By Alexa Peters
There’s no doubt that cannabis edibles are becoming an increasingly popular—and delicious—way to consume legal cannabis.
In fact, according to a recent research report from ArcView, the cannabis edibles market will be worth $4.1 billion by 2022—which is particularly good news for those who prefer this discreet and smokeless way to enjoy cannabis.
Like Washington, Oregon, and Nevada, California is one of the markets where edibles are the most popular—prompting many to cast their eyes towards the Golden State for their next manufacturing endeavor.
But, with a market saturated with legal and illegal competition, some of the most complex state cannabis laws in the country, and a particularly wellness and eco-conscious group of consumers, entrepreneurs looking to make edibles in California are likely to hit some roadblocks.
That said, starting a cannabis business (recreational or medical) is on the minds of many, and this handy guide to starting an edibles business in California should equip the canna-curious with everything they need to take part in California’s lucrative cannabis market.
Before you do anything else, you need to put your dream edibles company down on paper with a business plan.
In general, a business plan includes an executive summary which outlines who you are, what you offer, your target market, your competition, team, and other details. Answering these questions first can help a founder assess if their idea is viable and expedite the application process for all permits and licenses down the road.
“How do you get a foothold in this sunrise industry? With so many people jumping on the seemingly lucrative cannabis bandwagon, it is important for you to carefully think through your cannabis company before starting,” reports the start-up resource Bplans. “In legal states, the markets have become so saturated that cannabis companies can end up with thousands of pounds of unsold product.”
Start your business plan by designing your team, product and brand on paper. If you are a first-time business-owner and need help along the way, there are several online resources like Bplans, that provide support on crafting your business plan for a cannabis manufacturing company.
Coda Signature, a cannabis edibles manufacturer based in California and Colorado, started with a powerhouse team: Lauren Gockley, a classically-trained chocolatier, and her partner Brien Sauchelli, as well as the business-savvy Mark Grindeland and Elizabeth Cooke.
All of these people were key to bringing the acclaimed edibles brand to life.
From the beginning, Coda Signature settled on a very accessible brand—both in terms of the flavors they used and their price point—and they have succeeded by holding fast to that brand throughout the years.
“It’s so interesting because our philosophy on the edibles market and our brand is that we wanted to take really quality products and make them available at a very fair price,” said Marji Chimes, chief Marketing Officer at Coda Signature. “We didn’t want to price ourselves out of the market [but] we wanted best ingredients, beautiful packaging, [and] everyone cares about quality detail.”
Along with analyzing your new brand and consumer base, a business plan should also include a financial summary that highlights the capital you have and what you need to raise. A founder needs quite a bit of money to get up and running—and this is especially true for a cannabis entrepreneur.
Federal rules and regulations keep cannabis businesses from tapping federally-insured banks for loans for start-up capital—instead, initial capital has to come from personal savings or venture capitalists.
“You need a lot of capital and you need a lot of endurance,” said Chimes. “[Cannabis businesses] are built on the backs of risk takers. We’ve gotten private investors, and you need to find somebody willing to take the risk because there isn’t any other way to do it.”
Luckily, opening a manufacturing facility is cheaper than starting a dispensary or farm, according to experts, but your expenditure will still be large. Expect the bill to include your rent for a cannabis business-friendly property, the kitchen equipment and staff needed, material sourcing, and more.
Also add in California-specific costs like the various state taxes and licensing fees.
Once you have a business plan in place, it’s time to get down in the dirt with California’s complex cannabis regulations.
Chimes notes that California’s state policies are going through a time of transition—making it all the more imperative that you pay attention to the rules.
“Here’s what I will tell anyone who is thinking of starting a cannabis business in California: Do your homework,” said Chimes. “There’s a ton of regulation. There’re a ton of taxes.”
California was one of the first states to pass medical marijuana legislation with Proposition 215, the “Compassionate Use Act,” which passed in 1996. As of November 2016, adult-use cannabis was legalized in California with the Adult Use of Marijuana Act (AUMA), which allows adults over 21 to possess, privately use, and gift up to one ounce of cannabis.
In 2017, Medical and Adult Use of Cannabis Regulation and Safety Act (MAUCRSA) went into effect.
MAUCRSA combined the state’s then-segmented medical and recreational cannabis spaces into one legal framework.
MAUCRSA also legalized the commercial sale, distribution and production of recreational cannabis at state-licensed facilities—through a complex licensing procedure that involves three governing bodies: California Department of Food and Agriculture (CDFA), California Department of Public Health (CDPH), and Bureau of Cannabis Control (BCC).
Still, even within a system that some have called over-regulated, California has continued to have issues with black market cannabis.
In fact, illegal sellers outnumber legal and regulated cannabis businesses almost 3-to-1, according to an alarming analysis from cannabis sellers in the state, reported in CNBC.
As a result, California has been continuously tweaking policies to mitigate their black-market problem. In January 2019, the Office of Administrative Law (OAL) officially approved new state regulations for cannabis businesses across the supply chain, some to help bolster the legal cannabis market. And recently, the state has been “going after bad actors” with more enforcement, according to a statement from Governor Gavin Newsom in the Los Angeles Times.
Hence, as California officials scrutinize the state’s cannabis industry, it’s never been more important to understand and assimilate California’s most up-to-date regulations, and to play by the rules as you move forward with establishing your edibles company.
Once you’ve got your business plan and knowledge of California’s system handy, the first part of playing by California’s rules requires all businesses, except sole proprietorships, to register organizational documents and pay fees to California’s Secretary of State. This can be done easily on their website.
From there, the dual-licensing process can begin.
Under MAUCRSA, the state requires new cannabis manufacturing facilities to obtain both approval from the local city or county government before they seek their state-issued manufacturing license.
“Prospective cannabis businesses should begin the [dual-licensing] process at the local level: if the local government does not allow commercial cannabis activity within their jurisdiction, they will not be able to obtain a state cannabis license,” according to Matt Conens, of the California Department of Health’s Office of Public Affairs.
As Conens explains, it’s best to decide where in California you want to be located first because many counties in California, like San Bernardino County, don’t even allow cannabis manufacturing.
(Founders can refer to the website for the California State Association of Counties, and this handy map from Cannabis Business Law, to discern which cities and counties will make a hospitable home for your business.)
Coda Signature, which began in Colorado and currently has product in 636 dispensaries across the state, made the decision to get started in California in 2018.
Based on careful research, they knew the Oakland, CA area was cannabis-friendly when they pursued setting up shop there.
“We chose Oakland, CA as our location to build our manufacturing facilities because at the time Oakland was being marketed as a very cannabis friendly city, very open to working with manufacturers, they were thrilled to have this kind of industry happening in their community,” said Chimes.
Once you’ve honed in on a general area, prospective cannabis manufacturers will also need to find an appropriate property for their facility before submitting to local officials for approval. This also poses several challenges.
Firstly, you’ll need to decide if you will build out a pre-existing industrial building or construct a facility from the ground-up. The benefit with using a preexisting building is it will likely be cheaper to outfit for your needs. In fact, for their flagship Trinidad, CO location, Coda Signature renovated a legacy industrial structure for their edible-making.
“[Founders Lauren Gockley and Brien Sauchelli] chose Trinidad, CO to build our manufacturing facility because it’s very close to the border of New Mexico and the feeling was that if interstate commerce ever happens, we would [be] strategically located,” said Chimes. “Also, it’s a tiny little town and ironically, we bought a facility that used to make frames and small home decor, and we built out the facility in this environment and actually when we took over the space, we hired a lot of the employees that were [previously employed] in that facility.”
In Oakland, Coda Signature found an old cannery that was properly-zoned for cannabis business. This is absolutely necessary if you hope to operate legally in California, reports California Cannabis CPA on its blog.
“The real estate market in California is competitive already, and so-called ‘green zones’ regulations severely restrict where cannabis businesses are allowed to operate,” California Cannabis CPA said.
Once you’ve found a property, you should check with the local city and county to determine what steps your business needs to take to “obtain a required license, permit, or other authorization for the cannabis-related activities that your business will be conducting,” according to this document from the California Secretary of State.
Then, be prepared for intense scrutiny.
As Be Green Legal says on their blog, “Marijuana manufacturing businesses are particularly scrutinized by the police and fire departments, as manufacturing processes must be deemed safe for employees and adjacent tenants or properties.”
So, expect officials to look at your business plan, floor plan, site plan, security plan, community relations plan, and financial analysis as they consider granting you a local permit.
Once you’ve obtained all applicable local permits and licenses, you can finally apply for the state-issued manufacturing licenses you will need to start an edibles business in California.
Unfortunately, in keeping with the state’s tendency to be highly-regulated, this step is just as convoluted as the last due to the number of licenses and governing bodies involved.
California offers 26 cannabis licenses total—four of which are specific to manufacturing.
According to the California Department of Public Health Manufactured Cannabis Safety Branch, there are four cannabis manufacturing-specific licenses: Type 7, Extraction: Volatile Solvents; Type 6 Extraction: Non-volatile Solvents and Mechanical Methods; Type N: Infusions; and Type P: Packaging & Labeling Only.
Depending on your product and scope of your business, you may need to apply for more than one license.
For instance, Coda Signature has both a manufacturing license and a license to distribute cannabis in California just so they can transport products to local labs for quality testing, Chimes says.
“We do the extraction ourselves, and we do the manufacturing and the distribution, but we aren’t retailers. So, we have a MIP license, a manufacturer of infused products [and] a distribution license,” said Chimes.
Once you have discerned which licenses you need, MAUCRSA establishes three agencies as responsible for overseeing applications and administering all 26 license types applicants. Manufacturing licensees are directed to apply online for licenses on the website of the Manufactured Cannabis Safety Branch, overseen by California’s Department of Public Health.
Meanwhile, the Bureau of Cannabis Control is responsible for licensing retailers, distributors, testing labs, microbusinesses, and temporary cannabis events, and the California Department of Food and Agriculture is responsible for licensing cultivators.
Once you have been approved for the state licenses you need—congrats! You can start your business.
But, as arduous as the process to set-up a legal shop was, the process of running a successful edibles business in California for the long-term is perhaps even more labor-intensive. Now’s the time to nurture relationships with your supply chain, and bring your team, product, and brand to life.
Having just entered California only two years ago, Coda Signature is still in the process of building their presence in California. Currently, they have their products in 235 California dispensaries, and they work with local growers, quality testing labs, and packaging companies that they nurture positive relationships with.
Part of establishing these positive relationships has involved a personal touch, according to Chimes.
Coda Signature’s chocolatier actually travelled to South America to get to know their cacao producers, Republica De Cacao, in person—and they’ve applied same principle to their relationships with California cannabis dispensaries and cultivators, Chimes said.
“Finding the best providers and then building a relationship [is essential] because cannabis... it’s not just putting strawberry jam in a bottle,” she said.
You’ll want to establish a good relationship with a packaging facility, too, or else get acquainted with how to legally package your product yourself.
In California, laws around packaging and labeling edibles are strict and, as Chimes has found, Californians prefer eco-friendly packaging. In combination with the various regulations, this can be challenging and expensive to pull off.
Additionally, as Chimes notes, once you get started in California, you’ll notice that Californians have very specific tastes.
Coda Signature has found their infused chocolate is not as popular as infused gummies, for instance, and that Californians prefer certain aspects in their edibles like natural, vegan ingredients, and no artificial sweeteners.
Hence, any new cannabis edibles brand should be perpetually analyzing sales in California base so they can deliver to and grow their influence in the California market.
“They care about the packaging, care about your carbon footprint, so you know, it’s a very health, wellness, environmentally-conscious state,” said Chimes.
Clearly, there are many moving parts to starting an edibles business in California.
You need more than a great idea—you’ll need the tenacity as you work through the complex and evolving regulatory landscape, and the creativity to adapt and cater to a very wellness and environmentally-conscious clientele.
But, by following the necessary steps outlined in this guide, your very own brand of infused brownies, truffles, gummies, or beverages could be flying off the dispensary shelves next year.
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