How California Is Killing off High-end Cannabis Edibles
Edibles makers using quality ingredients have tiny margins, meaning tax increases could spell the end for already-squeezed brands like Somatik.
Would-be cannabis entrepreneurs might commit a drastic act to have Christopher Schroeder’s problems. The founder of Somatik, a San Francisco Bay Area-based cannabis startup that manufactures THC and CBD-infused coffee drinks and chocolate-covered espresso beans produced in concert with existing, well-known consumer brands, launched his company to a round of positive press. The warm reception was an object lesson that in the cannabis legalization era, there was a big market for high-end cannabis edibles. Schroeder’s stated dream — to see Somatik cold-brew coffee on tap in high-end cafes, next to the “unleaded” cold crew and the kombucha — seemed within reach.
Then legalization happened.
Just shy of two years into the age of commercial recreational cannabis sales in California, Somatik is struggling to turn a profit, Schroeder told Cannabis Now in a recent interview. The problem isn’t the buying public, who like infused coffee beans and drinks as much as they did in 2017. Somatik’s problem is the same problem negatively affecting almost every cannabis company in California, the country’s oldest and largest market: the taxes are just too damn high and getting higher.
Crying poverty and decrying the government’s cut is an ancient ritual in American business, but in Somatik’s case, it’s hard to argue with the math. The company’s glass jars of cold brew and chocolate or coffee bites are meant to sell for between $8 and $24 at the dispensary retail counter. But because the company “works hard to source only organic, above-fair trade ingredients,” Schroeder said, “we already have a slim margin on product we bring to market.”
Consumers are currently paying That $11 bottle of cold brew generates only 90 cents of profit for Somatik, he said — meaning there really isn’t anywhere along the supply chain Somatik can make a further efficiency in order to generate more profit.
Published: December 07, 2019
Founder & Interim Editor of L.A. Cannabis News