Marijuana Business Magazine September 2018

Organa Brands’ Driessen. A successful product line includes premium- and value-priced wholesale products made with various raw materials. “I make competitive products,” Driessen said. “For a lot of compa- nies, the only thing they know how to compete on is price, and that is a fool’s errand. When you have no brand equity, you’re a commodity, and only one company wins that game.” Generally, Organa Brands’ products can be categorized as terpene-dependent products and non-terpene-dependent products, Driessen said. In those two clas- sifications, three categories of raw materi- als – flower, trim and shake – can cause the wholesale cost of products to vary. In its premium products – its Craft Reserve vaporizer cartridge, for exam- ple – terpene-rich oils are used, and wholesale prices reflect the quality and cost of the flower or raw material used in the distillate. Its non-terpene-dependent prod- ucts are a premium edible at a value price, Driessen said, because the trim or shake used to produce them is a less expensive raw material. District Edi- bles, for example, come in nine flavors using refined oil made from trim. A larger distribution footprint makes businesses that manufacture infused products and vape oils and accessories more competitive in the wholesale market. “When a company doesn’t have a large distribution footprint and their overhead is 40% to 50%, they’re not able to offer a lot more of a margin in terms of wholesale prices,” Driessen said. “It makes a competitor a lot less competitive.” ◆ STATE REGULATIONS F actors that directly impact wholesale prices are the cost of manu- facturing – in the case of vaporizers, that often means the product is made in China – freight prices, lead time, the carrying cost of inventory, lab testing, the cost of raw materials, rent and labor, said Chris Driessen, president of Organa Brands U.S., a Denver extraction and manufacturing company with operations in 12 states, Canada and Jamaica. “If you want to be competitive in today’s cannabis industry, you have to have an eye on all of it, or you’re going to get your lunch money taken from you,” Driessen said. Another driver? State regulations. States don’t dictate wholesale prices, but state regulations indirectly influence costs, said Nancy Whiteman, the CEO of Wana Brands, a Boulder, Colorado, edibles maker that sells products in Ari- zona, Colorado, Nevada and Oregon and has plans to expand to the Florida and Illinois markets this fall. “I remember when third-party lab testing wasn’t required by the state,” Whiteman said. “We did it anyway, but for companies that hadn’t been doing it, when it became regulated by the state, suddenly there was a brand- new and fairly significant cost to absorb. And, two years ago, when Colorado required us to start individually marking edibles, that pretty much required an overhaul in our processes. That has cost implications.” Packaging and labeling costs also vary by state, and strict packaging regulations can impact wholesale prices, Whiteman said. For example, Colorado has strict standards for child-resistant packaging, but Arizona’s packaging regulations aren’t as imposing. Nevada’s packaging laws require opaque, resealable containers and individual wrapping for each serving, thus creating more overhead for infused product makers, said Jillian Nelson, operations manager for Evergreen Organix, a Nevada cannabis cultivation and production facility that sells edibles, topicals, vape oils and accessories. The cost of the state’s packaging regulations is reflected in wholesale prices. “Every edible or serving has to be individuallywrapped, and if you have 10 servings in one container, that’s 10 additional pieces of packaging for the final product,” she said. “Even if it’s a 5-cent cost for each piece of internal packaging, that’s 50 cents per unit. When you’re dealing with wholesale manufacturing, that definitely adds up.” Between operating in California and Colorado, regulations can send a shockwave through the supply chains of infused product makers. There are times when new regulations – stricter packaging laws, for example – create a significant cost or loss for businesses, Driessen said. “Compliance comes with a cost, and a lot of people raise costs to cover their added cost,” Driessen said. “That’s never received well by a dispensary owner.” – Joey Peña Nancy Whiteman “For a lot of companies, the only thing they know how to compete on is price, and that is a fool’s errand.” - Chris Driessen, Organa Brands U.S. 76 • Marijuana Business Magazine • September 2018