Needless to say, California’s cannabis industry has been experiencing a significant boom since recreational legalization in 2018. Of course, that boom doesn’t come without its own bumps in the road. Due to its federal classification and infancy, cannabis is one of the most tumultuous industries, not just to thrive in but to survive in. A fact we all saw firsthand by the collapse of Herbl, just this year.
When one of the biggest California cannabis distribution companies goes down, what should current or future brands do or consider? Their own alternative routes to continually manufacturing products for California wholesale cannabis distribution to maintain continual profits.
To put your continual game plan into place, let’s further explore the hurdles faced by California cannabis distributors and learn how contract manufacturers or cannabis white label goods can help. Keep reading to learn more best practices on how to drive increased sales and succeed in this burgeoning industry.
The Top 5 Challenges Faced by Cannabis Distribution Companies in California
To know exactly what you’ll be dealing with California cannabis distribution, let’s cover the bad news before the good news. Here are the top 5 challenges faced by cannabis distribution companies in California.
#1 – Compliance
In every state, but especially in California, the regulatory landscape is ever-evolving. Every market has strict regulations in regards to the manufacturing, packaging, distribution, and sales of cannabis products due to the nature of their use and effects. Once licensed, every part of the process from “seed to sale” is subject to these regulations, and there are strict penalties for not remaining in compliance. Not only can violations negatively affect a brand’s reputation, but they can also come with monetary fines or punishments such as license suspension.
What are the simplest ways to address this challenge? Cannabis distribution companies will either invest in robust compliance management systems that help them adhere to state and local regulations in-house. Or, they’ll turn to outside manufacturing facilities that are experts in rules and regulations and stay up to date with the latest compliance measures across multiple product types and regions.
#2 – Taxes
If you’re already a player in the California market, you already know about the challenges that taxes pose for brands. California cannabis distribution is subject to hefty taxes on cannabis, which can significantly impact a distribution company’s profitability. Included in these taxes are –
- Cultivation taxes
- Excise taxes
- Sales taxes
Which are all collected at various stages of the supply chain. These taxes can also lead to higher prices, making profits that much harder for companies to obtain. To help, California cannabis distribution companies may streamline operations and cut costs by using an existing facility with a California manufacturing license for production.
#3 – Banking access
Because cannabis remains illegal at the federal level in the United States, companies struggle with limited access to banking and financial services. Even more so, it is much more challenging to obtain funding through loans or other conventional means of raising capital. Many banks are hesitant to provide services to cannabis distribution companies due to the federal prohibition, forcing these businesses to operate primarily in cash.
To address this challenge, companies can seek out cannabis-friendly financial institutions that are willing to provide banking services. Additionally, they can explore alternative financial solutions, such as cryptocurrency or fintech platforms tailored to the cannabis industry.
#4 – Competition
Cannabis markets in any state are competitive, but even more so in California, with numerous distribution companies vying for a share of the market. This saturation can make it challenging for newcomers to gain a foothold and for existing businesses to maintain growth. What helps is to gain advantages against the competition through product offerings, branding, and customer service.
Many current California cannabis distribution companies now use California cannabis manufacturing facilities to produce their products, giving their team more time to leverage competitive advantages such as advertising and consumer education.
#5 – Quality Control
Ensuring the quality and safety of cannabis products is of paramount importance. Not just for consumer safety, but for compliance regulations, too. California mandates rigorous testing requirements for cannabis products, including testing for pesticides, contaminants, and potency. Failing these tests may result in financial loss and damage to a brand’s reputation if the products do end up on the shelves.
For new brands, to guarantee quality, it helps to use the services of a contract manufacturer or white-label cannabis producer. These facilities are well-versed in creating quality products within California’s strict regulations.
How to Overcome California Cannabis Distribution Challenges
Want even more tips on how to crack the California cannabis distribution code with success? Here are four key things to consider to overcome California cannabis distributor challenges.
Product Diversification
Cannabis distribution companies should diversify their product offerings to appeal to a broader customer base. This can include offering a wide range of cannabis edibles, concentrates, and wellness products. Using white-label and private-label cannabis manufacturers can help reduce the costs involved with manufacturing new products in categories you’re not an expert in.
Branding and Marketing
Effective branding and marketing are crucial for creating brand loyalty and driving sales, especially in a saturated market. By outsourcing your manufacturing to a contract manufacturer or white-label cannabis producer, you can devote more time to the branding and marketing side of things.
Distribution Efficiency
Efficient distribution is key to success in the cannabis industry. Companies should optimize their supply chain operations to reduce costs and delivery times. Implementing modern inventory management systems, route optimization software, and logistics solutions can streamline distribution processes. Again, working with contract manufacturers can also increase efficiency.
Customer Education
Educating consumers about cannabis products is essential, especially for those new to the industry. This also includes educating budtenders or retail store staff so they’re aware of your new product, its differentiation, and what it can do for consumers.
Since they’ll ultimately be the ones recommending it, offering educational resources and product guides can help customers make informed decisions and build trust in your brand.
The Final Word – California Wholesale Cannabis Distribution
Cannabis distribution companies in California face a unique set of challenges, from regulatory compliance to intense competition. However, by implementing best practices such as diversifying product offerings, focusing on branding and marketing, optimizing distribution efficiency, and staying compliant with regulations, these businesses can thrive in this rapidly evolving industry.
With careful planning and strategic execution, cannabis distribution companies can navigate the challenges and seize the opportunities that the California cannabis market offers. Having a state-of-the-art and premier cannabis manufacturing facility by your side can certainly help. Enter My Green Network into the conversation.
My Green Network has been supporting existing and emerging cannabis brands since 2021 with co-manufacturing and shared cannabis kitchen space. Learn more about our manufacturing capabilities, including solventless, by scheduling a tour of our facility or call with our team.
