By Eric Peterson | Jun 11, 2018
Monrovia / Coalinga, California
Contract manufacturing and testing
When the Obama administration announced it wouldn't pursue federal cases against marijuana businesses in states where they were legal, Raber saw an opportunity to start a go-to testing lab for the nascent industry. He launched The Werc Shop with a small investment and one machine.
"We had a bird's-eye view of the market," says Raber, an organic chemist with a background in drug discovery and process chemistry.
That perspective led Raber to believe he could make better products than his testing clients. "I figured we'd go compete," he says. "It's kind of like watching Michael Jordan referee a basketball game in his prime."
He notes that testing clients had asked him, "Will you please manufacture for me? I'd like to be a brand only." Such requests pushed him to pivot into contract manufacturing. "We're really built for that today," Raber continues. "We began to offer manufacturing services at the end of 2014."
At that point, the company had five employees. The staff has grown 30-fold in four years as revenue has been "doubling and doubling," says Raber. "It's hard to predict how big we can grow."
Testing now represents about 10 percent of The Werc Shop's business, and manufacturing represents roughly 90 percent. The company now operates four different facilities: the testing lab at its headquarters in Monrovia; and manufacturing plants in Coalinga, California; Eugene, Oregon; and Raymond, Washington.
The strategy allows cannabis brands to focus on sales and marketing, instead of compliance and formulations. "We act as an 'Intel Inside' type of player," says Raber.
It also allows a turnkey method to expand distribution. "We have a way of introducing a brand across multiple states, and they don't have to hold a license to do so," says Raber, noting that the key to success is making standardized products, with consistent dosages and effects. The Werc Shop's chemists can also help develop unique formulations to differentiate a product.
Most manufacturing clients are tight-lipped about their partnership with The Werc Shop, but HoneyVape and Orchid Essentials are two of the company's customers in California. The company has "close to 30" clients in all, says Raber.
Startup costs for the company's manufacturing facilities range from $1 million to $3 million for markets the size of Washington and Oregon. "We help construct these facilities and staff them and get them going," says Raber. The strategy is to "optimize them for scalable growth."
The Werc Shop typically tweaks equipment to meet the needs of high-volume cannabis extraction and manufacturing. "We've been able to modify off-the-shelf equipment and make it operate five times faster," says Raber. Suppliers "are just chemical engineering supply houses for the most part."
Raber also is working to patent terpene-formulation technology in the U.S. after Israel awarded him protection. "We're reinvesting millions into our IP, technology, and all of the assets we have," he says.
Challenges: "Making sure everybody understands the new rules as they keep changing and shifting in California," says Raber. "They put that on the manufacturer."
"Supply-chain management" is another challenge, as it becomes critical to exclude raw materials that uses banned pesticides and other forbidden ingredients.
Opportunities: The Werc Shop is looking to expand its manufacturing platform to other states. The Northeast and the Midwest are big targets, and Raber hopes to finalize plans in the second half of 2018. "I think there's a huge opportunity on the East Coast," he says. "There's an opportunity to take our expertise and help clients grow."
Canada represents another potential market on a similar order of magnitude as California. "That's a very interesting one, too," says Raber. "I think it's going to be very friendly to operators."
He says The Werc Shop's testing lab is also poised for growth. "We should see an uptick now that mandatory testing is going to take hold in California in July," says Raber. "Everybody is going to have to start testing. They're trying to wait as long as they can. . . . Getting the numbers right is going to be fully rewarded."
Needs: Talent is the big one. "We're always looking for experienced scientific professionals," says Raber.
"Access to capital" is a second need, but The Werc Shop has an undisclosed partner that has financed the company's growth. "We're well-oiled, well-positioned, and well-capitalized to grow," says Raber.