emphasis on the influence of strain names commonly seen in the past. The benefit of this strategy is reducing inventory costs by opening up options for different flower strains,and forward thinking branding that attracts new age customers.

What to look for in cultivators

Finding the right cultivator when sourcing cannabis could be simplified by using a list of requirements.

Each cultivator is unique in how they grow and what they grow. For example, one cultivator could be growing indoor only while another is growing in a greenhouse.

The different style of growing can affect the plant’s cbd/thc levels, total weight, use of pesticides and other variables. For example, when cultivators are cultivating indoors, the settings allow for fuller and richer trichomes because of environmental variables you can control such as room temperature and humidity.

In comparison, growing outdoors allows for larger product yields that can drop the wholesale price. With this in mind, if you are producing infused products, and the final appearance does not matter, it might be more cost effective to use greenhouse or outdoor flowers.

In California, some cultivators have been in the cannabis market since the mid ‘90s and have branded their own genetic lines. Companies such as DNA Genetics from Amsterdam have come from overseas with their genetics in hopes of gaining market share in California, a market that consumes nearly a quarter of the cannabis in the U.S.

Testing will also play an important role in which cultivator to choose.

In the past, cultivators did not have to test their products. But once cannabis is legal at the state level, the state is giving companies up to one year to become compliant with testing regulations. With regulations in place, the cultivators or producers will be held accountable for what they are providing.

Which is better for edibles: Flower, shake or trim?

Before edibles and other cannabis infused products became popular, flower was the main product bought by consumers. As a result many cultivators used their shake and trim for secondary products such as cookies, cooking butter and juice. The non-flower part of the plant contained the THC and CBD, but in smaller levels requiring larger volumes.

In recent years other legalized states have seen an increase in edibles being sold. As a result, more cannabis was being brought to the market and eventually wholesale flower prices dropped. Naturally the flowers carry most of the trichomes and are going to have higher THC percentages than shake or trim, requiring less product and higher yields of THC and CBD.

Also, creative cannabis entrepreneurs in the industry find other ways to use the shake or trim. The beautiful thing about the cannabis plant is every part of it can be a resource.

As a cannabis producer, A/B testing the different variables might be a starting point. A/B testing is about sampling different soils, methods or nutrients and listening to your customers feedback about the product about how to improve it.

One A/B tactic could be splitting 100 cookies by flower and shake. From there, it gets tested out in a research group.

If your test indicates shake/trim gets you the same results as flower, then you know all you need is shake. As they say, the customer always knows best!

Keep in mind what works for one infused product might not work for others.

If a brand makes affordable edibles for the adult use market, using trim or shake will make financial sense and be a great option. The same brand does not have a high budget to spend on sourcing raw cannabis. Their ideal consumer is going to want something affordable vs organic, because, in their eyes, 10mg is 10mg.

How do I know which source to go with?

Since the last phase of state regulations has not been decided, distribution is yet to be defined.

Currently, the proposed regulations allow for vertical integration but it isn’t clear if all products will be required to go through a distributor, whether vertically integrated or by a third party provider.

This is important because not every brand will apply for that distribution license due to limited resources; if they have to use a third party, it will  add to the cost.

Deciding which source to go with should be simple. Put systems in place that can help assure you are making the right decision. An example of a system is one where you could be limiting transportation errors so you don’t waste resources on vendors who can’t manage your business needs.

Planning this process can save your company money and clients. Once you find that source, look to establish a long-term agreement with them provided you get more ideal pricing in exchange.

Remember, with so many companies are entering  the industry, you will need to be on the lookout for quality and differentiation because that will play a role in your customer’s experience.

Johnny Sayegh

Johnny Sayegh

Johnny Sayegh has been growing in the southern California cannabis industry since 2006. Over the years, he has assisted various companies with sourcing cannabis for retail and production. This experience has helped him firsthand understand the difference in cannabis strains and effects for medical and adult use purposes.

Sayegh currently serves as the CEO of Grassposts, a wholesale platform for raw cannabis on-demand in California. He can be reached at [email protected]

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