Entering the industry, one of the most complex pieces is understanding the structure and how each piece connects and relates to one another. One might come in, thinking they will be a cultivator but quickly realize that cultivation in Washington has very different requirements and responsibilities than cultivators in California. Through extensive research and going through the licensing process, I’ve learned that you can break the industry down into buckets that allow us to get a better glimpse at how this industry works.
The Washington State Liquor Cannabis Board (WSLCB) is essentially the governing board for the entire industry. This board, appointed from the governor, appoints and helps guide liquor and cannabis policy for the entire state. These include enforcing the rules set by lawmakers and approving licenses to allow businesses to become certified. They dictate the norms, and have the final say in all decisions made related to liquor and cannabis whether it is approving certain licenses, applying fines, taking away licenses etc. They also ensure all products are properly tested, labeled and stored to ensure all products meet standards set by the WSLCB.
If we focus exclusively on cannabis, the WSLCB also manages traceability for the entire state of Washington. Traceability actualizes itself through a third-party software system which the state utilizes to help track every piece of information related to the production and sale of the product. Many states coin the name “seed to sale” tracking because the system traces product from its infancy as a seed to the purchase from the end consumer.
Leaf Data Systems
Leaf Data Systems, managed by MJ Freeway, is Washington State’s traceability program. As outlined before, this system is tasked to help create transparency for how the product is grown, tested, delivered and sold. Each state has their own respective traceability system, Metrc being the most popular in most of the other recreational states. Prior to Leaf Data Systems, Washington state used a program called THCBioTrack, that that was eventually transitioned out earlier last year into the system we know as Leaf today. As a system, many different players within the industry have their qualms. Many producer/processors complain on how challenging it is to properly use the software to track all their products coming down the pipeline. Through a software engineer’s point of view, the system seems to allow customization and allows great freedom, albeit you have to know how to code in the specified software language issued. As a result, many companies seek third-party inventory management or point-of-sale companies to help fill the void that Leaf Data Systems creates with the gap of knowledge and skills. Companies such as GrowFlow, Cultivara (S2Solution), GreenBits etc. have entered the fray, helping producers/processors and retailers have an easily manageable system that communicates directly with Leaf Data Systems rather than interact with the state system directly.
This is the group that people most commonly associate with the cannabis industry. Cultivators are the people who grow and harvest cannabis throughout the year. As simple as it may sound, cultivators have a very complex job in understanding the plant’s growth cycle and biological system to create the best possible environment for the plant to be nourished and thrive. The biology of the plant itself will be a whole new blog post, but being able to manage temperature, light levels, light intensity, soil PH, soil nutrition, water levels, water PH etc. is a whole job within itself. In some ways, growing good flower is more of an art than a science; understanding the needs of the plant and adapting to ensure the flower will flourish. Because such little knowledge is known about the plant since the instituting it as a schedule 1 drug in the early half of the century, scientific studies and tests are underway to help better understand not just the effects of cannabis, but also the growth pattern and behaviors. Another aspect to recognize with cultivators is the amount of detail that is needed to create consistent good product is on a far different scale than what we would see in traditional agriculture. Every lab test reflects the plant’s chemical composition, including chemicals that are commonly known such as CBD and THC. However, to be able to get consistent levels of CBD and THC from flower to flower is almost like asking a farmer to test the sugar levels of his apples and oranges and ensure each apple and orange are consistent. The science behind agriculture hasn’t gotten to the point where we are able to figure out every stimuli that causes certain levels of change in chemical structure, which makes cultivation of cannabis even more challenging to manage.
Cultivators, unlike their counterparts in California, can be divided up into different operational practices. The producer license itself is for cultivators sell white label product at wholesale, with the goal to grow and sell cannabis to other processors to transform their product into marketable goods. Most cultivators (also known as producers) pair their license with a processor license, which allows them to not only grow, but also package their products. These licenses own the relationship with the dispensaries and work with them to ensure that their product is shipped there and sold. Other differences include the method of growth (indoor/outdoor), the actual process of growing, packaging used, who is responsible for testing etc. In California, many of the actual packaging, testing and distribution is taken care of by a different part of the chain, which is what makes Washington different from some of the other markets.
These are people who receive products from cultivators and either package or transform the product into something new. These people include extractors who make concentrates, waxes, hash, and people who also make edibles. This piece in the chain is much more flexible with product sourcing. These businesses can source products from cultivators or even other processors to create their own product. An example would be an edibles business, sometimes these companies don’t create their own concentrates to place into their food, but use the concentrates from another company to do it.
The most common license in Washington state are Producer/Processor licenses, which allow business to not only grow their own flower, but also allows them to package and sell their products. With relationship to the law, Washington gives producers higher favorability to obtain a processor license without waiting in a queue for a new license. As a result, many producers are starting to transition into producer/processor licenses so they can sell their product to market at a higher price.
These are dispensaries that sell products to customers. Unlike traditional retail, dispensaries have a lot more power than normal retailers. Since there is so much informational asymmetry with the product businesses have and what people want, the budtenders are the people customers turn to for expertise in choosing the right product. These budtenders are the most valuable asset to the retailers because they control the supply and demand of the product. They get to determine what products deserve to go on the shelf and get restocked, and which ones are to be avoided. As a result, samples have become a huge staple in the industry; allowing budtenders to try and experience the product and hope that it’ll become a staple in their own individual inventory to share with others.
Unlike more common retail, dispensaries have the power to reject product if they don’t like it. This can be as simple as seeing a product and not liking the quality of it to reading a certain ingredients sourcing they don’t like. As a result, many people think that products have to be sold at the end of the chain for them to actually make a sale. This is a gross misunderstanding because from what I understand, people just want to get more information about the product rather than have someone try to sell their product to them.
Because there are almost 4 times the number of producer/processors than retailers, retailers rarely have to go out of their way to find product. Cultivators come in troves to sell their products, and hope that some of the budtenders find their product favorable and order and reorder. The retail space is easily one of the most complex spaces to navigate because there are so many factors that go into selling the product, and so many considerations owners have to ensure the product they get will meet the quality or image that they imagined to have.
This part of the chain is one of the most important pieces of the product chain. Every batch of product has to go through a lab to be tested. The labs are one of the most elusive parts of the chain because there are so few of them, yet they play one of the most critical pieces for every product. Many industry players claim that labs are skewing results, and that all their results are inconsistent. However, the reality is that it is hard to really know whether labs are enforcing best practices. I won’t venture to say more simply because there is such little information on how they operate within Washington state, aside from the fact that they are one of the most crucial parts in getting the product to market.
Cannaport is part of the transportation arm of the industry. We are players that help exclusively move product from each of the other respective parts of the chain. From processor to dispensary, labs to processors, or producers to processors. The law gives us flexibility with transportation time, and allows us to be more efficient with routing product, and getting product from place to place. As a result, Cannaport can save up to 50% of in-house costs just by switching to our services. At the end of the day, Cannaport wants each respective business to do what they do best, whether it is growing, processing or selling, by taking extra resources to complete something trivial such as doing deliveries is something that isn’t worth a company’s time or effort. Not only that, but Cannaport is 20%-40% cheaper than the biggest transporters in the industry as well. We not only care about giving you the best service possible, but we also want to make sure that you are getting it for the best price you can. The industry is cutthroat and competitive, and any dollar you can save is another dollar to invest back into creating better product.