In the latest episode of Call Me Cannabinoids, we sat down with Derek Du Chesne to talk about vertical integration, transparency, and the supply chain in the CBD industry.
Derek is the Chief Growth Officer at EcoGen Laboratories, a vertically-integrated supplier and manufacturer of hemp-derived ingredients. He says that while many companies claim to be vertically integrated, they may not necessarily be.
“This industry is made up of five buckets: the genetics, the seeds, farming and processing, formulations and raw materials, and finished products and brands,” he says.
A CBD company that is truly vertically-integrated will have full control of each of these buckets–essential parts of their supply chain. This concept is commonly referred to as “seed to shelf”, meaning that a company is in control of their process from planting the seeds all the way to the finished product.
Knowing the science behind hemp and understanding the full process from seed to shelf helps companies provide safe, quality products for their consumers. If a company doesn’t understand hemp’s air and soil remediation properties, for example, then that leaves them vulnerable to choosing supply chain partners whose products could be unsafe and damaging to their brand. A lack of understanding could lead to obtaining inexpensive hemp from a heavily polluted farming operation.
“Find a true supply chain partner that has their doors open for you,” Derek says. “Find a processor that isn’t afraid to show you their entire manufacturing process, from start to finish.”
Transparency is a necessity for CBD companies
Derek says properly processing a CBD product is an intricate, 17-step process, and that processors should be fully transparent with the companies they serve.
“You need to have transparency in order to supply your customers with a product that you can put your brand name and your reputation behind,” he says.
It doesn’t necessarily make sense for businesses in every industry to be vertically integrated, but CBD is an exception. Controlling all aspects of the product development process is the only way to ensure your products are up to par.
“If you’re just processing,” he says, rather than being fully integrated, “you’re always going to be at the mercy of the cost of biomass or the availability and quality of the hemp.
“If you don’t control one part of your supply chain, that’s always going to be your weakest link–it’s always going to be a liability.”
Must-haves for vertically-integrated hemp companies
Derek says there are several critical pieces that hemp companies must have in place in order to sustain themselves in this industry for the long term.
“In an industry without regulation, the three main things you need for your brand or company to succeed are quality control, consistency, and scalability,” he says.
“Have quality in your genetics and a consistent supply. We’re not trying to be the biggest farmers in the world, but have enough to make sure there isn’t going to be a hiccup in the supply chain.”
Derek says it’s critically important to forge strong bonds with every vendor in their supply chain.
“I encourage everybody to build a relationship with their supply chain and demand transparency,” he says.
Transparent vendors encourage partners to tour their facilities and are open about all their operations. While all vendors have their own variations in process, Derek says that suppliers, processors, or manufacturers who keep their operations (or parts of it) behind closed doors are raising a major red flag.
“Before the 2018 Farm Bill, everybody was operating in the shadows,” he says. “Now that hemp is an agricultural commodity, people, industry manufacturers, and supply chain partners need to start acting like real manufacturing companies and real businesses.
“They need real financing, terms, delivery schedules, consistency, reliability, and the ability to provide information like the date seeds were grown, harvested, processed, and manufactured. We’re trying to set the standards that customers demand more from the supply chain partners.”