Since the passing of the 2018 Farm Bill, the number of CBD brands launching across the U.S. has grown astronomically. Today, an interested party can easily purchase anything from CBD coffees, beers, and vitamins to oils, pills, ice creams, and even dog treats. Almost overnight, these products have become available through a broad variety of suppliers and storefronts from New York to Arizona.
But while the rapid formation and expansion of the CBD industry has been exciting to follow, the wide range of challenges that CBD brands are experiencing often go unforeseen from the public eye.
In reality, despite its legalization, numerous pain points still exist across areas like payment processing, business insurance, and online advertising. These challenges are primarily due to a lack of regulatory cohesion at the federal and state levels.
However, even as regulations continue to beleaguer CBD brands, there are also obstacles being confronted that are the result of normal business growth. Because CBD was legalized so recently, most companies in the space have only been around for a few years, if not a few months. And as these brands begin to expand beyond their initial “start-up” stages, pain points surrounding areas like warehousing, fulfillment, and logistics are becoming more pronounced.
So then, what are these challenges and how are brands overcoming them?
In order to shed light on the obstacles confronting CBD suppliers and manufacturers within the logistics space, Ware2Go conducted interviews with two U.S.-based CBD brands. Each brand is focusing on a unique segment of the CBD market and is operating at a different stage of business growth.
The stories and experiences of these two brands are provided here in order to paint a vivid picture of what the logistics challenges surrounding the CBD industry look like today, and how companies are working to successfully navigate them.
What Logistics Challenges Are CBD Brands Experiencing Today?
Company 1: Able-Brands
Headquarters: Atlanta, Georgia
Market Position: Start-Up
Challenge: Generating Inventory & Demand Forecasts
Founded in Atlanta in early 2019, Able-Brands typifies the start-up vibe of many CBD brands at this early stage. The business was established by Josh Phillips, a financial analyst who began using CBD as an alleviant for joint and muscle aches during his gym workouts. After experiencing a significant reduction in his pain, he decided to build a brand that focused primarily on CBD products for athletes.
Today, Josh operates as the only full-time employee. His CBD is sourced and lab-tested through U.S.-based partners, which means it takes around 2-3 weeks to inbound. Inventory is shipped directly to his home, and he stores it in a spare room. As new orders come in, he fulfills them himself.
With an average of 3-5 new orders arriving each week, Josh’s actual fulfillment process is quite simple. It consists of him pulling inventory from a household shelf, packaging it on his kitchen table, and walking packages over to the local USPS store for delivery. Because most of his customers are local, packages are typically delivered within 2-3 days.
But while fulfillment execution isn’t a burden yet, there have been several instances where a sudden spike in new sales has all but exhausted Josh’s available stock. Due to the limited amount of inventory he keeps, periods where he experiences dozens of new orders per week can put significant strain on his supply. This has happened twice so far; once during July 4th for his CBD dog treats, and once for his athlete-centric CBD gels after sponsoring a lacrosse tournament.
In both circumstances, Josh’s stock was almost entirely depleted as he waited for new inventory to arrive. The solution, of course, would be to develop a process for determining exactly when new inventory should be ordered. But while this sounds simple enough, it’s very difficult for Josh, operating as a sole employee with limited capital, to improve upon existing workflows.
At this stage, the most effective avenue for Josh to analyze his orders volumes is via Excel worksheets, which he prepares himself. He uses the sales data from his website to determine when new sales are occurring, what products are being sold, and who the customer is. This data is aggregated in Excel, and the historical views are used to try and predict when new inventory should be ordered.
So how is this approach working?
Because he represents a brand-new company with limited historical data, the insights gathered through this analysis are only moderately accurate. However, there are notable improvements Josh has already made. He implemented adjustments to account for the seasonality impact of July 4th for sales of dog treats, as well as the impact of lacrosse tournaments on his athlete-centric gels. As a result, he has a much better sense of how much inventory it will take to effectively service these periods of heightened demand. And as more seasonality and historical trends are captured in his system, he is confident that year-round inventory management will become easier.
Moving forward, Josh’s primary focus from an order fulfillment standpoint is on compiling his first full year of sales data. This data will be used to develop a more defined process for managing inventory and fulfillment in 2020, based on the expected demand at different points throughout the year. And, once his monthly volumes are closer to triple the current level, Josh will then seek to either onboard additional employees to manage fulfillment or outsource the service to a third party. However, he reckons that there is still at least a full year before either option becomes a necessity.
Company 2: Holistic Hound
Headquarters: Berkeley, California
Market Position: Mid-Size / Established
Challenge: Achieving a 1-2-Day Customer Delivery Footprint
Compared to most other CBD brands, Holistic Hound is operating at a more advanced stage of business growth. While the majority of CBD companies were forced to wait until the passing of the Farm Bill to officially launch their products, Holistic Hound and its owners, Duncan and Heidi, were afforded a head start.
With their headquarters in California, Heidi and Duncan were willing to take the risk of operating under state-by-state laws before nationwide acceptance of CBD occurred. As a result, Holistic Hound’s entrance to the space was solidified before the vast majority of their competitors ever entered, and the results speak for themselves.
With the official launch of their CBD dog treats in 2016, Duncan and Heidi achieved triple-digit annual revenue growth during their first three years. This has been followed by mid double-digit growth in 2019.
Today, Holistic Hound’s seven full-time employees are servicing 1,800 wholesalers and pet stores across the nation. These B2B channels constitute 75%+ of sales. However, they also offer products directly to consumers via their website. Both channels are experiencing promising growth. But with such fast-paced expansion often comes an array of logistics-centric challenges, and Holistic Hound’s scenario was no exception.
During the company’s first 1-2 years of operation, competition was close to non-existent. Wholesalers and retailers (primarily pet stores in their case) were getting numerous requests for CBD products from customers, and since there were only a few functioning brands at the time, Holistic Hound was able to easily expand their partnership network. And once nationwide CBD acceptance occurred, their distribution partners were happy to deploy their products in other stores across the nation.
However, with an influx of hundreds of new competitors occurring during 2018-2019, Holistic Hound was forced to find more meaningful ways of differentiating themselves in the market. To combat the risks of losing business to new providers, Duncan, their CFO, began to look at the business from a standpoint of efficiency, rather than just focusing on the quality of the product. This analysis uncovered some interesting findings.
By early 2019, Holistic Hound was shipping 40% of their products to wholesalers on the East Coast. However, with all their orders being fulfilled from a warehouse in California, it took 4-5 business days for shipments to arrive. And as Duncan’s competitors on the East Coast began offering delivery to these stores in 1-2 days, he realized he had to find a more efficient method of reaching his partners.
In Duncan’s particular case, it became clear that an in-house process for managing fulfillment would not be feasible. Holistic Hound only had seven employees, and the costs of directly purchasing or leasing their own East Coast warehouse would be prohibitively expensive. Instead, Duncan turned his attention to outsourced fulfillment providers. And in January-February of 2019, an evaluation of numerous 3PLs and other warehouse providers culminated in the selection of an “on-demand” warehousing solution.
With the deployment of their on-demand solution in March, Holistic Hound now has access to a nationwide warehouse network that enables them to store a portion of their products across facilities on both the East and West Coast. This ensures that they always have inventory positioned as close to their customers as possible. And as new orders are captured, the on-demand provider manages all pick, pack, and shipping services on Holistic Hound’s behalf and guarantees order fulfillment for their clients on both coasts within 1-2 days.
In September 2019, Duncan was 6-7 months into the use of his new solution. And as he evaluated the model’s impact thus far, he talked about the ability to now use fulfillment as a competitive differentiator against other brands. The fact that his CBD products are popular makes wholesalers want to work with him. But because he can guarantee 2-day fulfillment to both coasts, he ensures that the relationships he creates aren’t hindered by a lack of service or efficiency.
With the successful adoption of two outsourced distribution centers (one in Utah and one in Pennsylvania), Holistic Hound is servicing all of their existing partners without having to expand their in-house fulfillment team or purchasing and managing their own warehouses. And they are continuing to add more partners to the mix.
Although the logistics challenges sustained by CBD brands have been pronounced due to the relative newness of the industry, many of the experiences highlighted above will resonate with companies operating in other markets.
Regardless of a company’s industry, the process of scaling fulfillment workflows in-line with business growth is a significant challenge. The transition from managing dozens to hundreds of orders per week, or from maintaining ten wholesaler relationships to fifty, can put monumental strain on resource-constrained companies.
However, upgrading the fulfillment process to support this expansion is key to making sure a lack of distribution efficiency doesn’t impact sales. And whether you’re a new CBD supplier just beginning to service the market or a mid-tier apparel company that has existed for years, the efficiency of your fulfillment workflows will play a vital role in supporting long-term growth.
Patrick Cadic leads sales, marketing and customer success at Ware2Go (a UPS company), where he is scaling a team designed to disrupt the traditional fulfillment industry. With a unique background of progressing the financial services industry with applied uses of artificial intelligence and Big Data, Cadic is bringing a new perspective to an industry in need of change. Prior to Ware2Go, Cadic was Vice President of Sales at ZestFinance and Equifax, where he led an enterprise sales organization and built out the company’s largest consumer data sandbox for advanced analytics.