The Canna-Business

Cannabis has been around for centuries, but only recently has come out of the shadows and into the mainstream. Like any industry in its infancy, we are starting to experience exceptional creativity and business acumen and it is only the beginning.

Sure, we have read about cannabis tinctures, creams, oils, gummies, brownies, cookies and, of course, flowers, but what about cotton candy, drinks, ice cream, coffee, pizza, jerky, peanut butter, chip snacks and cereal? This is just a small sampling of products, and all of them require packaging.

“In the last 31 years that I've been in packaging, what business category, other than the internet, has started from the ground up in my lifetime?" said Steve Huppert, VP and COO of Warneke Paper Box in Denver, Colo.“This is a generational thing that didn’t exist, and all of a sudden it exists. We have an opportunity to be a part of the commoditization of it and make money off of it. I think I would’ve been foolish just to walk away from it.”

The Business of Cannabis—Lots of Products, Lots of Confusion, Lots of Opportunities

Dillon Gross is the owner of Pure CBD Exchange and Aspen Valley Hemp Company, located in Colorado. His products are in more than 2,000 stores across the country and growing. As a result, he buys a lot of packaging. He started in business right out of college when Colorado first legalized recreational cannabis. He went to work for a company that had a few dispensaries that was ready to expand into the recreational market. That company, Native Roots, is now a chain of more than 20 stores in Colorado. About three and half years ago, he started his own business and decided to focus on CBD products, since it was the fastest growing product line in the cannabis industry. 

Initially, he sold just tinctures and creams, and later added edibles like gummies and gel capsules. Within the last 18 months, there has been a developing market interest in smokable hemp. So he developed product lines to sell it both as flowers as well as pre-rolled CBD cigarettes. All of those products are really taking off—and all of them require packaging.

The CBD market across most of the country is growing, but regulations vary by state. Unlike cannabis with THC content of more than 0.3%, federal laws have cleared interstate shipment of CBD products, which has undoubtedly added fuel to that growth. Other than rolling the cigarettes, which he outsources to a company that has been rolling cigarettes for decades, he handles the manufacturing and fulfillment of his product lines in-house. Although he does foresee a day when he may need to outsource some of it as the company volumes continue to grow.

For Gross, it is now time to move to the next growth challenge: selling recreational cannabis with THC, colloquially known as marijuana, pot, weed, etc. Currently, there are about 17 states that have decriminalized possession and use. Missouri is in that transitional process now, and Gross is looking at applying for one of the licenses to produce and distribute.

Moving from CBD to recreational cannabis production and distribution will bring with it a lot of increased legal and business overhead. First of all, the U.S. government has yet to make it legal like CBD, so any state regulations are technically outside the U.S. laws. Some of the challenges that brings are around banking and finance, which are generally government-regulated. Early adopters have had to work around much of this by maintaining a cash business, although that has been changing as of late. Private investors, banks and credit unions have stepped in, and while there is a premium, things like deposits, checking, credit card processing and investment for growth are becoming easier.

In the meantime, state regulations vary as they do with CBD, but for marijuana flowers or the THC infused topicals, tinctures, edibles, etc., they are much stricter. For a service provider like Warneke, CBD is a bit easier, but the opportunities offered in the legal THC product space are growing, so he is cautiously moving into that space as well. 

While, as Huppert mentioned, this is a huge business opportunity, Gross’ company and Warneke Paper Box are just two of many companies around the globe that are seeing the future and jumping in early. The most recent estimates are that the global cannabis market will grow over 800% to about $66.3 billion by 2025. As a result, we are starting to see big players beginning to jump in.

Altria, one of the largest tobacco companies, has already placed a significant bet on this market. Diageo, Molson Coors and Constellation, three of the largest alcohol distributors in the world, have also started to make their moves into the space.

For a print services provider, the opportunities in the cannabis vertical market are huge. According to Huppert, Warneke saw the opportunity for increased business around this new market early on, about seven years ago, in addition to the growth of a shorter-run folding carton business, and as a result, became the first company in North America to install a Heidelberg Primefire 106.

The Packaging of Cannabis—Lots of Products, Lots of Rules and, Yes, Lots of Opportunities

As a paper box manufacturer, Warneke decided that this was a market poised to explode, and it has.

“Cannabis is still a growth sector for us for sure, and as it has been maturing like anything new, lots of companies got in it, didn’t know exactly what they were doing, and over time some of them fell out," Huppert said. 

Warneke produces paper boxes for both CBD products as well as some recreational THC-based products.

“When the customers come in, they generally know what they want and they try to stay in line with their current product family,” Huppert said. “Typically, in a cannabis and/or CBD product, there’s a lot going on the package in the form of graphics and enhancements to those graphics. You often see full-color process plus two PMS colors, foil stamping, soft touch and a ton of backside printing. They are always trying to find interesting things to do with packaging. So that's exciting. It’s fun.”

However, the explosive growth of the legal cannabis industry has created a marketplace that can be overwhelming to the average consumer, and that may require a “rethink” of the current designs.

“It often feels like there is a new brand or product being launched every day that addresses a niche demand, making the space feel convoluted and hard to navigate. Modern-day cannabis brands are working overtime to change that,” said Rosie Mattio, of Mattio Communications located in New York City.

As the largest PR firm in the regulated cannabis space representing more than 40 high-profile clients, she has worked with brands on how to engage the public and “outlast regulatory scrutiny through smart packaging decisions.” 

Early on, cannabis packaging was constantly changing because the infrastructure and regulations were a moving target, and every four to six months the laws would change—requiring the packaging to change accordingly. While the companies wanted to order long runs, they had to play it safe with short runs due to the uncertainty. That still is somewhat the case today, since the regulations are state-based and evolving, although it is starting to get better for both CBD and cannabis packaging design as more states are building more commonality to their regulations.

However, it looks like shorter runs will continue to be the norm for some products. As is the case with many consumer products, they are finding that targeted marketing can bring added value and margins, so shorter runs with a tremendous amount of versioning is becoming more prevalent, although some of these products have had “explosive growth to where of this stuff is blown up and you are running 100,000 cartons,” Huppert said.

Overall, most of the cannabis folding cartons Warneke produces are for secondary packaging, since many of the products are in containers. There aren’t a lot of rules specifying that the carton has to be child-proof since the primary packaging addresses that, especially for THC-based cannabis products and even some CBD products. Increasingly, there are some states that require QR codes for test results and to prove chain of custody, as they do with drugs and even some foods. There are even regulations around printing or manufacturing a mandated symbol onto the actual products to make sure that there’s no way someone could eat it if they did not know that there was THC in it.

Warneke does not have a child-resistant carton at this point, and they haven’t gone down that path for several reasons. At a minimum, you need a laminate on the outside so it can’t tear. You may also have to have a two-hand operation to be able to open it. Huppert knows people that have spent a lot of money trying to develop and patent these kinds of cartons, and it’s not clear that they will comply with future regulations. So that is why you rarely see any cannabis flower product using a folding carton as primary packaging.

“One of the other problems for cannabis packaging is that this is a market that appeals to consumers who are often a lot more environmentally-conscious," Gross said. "Currently, because of the heavily regulated packaging requirements, the industry is using massive amounts of plastic.” 

It will require continual developments in packaging materials to overcome this issue. Sustainable packaging solutions are becoming a focus of many consumer product companies, so this is an area that will continue to evolve toward resolution.