How Leveraging White Label Licensing Relationships Allows Cannabis Brands to Expand to Multiple States Without the Burden of Licensure.
Gage Cannabis is Cookies’ exclusive Midwest partner & operates two dispensaries under the Cookies brand. Photo credit: Gage Cannabis.
If you have been paying close attention to the landscape of U.S. cannabis brands over the last year or two, one thing is certain: becoming a Multi State Operator, or ‘MSO,’ is paramount to most brands’ long term success, and quite possibly, their survival. Brands occupying shelf space in only one state know that in a couple years, they won’t be able to compete with the marketing budgets and relationships of brands who are on the shelf in 10 or more legal states. Moreover, when (if) cannabis becomes federally legal, brands with footprints in multiple states will have a head start on single state operators that could prove to be insurmountable.
However, managing scaleable growth isn’t easy, especially when that growth is constantly limited by the specter of federal prohibition, the weight punishing tax rates, and the web of intricate, often contradictory, state and local laws. This is the reality that cannabis companies face, and for those able to navigate these waters, all the better. The wheat is quickly separated from the chaff.
MedMen made an aggressive push into newly legal territories, and now operates dispensaries in twelve states. Photo credit: MedMen
While many brands, especially those operating dispensaries, have taken the leap to acquire licenses and locations in several states, many retail brands have taken a faster, cheaper approach. For companies who produce edibles, topicals, or even prerolls and flower, it is not wholly necessary to invest in a cultivation or processing facility, licensure, staff, etc. It may be more beneficial to partner with an existing license holder in a state you want to expand into, and launch quickly via a white label/licensing arrangement. This avoids a massive upfront cost and the long wait of licensing and buildout, and allows the brand owner to focus on marketing and sales, while the production is outsourced. Yes, gross profits per unit will be slightly lower, but speed to market and startup costs will be greatly decreased, leading to earlier profitability. Even better, the licensing fees brands collect from these types of can be taxed at a lower rate that the direct sales of cannabis product.
While Label Licensing arrangements allow brands to practice Lean Startup methodology by learning about new markets cheaply and quickly, with a low cost of learning and iteration.
One of the most important indirect benefits of a white label licensing deal is the flexibility it provides brands to slowly test the waters. This occurs on a number of levels: the most obvious being the ability to test a new market without fully committing to it. A brand or operator could also test which partner they work with, or even which name they release under. To start, they might even pursue a limited release collaboration with an existing license holder, in lieu of a year long white label contract, both to test market response, and to invest in brand awareness without spending the money associated with a traditional launch.
One of the biggest risks of expansion in the retail world is the fact that consumers have widely varying tastes and buying habits from state to state, and even within each state. Using a lean, white label approach, brand can rapidly and cheaply measure results of existing and prototype product releases in new markets, without risking too much overhead or alienating current clientele.
For large, well funded brands, or those with models requiring physical locations (namely bulk cultivators or dispensaries), heading full steam into multi state licensure might be the right way to eat market share and survive the impending consolidation of the cannabis market. But for retail brands who can easily outsource their production, doing so in favor of increased spend toward marketing and sales is likely the faster, cheaper, and more profitable way to go. This is why we built our processing facility more as a B2B ‘blank slate’ than as a vehicle to launch our own in house brands. Once our second phase buildout is complete, our facility will be able to produce 30–40,000 prerolls, 2,500 infused prerolls, 20–30,000 jars or bags of flower, 20–30,000 edibles, 1000+ grams of rosin, and 1000+ cartridges per day. Each line can run 24 hours a day, over three shifts, and can support several out of state or in state operators needing white label services.
The interior of our West Building, which includes a preroll line, along with cartridge, packing and rosin lines. Picture Credit: @thersoinlab_mi
If your brand is working on an expansion into the Michigan market, don’t hesitate to reach out to me at firstname.lastname@example.org or on IG at @natesaysdoless.