Not many cannabis retailers have the means or ambition to grow and manufacture their products. Instead, they work with partners — mainly, growers and brands — to gain access to inventory breadth and excellence.
But lack of commitment to adding greenhouses and manufacturing facilities doesn’t mean dispensaries can’t carry their own branded products — everything from strains to chocolate bars to teas, salves and vapes. The route towards shop-branded offerings involves several paths, but one of them — white-labeling products — probably offers the most promise for savvy cannabis stores.
White-labeling hasn’t consumed the cannabis industry yet, but its popularity is growing rapidly in other industries, especially in the food world and specifically within the natural foods and organic slices of the food pie. And increasingly, cannabis shops are turning to white-labeling as part of their retail strategy.
What is white labeling?
The term “white-labeling” refers to a range of approaches towards giving stores the ability to create their own brands. Here, we examine what is also known as “co-branding,” meaning a store works with a manufacturer to purchase and brand (emblazon packaging with the store’s logo and brand identity) existing products. The manufacturer does not custom-craft products, like chocolate bars, for the store. Instead, the store contracts with the manufacturer to turn an existing line of chocolate bars into something store-branded.
Product development — where stores work with manufacturers to create bespoke lines of products, like chocolate bars — represent another important “white-labeling” strategy, which we will investigate in an upcoming report.
The most prominent white-label-filled store in the United State, Trader Joe’s, truly is a bonanza for the private-label approach towards retailing. In Europe Aldi — which owns Trader Joe’s — is extraordinarily popular and it, too, relies upon white-labeling for its success.
- Albertson’s private-label organic brand, O Organics, hit $1 billion in sales last year. The supermarket chain plans to add as many as 1,000 new white-label items this year.
- The Private Label Manufacturers Association found that private-label sales totaled $118.4 billion in 2017, a record.
- Private label brands now have a 17% market share in the supermarket industry.
- Kantar Retail’s grocery analysts anticipate white label growth during the next five years will outpace the previous five years. Millenials, who are less brand-oriented than previous generations, will drive the pivot towards white-labeling.
- White-label shopping saves money. The Private Label Manufacturer’s Association found that shoppers save $30 billion annually by selecting private label brands.
In the September issue of Whole Foods Magazine, a trade publication geared towards the natural foods industry (and not affiliated with Whole Foods Markets), the president of a private-label manufacturer told the publication the private label often is “15-25% lower than national brand pricing before our own volume discounts,” and that “your gross margin is strikingly higher.”
“A retailer can make a 70 percent gross margin or more (i.e., retail $1, the cost 30 cents) if you price the private label at a comparable national brand price,” he said.
The white-label approach in the food industry lets retailers engage in strategic variable pricing, letting them deeply discount popular items but keep less in-demand products at a higher price. Given the lower prices to stock white-label products, it also gives retailers the option to still “discount” the private-label option significantly, compared to other brands, yet still make a sizable gross margin.
At the same time, other stores place a premium on the private-label line, revolving marketing campaigns around their high quality and charging more than other brands.
Is What Works For Grocery a Winning Strategy for Marijuana Dispensaries?
Cannabis retailers and grocery stores are wildly different, but of course no other industry resembles cannabis, with its limited number of retail outlets, inability to engage in cross-state commerce and thicket of state and local regulations. Nevertheless, the rationale for white-labeling in grocery applies to cannabis.
- Create and raise brand awareness for your store or chain of stores.
- Introduce more pricing variability into your inventory.
- Offer more choices for consumers
Before engaging in a frenzy of Googling for cannabis companies that offer white-labeling, step back and start to build a strategy.
Is White-Labeling Cannabis For You?
The process tends to be fairly straightforward, but still — it adds something else to the to-do list. Find the white-label specialist. Decide what items to white-label. Invest in branding and marketing. And not all dispensaries scream-out for white-labeling. If the clientele is highly local, the space is small, the inventory flies off the shelves already, and the competition is weak, the need for white-labeling could be less intense.
But if the dispensary competes with a lot of others, the location and vibe draws people from outside the immediate neighborhood and the team envisions growing the shop into a force, white labeling could make sense.
What Cannabis Products to White-Label?
Few stores are as white-label-happy as Trader Joe’s. Most, instead, offer a relatively small selection, and the choices are not random. Lots of retail strategy goes into what products to carry.
A first step is to review data — both your own (in terms of store sales) and data through an outside company like BDS Analytics, Headset, New Frontier (and others). The point: Find out what is trending in your store and in dispensaries across your state, and make sure you carry plenty of it. Tinctures are hot and growing rapidly, but you only carry one brand? And you see an opportunity for creating store-focused buzz? Consider building a tinctures brand. Terpenes are ascendant, but none of your products tout the terpene content? A terpene-oriented line could be smart.
One thing to consider — white-labeling can disrupt partnerships with brands, which sometimes resent the introduction of new, cheaper products that are store-branded. Think about your most important relationships before embarking an a white-labeling frenzy.
An easy first step: offering a store-branded product that competes with a lot of other similar brands. Let’s say your shop carries 8 different chocolate bars, and all are about the same price. Offering your own, at a slightly more competitive price, introduces more price variability into a crowded market and helps demonstrate how well your brand competes with more established ones.
Another simple decision: White-label something that is not part of your current line-up. Only one company offers vape pens with disposable distillate cartridges, and you don’t love the prices or the branding. And your customers are asking for disposable distillate vapes. So you co-brand your own line.
Choosing a White-Label Partner For a Cannabis Dispensary
This is a big deal. Your relationships with other brands matter, but building your own is personal. You will work closely with the white-label manufacturer for much more than inventory maintenance and sales pitches — you will work with them to choose products, ensure quality-control, and much more. Make sure the partner offers variety and flexibility. If you envision offering a line of cookies during the next year that use cannabutter (instead of straight extracts), make sure the partner has a cannabutter option. Your savvy consumers are extremely particular about the transparency of the grows from which they buy flower? Then the grow raising your branded flower had better offer plenty of details about how it is grown, the genetics and so on.
Finding partners that offer a wide-range of services — from co-branding to product development to packaging, distribution and more — is helpful. Partners that do it all tend to be on the ball: in possession of the full suite of cannabis licenses, a savvy team that often involves people who first established careers in industries like tech the Fortune 500, manufacturing facilities that involve extraction and packaging technologies, and the ability to pivot and scale with you as you grow.
“Finding a partner with vertically integrated licensing is smart,” said Tracy Ogishi, vice president of product at Caliva. “At Caliva, for example, we have all of the licenses — it’s like we collect licenses. We are end-to-end. Turnkey. We can source. We have the raw materials, in case you don’t have the license or ability to get them. We have production capability. We can package and label. We can even distribute.”
Caliva, too, addresses another key factor for people considering white-labeling: transparency. The San Jose company invites partners into its manufacturing facilities and grows, and offers copies of all testing reports to partners. This is essential for winning white-label collaborations. If the manufacturer lacks transparency, that’s a red flag for the store seeking a white-label partner. The best manufacturers eagerly invite partners to spend as much time as they want walking around the facilities, asking questions, reviewing paperwork and more.
“We are transparency geeks,” said Tracy. “It’s even part of our corporate slogan — `Consistency, Transparency, and Accessibility.’ Our team comes from a variety of different industries, and we take this fast-growing industry seriously, and treat it as professionally as we would a technology firm or organic foods brand.”
Branding and Marketing White-Label Cannabis Products
Branding used to be an afterthought in cannabis, but no more. Now, it’s of extreme importance. Consumers don’t just buy based on price, research and word-of-mouth — they buy with their eyes, too. Nail the branding, and fully leverage marketing channels — social, email, website, online and traditional media. The point here is not just to add another product to your inventory — it is to create a triumphant brand, one with the kind of recognition that brings people to your front door and persuades them to return again and again. This doesn’t happen by accident. It takes hard work.
Pricing White-Label Cannabis Products
Introducing pricing variability into your store shelves stands as a primary reason for white-labeling. In general, white-label brands sell for slightly less than other branded products on store shelves. But as mentioned earlier, some stores turn to white-labeling to create premium product lines. Deciding which way to go is a key step — value or premium? — and then figuring out pricing comes next. Assuming the point is value, the goal will be to set prices as a level that achieves profit goals, while also moving a lot of product. Strong Profit Margins + Volume = Good. But pricing strategy doesn’t just apply to the white-labeled items. A shop with a number of high-profile and value-oriented store-branded items that sell well has the luxury to be less discount-focused on fringe products that generate strong enough demand to keep, but sales of which are not make-or-break for the store.
Pricing is a complex science. The best stores figure it out in granular detail. White-labeling adds important tools to store pricing strategies.