In what many are now referring to as “The Modern Day Gold Rush”, the booming CBD industry is well on it’s way to becoming a 20 billion dollar industry by 2024 (according to Forbes). Just what exactly is CBD and why is this industry growing like a weed? CBD (Cannabidiol) is a naturally occurring non-psychoactive compound in the cannabis flower, a plant with a rich history of medicinal qualities dating back thousands of years. The uniqueness and controversy of this ingredient have propelled its popularity into a very diverse and broad landscape of industries. You can easily find CBD in the food, beverage, wellness, medical, and even beauty industries because of the versatility of benefits. Recently, our friends over at Saint Jane Beauty were the largest CBD luxury beauty launch to enter into over 281 Sephora stores nationwide. This was a huge milestone in the CBD beauty space and most likely the start of a big push for like-brands to start popping up in major retailers. As brands like these continue to demystify CBD, supply chain-ers should be prepared for the growth that we will inevitably see in the next 5-10 years.
As we enter into 2020 and a generally more progressive climate, CBD continues to become more and more integrated into mainstream society and consumer-driven brands are capitalizing on it. The media and marketing buzz surrounding the ingredient has been a huge driving force for consumers who are interested in integrating it into their wellness routines. As more and more CBD brands are launching, the curiosity of the consumer is peaked and stigmas are breaking. With so many brands launching innovative new products in the CBD space, there is a massive opportunity for supply chain, which is arguably the most important piece because of this production complexity. The legal issues alone tied to CBD production can make this ingredient complicated to harness.
Speaking of supply chain, let’s dig into what this looks like in our industry and discuss some crucial points in the process. As with many other industries, the supply chain for CBD has its own unique set of challenges and roadblocks. When you boil it down, there are 3 big factors to consider when establishing a supply chain for a product containing CBD. 1) Procuring raw CBD from a reputable source (reputable being the keyword here) 2) CBD transportation across state lines and 3) contract manufacturers that use the raw CBD to make the product. Of course, this is a much more complicated process and has so many nuances, but this is a great place to start.
Procuring CBD from a reputable source is your starting point and the most important, not only for the quality of product, but also to ensure that they are legally compliant in their operations. When CBD was federally illegal, the only places you could acquire it were in legal states or on the black market (a big NO-NO). Now with commercial hemp production legalized, CBD derived from hemp can now be purchased and shipped across state lines (we’ll touch on that later). The point is, the laws are changing and as a result, the sheer number of CBD manufacturers are growing. At LEAST once a day, a CBD supplier reaches out to me to try to solicit business and it’s important to note that not all CBD manufacturers are created equal. In fact, the FDA has shut down several vendors who have false claims regarding the quality and potency of their product. With so many sources available, it is incredibly important to do your homework and investigate the supply chain of your CBD. Is the supplier you are working with a broker who isn’t actually involved in the production? Are they just acting as a middle man? If your supplier is actually producing the CBD, where is the cannabis coming from? Is your supplier also involved in the growth and harvest process as well? What does that process look like? Is it ethical and sustainable? These are all questions you should be asking when sourcing raw CBD. This is also the time to bring in your head of product development and make sure they are involved in the selection process. After all, we are supply chain experts, not chemists! Beyond science, ask for references like certificates of analysis, safety data, and farm bill compliance to ensure you are getting the best quality product and to avoid regulatory issues in the future. Finding the right partner will ultimately benefit your supply chain and the final product.
Now that you’ve procured high-quality raw CBD from a reputable source, the next step is transportation. With what seems to be daily changes to state regulations, it is important to understand what product can be moved into what state. For example, CBD that contains more than a certain percentage of THC (the main active ingredient in cannabis), cannot be moved across some state lines due to individual state laws. You need to be fully aware of the THC percentages in all of the raw CBD you have procured in order to comply with state legalities. We could go into detail state by state of what is legal and illegal, but honestly tomorrow it could all change! Our biggest advice here is to stay aware of regulations. Know your product and know the ever-changing state laws. Keep in mind that if you produce a product that contains CBD, some states still do not allow the sale of that product. Even if a large retailer decides to sell your product, that retailer might not be able to offer your product in all states. As of now, U.S. parcel carriers will not ship CBD unless they contain less than a 0.3% THC level, are compliant with all federal, state and local laws and lastly, you must maintain compliance documentation that shows they are compliant with those laws.
The contract manufacturers that use the raw CBD to make a finished good are also a huge piece of the puzzle. Up until recently, most contract manufacturers were not interested in being involved in creating a product that contained CBD. Again, because of tricky legalities and CBD still being seen through a taboo lens. As a result, brands who were still determined to create their CBD product were forced to take a chance with smaller, less reputable contract manufacturers that were new to the industry and were willing to work with the new ingredient simply to generate business. As a result, a lot of inexperienced manufacturers were making products that lead to a very bumpy road of trial and error that leaned more towards error. This caused big (and costly) problems for some CBD brands and made it nearly impossible to cultivate a successful supply chain. Luckily, more and more experienced manufacturers are taking on brands that use CBD and are not as intimidated by it as they once were. Partners on all sides of the CBD industry are taking note of the rapid growth and massive revenue opportunities, including contract manufacturers. The moral of the story here is to always work with an experienced contract manufacturer that has a positive history of working with CBD and the expertise to do the job ethically and correctly.
Even though the world of CBD may be somewhat new to supply chain, the same principles that we uphold as an industry should be applied. Reputable partners, ethical and sustainable practices, and compliance with state laws just to name a few. As the CBD industry continues to grow at such a rapid pace, it means great things and new opportunities in supply chain. There will be new challenges to face and new problems to solve but it’s a chance for us to be a part of something disruptive and innovative. Whether you are a supply chain consultant or work internally for a brand, having the knowledge and expertise to be able to develop, maintain and optimize a successful supply chain for a CBD product will open up a world of new opportunities. At Supply Savvy, we’ve onboarded several clients in the CBD world and its been incredibly rewarding to be a part of.
Supply Savvy is a resource for businesses large and small to manage and optimize their supply chains from beginning to end. Fueled by experience and industry expertise, Supply Savvy develops and implements detail-oriented processes to ensure the full journey of a product’s creation is timely and cost-effective. Our mission is to establish efficient, effective and empowering production logistics so that founders can get back to what they do best: running their business. Visit www.supply-savvy.com to learn more.