Thinking about Cannabis White Label? Read This.
Welcome to the next installation of our educational series on how to enter the cannabis industry where we provide a practical guide on the pros and cons, and timing of each method to maximize your entry into cannabis the ~legal~ way.
Today, we take a look at “cannabis white-labeling.”
What is Cannabis White Label?
Cannabis white labeling is generally a means for brands to expand or grow their business in the legal cannabis space. Unlike with the MyGN’s Type S License or traditional cannabis licensing, you will not own your own cannabis license throughout this process.
There are many similarities between cannabis contract manufacturing and cannabis white labeling.
An important distinction to note with white label cannabis is that another company will create their own product with a blank “white label” – then slapping your brand onto the label. This means you are not using your own product formulation.
Amazon is a prime example. See what we did there? 😉 You search one type of object and there are millions of copies out there, just with a different logo. In that instance, it’s likely to have been produced by the same manufacturer, just a different logo.
Is White Label Cannabis Good for Entrepreneurs, Startups, and Small Business?
NO.
Google it, we dare you. The first thing that pops up in response to “what are the cons of white labeling products” should say “not suitable for smaller brands.” This runs true across the board in other industries and is especially true for the licensed cannabis industry.
The best time for white labeling is:
⦁ AFTER you already have your own cannabis license.
⦁ HAVE an existing, established brand; and
⦁ HAVE a ton of money to pick and choose products you wish to brand as your own.
Is Cannabis White Label Legal in California?
Like cannabis contract manufacturing, cannabis white labeling is legal only for already licensed operators.
This is another reason why white labeling should really only be an option for you after you get your own license.
Per the DCC Regulations, Section 15001(b), “Commercial cannabis activity shall only be conducted between licensees.”
If you don’t own the license, it is illegal for you to receive profits from the sale of the cannabis goods because you can’t perform commercial cannabis activity with a non-licensee.
How can I get a Cannabis White Label Product in California without a License?
Step 1: Find a licensed California cannabis white label company that is willing to take the risk to create your product for you as an unlicensed cannabis business with the product that you want to create.
Step 2: Get quoted a price for use of the cannabis white labeler’s intellectual property, resources, cannabis licenses, etc. This is usually per unit, per month, per deal, or can be any number of potential contracts. At the end of the day, you will be fully reliant on them.
Step 3: Ensure that production quality is up to your standards. Remember – you are not a licensed operator so the cannabis white labeler will be doing all the work.
Step 4: Wait for them to produce, package, and assemble your product properly.
Step 5: Sell your product. You will need to negotiate with your cannabis white label partner on how to get samples and product to your sales outlets. You also need to ensure you can legally tell licensees that you are producing legally and can use the cannabis white label company’s license number.
What are the Cons of White Label Cannabis?
There are quite a few here, here are some of the biggest cons for cannabis white labeling.
You do not own the cannabis license
You are fully reliant in a white label deal on the licensee – there is zero control over production, distribution, etc.
One Manufacturer, Shared-Liability
The risk here is less than a contract manufacturing deal because usually – the cannabis white labeling company is using its own formulation, products, etc. However, if for example – one of the other clients of the cannabis white labeling company is upset that their product is being produced late, sues the cannabis white label company, etc. this can delay or even cripple your business.
Inflexible Operations
In a cannabis white label deal – you are required to follow the cannabis white labeling company’s pace – not your own. If they don’t meet your deadlines – you’re out of luck.
Zero Control
In a cannabis white label deal, you literally have zero control and minimal input on your product. You are literally paying someone else to create their product and slap your label on it – so you don’t really get a say.
Ultra-Aggressive Competition
In a cannabis white label deal, you are putting your label on a product that already exists on the market. So, the only competitive advantage you have is if your branding is better. If you’re ready to go head-to-head against ultra-capitalized companies with hundreds of millions of dollars – white labeling would be good for you.
What are the Benefits of Cannabis White Labeling?
⦁ No Design or Formulation Needed
In a white label deal you are using the white label company’s formulation and resources. This means you are just paying for someone else’s product. While your product won’t be unique, you will at least know that it can be produced.
⦁ Hand’s Off Production
While also one of the biggest problems with cannabis white labeling – your involvement on production is basically non-existent so you don’t need to supervise production if you don’t want to.
⦁ Faster Ramp-Up Times
The time is similar to Type S licenses and faster than cannabis contract manufacturing. If you have a ton of money backing you to compete for market share – this is likely the fastest way to enter the market.
What are Costs to Consider for Cannabis White Labeling?
Cannabis White Label Minimum Order Quantities (MOQ)
White Label deals have very high MOQs and will vary based on production capacity, equipment, etc. in order to make it worthwhile. Generally, white labeling is for well-capitalized brands that are ready to fight for market share with an existing product.
Cannabis White Label Price Per Unit
Normally, you would consider COGS when producing. However, in a white label deal – you are at the mercy of the cannabis white labeler. If they say “You’ll pay $10.00 per unit” that’s the price. If you want to negotiate – you can. Just keep in mind – a good white labeler doesn’t necessarily need your business – they would rather use their time for a bigger deal. On the flip side – you definitely need them, especially if you don’t own your own license.
Cannabis White Label Storage
One of the biggest hurdles to overcome is licensed cannabis storage because it is very valuable. Think of it this way, normal storage might be $5 sqft/month, a cannabis business will generally 5x the cost to $25 sqft/week.
In most cases, cannabis white labelers will set a time limit for you to move your product after already building this storage fee into your cost. A standard time frame is 3 days. So, if after 3 days, your product hasn’t moved out of their storage, you might start paying additional fees like $700/day until your product is sold.
Cannabis Distribution Fees and Network
Cannabis distribution is key. Just because your cannabis white labeler can produce, doesn’t mean they can or even will distribute your product.
The cannabis distribution license is a separate license and in order to transport your product, you need to use a distribution license. Normal cannabis industry rates vary from 10% to 33% of gross value with minimums of $200-$1000. Weight, volume, distance, and time will affect the cost as well.
Cannabis White Label Taxes
As a cannabis company, many times the cannabis white labeler will also need to calculate cannabis manufacturing taxes (city and state) and cultivation taxes which are passed down. This can get complicated and get expensive as well.
Cannabis White Labeler Profit Margin
Cannabis white labeler profit margins will vary. In most cases, 5% is low, 10% is average, 20% is high. They’ll build this into the deal with you.
Cannabis White Label Contract Length
Cannabis white labeler will want a commitment from you so they don’t waste their time, such as a long-term contract to ensure that if they are putting in resources - they won’t lose money. Any good white labeler will be picky about producing for someone because it is an opportunity cost for them.
A standard time is around 6 months for these types of deals and they might ask you to also put down a deposit up front.
So, What is the Cost for a Cannabis White Label Deal?
Be prepared to pay at a minimum $200,000 for production and distribution.
If you approach a cannabis white labeler to produce for you, you should be prepared to pay for everything above. The bigger price tag is attached to your marketing in having to fight for market share.
What Are Additional Considerations I Should Think About before I White Label Cannabis?
Cannabis White Label Product Competition
This is so important because with white label cannabis, you do not have a “new” product.
Another way to look at it is if white label company produces for 50 companies the exact same tincture. All 50 companies approach the same dispensary to carry their tincture – which of the 50 tinctures is that dispensary going to carry? Remember Amazon?
On the other hand, if you approach a dispensary with a cannabis infused product they’ve never seen yet – like a cannabis infused mooncake - which is going to be the easier sell?
Cannabis White Label Manufacturing License Status
While this seems obvious, verify the cannabis white labeler’s license with the state’s website https://search.cannabis.ca.gov/.
Black market operators, CBD/Industrial Hemp misconceptions, and even fraud does occur. Some black market or cbd companies will falsely use someone else’s cannabis manufacturing license to close the deal. In this situation, you also run the risk of illegally producing and selling cannabis products.
Other Cannabis White Label Clients
Keep in mind – in a cannabis white label deal you are not doing anything unique or launching a product that has any special characteristic. If you were smart enough to see that the white labeler’s product was good, it probably means someone else has too. If the cannabis white labeler is willing to create the product for you, it probably means they are doing it for others too. If they are producing for 10 clients, most likely they will choose the ones that pay the most money – and you may be put in the back of the line.
Cannabis White Label Financial Health
The worst thing that can happen is when your producer closes its doors and leaves you stranded with a large unfulfilled order. What is worse – is that since you do not own the formulation, creating the exact same product you wanted to brand as your own becomes pretty much impossible if your white labeler goes out of business. Whether you’re meeting with a new or established company, always ask them point-blank about their stability and financial health. Look into their history as well.
Cannabis White Label Product Quality
Another factor to consider is whether the company that is white labeling your product is actually producing the same quality product for you, or are they creating something of lesser quality?
Think of it this way: If the product really is good, (1) why would they produce for you? (2) why should they take the risk for you as an unlicensed entity? (3) why should they take the risk to produce a product that you might not be able to sell?
Legal Fees, Attorneys
A necessary evil we must bring up. As lawyers ourselves we always strive to think of the worst-case scenario and prepare for it. There’s a lot of risk in a white-label deal because what DOES happen if the white labeler ends up going bankrupt? If they don’t produce your product on time and your sales outlets are getting frustrated with delays? What happens if the DCC realizes you are an unlicensed entity receiving the profits? What else is the white labeler doing which could affect your business?
When is White Label Cannabis Good for Me?
Cannabis white labeling is good when you:
⦁ have an existing cannabis license,
⦁ you have an existing cannabis brand
⦁ you have existing cannabis products to balance your portfolio of offerings
⦁ you have a lot of money – enough to compete against the biggest names for the product you are going to have white labeled (5) you are ready to compete not on quality, uniqueness, or price point – but branding.
If you aren’t at that stage, wait for it…
Then get a Type S license!
We hope this was educational and informative, if you have any questions or want to inquire about getting your own cannabis license, contact us!
Go Green the Way You Want, we do the Rest.
Read more Articles related to this.
If you haven’t read them yet, we recommend to read more about other ways cannapreneurs enter the industry:
⦁ The Top 5 Ways to Start Your Cannabis Business
⦁ Part 1: The MyGN Type S License
⦁ Part 2: The Traditional Route to get a Cannabis License
⦁ Part 3: What is Cannabis Contract Manufacturing?
⦁ Part 4: What is Cannabis White Labeling?
⦁ Part 5: What is Cannabis Co Location
