Jeff Wu serves as the technical director at Xylem, applying his deep understanding of chemistry, electronics manufacturing, automation, and cannabis processing. As both an investor and entrepreneur, Jeff brings a unique blend of scientific knowledge and hands-on experience to the pharmaceutical, laboratory, manufacturing, and cannabis industries.
Credit: Jeff Wu
Q: Can you describe the key supply chain challenges in the cannabis industry?
A: Buying cannabis inputs from trim to crude to resins was very risky due to authenticity and quality concerns, which slowed the supply chain. One major problem is sellers cutting materials and mixing medium-chain triglyceride (MCT) oil with cannabis oil. MCT oil has almost the same boiling point and molecular weight as cannabis distillate, making it very difficult to separate.
Another common problem is high levels of herbicide, pesticide, and fungicide contamination in product sold as organic. Nothing was ever 100 percent clean. Something could blow over from crop dusting neighboring vineyards, for example, but even indoor growers had mold problems requiring heavy chemicals for IPM control. We had to put purchases in escrow and have multiple testing labs verify the product, so a single transaction usually took three weeks.
The cannabis supply chain is built on individual relationships and trust. Business relationships in the industry are determined by personal relationships and the trustworthiness of a contact, rather than a company.
Q: How is the equipment evolving to meet the industry's needs, and what gaps still exist?
A: Cannabis workflows have unique challenges that are still being addressed. Machinery and equipment have to be made for this industry to exist. You cannot brute-force your way with manual labor on the chemistry, filling, or packaging side. I was one of the early guys who realized I didn’t have the capacity or the ability to make the product; I had to make the equipment first.
In my work with Xylem Technologies, I’ve been focused on some of the more difficult aspects, like the automatic cartridge filling for vapes. The resin used in vapes is as thick and sticky as road tar, and there was no equipment for handling it. So, we developed the automated cannabis cartridge-filling robots.
There is innovation happening, but a lot of products marketed to the industry are originally designed for lab use. Somebody just painted it a different color and called it a cannabis device. There's not even a good oven to heat cannabis oil. Every oven is either too slow, too fast, too expensive, or built for laboratory tasks like glass drying. I have so many stories where I lost $20,000 of product because I left it on a hot plate too long or didn't realize that the bottom stirrer decoupled. It's mind-boggling that there isn't a product for this.
It's also very difficult to change staff habits in this field. Until there's a generational or demographic shift, new equipment must be developed to fit current behaviors.
Q: What are the difficulties in maintaining quality control, and how does this affect product consistency?
A: When I first showed up in 2017, all the vapes were hand-filled. You would guess if it were filled with a half gram or one gram just by eyeballing it.
When it came to packaging flower and vapes it was a bunch of people in a room doing it by hand. A lot of the previous people were from the black market, since five years ago it was federally illegal. They would never invest in equipment because if the police raided them, they’d get their grow lights, bags, and money taken away, but they could reboot and restart. They never actually thought about how to make packaging efficient. Also, because it was illegal, the price was so high that you could afford to do it by hand. But at this point, a lot of these people are still trying to use their old processes to make product in an industry that is very quickly becoming professional.
There are also huge labor challenges for a lot of these companies, and I feel for them because it’s hard to find someone with good knowledge who actually wants to work at a cannabis company. So effectively, you’ve got people who don’t have the proper skill sets being pushed into this industry, which has caused a lot of issues with growth for some of these companies.
Q: How do regulatory challenges affect the industry's operation and growth?
A: Regulatory fears prevent larger companies and banks from doing business with us. We couldn’t buy standards or even basic chemicals from Sigma-Aldrich. I had to source analytical-grade materials using one of my other companies. There are companies now that exist just as intermediaries to serve cannabis companies.
I invested in Eaze, a marketplace platform that functions similarly to InstaCart, to help with their supply chain, sourcing things like bags and batteries. We had multiple banks shut down accounts because of financial associations with cannabis, fearing government complications. That's why a company like Sigma-Aldrich wouldn’t consider selling standards to cannabis companies.
California’s legalization was an important step, but they over-regulated the cannabis market. Cannabis regulations for heavy metals, pesticides, and herbicides are actually tougher than tobacco. At the same time, they didn't fund enforcement, and probably greater than 60 percent of operations were selling to other states.
There were also parties trying to get involved in regulations out of self-interest. As an example, one person lobbied successfully for license stacking. Originally, the state was trying to create a market of individual boutique growers with a maximum field size of three acres, similar to a craft wine or beer market. Now, a corporation or hedge fund can buy multiple licenses and stack them, creating billion-dollar mega-farms. This drove prices down so rapidly that it forced small growers to either find new markets or go out of business. Legalization was intended to create jobs and distribute income widely, but a single regulation broke that.
Despite the regulatory problems, it's still a growing industry, with usage and legalization increasing every year.
Q: Based on your experience, what advice would you give to lab managers facing these challenges?
A: Automate as aggressively and as quickly as possible—human resource challenges will exist for a decade or more until the cannabis stigma finally wears off.
It’s better to make less product than hire unqualified. We tried to expand too far too fast and hired too many people, like many startups, and stumbled badly.
Sourcing basic supplies, like analytical grade solvents, is less of a challenge now, but it’s important to ensure you have a good supplier for basic inputs like chemicals.
You have to approach this field like a scientist and test everything three times before committing. We just bought equipment and planned processes based on experience in other fields, believing it would work, which it didn’t.
To learn more, visit xylemtech.com