What is more cost effective; buying distillate, or making your own for use in edibles?

CannaBusiness
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Hello everyone, I am very excited to have found this great community. Let me first give you some background on my current situation so you can better discuss my question.

My partner and I have developed a novel edible that we are currently in the process of filing a patent for. We have a lot of faith in bringing this product to market (Colorado), and are excited to launch in the next year. The product that we have created uses a THC distillate as the main component, so we have two options as we see it in structuring the business.

Option One: Buy distillate straight from a supplier. This option is the most simple in terms of structure, logistics, funding, and overhead. We find a few local distillate suppliers and buy a product that meets our quality and quantity needs. There are, however, a few drawbacks with this option. First, we will be beholden on the timeliness and consistency of our purveyor. Second, our price point will be impacted by being further down the supply chain, and the life of our product will be directly tied to the health and status of the current distillate market.

Option Two: Make our own distillate product in house. With this option, we would not only use our own THC distillate to make our aforementioned product, but we will also be in a position to be a market mover for distillate ourselves. We can lower our ROI on our process, but we will be burdened with higher start up costs and potentially have more room for errors that could slow our production. This business model is more diverse, and could provide us more security by offering a wider range of products to both retailers and manufacturers alike.

So in a nut shell, the question I am having trouble answering is “which option is more cost effective”? I have been doing research for a little while now and am having trouble getting straight answers about the trajectory of the distillate market, as well as what market demands currently look like in said market. Will there be anyone to / who will buy our distillate product? Are shortages common in the Colorado distillate market? How consistent on quality and quantity of distillate are current market movers? These are all ancillary questions that can help me bring the “right” answer into focus, but I am hitting road blocks when looking for solutions.

I would love to hear your opinions on the matter.

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Just buy it. Id buy butane extracted crude if I couldn’t find distillate.

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Unfortunately our product consistency hinges on using distillate over other extractions. Buying distillate makes a lot of sense, but shortages are a huge problem that we would like to try and avoid. Are they a common issue?

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Depends on your connection. Finding a solid connection maybe easier then producing it yourself, depending on finances and knowledge

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You are absolutely correct in that finding a solid connection being the easier option, as well as the least expensive on the front end. There is always the fact that we can scale up to making our own distillate in the future once we have proof of demand for our end product. There are a few different strategies that we have been discussing.

Lets assume for the sake of argument though that finances as well as knowledge was not an issue. Would this change your answer in any way?

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Can both be produced under the same type of license? If you were to do it here in Oregon right now it wouldn’t make sense with the licensing moratorium/entry costs, but in other states I could see vertically integrating being beneficial on that small of a scale

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Slowly build up the things that you need to create what you want to create. It will generally ALWAYS be cheaper to produce the entire product yourself {Depending}… You just collect what you need along the way. If you have some funds for startup you can very easily pickup a wiper in the classifieds section for a good price, and go from there… (And we’re NOT talking tons of investment overhead)

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If finances and knowledge aren’t a limitation, then producing it yourself would be the best option.

You could even run the extraction company under a different llc if you also plan on producing excess for sale. Could potentially help with sales and licensing

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That’s a great Idea, having two LLCs will also help us to better organize our bookkeeping. Thanks for the input! I just wonder if in Colorado we would be allowed to operate essentially two separate businesses under one MIPS license.

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I think the answer is relative to how much distillate you need