5 Common Mistakes People Make When Stepping Into the Cannabis Market

The appeal of the cannabis industry is powerful: Financial success while doing fundamental good in the world. Entrepreneurial opportunity for those traditionally excluded from the business world. Fame and prestige for industry leaders. The opportunity — and indeed the demand — to innovate.

It’s not a surprise that everyone wants to be a part of it. We are an industry growing in both scope and legitimacy, and there are a lot of new members. Veteran members have a responsibility to help them avoid the pitfalls. Here are the five most common mistakes companies make when entering into the cannabis market:

1. Thinking it will Operate like Other Markets

Over the years, I’ve spoken with a lot of entrepreneurs eager to jump into the cannabis space, and they all have made the reasonable assumption that the fundamental rules of other industries will be at play here. Unfortunately, the regulatory landscape, particularly as it pertains to THC, is like nothing else in the American economy. No other ingredient is federally labelled Schedule 1 — reserved for highly addictive drugs with no medical value — yet is legal medicinally, recreationally, or both on a state level. Not only is it regulated differently from state to state, the regulations are constantly changing and are inconsistently enforced. The cannabis industry gets called the Wild West for a reason. 

CBD companies are prohibited from making any medical claims, which can be frustrating since most customers interested in CBD are looking for therapeutic effects. Because of this, euphemisms come heavily into play in branding. Some companies employ a compliance officer to review all customer-facing verbiage.

If you are working with THC, you will not be able to write off any of your standard business expenses on your federal tax return. This leads companies to fractionate their businesses, with separate companies handling payroll, marketing, and retail, which adds complexity and more paperwork. Similarly, THC products can never be shipped across state lines, even from one legal state to another, since interstate commerce is federally governed. That means that every state in which you operate must have its own THC license, processing facility, and distribution network, even if the product being sold is identical. Not only is this unreasonable, it is also impractical and expensive. Depending on where you’re setting up shop, you will have different packaging limitations for text size, package size, even the colors you can use. Requirements for redundant and/or childproof packaging are wasteful and, again, expensive. 

The other thing that differentiates the cannabis market from other markets is its demographic diversity. People from all walks of life, all ages, races, genders and income levels enjoy cannabis. Previous categorizations can be a guide, but often customer profiles don’t match the real world. You may be surprised by who buys your product–and who doesn’t. 

2. Not Getting it in Writing

Because of the limited regulation of the cannabis industry, it’s tempting to seal deals on a handshake. That’s a mistake in any business, but the ramifications are amplified in this tumultuous landscape. When — not if — one of your partners fails to deliver on their commitments, it’s hard enough to enforce a contract to begin with, let alone in this transitional market. There’s not usually a lot of money to spare for legal battles, either. Take the time to write out the terms of your agreements, and spend the money to have them reviewed by a contract lawyer. 

3. Not Embracing Redundancy

Sourcing is one of the biggest hurdles facing CBD companies. In the face of limited or non-existant regulation, choosing a supplier to provide consistent, clean cannabinoids can make or break your business. Even partners that start out looking great (spoiler: they all do) may end up failing you though logistical insufficiency or a change in leadership integrity. Redundancy is your insurance policy. CBD companies must find not one reliable supplier, but several. Don’t accept an exclusive relationship at the outset; work up to it through years of consistent performance.

4. Disregarding Institutional Knowledge

In a bid for legitimacy, many startups are hiring from industries outside the legacy cannabis market. That can be very useful for expanding the scope of cannabis applications and form factors, but without a holistic understanding of the plant, innovation can be dangerous. Accrued generational knowledge from growers and pre-legalization formulators can help you avoid costly formulation mistakes and contraindications. As a successful cannabis industry friend of mine puts it, “Always make sure you’ve got at least a couple old hippies on staff.”

5. Relying on Hype

CBD is hot as can be right now, but it doesn’t take a prophet to know that at some point the bubble has to burst. Don’t worry, CBD will be around for a long time and likely become a health and wellness staple! That said, the buzz can’t sustain this volume; products cannot be successful long-term on the basis of the inclusion of CBD alone. Thoughtful formulations that look to ingredient synergy will still have something to pique consumer interest after the hype dies down. Look to the bleeding edge of the THC market to see what will trickle down to the CBD world in the next two years: terpenes, flavonoids, fresh frozen extractions, and herbal blends. Of course, this could all be nullified depending on the speed of the now all-but-certain rescheduling of THC. Cannabis is certainly not an industry for the faint of heart.

What Would Development Look Like Without a Water-Soluble Solution?

Cannabinoids are lipophilic, meaning they dissolve in oils. For this simple reason, oil-based cannabis products have dominated the cannabis industry until very recently. Prior to legalization, they have been the only option; in an illicit market, the massive amounts of money, expertise, and time it takes to create a water-soluble emulsion is prohibitive. Given the nascent state of the legal industry, it’s only natural that oil-based products would be the norm. However, that is changing. 

One way to look at the advantages of a water-based formula is to review the development hurdles that must be overcome without one. A water-based solution is not appropriate for any consumption method involving heat, such as vaping or smoking, so we are going to focus on edible, tincture, and topical formulations. One way to look at the advantages of a water-based formula is to review the development hurdles that must be overcome without one. A water-based solution is not appropriate for any consumption method involving heat, such as vaping or smoking, so we are going to focus on edible, tincture, and topical formulations. 

Several product subcategories are impossible right out of the gate. Beverages, in which water is always the largest ingredient, are commercially untenable with oil. When you mix oil and water together, they rapidly separate, with the oil rising to the top of the liquid. Because of this, many products on the market need to be shaken up before drinking, which is not ideal for the producer or the consumer. The only way to create a stable beverage with oil is to infuse it into a high-fat base that contains natural emulsifiers, such as dairy or coconut milk. 

From the start, direct infusion into any oil comes with its own suite of problems. If you are using dried, cured cannabis flowers for your infusion, many flavor and smell components in the plant material will come along as well, and the resulting oil will have a strong cannabis flavor. That may not be a problem if you are making brownies in your home kitchen, but it is not acceptable at scale. To make matters worse, this flavor will vary from batch to batch; even the most consistent grows are subject to the whims of nature. Trying to guess the flavor profile of any given batch of cannabis-infused oil is like trying to guess the amount of Vitamin A in any given carrot. There is a likely range, but each plant has its own unique composition. 

To create edibles without the characteristic herbaceous notes of the cannabis flower, it is necessary to remove as much of the chlorophyll, lipids, flavonoid, and terpene content as possible. This can be reasonably and inexpensively achieved with CO2-extracted cannabis concentrates, but ideally done with a more neutral (and pricier) distillate. However, when working with these extremely low viscosity extracts, dispersal becomes a challenge. The cannabis oil must first be heated gently with a carrier oil; that carrier oil must be completely evenly dispersed into the final product, otherwise dosing will be uneven. In baked goods, the amount of mixing involved can result in a tough, dense crumb structure. 

To insure that  the oil has dispersed evenly, producers must then test the final product. That said,  it is much harder to test a cookie, for example, than a batch of cannabis oil. The complexity of the ingredients and unreliability of results have led many producers to extrapolate from limited and/or non-randomized samples, and as a result, uneven dosing plagues the legal market.

There may also be consumer education considerations when choosing oil. My largest area of expertise is the development of cannabis topicals for sexual enhancement and relief. However, oil-based topicals are incompatible with safer sex barriers such as latex or polyisoprene condoms — a massive sexual health risk of which most buyers and customers are completely unaware — and they can cause irritation in some people. Moreover, the sensory profile of cannabis is, shall we say, less than sensual for many people. My primary impetus for developing Velvet Swing was to offer a neutral, gentle, barrier-compatible option, so that customers don’t have to rely on their budtenders for being informed and willing to dispense sexual health information.

Fortunately it’s no longer necessary to be bound by the limits of oil. It’s the first rung on the ladder, the easiest path to take, and still the wisest choice for some applications. However, if you are developing a beverage, tincture, or topical, consider what water-based formulation can help you do — and what it can help you avoid.

SōRSE Employee Spotlight: Emily Skrobecki

A black and white portrait of Emily Skrobecki, a SōRSE employee.

Meet our Manager of Process Engineering, Emily Skrobecki, who brings over three years of experience in the cannabis and hemp space as an Analytical Chemist, along with an academic background in Chemical Engineering with an emphasis in biochemical processes. Emily’s knowledge and enthusiasm for her work makes her an amazing brand ambassador. She believes strongly that there is no “I” in teamwork, and this ethos is evident in the way she collaborates with the SōRSE team.

How did you get started SōRSE?

Prior to SōRSE, I was working at an edibles company. My last company brought in Scott (CSO at SōRSE) to do a presentation, and it opened up my eyes to the emulsion technology world. Months later, I met him again at a Cann-STEM meetup where he was presenting. We started talking about working together, and he encouraged me to come to SōRSE. Funny enough, I was hesitant at first because I was well aware of how chaotic the 502 industry is and already had plans on leaving this industry.

After consulting with my parents and close friends, I decided not to leave the industry because it’s a once in a lifetime experience, particularly watching cannabis become legal — medicinally and recreationally — and now going through a huge growth period. Now, one year later, I am so happy I took this job. I’ve had endless opportunities to play in the lab and shape myself into the scientist and engineer I wanted to be. I feel appreciated and seen as a knowledge source, and I am happy with the team we’ve created. I firmly believe that the science drives the integrity of our product. 

What is Cann-STEM?

Cann-STEM is a cannabis science group that I started, for people like me, to meet and talk about the industry’s scientific progression. At that time, the industry was still so new that most “discoveries” were being kept a secret due to the illegal/closet thinking tendencies when cannabis was a federal crime. 

Cann-STEM was made to promote the development and sharing of cannabis scientific knowledge through the collaboration of cannabis research, innovation, and technology. The group has speakers to come talk with us every month about what they were working on and share their knowledge. 

What have been some of the significant moments in your year here?

One of my first projects at SōRSE was to create a powder formulation that would have similar water-soluble properties of our liquid, but also be easy to process with high yields. I worked closely with Scott and Michael Flemmens (VP of Science at SōRSE) for guidance in creating this challenging monster. Long days, weeks, and months were put into this project, but all became worth it in the end. Long story short, creation and commercialization has been my most significant moment here thus far. Scale-up is usually a long process, and man, we commercialized that product in less than 10 months. What a record! 

In your time at SōRSE, what are you most proud of?

I’m really proud of how the company, and the people within the company, have grown in one calendar year. We all have been pulled and stretched in many directions, but we have grown so much from it. We failed — a lot — but failing is good. If you are not failing, you are not learning. One of my favorite phrases, both in the workplace and my personal life is, “there is always room for improvement.”

What do you love most about what you do?

I love the challenge of someone saying, “I want to put CBD in this.” People have crazy ideas for products – and there are endless opportunities to help people get their idea off the ground. I am happy to be on a team that explores these ideas and does insane things in the lab. 

Can you share a fun fact that not a lot of people know about you?

One of the most important things in my life is spending as much time in the ocean as possible. My goal is to be in the ocean at least once every day. As of right now, I am close to once a week! Baby steps…

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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse id semper ex. Phasellus quis interdum purus. Cras a viverra dolor. Fusce non massa vitae enim egestas varius. Maecenas tincidunt sit amet ex vitae ullamcorper. Aliquam nisl leo, eleifend eget nunc a, imperdiet sodales magna. Maecenas in lectus in tellus sollicitudin mollis. Phasellus vehicula maximus libero, a malesuada dolor. Vivamus convallis urna et quam consectetur, nec consectetur augue laoreet. Donec finibus sem sit amet sagittis auctor. Vestibulum tristique risus et fermentum tincidunt. Vestibulum ante ipsum primis in faucibus orci luctus et ultrices posuere cubilia Curae; Vestibulum id lectus a quam maximus congue non vitae tellus. Sed pulvinar ornare fermentum. Sed a odio non massa luctus efficitur nec quis erat. Curabitur varius magna quis purus ullamcorper dapibus. Fusce euismod, lacus eget dignissim maximus, orci sem euismod velit, quis viverra libero arcu vitae odio. Phasellus dignissim ornare magna vel elementum. Nam cursus diam ut vestibulum aliquam. In vel nisi vitae felis semper facilisis. Etiam in sollicitudin purus. Cras feugiat leo eget ex consectetur, at malesuada massa accumsan. Nam rhoncus commodo nisl, id commodo quam aliquam ac. Phasellus id quam nec risus tincidunt tempor. Proin finibus dapibus risus, sed cursus erat eleifend sed.

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