The cannabis industry becomes more like Big Pharma with every passing day. Not only are manufacturers crafting cannabis products with pharmaceutical precision, they’re packaging them with Big Pharma strategies too.
In the not-too-distant future, a commonplace business strategy — contract packaging — could become the new normal. Under the contract packaging paradigm, a third-party firm packs the product and assists with its distribution. In essence, contract packaging lets companies focus on optimizing product development and marketing.
At AssurPack®, we don’t offer contract packaging services. We’re not a contract packaging firm, and very few contract packagers currently cater to cannabis. However, our team members have extensive experience in the contract packaging space, and we anticipate specific ways that contract packaging will play a role in the cannabis industry of the future.
What is Contract Packaging?
Many consumer packaged goods (CPG) companies use contract packaging — not just pharmaceutical companies. By outsourcing to a third-party firm, product manufacturers reap the benefits of specialization, and ultimately, increase their profits.
The contract packaging business model, which is also known as co-packing/outsourcing, includes a variety of service offerings. In its simplest form, a third-party company — the contract packager — offers “packaging equipment for hire.” They help manufacturers avoid the upfront expense of sophisticated packaging equipment, and they have the expertise needed to run the machines.
Contract packagers may also help with distribution logistics, inventory management, and order fulfillment. Still others have in-house design teams that draft the package design and assist with prototype testing.
Regardless of the scope of the contract packagers services, they’ll devise the most efficient packaging solution possible within your budget and constraints. They may have recommendations about what types of packaging to use, how to apply labels, and how to seal your product for protection and freshness.
Benefits of Contract Packaging
- Lower upfront investment: Contracting with a copacker avoids equipment expenditures and the need for workforce training.
- cGMP Compliance without the investment: Contract packagers will help you meet state regulations — now and in the future.
- Distribution and inventory management: Contract packagers can monitor stock levels of the product, the packaging, and packaging components like inserts and labels.
- Design services: Some contract packagers also provide package design services, or help with the selection of an appropriate packaging for your product.
- Manufacturing: Contract packagers may serve as the packaging supplier. They produce thermoformed blister packs and print labels in-house.
- Scalability: Third-party experts are usually better equipped to handle changes in product volume.
Contract Packaging for Cannabis
Regulations complicate the movement of products within cannabis supply chains, making contract packaging difficult — or illegal — in many jurisdictions. However, some contract packagers formed companies exactly for the purpose of addressing regulatory concerns.
The first contract cannabis packagers offered labeling services. Labeling regulations are complex and subject to frequent changes. By outsourcing labeling to a specialist, product manufacturers not only save a step in their processes, they increase their regulatory confidence.
Another way that contract packagers can increase regulatory compliance is with better measurement and proportioning of the product. Most state laws demand tight weight tolerances and precise potency measurements. Better equipment can meet those state requirements, especially when operated by skilled personnel.
Packaging technologies have evolved far beyond chopsticks, jars, and digital scales. New machines can quickly sort cannabis flower by size and batch it by weight into grams, eighths, and quarters. However, this type of equipment is costly, and operating it requires training. That’s why contract packaging can be so advantageous.
For vertically integrated businesses, contract packaging presents particular advantages. If you’re cultivating, manufacturing, marketing and retailing, you probably don’t have time to learn another skill set. Outsourcing any skilled task will streamline your operation and increase your speed to market — if outsourcing is legal in your jurisdiction.
Contract Packaging is Different from White Labeling and Private Labeling
Unlike contract packaging, white labeling is the practice of providing a product for sale under multiple brand names. White-label CBD manufacturers, for instance, sell bottles of their tincture (in bulk) pre-labeled with their clients’ branding and logos. That enables the client to focus on marketing.
It’s important to note that the white label supplier will sell the same product formulation to multiple clients. It’s the same product; the only difference is the packaging and label.
Private labeling, on the other hand, is exclusive. The supplier uses a product formulation that’s exclusive to the client. The client may provide the recipe to the supplier or work with the supplier to create a new one. Then, the supplier produces and packages the recipe for sale by the client (and only by that client).
With contract packaging, the third-party does not manufacture the product. They may distribute the product to retailers on behalf of the manufacturing brand, but they are not the principle manufacturer.
Chain of Custody Issues
Naturally, contract packagers take possession of the product in order to package it. For cannabis products, this can create licensing hurdles and legal roadblocks. And in states like California that have testing requirements at every link of the supply chain, a simple transfer of product between business partners is a non-starter.
For now, private labeling is the most common solution for companies who want to focus on marketing rather than production or packaging. Private labeling companies can manufacture and package a wide variety of cannabis products, including edibles, oils, flower, and vape cartridges. Essentially, the private labeling firm is outsourcing the marketing to the consumer-facing brand.
Surprisingly, some cannabis brands, such as Old Pal, operate without a license to handle cannabis. They rely entirely on their contracted growers and manufacturers to produce and distribute the product to retailers. They never take possession of the product.
This no-license business model has worked surprisingly well. These brands effectively lease their intellectual property (e.g., SOPs, quality control standards) to their partnering growers. This strategy has allowed brands to cross state lines easily because they don’t have to establish new grow operations or storefronts, only partnerships.
Contract Packaging and the Future
When cannabis becomes legal at a federal level — and when regulators harmonize interstate standards — contract packaging may become an essential element of the industry. It allows brands to scale their operations quickly while accessing packaging expertise that they may not have otherwise. For now, cannabis product manufacturers can more easily access private labeling services and work with packaging consultants on an as-needed basis.
At AssurPack®, we provide many services similar to those of a contract packaging firm, as well as package design and customization. We can assist with streamlining and scaling your production, selecting the best packaging for your product and budget, and, of course, designing your packaging to stand out on the shelf.
For more information, contact an AssurPack® representative today.