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White Labeling The Future of Cannabis

With Jim Breese CMO at GreenGrowth CPAs

• Cannabis-Only
• 1,200+ Prepared Annual Tax Returns for cannabis operators spread across all verticals:

○ Dispensary, distribution, cultivation, manufacturing, delivery and testing.

• 400+ Cannabis Business Clients
• 12+ States that our clients are spread across (CA, OR, WA, CO, MI, OH, OK, DC, HI, AZ, FL, MT)
• 15 Audit-related and valuation projects in 2018 & 2019
• Thorough and deep understanding of:

○ Tax, compliance and assurance related requirements for the cannabis industry

About Us

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

Disclaimer

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

Agenda

• White Label vs. Private Label
• Why White Labeling is the Next Wave
• Addressing the Red Tape
• Pros and Cons
• Which Products Can Be White Labeled
• What Product to Start With
• Capital Needs
• Final Considerations for White Labeling

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

White Label vs. Private Label

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

• White labeling:

○ Generic product for multiple resellers ■ Manufacturer sells SAME vaporizer pen to 10 different partners ○ Fast way to get to the market ■ BUT product will be the same as other vendors ○ Need to triple down on branding

• Private labeling:

○ Product is created for exclusive sale by a single reseller ○ More flexibility to modify end product to make it unique to your brand/business

• Sometimes these get used interchangeably

○ Vendor capabilities

• Getting started in cannabis is typically very costly

○ Highly regulated industry

• Cannabis is currently all about relationships
• Reduce your initial start up costs

○ Rapid testing of ideas ○ Reduce your risk by getting proof of concept

• Leveraging built-in distribution and retail relationships

○ Find vertically integrated partners

Why White Labeling is the Next Wave

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

• CBD and THC variations
• THC - California specifically

○ State has acknowledge that white labeling will be inevitable ○ Create an intellectual property licensing agreement with your WL vendor ■ Build a brand

• Develop logo, packaging design (get design patent if very unique)
• Put IP into an LLC

■ Find a white label producer/operator who wants to sell your products

• Share your ideas and get them excited

■ IP holder gets a royalty payment from the White Label Manufacturer

• Per unit basis, based on revenue, minimum monthly payments
• Essentially you are getting money on the BRAND you created

Red Tape of White Labeling

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

• Once the IP licensing agreement is finalized

○ White Label company MUST notify the BCC ■ Another financial interest holder in their license

• Do your due diligence for your specific city/county/state regulations

○ Work with a lawyer to structure this deal properly ■ Protect you, the producer ■ Stay compliant with local regulations

Red Tape of White Labeling - Continued

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

Pros & Cons of White Labeling

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

• Pros

○ MSOs can open into new markets quickly and increase distribution drastically ○ Fastest implementation & relatively cheaper than all in-house manufacturing ○ Compliance is BUILT in to the model ○ You get to focus on brand and visibility ○ Know your costs upfront...smarter pricing ○ Multiple White Label vendors allows you to offer wide variety of products ○ Fastest GTM strategy

Pros & Cons of White Labeling

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

• Cons

○ Lost in translation and misunderstandings ■ Information may be distorted at some point ■ Repeats with the feedback loop ■ Double check EVERYTHING and get samples! ○ Limited customizability ■ Are you okay with that? ○ Duplicate products ■ Must work really hard to differentiate your product

Which Products Can Be White Labeled

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

• CBD and THC variants
• Topicals: Salves/creams/balms
• Oils
• Sprays & tinctures
• Cosmetics
• Soaps
• Vapes
• Flower
• Capsules
• Dog treats
• Edibles & other food products

What Product Should You Start With?

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

• What’s your risk tolerance?

○ Proven product or something groundbreaking?

• Who is your intended target audience?

○ What problem to they have and what do they desire? ○ Can your product provide a solution to that problem?

• How much capital do you have?
• How are you going to be marketing the product and what influence do

you have?

• What kind of distribution do you have currently?

○ Built-in relationships or building new bridges?

• What do you have expertise in?

How Much Capital Do You Need to Get Started?

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

• Wide Range depending on how big you want to go from the beginning

○ Proof of concept then scale up or jump in full force

• $50-75k...maybe even closer to 100k

○ Minimum order demands from manufacturer ○ Your ability to distribute ○ Execution is critical: Experience & GTM strategy

• Need to consider full costs of

○ Product samples, design of packaging, testing products ○ Initial product run ○ Storage costs (if applicable) ○ Marketing budget ○ Website Development ○ Operating Capital ○ Taxes ○ And more...

White Label Partner Considerations

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

• How close are they to you geographically?
• What’s their reputation?

○ Are there other products out there that they have created?

• Are they vertically integrated with distribution?

○ Try to work with the least amount of partners ■ Roll fees into one transaction ■ Reduce tax burden ■ Less time negotiating and coordinating

• Do they have contacts that want to take your products on?

○ Slotting fees ■ $1,000 up to $5k/month to get shelf space in some dispensaries ○ PUSH vs. PULL Strategy ■ You still need to sell, don’t rely solely on white labeler

White Label Partner Considerations Pt. 2

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.

• Structuring deal, understanding your exposure

○ Inexperienced brands will not fix the production fee ■ Packaging example ■ Dig into the numbers and look at production variances

• Ideal is 1 package, 1 label, 1 product

○ Who assumes responsibility when things go 2, 1, 1

• Be able to cap variances or at least be able to moderate it

○ Understand the white labeler inventory management ■ Dashboard or portal access ○ Raw Materials ■ Where can they come from?

• White Label Manufacturer only? Outside vendor?

○ Is there an additional cost?

• White Labeling is a relatively cheap

and fast method to go to market and prove your hypothesis

• Work with reputable and

experienced teams who can help keep you compliant

• Building brand is going to be

paramount when working with white label cannabis products

• Structure your deal to reduce your

exposure to unnecessary costs and limited future product updates

Key Takeaways

The information contained in this webinar presentation is meant for guidance purposes only and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.