By Luis Merchan, CEO of Flora Growth Corp (NASDAQ:FLGC)
While many cannabis companies wait for new markets to open and laws to change, forward-thinking brands may want to consider a different approach.
Without question, the future of the cannabis industry is rife with potential. Laws continue to change worldwide, opening up the market for an unprecedented global opportunity.
Now is a defining moment for brands looking to capitalize on these burgeoning industries. While not every market is open today, there may be an alternate path to establishing a solid foothold in future markets.
Traditional CPG (Consumer packaged goods) vs. Cannabis
Although the market demand is growing rapidly, internationally, medical markets in wholesale cannabis channels are not open in a meaningful capacity. This is unfortunate for many producers that are “one-trick-ponies” and are relegated to sitting back and waiting for wholesale cannabis doors to open.
On the other hand, brands could get ahead of the curve, regardless of legal status, by focusing on building traditional CPG relationships with product distributors. From cosmetics to seltzer water to canned foods, building sticky distribution channels as real partners, not just selling as a wholesale commodity, leaves companies better positioned in the long run.
Cannabis companies with quality brands can rapidly generate sales and amplify revenue by building relationships with partners with established global distribution networks and taking a more traditional CPG approach to the industry. Wholesale-only entities don’t benefit from these sticky channels because, in wholesale, cannabis is simply a commodity, and buyers are looking for the cheapest option that meets a minimum quality threshold.
Develop the Supply Chain With, or Without, Cannabis
Laws are changing rapidly across the United States and in various regions across nearly every continent. However, rather than waiting on the laws to change, it may be better to move forward without cannabis products to establish a strong distribution network and supply chain.
In traditional (non-cannabis) CPG, mature distribution channels operating internationally have high standards that require supply chain provenance and a high degree of organization. This can be challenging in its own right, but especially so for new cannabis operators that are often faced with limited services and business solutions due to the prohibition on cannabis. As such, the ability to build brands with non-cannabinoid containing products creates a reduced-risk option for potential distribution partners to establish a relationship with nascent operators.
Once the partnerships are solidified, producers will be able to port over cannabinoid versions through their previously established (and now willing) distribution channels, especially as more cannabis markets open globally. However, supply chain provenance will be key to a mature cannabis industry if traditional CPG distributors are to take cannabis brands seriously.
In CPG Cannabis, Quality and Compliance Must Come First
Supply chain provenance is a critical component of global cannabis; producers need to have the ability to build trust across their client-base of established distributors in order to expand into emerging international cannabis markets.
Further, operating in CPG, especially in international markets, requires meeting strict standards and guidelines. Manufacturers need to have accurate test results and consistent product formulations. For example, if the product claims to be below .2% THC, then it must be consistently below .2% THC every time with the necessary test results to prove it.
However, traceability and transparency go beyond potency testing. There are massive concerns about illegal products, so it’s imperative that operators demonstrate to the market, their suppliers, and any potential partners that they have complete control. This kind of control is acquired through seed-to-sale traceability, forensic-level product tracking, and a deep understanding of each product and what it contains.
Transitioning into a Mature Market
Inconsistencies create volatility in the market. As the stock prices rise and fall, we also see revenue misses, cost overruns, and a lack of consistency from a logistics and organization standpoint. Moving forward, these are operational tactics that cannabis companies must button down.
The cannabis industry is maturing, but it’s certainly not there yet, in terms of offering consistency in quality, how it communicates that information, and generally operating in a mature manner.
Coca-Cola won’t take a gamble on a cannabis company if they don’t completely understand its operations. And, there’s a reason why big CPG companies operate the way they do; there are cost efficiencies when you do and liabilities when you don’t.
Embracing the CPG Approach, Fundamental for Cannabis
In avoiding the traditional CPG model, many cannabis producers are falling short – some companies don’t even own their own brand, or will purchase product from a competitor to sell under their own “brand”. Others are focused on medical clinics only or on non-sticky wholesale distribution channels that are a race to the bottom. The United States is coming around, but producers still can’t move their products across state borders, inhibiting meaningful partnerships with larger distributors.
At Flora Growth, we’re embracing this CPG model, and through our recent partnerships like that with Tropi, we are looking forward to the maturation and expansion of this market. We already have our products on traditional retail shelves and intend on re-introducing the cannabinoid version of the product at the right time through these established relationships.
Anticipating GACP certification shortly, which will allow us to export dry flower internationally, we plan to continue to produce domestically and maintain complete control over the supply chain with forensic level traceability that will be there from the onset when we start putting our own cannabis into our products.