In the fast-growing cannabis market, optimizing your Cost of Goods Sold (COGS) is critical to profitability. Businesses dealing in rare cannabinoids, whether for retail, wholesale, or manufacturing purposes, must focus on cost-saving strategies to remain competitive. Rare and minor cannabinoids are gaining traction in health and wellness, especially as they pertain to functional and effects-based applications, creating a need for efficient production and supply methods.
Reducing COGS while delivering high-quality rare cannabinoid-infused consumer goods will help your brand thrive in this competitive space. Let’s explore the most effective strategies to help your business reduce COGS and thrive in the cannabinoid-infused product market.
1. Streamline Your Supply Chain for Bulk and Rare Cannabinoids
A well-managed supply chain is essential for reducing costs, particularly for cannabinoid companies handling rare and minor cannabinoids. Supply chain instability and inefficiencies often lead to inflated production costs and delays.
To address this:
- Work with reliable cannabinoid suppliers: Establish partnerships with vendors specializing in specific bulk cannabinoids, ensuring cost efficiency, predictable lead times, and batch-to-batch consistency.
- Prioritize quality and purity over the lowest price: Avoid prioritizing the lowest price, as it often comes with risks such as inconsistent purity, unknown contaminants, or unreliable quality. Instead, choose suppliers who provide consistently high-purity products verified through transparent Certificates of Analysis (COAs) for every batch.
- Focus on cost per milligram of active cannabinoid, not just per kilogram. For example, 90% purity means 900 grams of active cannabinoids per kilogram, while 98% purity provides 980 grams. Even if the higher-purity option costs more upfront, the added value and reduced risk of contamination often justify the price difference.
- Testing and Quality Systems: Only work with suppliers with rigorous quality systems and cGMP compliance. This will ensure the product you receive is the product and potency you thought you were purchasing and will avoid costly recalls. Or better yet, comply with (and by extension, require your suppliers to comply with) the relevant sections of 21 CFR 117.
- Implement smart inventory tools: Technology-driven solutions can help you maintain optimal raw material stock levels for rare cannabinoids, reducing overstocking or shortages.
- Secure long-term agreements: Negotiate contracts with suppliers to lock in pricing for wholesale cannabinoids and rare cannabinoids like CBC, THCV, and CBDV.
Efficient supply chain management helps you optimize production timelines and maintain profitability.
2. Embrace Advanced Production Methods for Minor Cannabinoids
Producing rare cannabinoids through traditional methods is resource-intensive. Modern production techniques are game-changers for cannabinoid companies aiming to reduce COGS:
- Biosynthesis: This method allows for scalable, lab-based production of bioidentical cannabinoids via the utilization of certain types of bacteria or yeast, drastically lowering costs and accessibility for certain rare bulk cannabinoids.
- Chemical synthesis: Ideal for creating ultra-pure cannabinoids, chemical synthesis ensures batch-to-batch and supply consistency, making it perfect for large-scale CPG production and national product launches.
Leveraging these technologies ensures high yields at lower costs, meeting the growing demand for rare cannabinoids.
3. Improve Manufacturing Efficiency for Cannabinoid Companies
Production inefficiencies can significantly inflate COGS. To protect margins, CPG brands focused on scalability must ensure their manufacturing processes are streamlined:
- Automation: Automating repetitive tasks, such as labeling or packaging, reduces labor costs and enhances productivity.
- Workforce flexibility: Cross-training employees ensures operational resilience, minimizing downtime.
- Workflow optimization: Regularly evaluate processes to identify bottlenecks, applying lean manufacturing principles for maximum production efficiency.
- Centralize Manufacturing: While this is easier said than done in the regulated cannabis industry due to the patchwork regulatory environments, large nationwide brands and those operating in the hemp space have figured out how to build ratioed cannabinoid formulations that can be made in bulk in one location then infused locally to create consistent products from market to market with lower COGS.
These steps will reduce costs and improve product consistency and quality.
4. Lower Packaging Costs Without Compromising Quality
Packaging is critical in production costs, especially for wholesale and retail cannabinoid products. However, there are effective ways to reduce packaging expenses without sacrificing quality or compliance:
- Source packaging materials in bulk: Purchasing packaging in larger quantities often leads to lower per-unit costs. Look for suppliers that cater to wholesale cannabinoid companies to benefit from economies of scale.
- Standardize packaging formats: Using standardized sizes and designs across product lines can reduce production costs by minimizing material waste and manufacturing complexity.
- Streamline printing processes: Choose simple printing techniques or reduce the number of colors and design elements on your packaging. This can cut costs while still maintaining an attractive appearance.
- Use lightweight materials: Opt for thinner but durable packaging that maintains product integrity while reducing shipping and material costs.
- Select efficient packaging shapes: Choose packaging shapes that pack more efficiently into bulk shipments. Optimizing how products fit into boxes or pallets can maximize shipping efficiency, reduce freight costs, and improve sustainability.
- Opt for repurposable packaging: Select packaging designs that can be used across multiple SKUs. Custom designs unique to a single product can significantly increase COGS and overall carrying costs. Repurposable packaging maximizes bulk order savings and simplifies inventory management.
By implementing these strategies, you can optimize packaging expenses while maintaining the quality and appeal of your cannabinoid products, ensuring profitability in a competitive market.
5. Partner with a Co-Manufacturer Experienced in Rare Cannabinoids
If your brand works with a contract manufacturer (co-man), it’s crucial to partner with one that has expertise in handling and formulating with rare cannabinoids. These ingredients require specialized knowledge to maintain their stability, efficacy, and purity throughout production.
To ensure success:
- Select a co-manufacturer with cannabinoid expertise: Look for a partner with proven experience in formulating with minor cannabinoids like CBC, THCV, or CBN. This ensures they understand the unique properties of each cannabinoid and how to integrate them into your product effectively.
- Evaluate their equipment and processes: Confirm that the co-manufacturer uses technology and methods optimized for cannabinoid formulations, such as proper mixing, storage, and quality control protocols.
- Review their compliance track record: Ensure the co-manufacturer adheres to all regulatory requirements for cannabinoid products, including consistent documentation like Certificates of Analysis (COAs) and adherence to Good Manufacturing Practices (GMP).
- Ensure third-party lab testing: Verify that the co-manufacturer conducts testing with reputable third-party labs to confirm the product meets potency claims and purity standards. Accurate testing is critical for maintaining customer trust and regulatory compliance.
- Seek collaborative development: Partner with a co-manufacturer willing to work closely with your brand to create tailored formulations, troubleshoot challenges and deliver the highest-quality products to market.
Working with an experienced co-manufacturer who prioritizes thorough testing and expertise ensures your products are consistent, compliant, and competitive in the growing rare cannabinoid market.
Scaling Success in the Rare Cannabinoid Industry
Reducing COGS is essential for success in the rapidly evolving cannabis industry, particularly for businesses focused on products infused with rare cannabinoids, where opportunities for growth and innovation abound. While rare cannabinoids like THCV, CBC, and CBN offer immense potential for premium products in health and wellness, they also require thoughtful planning to manage costs effectively. Health and wellness brands can tap into this lucrative market without compromising profitability by streamlining operations, leveraging advanced production methods, and working with experienced partners.
Efficient supply chain management, strategic packaging choices, and partnerships with trusted co-manufacturers specializing in formulating with rare cannabinoids help businesses deliver high-quality, consistent products at competitive prices. These steps ensure your brand is positioned for sustainable success in the fast-growing need state focused rare cannabinoid CPG category.
At BayMedica, we provide the expertise and high-purity rare cannabinoid ingredients that make succeeding with your ratio product easier. Contact one of our trusted distributors today to discover how BayMedica ingredients can support your brand’s innovation and growth.