I Couldn't Find A Quality CBD Supplier. So I Became One.
Free Book Preview Cannabis Capital
As an engineer with an industrial automation background, I cut my teeth working in manufacturing plants in small towns in the south and midwest, leading teams, implementing systems, and putting out production fires (often literally).
My background laid the foundation for a 10-year, venture-backed tech startup adventure—a rollercoaster ride that ended in an exit to our strategic partner. It wasn’t easy—deep technical integrations and complicated intellectual property licensing, with some of the most demanding semiconductor and industrial companies in the world. We were driving change (a disruptive way to control automated systems) in an industry that hated change. This dynamic, combined with two-year sales cycles, resulted in limited shots on goal.
Then I became an entrepreneur in the cannabis space and faced a new set of challenges. Cannabis is a different beast. Change is constant, incessant, and fast-paced. Based on my four years working in both marijuana and hemp, I've come to realize there is a constant tension between evolving to keep up with market shifts and focusing on the differentiation that your company uniquely brings to market.
A search turns up empty
In 2018, I set out with my business partner, Oz Hackett, to launch a CBD brand to leverage our distribution channel experience and connections. But after months of searching, we found there wasn’t an ingredient supplier with the consistency, transparency, and customer service we needed as the foundation for our brand. So we pivoted quickly to fill that gap and founded Open Book Extracts (OBX) in Roxboro, N.C. Our goal: to set a new, high-quality bar for the cannabinoid industry.
Tom Kelley, a partner at design and innovation consultancy IDEO, says that design thinking starts with anthropology. You have to step back with empathy and curiosity to observe the experience of the client you hope to serve.
Because we started on the brand side as prospective private-label buyers, we know how important it is to find a safe, reliable, and consistent CBD supply. We also have first-hand experience of the frustrations associated with finding trustworthy suppliers and quality ingredients.
Our supply-chain nightmare story
Last year, as we were testing our new distillation equipment, we bought crude oil from a third party, as our own extraction process was not yet operational. Like many buyers in the space, we worked with a reputable broker, who worked with a reputable manufacturer, to finalize the deal. The price was fair, the certificates of analysis (COA) were legitimate, and the timeline was met.
Then the crude oil arrived. We received a call from our local post office saying that the shipped boxes were leaking on their floors. The tops of the five-gallon buckets were not tightened and the only product descriptors were magic-marker scribbles on the side. We couldn’t tell if the product was winterized, and when we tried to contact the processor to ask this question, we realized that the “reputable manufacturer” had in-sourced this crude from a third party.
After spending nearly $10,000, not only did we have leaky containers and oil-soaked packaging, we also didn’t know what we had, where it was made, or how to contact the manufacturer—rendering it worthless to us with no recourse.
From our own experience, we learned that buying issues often arise from a lack of transparency from the processor, which inspired us to name our company “Open Book” to reinforce, internally and externally, the ethos of transparency. We invite scrutiny and provide the transparency needed to deliver and sustain quality, consistency, safety, and reliability for our clients.
What we've learned
If you’ve had a nightmare story similar to ours, or if you’re a prospective buyer hoping to avoid the same fate, here are five critical considerations for buyers to help evaluate supply partners.
1. Know your partners
Meet the processor’s team, including the owners, leadership, and science team. Be sure to look for team members with Ph.D.’s; engineering and chemistry graduate degrees; and/or quality control, manufacturing, and automation engineering experience. If none of the team members meets these qualifications, keep searching.
2. Know the facility
Visit the processor’s facility. Is it in operation? Is it clean? Is it “Good Manufacturing Practices” certified, or at least compliant (a production-quality U.S. Food and Drug Administration [FDA] guideline that is not, but should be, mandated for all CBD processors)? If the answer is “no” to any of these questions, keep looking. If the answer is “yes” to all three questions, ask to go to the utility rooms. What is the air handling tonnage and amperage for the facility? When is the next audit planned? At this stage of the market, seeing is believing.
3. Understand the value chain
Whatever the level of the processor’s vertical integration, make sure you get insight into each link of the chain under its purview to understand its capabilities. This industry has an issue with possessive pronouns; I can’t count the number of times that I’ve heard “my farm,” “my lab,” “my formulations”—only to learn that the product is actually outsourced to a third party. Confirm ownership of the value chain links. Confirm traceability linkages between links of the chain, especially if certain operations are outsourced. Ask to see the data and inventory tracking system and look beyond the snazzy QR code-triggered video and COA.
4. Understand the financials
Get insight on the funding and financial health of the processor. Can the processor survive this industry downturn or the next one? Is it prepared to adapt to new regulations from the FDA (e.g., all CBD processors must be cGMP-certified)? Has the processor triggered debt covenants? Is the company selling off equipment? Pay attention to these signals, assume that the company is stretched beyond what it represents, and ask the questions needed before entering into a supply relationship.
5. Ask for samples
Pay attention to the entire experience, from order to delivery, as it will provide insight into the processor’s customer service and execution capabilities. Are the samples shipped on time and packaged and labeled well? What is the unboxing experience? Is someone available at the processor to answer questions you have about the COA numbers and alignment with internal testing results?
We hope our five tips help accelerate buyers’ path to reliable processors and safe, high-quality, consistent CBD. If buyers expect this level of integrity and execution, it will help the entire industry evolve and ensure that consumers have the best possible experience and outcomes.