As the CBD (cannabidiol) market expands, opportunities are increasing for not only large businesses but also small and medium-sized businesses to develop their own branded CBD products .
However, if you do not have the manufacturing equipment or know-how, it is essential to utilize OEM (contract manufacturing) . You may be wondering how to outsource various CBD products such as oils, edibles, and cosmetics and how to properly manage safety, quality, and costs.
In this article, we will explain the key points of contracts that small and medium-sized businesses should be aware of when contracting out the manufacturing of CBD products . How should you choose an OEM partner under the constraints of the Cannabis Control Act and the Pharmaceuticals and Medical Devices Act, and what clauses should be included in the contract? We will explain in an easy-to-understand manner, based on the OEM case study of ASA.tokyo.
1. Why is OEM effective? Challenges faced by small and medium-sized businesses
If you want to manufacture CBD products in-house, you will need to make large investments in things like food manufacturing licenses, factory equipment, a quality control system, and manufacturing know-how.
It is not uncommon for the initial investment to be around 10 million yen, including not only workshop equipment but also raw materials, containers, etc. , which represents a heavy burden for small businesses.
In addition, when handling CBD raw materials, the ingredients are subject to heat and aging. There is also a risk that the raw materials may change or deteriorate.
Of course, you should never make CBD products without permission. (There have been several cases of arrests, the Ministry of Health, Labor and Welfare has issued warnings, and there have been cases of people being arrested by the police.)
Source: Ministry of Health, Labor and Welfare https://hfnet.nibiohn.go.jp/alert-info/detail4927/
As for securing the specialized technology and manpower needed for manufacturing, the CBD market is still in its infancy, so even if you have the money, it can be difficult.
By utilizing OEM (outsourcing manufacturing to another company), you can keep your initial investment to less than a few hundred thousand yen and quickly launch your own CBD brand.
Safety management under the Cannabis Control Act and the Pharmaceuticals and Medical Devices Act
To handle CBD products, it is necessary to comply with various laws and regulations, such as the Cannabis Control Act , the Pharmaceuticals and Medical Devices Act, the Food Sanitation Act, and the Food Labeling Act.
There are significant risks involved with failing to comply with regulations, such as sourcing THC-free ingredients, proper labeling and advertising, and even quality control during the manufacturing process.
An important selection criterion will be whether the OEM partner is knowledgeable about legal regulations and has obtained certificates such as COA (Certificate of Analysis) .
2. Checklist for choosing an OEM partner
The first thing to look for is whether the company has experience manufacturing CBD products . The know-how required varies depending on the type of product, such as CBD blends for cosmetics or edibles for food.
ASA.tokyo has obtained a food manufacturing license at its ASA. Tokyo factory established in Itabashi Ward, and is able to develop OEM products starting from 100,000 yen, ranging from edibles such as CBD cookies and CBD gummies to CBD oil products, as well as miscellaneous goods such as candles.
Food manufacturing licenses held by ASA.tokyo (No. 613 and 614)
Cosmetics require a level several steps higher than food, so we are developing our products in partnership with existing cosmetics manufacturing factories.
For food OEM, we can introduce you to ASA.tokyo, and for cosmetics we can also introduce you to partner companies, so if you are interested, please contact us using the link below.
ASA.tokyo OEM/Raw Material Sales Inquiry Desk
Raw material procurement and quality assurance check
Safety must be ensured at the raw material procurement stage, such as ensuring that the THC content is below the standard value and that the ingredients are free of pesticides, heavy metals, etc.
It is a good idea to ask your OEM how they procure their raw materials and what certificates they have obtained, and if necessary, ask to see information about their overseas suppliers and COAs for farms and extraction facilities.
3. Key clauses to keep in mind in the contract
3-1. Manufacturing scope and division of responsibilities
The contract will clearly state what exactly the OEM is responsible for and what the outsourcer is responsible for. For example, it could be something like "we will arrange to import the raw materials ourselves" or "the OEM will handle everything from manufacturing to packaging and labeling."
In the unlikely event that a problem occurs during the manufacturing process, it is also necessary to determine who will be responsible and who will bear the costs.
3-2. Quality control and inspection
For CBD products, it is essential that they comply with the Cannabis Control Act and the Pharmaceuticals and Medical Devices Act , and that they meet quality standards such as being THC-free and undergoing pesticide testing.
Make it clear in the contract which testing agency the OEM will use and when the testing will be conducted, and if necessary, stipulate the inspection costs and the obligation to disclose the test results .
3-3. Intellectual property and exclusive contracts
It is important to establish confidentiality clauses to prevent OEM companies from using your company's intellectual property, such as its unique formulas, flavors, and brand names, without permission, or providing such information to third parties.
In addition, if exclusive manufacturing rights are to be established for a specific period or region, negotiations and arrangements regarding cost sharing must be made.
4. Prevention of trouble: Common risks and how to deal with them
If delivery date management is poor or there are problems with the production line, it will hinder the release plan. It is important to clearly define delivery dates and penalties for delays in the contract and to regularly check progress.
Also, be clear about how you will remanufacture or handle returns in the event of a decrease in quality (for example, insufficient CBD content, different taste or scent, etc.).
Japan's CBD-related legislation is not yet stable, and there is a possibility that amendments to laws and changes in administrative policy may occur.
In such cases, the company may be forced to revise the product's ingredients or labeling.
Risks can be reduced by including a clause in the contract that negotiates who will bear the costs and how much of the schedule adjustments that may arise if label changes or additional testing becomes necessary due to changes in the law.
Benefits and future prospects of OEM
By developing CBD products using OEM, even small and medium-sized businesses can enter the market quickly and with low risk .
On the other hand, because manufacturing know-how and compliance with legal regulations depend heavily on the reliability of the OEM partner , it is important to clearly define the division of responsibilities, quality standards, and intellectual property protection at the contract stage.
Japan's CBD market still has a lot of room for growth, and as long as strict compliance with the Cannabis Control Act and the Pharmaceuticals and Medical Devices Act can be ensured, there are many opportunities for new flavors, functionality, and brand development.
In the future, why not refer to market expansion forecasts from overseas news data sources, strengthen collaboration with OEM partners in Japan, and expand the scope of your business by launching unique CBD products?
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