When a Baggie Just Won’t Do: Packaging in the Age of Legal Pot

(Bloomberg) -- As marijuana grows up, the clear plastic baggie just won’t do anymore.

Pot retailers need better containers to hold their merchandise as commercial weed goes mainstream. And therein lies both a lucrative new market and a minefield of potential legal and public relations disasters for packaging companies looking to spur growth.

The legal cannabis industry is demanding products like the FunkSac bag, which keeps odors in and children out, one of 1,500 products offered by KushCo Holding Co. Now bigger, mainstream packagers like Reynolds Group Holdings are eyeing a $110 million market that could grow six-fold by 2030 as legalization spreads. But they’re treading cautiously, with some worried about being associated with a federally banned drug.

“There’s a high degree of interest, but it’s very polarized,” said Jim Chrzan, a vice president at industry association PMMI Media Group. “Some companies do not want to be dealing with cannabis.”

Legal Maze

Designing the best container for any product requires meeting a mix of technical, marketing and legal demands. Those challenges are magnified exponentially in the nascent legal marijuana market, where container-makers must navigate a web of laws among the 33 states that allow pot sales.

Most require opaque containers, food-grade plastics and child resistant packaging, but how those standards are met can vary. Colorado, for instance, allows edibles to be bundled in resealable containers, while Washington allows only single-serving packages.

Cannabis is still just a sliver of the $205 billion U.S. packaging market, but it’s a bright spot in a mature industry growing at just 2.1 percent a year, according to PMMI.

Eye-popping growth prospects are what’s drawing interest from mainstream packagers like Berry Global Group Inc., which has $7.9 billion of worldwide sales. The company estimates a market equal to about 1 percent of legal marijuana sales, which research firm Cowen & Co. expects to reach $75 billion by 2030.

“It’s a rare occasion in the packaging space that a new market forms and gets to that type of growth so quickly,” said Brian Hunt, vice president of sales and marketing. “It’s hard to ignore.”

Stigma Worries

Some larger companies still worry about alienating their traditional customer base, which might view the packager as supplying “the drug trade” amid the federal prohibition, Chrzan said.

A case in point: Illinois Tool Works Inc. touted its Safety-Lok child-resistant slider bag as “ideal” for medical marijuana on the website of its Zip-Pak unit. But hours after Bloomberg News inquired about the pitch, the company deleted the reference to marijuana. Zip-Pak hasn’t “marketed or developed products specifically for the cannabis market,” spokeswoman Trisha Knych said in an email. She didn’t respond to a query about changes to its website.

Reynolds is promoting a similar product, the Presto Child-Guard zipper, as a way to keep youngsters out of cannabis edibles. Procter & Gamble Co. uses the technology on bags of its Tide Pods dishwasher detergent to keep kids from eating the colorful swirls of detergent.

Market High

Reynolds, which makes Hefty bags and aluminum foil, didn’t respond to inquiries about supplying the legal marijuana industry. But it devotes a lengthy blog post on its Presto Products website to touting the cannabis market. Reynolds has received “a continuous stream” of queries from marijuana companies, the company wrote. “Support is at an all-time high (no pun intended).”

Berry’s vials, jars and bottles were already being used by cannabis sellers when the company decided to develop products specifically for the market. Research revealed a need for packages to keep buds from drying out, to control odors, to fend off pets and children, and to satisfy a consumer preference for discretion and portability, Hunt said.

Berry unveiled prototypes at an October trade show to gauge demand before investing in molds, the biggest expense in creating a line of injection-molded plastics. The first of its new “Embark” brand products include a hermetically sealed tray designed to keep edibles and buds fresh, a palm-sized package for holding joints, and a hinged case. The black containers leave space for customers to add their own labels and lab results on potency.

Legal and Safe

“The general stigma has lessened,” Berry’s Hunt said. “Our practice is to supply for the legal market and to have safety at the forefront. If we are meeting those objectives, then it’s reasonable for us to participate in this space.”

Packaging is just the latest example of corporate America’s struggle with how to handle marijuana’s mixed reputation. Scotts Miracle-Gro Co., known for its lawn and garden products, was among the first publicly traded U.S. companies to enter the market when it began acquiring marijuana-related businesses in 2015.

Beer and cigarette companies now are investing in Canadian pot companies, with Altria Group Inc., the U.S. maker of Marlboros, this month agreeing to pay $1.8 billion for a 45 percent stake in Cronos Group Inc.

Larger companies bring marketing heft, manufacturing capacity and ample cash coffers. But they have more difficulty maneuvering in an industry fragmented by a federal pot ban that creates barriers to multistate operations and restricts access to traditional banking.

‘Better Infrastructure’

That’s partly why KushCo Chief Executive Officer Nick Kovacevich, 33, said he isn’t concerned about much bigger companies like Berry gunning for a share of the market. KushCo has diversified into new markets such as vaporizers, further tightening customers ties and strengthening its defense against big corporations, he said.

“They’re going to find some revenue from this space -- how could you not?” Kovacevich said. “But we will make it very difficult to take our customers away.”

Kovacevich founded the company in 2010 in Santa Ana, California, seeking to capitalize on an overlooked part of the legal cannabis market. He took the company public in 2015 and quickly built it into the market leader, with pot packaging sales in the 12 months through August jumping to $15.1 million, 29 percent of total revenue.

Kushco has fielded buyout and partnership offers from larger companies, and while no deals are imminent, “there may be something that happens down the road,” Kovacevich said. “Because at the end of the day, there are a lot bigger companies that have much bigger and better infrastructure.”

©2018 Bloomberg L.P.