Most products on the market are standard white-label offerings from a handful of suppliers. The rarified air exists now for brands that differentiate and work with top-notch hybrid Consumer Packaged Goods (CPG) – Cannabis companies like CannGoods to create unique disruptive products that meet consumers where they are and at competitive price points. The future of CBD and cannabis consumer products will rely on brands moving to decentralized supply chains, such as CannGoods’, in order to plug-and-play specific responsibilities, ingredients, and vendors to meet a changing regulatory landscape as well as downward price pressure on retail CBD products as mass-market adoption goes mainstream and hemp moves into the commodity category of crops. This will in turn allow companies the unique opportunity to choose how to invest their precious capital into the right channels to maximize market share as opposed to vertical integration. Whereas in the early years of the CBD space, the only way to secure your product supply chain was to do it yourself, we have reached a new era and as the industry continues to mature, cannabis, like coffee, beer, foods, and other consumer packaged goods categories that reach mass adoption, will move to a decentralized state where brands will be brands, formulators will be formulators, copackers will be copackers, ingredient manufacturers will be ingredient manufacturers, and so on. This is the only outcome that allows for the price point to move to where it needs to go with a commoditized botanical ingredient reaching global scale as a wellness ingredient.
As we look at mass adoption and scaled CPG categories, we know these things will happen, but with them come what will be necessary price elasticity. In the current atmosphere of retailers and big eCommerce, CBD brands are forced to wrestle with short order timelines, large volumes of inventory and decreasing margins as retailers push for affordable shelf space options and take a larger percentage of the retail price post-COVID. What this means is that brands will need agility, flexibility and industry-leading production capabilities, and also hyper cost-sensitive unit economics to allow for not only revenue but profitability.
So, as we look at the future of CBD and cannabis, we can see the roadmap, as previously lit by the categories that have gone before. While we know this unique industry will have its own nuances and differentiators, in general, it will follow patterns we have seen before. In order to plan for this and to strategically position your brand to win, first, you have to recognize the necessity of the choice, then you must choose to move in the proper direction. What we are seeing is the long-term winners in this category are the ones already working to move away from the big white labelers and create their own IP through a decentralized supply chain offering, where the entry costs can be as low as the larger vertically integrated companies, but with the long term growth and IP ownership that will be key for a brand in the long term. The benefit of this approach is obvious in terms of use of capital, fundraising, operational expertise of the team, etc., and can be a game-changer for brands and retailers as they move into this new and exciting product category.
Once a brand has fully educated themselves on this paradigm, they then ask, now what? This is where planning ahead as a true CPG begins. Once you have chosen where you want to play and chosen your lane (Ecommerce, Niche Retail, Big Box Retail, OTC, Pharmaceutical), the next step is devising the strategy of how to win. Unit economics and margin become the most prized metrics and in order to rise above your competition here, there are several operational strategies that need to be executed.
- Product Innovation Pipeline – This is something that should be present in any CPG company. The constant pursuit and strategic layout of understanding your consumer, knowing what they want, and responding in real-time to product tweaks, supply chain constraints, and formula innovations that can or need to be implemented into the product family to ensure customers that you see them, you hear them and you are responding to what they want.
- Data & Insights – This requires both the ability to collect the data and insights as well as the ability to innovate those insights into products and push them to the marketplace with agility and speed without compromising regulatory standards or unit economics. This is achieved through a decentralized supply chain through rapid iteration and agile product development at a small scale, and within a network of world-class providers at all scales to meet unique timeline and economic constraint factors to optimize the development, production, and delivery of finished goods that allow for the highest standards, while maintaining healthy unit economics.
- Scalability – This becomes key as you move through and break the constraints of the previous sections. Once this process is built out and is executed once or twice, the circular innovation loop can be scoped and adapted to both qualitative and quantitative metrics to begin to apply Lean Six Sigma and/or Theory of Constraints practices to then begin to maximize the desired traits of the pipeline. This is the stage where CannGoods would either work with an internal person on an ongoing basis or train the internal team to take this over and remain on-call as necessary where value could continue to be added.
As the world continues to come back online after the COVID-19 pandemic, supply chains will be stretched, and more winners will emerge in every industry. The future of the industry is bright, and brighter still for those who take hold of the opportunity to evolve and grow beyond what the current paradigm deems safe. Decentralized is not just for crypto anymore, it’s a way of thinking and operating that will consume the rest of this century and the book is yet to be written about those who come out on top of this industry, but rest assured that making the right choice now in partners and operational strategies is as much about the people you are working with as it is their approach to a future consistent with reality.
