Cannabis distributors work with cultivators, manufacturers and dispensaries, and often gain insight into the industry from their experience in working with the entire supply chain. A wholesale distributor not only enables a cannabis brand to sell its products through a broad footprint of retail locations, but it also ensures legal compliance, from testing to taxation.
A reliable distributor is key for cultivators and manufacturers to distribute their products to dispensaries without bearing the cost of an in-house sales team or distribution network. And in some markets—like California—distributors are required by law, as cultivators cannot sell directly to retailers.
“The wholesale distributor is really the gatekeeper, if you will, to the retail channel in terms of compliant product,” says Dakota Sullivan, co-founder and CEO of California’s Calyx Brands. The third-party cannabis distributor was founded in 2016 and represents 18 different brands of finished goods and flower from several farms. Calyx distributes products to nearly 400 stores across the state through a network of sales representatives.
In states like California, the agencies that govern cannabis rely on third-party distributors to ensure that the brands and products they are distributing are compliant with all applicable regulations, such as packaging and testing requirements.
“We have to make sure that the products meet all the requirements, and when they don’t, we have to work with the brands to either modify their labels or sticker packages. Then, we’re responsible for working with laboratories to do what’s called CoA [Certificate of Analysis] testing,” Sullivan tells Cannabis Business Times.
If product fails microbial or pesticide testing, distributors must then work with cultivators and manufacturers to file remediation plans with the state, Sullivan adds. Distributors must also ensure that the vendors and retailers they work with are properly permitted and licensed, or they could be penalized for doing business with them.
Here, Sullivan offers his top advice to cultivators, from deciding which strains to grow to brand building, based on Calyx’s experience with connecting the dots of California’s supply chain.
1. Grow what retailers and customers want.
There is a disconnect between what retailers and customers need in terms of flower and what many cultivators grow, Sullivan says. In Calyx’s experience, growers like to experiment and try to improve upon a previous crop or their genetics, or they want to grow new strains. While this leads to diversity and new and interesting strains, Sullivan says dispensaries want the strains they know and like.
“From a retailer perspective, once they have a certain strain of Wedding Cake on the menu that they really like and customers really like—once they’ve done all the work of sorting through all the bad flower and the inconsistent flower … and everything else to find a strain that they really like that sells really well— … they just want to have that strain available all the time,” Sullivan says. “They want to have an unbroken chain of that flower available from that farm at all times.”
Sullivan recommends that growers think about who they are growing for and what they want, and lock in a consistent supply chain for retailers and customers, growing what they want to buy from you.
2. Thoroughly vet your distributors.
When choosing a distributor, cultivators must assess the distributor’s strengths and weaknesses, and balance price, services and flexibility, Sullivan says.
“All distributors have different strengths and weaknesses, and hopefully your distributor will be transparent with you about what their strengths and weaknesses are, and then you can find distributors who have complementary strengths and offset each other’s weaknesses,” he says.
Exclusivity may also be a consideration when choosing a distributor, but Sullivan urges cultivators not to work with distributors who demand exclusivity, as it might be beneficial to have distributors in different regions, such as the north and south of the market.
“I think that’s where I would encourage cultivators and distributors and manufacturers to shop around with distributors,” he says. “Don’t necessarily sign up with the first one you talk to and do find out their strengths and weaknesses and see if you can assemble an all-star team of distributors.”
Each distributor has its own sales and inventory management systems, however, and it takes time to get set up with a new distributor, so cultivators should choose a few to work with, but not so many that it becomes overwhelming to manage them all, Sullivan says.
3. Allow distributors and retailers to help build your brand.
Cultivators should view distributors not only as a distribution channel to reach retailers, but also as a way to build a brand, Sullivan says.
“This is kind of a new world, and quite honestly, most cultivators are still trying to work in the black-market way where they want someone to show up with a bag full of money and a truck and drive away with their flower and do everything COD [cash on delivery],” he says. “We still do that with some growers, but quite honestly, growers have to start thinking about their product the same way that manufacturers do.”
For example, well-known brands like Jif peanut butter and Pampers diapers have deep relationships with their retailers, and they constantly collect data from them, Sullivan says. They analyze how changes to packaging, for instance, might impact sales.
“Smart growers would start to view their flower just like any other product on the shelf of any other retail store and would want to start to work with third-party distributors to build their brand, not just show up with a bag of money and drive away with the flower,” Sullivan says. “I think that growers talk about their brand, but they don’t really back it up with what it takes to actually build a brand.”
A brand is based on how products are presented in retail outlets, how it is priced and promoted and how customers interact with the brand, Sullivan says. Flower brands should hire team members who come from a marketing background and know how to build a brand, and they should work with distributors and dispensaries to collect data and develop a strategy to get the brand on more shelves and increase sales, he says.
“You’ve got to start thinking about your brand as a living, breathing thing that requires data and requires a sustained relationship with a distributor, which doesn’t mean just COD but means giving distributors terms [and] starting to work in an integrated fashion with your distributor,” Sullivan says.
4. Conduct R&D testing.
Since distributors are typically responsible for getting product tested for cultivators and ensuring products’ compliance with state testing requirements, Sullivan recommends that growers conduct their own R&D testing to ensure the results meet their expectations.
For example, if a cultivator believes a batch of flower contains 22 percent THC and plans to label it as such, but the distributor takes the batch for testing and the results indicate that it contains 16 percent THC, the product must be labeled as 16 percent.
“I guess the bigger concern with testing is if anything fails—specifically, if it fails the pesticide, herbicide or microbiological … testing that we have to do with labs—then the flower has to be destroyed,” Sullivan says.
Failed pesticide testing can come as a surprise to growers—if they do not use pesticides in the facility, they would not expect testing to show concentrations of pesticides on their product, but well water used on the plants could be contaminated or an overspray from another field could have affected the crop.
“There are so many ways to get traces of pesticides into the supply chain or into the flower, so I would just encourage growers to make sure that you’re really doing all the R&D testing you can in advance to make sure there’s zero trace of any of the pesticides that can cause flower to fail,” Sullivan says.
Top Image: © Iarygin Andrii | Adobe Stock
