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Manufacturing is the new differentiator for cannabis brands. Who wins, and who gets washed out?

By Bart Taylor June 17, 2019, 08:07 am MDT

"The manufacturing sector is steadily realigning after the shocks of the early part of this century," said John Lettieri, the president of the Economic Innovation Group. . . . "The West is emerging as a new growth engine for the sector." -- Jim Tankersley, The New York Times

Cannabis is certainly among the industries driving manufacturing growth in the West, but here and elsewhere, cannabis companies face a unique challenge, a reckoning with manufacturing, unlike any other. 

A raft of new regulations is assuredly on the way. Companies able to professionalize operations across product development, production, testing, and more, will win the loyalty of customers, the trust of regulators, and the support of leading service brands waiting to enter the market. Those who can't will likely fail -- or be forced to change. 

Too dramatic? Consider that today, the production of hemp CBD is largely unregulated. In a few short years, it will be entirely regulated. 

Manufacturing is the new arbiter of success.

Kim Stuck was Colorado's first "marijuana specialist" for DDPHE, the Denver Department of Public Health & Environment. Today she helps cannabis companies on the journey to more professional operations for Allay Consulting, a firm she founded after the scale of the challenge -- and the opportunity -- became clear.

Of the 3,000 or so CBD brands selling products in the U.S. today, how many will go out of business as new operating guidelines settle in? "It depends," Stuck answers. "Many times, when we go into a facility for the first time, we find major issues where the FDA [U.S. Food and Drug Administration] would close them down. I'd say half of them will be forced out of business -- if the FDA regulates them the way I think they will."

She explains, "In hemp, when I go in and do an audit, we often find very basic stuff out of FDA compliance, like hand sinks. It cost money to reroute plumbing -- and it's just a start. Many companies just didn't get into the business to become FDA-compliant.”

Stuck has seen the industry up close from the beginning. "When I first started for DDPHE, one of the first product recalls we saw was a brand making bubble hash out of an old, rusty washing machine -- essentially taking that raw material and making a food product," she says. "Pesticides were a problem. At one point I found a dab, or concentrate, that was 56 percent Myclobutanil. We know today that when Myclobutanil combusts, one of the byproducts is hydrogen cyanide, so those investigations were very important.”

Today Stuck isn't conducting investigations for DDPHE, instead auditing build-outs of facilities where things like mold are often a big issue. "We're helping manufacturers reduced cross-contamination, as in, 'How do we build this facility so cross-contamination from the outside doesn't happen and you create a mold problem inside?' Are people using the correct PPE [Personal Protective Equipment] processes, the correct procedures, and not dragging mold spores and powdery mildew spores into the facility?"

Mold is the tip of the iceberg. Depending on how the FDA regulates hemp-derived products, and the pivotal decisions regulators make with marijuana, when it's federally legal, even cannabis companies already underway with an intense manufacturing-related compliance regime face a daunting task. Profound decisions are in the offing. Who's ready, and who's not?

I ask Stuck how she thinks the FDA will proceed. "I think they should take what the code is right now, and apply it to the cannabis industry, but write a smaller set of cannabis-specific regulations to address issues that they don't have to deal with in other wholesale food manufacturering facilities," she responds. "Or, they could hire a third party to write the cannabis regulations for them. Or they could make all edibles illegal tomorrow if they want to. No one really knows."

Stuck doesn't believe that will happen, but she is adamant about what companies should do to prepare. "If you're GMP-certified [Good Manufacturing Practices-certified], you're already operating above the FDA standard. Chances are, they're going to leave you alone." Yet Stuck knows, as I do, that only a handful of cannabis manufacturers have completed GMP certification.

"With hemp, getting some type of FDA guideline in place -- like a third-party audit -- seems a must," she says. "I mean, the fact is that the FDA is going to start knocking on doors, and you have to let them in! Food safety training would be great. They're also going to be under OSHA regulation as well, and that's a whole other can of worms."

Marijuana manufacturers face different challenges. "For THC companies, they're not federally legal yet, so it may be awhile before the FDA comes in, but recalls and others issues are under MED [Marijuana Enforcement Division in Colorado, with similar agencies operating under other acronyms in different states], and if they see anything sideways, they'll issue recalls, so getting GMP-certified would be excellent for them. And of course, OSHA is already knocking on doors."

Her parting shot: "All of this is going to happen on both sides no matter what. It's just a matter of when.”

Some companies are pushing hard into this new world, determined to maintain control of manufacturing. Others may choose to leave the rigors of manufacturing behind, and buy from contract manufacturers or ingredient providers (read this week’s Mile Hi Labs profile) to focus on brand or marketing strategies. Consolidation in cannabis grows will likely further realign the industry.

Yet much will depend on manufacturing, which underscores the point: Cannabis has arrived, and in the progressive economies in states across the U.S., growth will continue to follow the professionalization of the industry.

Bart Taylor is publisher of CompanyWeek. Reach him at btaylor@companyweek.com.

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