Part 1: What Is Cannabis White Labeling?
It’s no small feat to cultivate high-yielding cannabis plants, process the flower into edibles, vape-carts, and pre-rolls, and then finally transport and display your products in a dispensary. Each of these business tasks contains a plethora of challenges on its own, not to mention the complexities of operating a vertically integrated facility, or multi-state operation (MSO).
At the end of the day, your goal is to sell your biomass or manufactured products while generating enough revenue to be profitable and successful. To accomplish this, you must overcome several hurdles when launching a new product line, ranging from regulatory requirements to market competition. Compliance with strict state and federal laws, including testing, labeling, and packaging requirements, can delay production and increase costs.
If you manage a cannabis operation and want to take advantage of the industry’s adult-use boom or are looking for strategies to scale your business, you’re in luck. We may have the perfect solution for you to consider, and it’s called “white labeling.”
Defining White Labeling for the Cannabis Industry
White labels are what give many brands their ability to scale and meet customer demand, and it’s a manufacturing process that encompasses nearly every industry. They have been around for ages and have penetrated nearly every market, from food products to pharmaceuticals. White labeling allows you to leverage existing third-party products and transform them into extensions of your brand.
If you’re looking to start a new product line (such as pre-rolls or drinkables) but don’t have the capital to invest in manufacturing or development equipment, white labeling is a conversation worth having. Let’s break down the term and discuss how it works.
OEM Manufacturing, the Foundation of White Labeling.
As we discuss white labeling, the term “OEM Manufacturing,” or “OEMs,” will frequently surface in conversation. The acronym represents the term “Original Equipment Manufacturer,” and don’t be fooled by the word “equipment.” All manner of products are white labeled, including edibles, pharmaceutical-grade medicinals, end-user packages of flower, vape oil, capsules, tinctures, and the list goes on.
In essence, white labeling is the practice of partnering with an OEM to purchase a generic, rebranding it under your own brand, and then selling it to consumers. This means you can customize the product’s packaging, labeling, and marketing materials to reflect and maintain your brand identity. This is also highly cost-effective.
How Do OEMs Reduce Costs?
Original equipment (and food) manufacturers often implement the principles of lean production as presented in the book Lean Thinking (Womack and Jones, 2003). The principles Jones and Womack laid out can be distilled into five manufacturing pillars:
- Pillar 1: Identify what is valuable to your customers. This is the value that you want to deliver.
- Pillar 2: Map the flow of value in your workflow and processes. Eliminate tasks that do not generate value.
- Pillar 3: Creation of the flow of activities that generate value so that they flow without interruption.
- Pillar 4: Ensure that the value stream is created by the customer.
- Pillar 5: The pursuit of perfection through continuous improvement.
A highly cost-efficient OEM operates within a lean supply chain (lean SC) and/or supply network. Each business within the (often massive) supply network shares the same goals of reducing waste and unnecessary processes. However, trimming waste to create a lean supply chain isn’t a new concept. Henry Ford, Sakichi Toyoda, and Taiichi Ono (one of the engineers that developed just-in-time (JIT) manufacturing) all contributed to what we call “Lean” today.
Today, most third-party, white label manufacturers follow some version of lean manufacturing to maximize value to the customer while reducing costs in the form of wasted time, labor, or materials. This is especially applicable to the cannabis industry, where labor-saving automation and every edge to reduce costs while increasing yields is implemented.
Defining OEM Label Types
There are four well-known types of third-party OEM manufacturers: white label, private label, single-source, and resellers. Let’s briefly review how each type of OEM can be highly advantageous to the cannabis community.
Scale Quickly Using a White Label
In the example of Ohio, a recent cannabis adult-use region, if a dispensary wanted to offer branded pre-rolls after Ohio approves the rollout of regulated joints, they could partner with a cannabis manufacturer who already has the capital and equipment to mass-produce pre-rolls. The dispensary would display their branding and marketing on the pre-roll packaging and sell the third party pre-rolls as their own.
There are many benefits in using a white label to sell cannabis products; the reduced cost of bringing a new product line to market being a significant one. Partnering with a reputable white-label manufacturer allows both parties to take advantage of a new revenue stream with little investment from the brand owner.
Customize Your Cannabinoid Formula Through a Private Label
Although more expensive than using a white label, private-label manufacturing offers more control and customization of the product you will be selling under your brand.
Private labeling allows a cannabis company to customize the formula of an edible, the concentration of a tincture, or the cannabinoid-terpene configuration of their vape oil. This type of OEM allows you to distinguish your brand, setting your product line apart and hopefully creating repeat business through customer brand loyalty.
If you’re looking to leverage a third party manufacturer to scale a product line but require customization options to ensure a product meets the consistency and quality of your brand, a private label may be for you.
Take Full Control With Single-Source Manufacturing
Especially found in vertical and multi-state operations (MSOs), there are cannabis operations that cultivate plants, process flower, manufacture a wide selection of cannabinoid products, and have a dispensary license to sell their medicinal and adult-use offerings. When a company has control over its primary supply chain and manufactures its own products, it is known as a single-source OEM.
Single-source manufacturing is more common among vertically integrated cannabis operations where the flower, cannabis processing equipment, and retail licenses are all under one roof. These cannabis companies manufacture their own goods, having complete control over their formula, potency, consistency, and branding of their products.
In the case of large cannabis operators, owning your manufacturing equipment and maintaining strategic control over the supply chain can lead to significant profitability. Whether you’re safeguarding your botanical production methods or offering white-labeled products to other businesses as another revenue stream, single-source manufacturing provides the potential for flexibility and long-term growth.
Dispensaries and Commercial Cannabis Resellers
If you’re operating a dispensary and your retail business relies on the sale of products from cultivators and cannabis processors, you may choose not to white label. Instead, you may purchase products from multiple white and private label cannabis manufacturers, and then market your dispensary as having a competitively large range of products.
Resellers offer third party products to their customers and often stock a wide range of products, buying them in larger quantities to leverage better pricing. Reselling white and private label products goes together with minimal customization and supply chain control, and it also allows you to pivot to new retail products and product lines.
Which OEM Type Is Best for Your Cannabis Business?
We’ve just covered several types of first- and third-party manufacturing, how they work, and how they are critical in scaling nearly every type of business, including cannabis operations. Choosing the best OEM model depends on several factors, including:
- Do you have the funds to equip and operate your own, single-source processing department?
- How much customization do you need?
- Are you focusing on developing your brand, or reselling the brands of others?
Our team is very familiar with how to go about deciding which strategy is best for cannabis operations of varying sizes. Be sure to reach out if you have any questions on how white labeling works.
In our next article, we’ll review how OEMs specifically benefit the cannabis industry through their white-label services. We’ll also discuss how your cannabis business can grow and secure additional revenue streams by partnering with a skilled, licensed white label manufacturer.
