A small family-owned extraction company like Vermont Organic Science (VOS) measures success in many ways. For VOS President AJ Payack, escaping an unfulfilling corporate career was one measure. Another was working with his award-winning father, a former chemist in the pharmaceutical industry, to develop a proprietary extraction system and build out their own lab.
The next measurement of success Payack hopes to see play out is getting VOS’s full-spectrum cannabidiol (CBD) products on major retailer shelves.
While VOS has gained some traction getting its products in local and regional stores, Payack shares an early lesson: “It’s hard for the little guys to get into major stores.” And as it turns out, it’s not just tough for smaller hemp businesses. Growers and brands of any size must work hard to break into major retail networks.
Creating Connections to Build On
For folks new to the natural foods and hemp food markets, seeing Manitoba Harvest Hemp Hearts on Walmart shelves may seem like overnight success. But Mike Fata, one of the company’s founders and its former chairman and CEO, is quick to mention Manitoba Harvest launched in 1998. Fata was instrumental in Canada’s legalization of industrial hemp that year (as well as in Manitoba Harvest’s 2019 sale to Tilray, the world’s largest global cannabis company, for CA$419 million).
Manitoba Harvest got its footing in natural food stores, where Fata says he spent many 100-hour weeks sharing information, products and his passion for health and hemp. Though 23 years have passed, he says the importance of building a grassroots foundation of personal and business relationships hasn’t changed.
Fata says it took about five years to get into leading Canadian grocery chains. Another seven years of building the business one relationship at a time landed their products on Costco Wholesale Canada shelves. A subsequent launch in Costco’s U.S. stores, coinciding with Manitoba Harvest rebranding its “shelled hemp seeds” as “hemp hearts” to create a stronger connection with the product’s health benefits, was a defining moment. “Launching and starting to sell into Costco in the U.S. encouraged other U.S. grocery retailers to carry the product as well,” Fata says. Walmart followed a few years later.
COVID-19 hurdles notwithstanding, Fata says establishing direct connections and building relationships with retailers, distributors and brokers is invaluable for hemp brands. Natural product expos and trade shows, whether physical or virtual, were key to Manitoba Harvest’s expansion. “It’s not cheap to do those trade shows, but that’s how we built success,” he says. “And many people still use trade shows as a basis to build their business.”
VOS also won local retailer connections in its early days by making face-to-face visits, pitching products and giving out samples in stores.
But Payack’s attempts to connect with large retailers and health food chains through local connections has so far led to dead ends and corporate gatekeepers. Many companies referred him to RangeMe.com, a sourcing platform designed to connect producers with major retailers. While he made connections through that platform and sent out samples, the lack of positive progress and direct contact outside the platform was frustrating.
Reading the Room in Big Retail
One significant benefit to building relationships is exposure to varied perspectives. For major retailers considering hemp products, their view is a lot different than that of a dedicated hemp grower or brand—especially when CBD or other cannabinoid-focused products are involved.
As Payack approached retailers, he frequently found national chains reticent to roll out CBD products. Full-spectrum CBD products that contained even trace amounts of tetrahydrocannabinol (THC) sparked major concerns. Worries about becoming high-visibility targets for the U.S. Food and Drug Administration (FDA), which has not yet established a regulatory framework for CBD, kept otherwise interested companies on the sidelines.
Matt Storey is senior vice president of global business development for NuSachi, a vertically integrated Nashville-based startup offering B2B contract manufacturing in the hemp space. NuSachi’s contract services for B2B clients taking hemp-derived products to retail include everything from full product ideation and development to custom growing, extraction, formulation, toll processing, bottling and white labeling.
Storey was also part of the original team at CBD pioneer Charlotte’s Web, so he speaks from experience gained at the table with major retailers that were enthralled by the brand but backed by legal teams averse to risk.
He recommends that CBD brands going to market or seeking to enter bigger markets need to read the room. “All the big players—the Walmarts, the Targets, the Walgreens—have still not gotten a clear enough indication from the FDA that they feel safe putting these [cannabinoid] products out in significant volume in any format other than topical application products,” Storey says.
“If you think you’re going to make a hemp product and then just go blast it in and be in Costco by the end of the year, it’s just not happening,” he adds. “Unless you’re a topical product—then you have this potential.”
Valuing Grower-Brand Relationships
In refining your path to major retailers, don’t undervalue the relationships between grower and brand. VOS does extraction for several farmers, but just one farmer grows for VOS-branded products. When choosing a grower for VOS’s organic-certified CBD extracts, Payack says organic certification was essential, and personal character was the deciding factor. Having partners you can trust is crucial, whether you’re the face of the brand or the farmer behind it.
NuSachi operates a 3,000- square-foot, data-driven greenhouse cultivation facility as part of the company’s vertically integrated supply chain. President J. Mitchell, who brings broad cultivation and food industry expertise to the company, explains that NuSachi only grows crops to support specific development projects. “We always grow for customers and have that partnership on the front end, never trying to get over our skis too much around how much we cultivate,” Mitchell says.
NuSachi’s facility produces all the hemp flower for company clients, but other vendors contribute ingredients for larger contract manufacturing. Entry into NuSachi’s supply chain doesn’t come easily. Producer-partner vetting includes vendor qualification and quality control that embraces rigorous full-panel testing more common in medical-grade cannabis production, including potency, pesticides, heavy metals, mycotoxins and microbials. “The majority of vendors we seek to qualify fail for one or multiple contaminants,” Mitchell says.
Fata says grower partnerships have been critical to Manitoba Harvest’s success. More than 20 years post-launch, the company still works with some of its original hemp farmers. “That’s the backbone of the business,” he says. “The success of Manitoba Harvest was built on vertical integration.”
As an early capital raising strategy, Manitoba Harvest offered its best producer-partners opportunities to invest in the company, and many did. As a result, Fata says these long-standing relationships are much stronger than typical supply relationships. “We’ve spent a tremendous amount of time making friendships, educating our producer group on how to be successful, teaching them about quality and allowing them to invest in the overall success of Manitoba Harvest,” he says.
Partnerships with growers also enabled Manitoba Harvest to scale effectively. Farmers shared the company’s “goodwill” with other growers, Fata says, so the producer network grew along with the company. “It was a huge part of the company’s success and why Manitoba Harvest could outcompete literally hundreds of hemp companies that tried to do the same thing,” Fata recalls.
In Canada’s early hemp years, many other producers faltered by growing on spec without contracts. Fata notes the same thing happening in the U.S., intensified by the country’s size. “I’m a big believer in encouraging producers to have a contract with a company that has enough strength to fulfill their end of the contract,” he says. When partnerships lack value, producers get “the bad end of the stick.”
Navigating Retailer Expectations
As a grower or brand dealing with smaller stores, one-on-one interactions ensure both parties stay on the same page regarding what they need from each other. But handling larger retailers involves a much broader set of expectations than most nascent brands realize. Even in smaller retail chains, the expectations for marketing materials and free samples—with no promise of shelf space—can be daunting.
Payack says establishing relationships with retailers is like the chicken-and-egg paradox. If you could get your foot in the door, you could scale production to meet expectations. But without the scale up front, you can’t get in retail doors. “That’s a huge challenge,” he says.
Fata says scale isn’t optional: “You can’t be a startup and go into a major retailer. There’s no way that you’ll be successful doing that.” You need a minimum production capacity—in addition to meeting all market standards—just to get a presentation with large retailers.
One alternative is approaching smaller independent retailers or national retailers that support local business in your area. “That’s why the industry really started in the natural foods space—going into the local health food stores and the co-ops—so that you could actually get some brand awareness and get some sales velocity,” Fata says.
Beyond scale, a retail launch comes with numerous costs. Fata explains that “free fills”—giving a store free initial product to fill the shelf space at no cost to the store—are common expenditures. These costs can be considerable, especially with multiple stores involved. Add in advertising commitments for the retailer’s flyers and other marketing programs. Next comes the distributor that supplies the retailer and a broker to facilitate the distributor’s margin and take their own cut. “There’s a whole supply chain of costs besides the actual retailer costs themselves,” Fata says.
Storey agrees: “I don’t think most small or emerging brands—micro brands or just new—understand how much of a commitment and promotional spend there is with larger chain retailers.”
Other costs may include “slotting fees,” which are fees producers and brands pay to retailers to get products on their shelves. Brands that are unprepared, unwilling or unable to handle those types of costs won’t fare well. “They’re just not going to carry you, no matter how awesome your product is,” Storey says.
He says brands need to consider whether they should spend time building a regional presence by gaining traction with smaller retailers or go big by devoting a significant budget to the promotional spending it takes to live in major retail. “That’s a big consideration,” he says.
Bigger chains are also going to expect traceability, Storey adds: “When they’re taking this risk on … they’re going to want to know that you have taken all the safety measures to protect their customers, their consumers, their companies and their stores.”
Telling Your Story
Even if you’re prepared for the promotional spend, gaining and retaining consumer attention still falls on you, not the retailer. Differentiating your company and products from the retail competition through branding and marketing is a necessity many small brands and growers aren’t equipped to accomplish without outside help.
“The consumer packaged goods industry is one of the toughest industries, especially in food,” Fata says. “Most of the products that start out small-scale or at a farmers market with a plain label aren’t going to find success or aren’t going to find big business because branding and messaging to the consumer, educating the consumer, and turning the consumer into a lifelong customer is very, very challenging.”
Storey believes many growers sell themselves short on telling their story effectively. Without it, your product becomes a faceless commodity. But he acknowledges storytelling doesn’t always come easily. That’s where investing in branding and marketing help comes in.
“A lot of farmers I’ve met were very humble, salt-of-the-earth kind of people that don’t like talking about themselves—it’s not natural,” Storey shares. He adds that marketing professionals can help you share your story so customers understand the care and precision you put into what you grow.
That kind of story—when told effectively and tied to product origins and your farm—can be the differentiator you need to attract consumers and retail buyers.
Injecting Innovation Into the Industry
Whatever product you pitch to retailers, Fata says innovation is key: “It needs to be different. Not just new.” He says consumers want high-quality products for the right price. And when they already have those on the shelf, it’s hard for new brands to compete.
Case in point: New Frontier Data puts Manitoba Harvest’s retail sales share of the entire U.S. hemp foods space at 58% for 2020. Fata says the company’s hemp hearts enjoy about an 85% share of the total hemp hearts market. In that space, only real innovation gets a place. “The competition is 20 years old, and it’s super tough,” Fata says.
At NuSachi, an innovative B2B business model combines novel approaches to contract cultivation, transparent customer-facing traceability, nuanced proprietary extraction techniques, product development from ideation to manufacturing, and inventive packaging.
NuSachi’s recently announced partner product launch with Nashville hemp dispensary Perfect Plant Hemp Co. includes full-spectrum gourmet gummies with a 10:1 CBD:THC ratio, fortified with cannabichromene (CBC) and cannabigerol (CBG). Flavors range from Mango Chili Lime to Peanut Butter & Jelly.
“We really like pulling from a pantry of cannabinoids and being able to utilize as many as we can to fit our customer specs and create unique products in the market,” Mitchell says. And consumers are responding to the innovative ingestibles.
While industry innovation includes products destined for physical retail shelves, e-commerce innovations are growing in importance. A recent NuSachi partnership involved Kat’s Naturals, a CBD company with products found at retail shops in nearly every state. But the product NuSachi created—the first in a limited-edition Kat’s Craft Collection— was only offered through the Kat’s Naturals website.
Fata says engaging in internet sales is a smart strategy that holds great promise for growers and brands. “It’s very, very expensive to sell products in retail, and it’s very challenging to get on the shelf. But you can start your own website and start selling online and start promoting through social media to drive traffic and conversion to the website, and you can control the cost that way,” he says. “There are very successful companies that are doing millions of dollars of business, just online. They haven’t … even launched in retail [stores] yet.”
Fata, Storey and Mitchell all advise growers and brands to draw on the resources available through local and regional hemp associations. “It’s all about community,” Fata says. “For people that are starting a brand or want to actually get into the business, it’s good to create community that way and meet others. Those partnerships are really important in the supply chain, from producer to manufacturer to brand, to get [products] out to retail.”
With e-commerce and natural foods stores high on his list of targets, Payack advises hemp brands to do their research. “Before you get into the industry, go meet with stores or go meet with an extraction lab. See what they have to offer or if they’d be interested in your products,” he says. “Don’t just go in blind, hoping that you’re going to make millions of dollars. It’s not that easy.”
