Tilray Inc. Chief Executive Brendan Kennedy quipped last year, when his company reached Wall Street, that Ziploc was the biggest brand in cannabis.
As the cannabis industry has grown since Tilray’s IPO, Kennedy likely wishes that packaging pot was as easy — and cheap — as tossing it in a plastic bag. As marijuana laws are enacted across the U.S. and the world, the requirements for packaging are becoming a giant headache, while the business of packing pot into a range of containers has become its own billion-dollar industry.
Consumer-packaged-goods companies have worked efficiencies to push costs of packaging down — a typical $6 container of yogurt, for example, costs about 5 cents, while a single standard soda or beer can cost fractions of a penny. However, the packaging of pot demands about 10 cents of every dollar spent on pot, according to Canaccord Genuity analyst Bobby Burleson — yes, a literal dime bag.
KushCo Holdings Inc.
is one of the companies collecting those dimes, and it saw revenue more than double in 2018, from less than $20 million to more than $50 million. KushCo Chief Executive Nick Kovacevich says his company has benefited from a range of packaging laws in the nine U.S. states that have legalized recreational cannabis and more than 30 that have some form of medical marijuana law.
Not all is rosy in the world of packaging, though. The frequent changes in state packaging requirements can lead to huge headaches. Colorado changed packaging requirements in July of last year, leaving KushCo with inventory that could no longer be used and customers clamoring for new products that KushCo hadn’t procured.
“So we had extra demand come our way and ultimately we lost out on opportunity, on revenue, because we didn’t have enough production or items that after the rule change become much more coveted,” Kovacevich said.
The growth in 2018 pushed packaging pot into a billion-dollar industry, according to Burleson, who estimates that total packaging sales were $1.2 billion in 2018, with KushCo holding roughly 4% of the U.S. market. The analyst expects it to nearly double to $2.2 billion by 2022, with KushCo’s U.S. market share growing to just more than 10% in that time.
KushCo doesn’t make the packages it sells, but rather sources various containers from China and then consults for clients who display products at retailers like California’s Harborside.
Standing among rows of glass display cases holding dried cannabis flowers, cylindrical cardboard tubes filled with pre-rolled joints and plastic vape cartridges in cardboard boxes in his Oakland, Calif., dispensary, Harborside CEO Andrew Berman admitted that packaging is one of his biggest concerns.
More on the growing pot industry: The weed middleman that expects to make billions as the Sunkist of pot
Earlier in California’s journey to legal marijuana, municipalities controlled packaging laws, so his stores in Oakland and San Jose faced different rules. Now, packaging is regulated by the state — which changed the laws twice in 2018. And cities can make the laws more restrictive if they choose, Harris Bricken attorney Griffen Thorne said.
“It’s very tough, the [regulations] are constantly changing,” he said. “It’s labeling, packaging, child resistant, tamper resistant — all of those elements going into it.”
For the world’s largest cannabis company, Canopy Growth Corp.
solving the packaging puzzle came down to pragmatism. Holding a plastic sack with thousands of cannabis gel caps, co-CEO Bruce Linton said he picked the boxes in which it ships marijuana solely because they pack efficiently into trucks.
In Canada, where Canopy operates, laws that went into effect with the legalization of recreational marijuana sales in October profoundly changed pot packaging. Large government warning labels prevent brands from displaying more than their name, the type of cannabis and potency.
“It’s been a huge challenge,” Weed MD Inc.
CEO Keith Merker said over the phone. “All of a sudden, the Canadian cannabis industry had to get it together to be prepared for a brand new supply chain. There were new [product] sizes, new restrictions on what we couldn’t do, and the finicky excise stamp that had to be affixed to each package.”
When the rules took effect, Tilray’s Kennedy complained to MarketWatch about a required tax stamp that arrived without glue, and there was only one company in the country with the equipment necessary to apply the glue. Executives at other companies, such as Organigram Holdings Inc.
and Aurora Cannabis Inc.
, have also griped to MarketWatch about packaging and the glue issue.
Months after the initial complaints, Merker said that simple little stamp was still a pain. His company is employing a phalanx of temporary workers to apply the glue manually — though he says that will change in the spring when new equipment arrives to automate the process.
“I’ve done it myself because I want to know exactly what it takes,” Merker said.