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I'M BAD ... I'M NATIONWIDE

Jun 18, 2017 01:03PM ● Published by Leland Rucker

COLORADO-BASED cannabis companies seek NATIONAL EXPANSION.

Business is booming, and a growing number of Colorado companies are establishing themselves as local market leaders. As the first state to legalize adult use, Colorado is the epicenter of a modern cannabis industry dominated by small businesses. As the legal landscape grows across the country—cannabis is now approved for medical or recreational use in 29 states and the District of Columbia—some of those Colorado businesses are seeking to grow as well.

But, like most things in this industry, it’s pretty complicated.

Taking even a well-known local brand national is tricky enough for any business, and it can be even thornier for cannabis companies. Still classified as a Schedule I controlled substance by the federal government, cannabis can’t be moved outside state borders. Rules, requirements, and regulations differ as widely state by state as the THC potency levels in legal strains today.

So what do Colorado cannabis companies have to do to take their brands into new markets?

“The first thing to do is to protect your trade and brand name at every level possible.” Robert Hoban is a Denver attorney whose firm specializes in cannabis law and talks with clients every day about expansion possibilities. “Every state you want to be in, get the trademark and registration right, and also do that at the federal level,” he says. “When they’re in place, we can look at how to distribute product in other states, what state to start with, to end with and how many states you want to enter.”

That seems basic enough. Besides getting brands trademarked and registered, every company doing interstate business has to work out how to distribute its products, another area where cannabis presents unique hurdles. “If you have a brand, do you want to sell it, or do you want to license it?,” Hoban asks prospective clients. He says it’s easy for people to overestimate their ability to produce on a large scale or misunderstand what a licensing deal means. “They don’t control it, and people fall into a trap. They think they’re going to be hands-on. But once you sell that license, are you going to be hands-on or just licensing your product?”

Nancy Whiteman owns Wana Brands, a popular, Boulder-based company that makes infused edibles, extracts, and tinctures in Colorado. Wana has expanded into other states as well, including Oregon and Nevada.

Wana, which makes its Colorado candy on premises, considered its options carefully before going into other markets. “We’ve chosen either a licensing model or a contract-manufacturing model,” Whiteman explains. “And what that essentially says is that we are partnering with people who are license holders in that state, and we’re licensing our intellectual property to them.”

Wana started in 2010, back in the days before regulation, and it settled on gummies and hard candies after determining that bakery products don’t have the kind of shelf stability they were seeking. “They’re not gonna break. They’re not gonna get stale,” she explains. “With gummies in particular, it was part skill, but there was some luck because we did not know that gummies would wind up in the number-one category for edibles. Gummies are actually pretty hard to make. We spent a lot of time on the recipe.”

Wana works hard at maintaining consistency. Because even humidity can influence gummy texture, Wana first sends its own cooks to prospective states to see how the recipes would work in different climates and what adjustments would have to be made for each location. And the company put audits and controls in place and built checks and balances into all its procedures. Whiteman personally makes sure Wana is partnering with like-minded companies to produce exactly the same gummy products in other states as you get here.

“If you just think you’re going to hand your recipes over to somebody and pray they do it the way you want them to do it, that’s not how any brand does it,” she says. “When I talk to potential partners, I tell them right away, ‘This is how we work with our partners, and would that be comfortable for you and something you would want to do?’ ”

And like Colorado, each state has its own maze of regulations that must be strictly followed. “In Oregon, packaging has to be submitted to the state to approve it before you can move forward,” she says. “And it requires different dosing, so they have different rules. Their adult-use products have a maximum of 5 mg per serving and maximum of 50 mg for the package. We have 10 mg per serving and 100 mg packaging. In every state, you’re building on the knowledge you already have, but you have to tweak it in subtle ways.”

Tripp Keber owns Dixie Brands, another well-known maker of edibles, drinks, and other THC and CBD products for humans and pets. Like Wana, Dixie has spent years developing products that are dependable, safe, and of the highest quality. Keber says that after much trial and error during expansion to new states, Dixie paused, reset, and moved away from traditional licensing agreements.

“No one cares as much about your brand as much as you do, so you put a great amount at risk—quality control and trade secrets—working with a third party. It’s complicated. It’s not making cupcakes.” This way, though, he says, “Instead of having to get it right every time in California, Nevada, and across the country, you only have to get it right once.”

But, like Whiteman, Keber sees the future in collaboration. Dixie has a history of selling private-label products to other companies. “We cut our teeth on that,” he says. “Now we will have the ability to take those brands and produce them in other states.”

It’s not just the bigger cannabis companies looking to capitalize on the expanding cannabis-friendly marketplace. Alex Corren heads Hempower Nutrition, which makes CBD products, including a new powder drink supplement, for the natural-foods market. Hempower is now on the shelves of Alfalfa’s and other natural-food co-ops along the Front Range. CBD is a cannabinoid compound from the hemp plant. While hemp resembles cannabis, it has no discernable THC, which means it can’t get anyone elevated, or high. But Corren says that he still finds that lack of education about the differences between hemp and cannabis to be one of the biggest hindrances to getting his products into more stores.

“For people who already know about it, there’s not much convincing. They know it’s good for them,” Corren says. “For people who don’t know what CBD is, to get them to realize they can take this as part of a smoothie in the morning like any other supplement and know that nothing crazy is going to happen, that’s the initial hump that’s the hardest to get over.”

Since CBD products are new to the market, another obstacle is getting them into natural-food distribution networks. And in places where cannabis is illegal, there isn’t a market like there is in legal states. “Tapping into a distributor that has 400 stores in its network is hard because no one is taking on hemp products like that yet,” he says. “There’s still enough of a gray area that they’re just kind of waiting it out. That’s why it’s Alfalfa’s and natural-food co-ops that take it on first because they’re not part of a corporate chain of command.”

Given that the industry is growing abnormally fast at this time, consolidation is already happening, and the process of building a significant brand and taking it national can only get more difficult. Everyone I talked with stressed that cannabis companies have to be more professional than anyone else in order to succeed. “For new entries into the market, with consolidation, it’s going to be even harder to get on the shelves,” says Whiteman. “Everybody has to up their game in professionalism.”


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