Navigating Compliance for Cannabis Processors

Have you ever wondered where the edibles, concentrates, and topicals you see on dispensary shelves come from? How do they actually get there from just a plant? This is pretty much what cannabis processors are responsible for.

Cannabis processors take the raw cannabis harvest and work their magic, turning it into all those different products we love. But here's the thing: as cool and innovative as this part of the industry is, it operates in a landscape that's still finding its feet when it comes to rules and regulations.

If you operate a cannabis processing facility, ensuring compliance is absolutely crucial, but we know that it isn't a walk in the park. Since regulations are quite complex and constantly changing, staying on the right side of the law can be very challenging. As your business grows, figuring out how to scale up while still dotting all the "i"s and crossing all the "t"s can also present significant obstacles.

Luckily, this article can be your friendly guide through all of this. Do you want to learn how to follow all the rules to foster a positive relationship with regulators, build trust with customers, and set your business up for long-term success? Let's break down everything you need to know about compliance as a cannabis processor!

What Are Cannabis Processors? The Industry's Essential Link

If you're planning to enter this market, you've probably asked yourself, "How do I become a licensed cannabis processor?" The answer may vary based on the state where you operate, as each jurisdiction has set specific rules and requirements to regulate cannabis product manufacturing.

But before delving into these legal aspects, there's something you should do first: understand what lies behind this role.

The Vital Role of Processors in the Cannabis Supply Chain

The cannabis industry is a network of various businesses working together. Cultivators grow the plants used to manufacture products, while distributors and retailers sell finished goods to other operators or directly to customers.

Cannabis processors are right in the middle and act as the bridge connecting the cultivation side of things with the retail market.

As a processor, you're responsible for taking the raw harvested cannabis and transforming it into all the diverse products you see at dispensaries. However, this isn't just about creating goodies by changing the shape of flowers but about adding value.

The cannabis product development process involves many aspects. You can extract valuable cannabinoids (like THC and CBD) and terpenes from raw flowers to create concentrates, distillates, and isolates, or infuse edibles with precise dosages and delicious flavors—all while ensuring your products are safe and compliant.

Types of Cannabis Processing Operations

Just as there are different types of products, there are several cannabis processing techniques and facilities. Here's a comparison of the most common ones you might encounter:

Connecting Cultivators to Consumers: The Process Flow

How does cannabis actually go from flowers and trim to product, and what's the role of a processor in all this? Although this is considerably more complex, the simplified process can be as follows:

Cultivation (the cannabis plant is grown and harvested) → Processing (extraction, infusion, and formulation occur) → Quality Control and Testing (products undergo rigorous controls to determine if they meet safety and quality standards) → Packaging and Labeling (products are packaged in the appropriate containers and labeled with the required information) → Distribution (finished cannabis goods are transported from the cannabis processing facility to dispensaries) → Retail (products are sold to customers).

There are crucial compliance checkpoints at each of these stages. As a processor, you must ensure your facility meets industry requirements and that every aspect of your operations adheres to strict cannabis compliance regulations regarding processes, materials, equipment, and staff while fulfilling your tracking and reporting obligations.

Additionally, your products must have the correct potency, be free of contaminants and other potentially harmful substances, be accurately labeled according to federal and local rules, and be completely safe for use.

Cannabis processing jobs are big, making them truly essential in the cannabis supply chain.

The Step-by-Step Cannabis Processing Journey

After breaking down the essentials of the role, there's another question worth answering: What are the steps involved in cannabis processing? We can summarize them as follows:

Receiving harvested cannabis and initial testing
Preparation and pre-processing
Extraction
Post-extraction refinement
Product formulation and manufacturing
Packaging and labeling
Final testing and quality control
Distribution logistics

Let's briefly explain each one to help you better understand the cannabis product manufacturing process!

Receiving & Initial Testing: Quality Assurance Begins

This journey begins the moment you receive raw materials at your cannabis processing facility. At this point, you should implement solid intake protocols and thoroughly verify the chain of custody documentation, paying detailed attention to shipping manifests, purchase orders, and other records to know who handled the cannabis and where it has been. Traceability is crucial in this industry, so you shouldn't skip this.

Initial testing is another important step. Once you receive your cannabis and verify that all the documentation is in order, you should perform checks for moisture content, foreign materials, cannabinoid profiles, and other key aspects. Doing this will help you determine whether your materials meet quality standards or should be rejected to prevent compromised inputs from entering the processing stream and affecting your products.

Preparation & Pre-Processing Techniques

Before you start manufacturing your products, your raw cannabis must undergo a preparation process that involves four crucial stages: drying, cleaning, trimming, and curing.

Drying reduces the moisture content to prevent mold and optimize extraction. Cleaning and trimming remove unwanted stems, leaves, and other non-target materials. Curing, a slower process, further enhances the aroma, flavor, and overall quality of your cannabis.

It's important to keep in mind that the techniques used for preparation and processing may vary for each product. For example, flowers might require different drying or trimming methods if intended for pre-rolls or extraction.

Extraction Methods Compared: Finding Your Approach

Many processors focus on separating cannabinoids and terpenes from the plant material to create other products. There are also many cannabis extraction methods, and each may be suitable for a specific product.

Common methods include CO2, hydrocarbon (using butane or propane), ethanol, and solventless extraction (like rosin pressing). Each offers different benefits and results. Choosing the right one will depend on several factors, such as your cannabis processing equipment, budget, safety protocols, operational efficiency, and desired quality and characteristics of the final product. Let's take a look at the following table:

Do you want to learn more about this? We've crafted two comprehensive blog posts that may come in handy: Cannabis Extraction: Methods, Products, and Tools and THC Extraction 101.

Post-Extraction Refinement: Creating Pure Products

Once the previous steps are completed, the initial extract typically undergoes further refinement to achieve the desired quality or purity and ensure consistency, which often involves any of the following three techniques:

Winterization: The extract is chilled, and the solids are filtered out, to remove unwanted fats and waxes.
Distillation: Compounds are separated based on their boiling points, which allows you to obtain highly purified cannabinoids like THC or CBD distillate.
Isolation: Individual cannabinoids are further separated and purified to their near-pure crystalline forms.

Since each specific refinement technique can directly impact your final product's potency, flavor profile, and overall quality, you need to choose one based on the result you want to achieve.

Product Formulation & Manufacturing

If you already have purified extracts in hand, the next step is to start formulating and manufacturing your cannabis products.

Whether you want to achieve a specific texture for gummies and candies or a specific viscosity for vape oil, your products must have consistent cannabinoid content and deliver an accurate dose. This is essential for both customer safety and compliance. Therefore, you should understand formulation science and implement strict controls, such as precise measurement and proper mixing techniques.

Additionally, it's essential to perform testing at every production stage to verify that each product has the correct potency and quality before packaging.

Compliance-Focused Packaging & Labeling

Although they occur near the end of the production process and seem like the easy parts, packaging and labeling are also subject to regulations and must be handled with the utmost care.

Rules vary by state, so most focus on universal points. Take a look at the following checklist for compliant packaging to get an idea of what your containers and labels should have:

Child-resistant features
Information about net weight or volume
Accurate cannabinoid content (such as percentages of THC or CBD)
Serving size and servings per container (for edibles)
Universal symbol (where required)
Mandatory warning statements
Ingredient list
Manufacturing date and batch number
Testing information (including test results about potency and contaminants)
Compliance with state-specific font sizes and placement for labels and packaging information

Some of the most common mistakes include using non-child-resistant packaging where required, displaying inaccurate potency claims, adding missing or illegible warning labels, failing to include required symbols, and keeping inconsistencies between the label and the actual product. You should understand and adhere to state-specific regulations to avoid penalties and other issues.

Final Testing & Quality Control Measures

Have you ever wondered, "What job opportunities are available in cannabis processing?2 The truth is that cannabis processing jobs extend beyond production and packaging, as you need to perform other activities after that.

For example, products must undergo a final round of testing and quality control before being released for distribution. Although this also depends on state-specific regulations, both are typically performed by third-party laboratories that check cannabis goods for contaminants (such as pesticides and heavy metals), verify their cannabinoid potency, and confirm that they meet all regulatory requirements.

Most states also mandate that cannabis processors have Certificates of Analysis (COAs) for their products. These documents detail test results and provide key information about processed goods' quality and safety, so they're essential for customer trust, transparency, and compliance.

Distribution Logistics for Processors

Finally, the cannabis product development journey ends with the logistics of distributing finished goods. Again, this activity is subject to strict regulations. For example, you must comply with strict transportation requirements, which may involve relying on secure vehicles, implementing strict temperature controls, and moving only accepted product quantities.

You'll also need to track the movement of your products from your cannabis processing facility to licensed retailers. In most states, this is done through the generation of a transportation or shipping manifest and the use of state-specific traceability software, such as Metrc and BioTrack.

Essential Equipment for Modern Cannabis Processing Facilities

So, what equipment is needed for cannabis processing? From extraction and refinement systems to packaging and testing instruments, you may have to use multiple specialized tools. However, this will depend on the products you expect to manufacture and the techniques that best suit your operations. Below is more information.

Extraction Equipment: Investing in Your Core Technology

Have you defined the appropriate cannabis extraction methods for your operations? Investing in the right extraction system is another important step. Entry-level options, especially for ethanol and solventless setups, can cost as little as $10,000, ranging between $50,000 and $100,000 for average small-scale production.

Sophisticated or advanced equipment, including CO2 and hydrocarbon systems, can be much more expensive, costing around $300,000 or even exceeding $1,000,000 in some cases. Choosing the right option for your business will depend on several factors, with production volumes and scalability objectives being the most important.

If you start small, you can use affordable batch processing systems, for example. But if you operate a large cannabis processing facility, you may need advanced tools with specialized features (like automation) that guarantee continuous flow.

Laboratory Testing & Quality Assurance Tools

Testing is mandatory for cannabis processors. You can use in-house testing equipment, such as potency reading devices, moisture analyzers, and microscopes, to conduct visual inspections and obtain quick feedback. However, you may need to rely on third-party laboratories for official compliance, especially in states where it's mandatory.

Third-party laboratories can subject your products to multiple tests to ensure they're high quality and safe for use, providing unbiased, certified results for COAs and legal sales.

Choosing in-house or third-party laboratory testing will depend on your jurisdiction's regulatory requirements, whether you need official certification, and the scale of your operations.

Manufacturing & Processing Equipment Selection

As mentioned above, an important aspect to consider when choosing your cannabis processing equipment is the type of product you expect to manufacture. Do you want to produce cape cartridges or tinctures? You need filling machines. Are you planning to make edibles? Specialized depositors and molding tools may be required.

In addition, you must invest in packaging equipment, including labeling and sealing machines, and in the tools you may need for internal checks or audits.

Inventory & Compliance Management Systems

Inventory management is another crucial part of compliance in the cannabis industry. As a cannabis processor, you'll be required to track every item you use to make your products and report that information to regulators through your state's traceability system. That's why it's so important to use the right software.

With comprehensive cannabis manufacturing software like Distru, you can track raw materials, in-process goods, and finished products to have better control over your inventory, prevent shortages or overstocks, and provide regulators with the details they need about your operations. The software you use should easily integrate with state-mandated track-and-trace systems. For example, Distru connects seamlessly with Metrc and BioTrack, promoting accurate, real-time data reporting.

Our solution can provide the necessary infrastructure for managing inventory and compliance effectively, helping you reduce errors, save time, and adhere to strict cannabis regulations.

Safety Equipment & Facility Requirements

How can you ensure your cannabis processing facility meets industry standards and is safe for your employees? Your equipment plays a crucial role in this. If you use flammable solvents, you must have C1D1 (Class 1 Division 1) rooms, which are designed to handle hazardous materials and processes, as well as specialized ventilation systems to prevent explosions and other accidents.

It's also important to have fire suppression systems in place, and these tools must be tailored to the specific hazards posed by the materials you handle or the processes you conduct.

Employee safety should also be a priority for cannabis processors. Your staff must wear personal protective equipment (PPE) such as respirators, gloves, and eye protection while working to avoid accidents.

Besides being a regulatory requirement, maintaining a proper safety infrastructure in your cannabis processing facility can prevent unfortunate situations and liabilities.

Automation Solutions for Scaling Processors

The scale of your operations can also determine your equipment needs. As your business grows, automation may be required to increase production volumes and ensure consistency. Automated technologies can also reduce manual errors and, consequently, compliance violations related to inaccurate dosing or labeling and failed reporting. The initial investment can be significant, but the return on investment (ROI) can be worth it, as you'll be increasing efficiency while reducing labor costs.

Equipment ROI Analysis & Budgeting

Setting a budget for your cannabis processing equipment is essential if you want to make the right decision for your business, but it goes beyond determining how much money you have available for this investment. You need to calculate the ROI.

A simple formula to calculate ROI is (Revenue – Cost of Equipment – Operating Costs) / (Cost of Equipment) x 100.

Subtract the equipment cost and its operating costs (expenses for maintenance, repairs, and so on) from the revenue it generates. Then, divide this result by the equipment cost and multiply by 100 to get a percentage.

For example, if a $10,000 machine generates $15,000 in revenue with $2,000 in operating costs, the ROI is ($15,000 - $10,000 - $2,000) / $10,000) x 100 = 30%.

If you obtain financing to purchase major cannabis processing equipment, you must also consider typical amortization periods, which usually range from five to 10 years, depending on the asset's lifespan and depreciation schedule.

Navigating the Regulatory Maze: Compliance for Cannabis Processors

Although cannabis processors have many opportunities to succeed in this industry, you also have to deal with a complex and ever-evolving landscape. If you manage to understand the rules and requirements, you can build a sustainable, thriving business while avoiding penalties and other headaches.

Let's learn more about the complex regulatory environment in which cannabis processors operate!

Federal vs. State Regulations: What Processors Must Know

Cannabis is regulated at both the federal and state levels, and there are some discrepancies between the laws on both sides.

Have you found yourself asking, "What are the regulations for cannabis processors in my state?" State laws determine everything from licensing and testing protocols to packaging and labeling requirements, so you should research and understand them to ensure your operations remain compliant.

Although many states have legalized cannabis, it's still considered a Schedule I controlled substance at the federal level. Therefore, it triggers IRS Section 280E, which prohibits businesses operating in this industry from deducting common expenses from taxes.

In addition, while state rules govern daily cannabis operations, the FDA still has authority over cannabis products, especially when it comes to safety standards and labeling.

Good Manufacturing Practices (GMP) for Cannabis

Key to ensuring a cannabis product is high quality and safe, Good Manufacturing Practices (GMP) cover many aspects, from standardized procedures and proper facility design to equipment maintenance and personnel training. Implementing them involves completing multiple steps, which include:

Documenting processes
Establishing quality control systems
Performing regular audits and inspections
Continuously improving processes

Testing Requirements Throughout the Process

As explained above, testing is a mandatory step at different points. Upon receiving cannabis, you can check it for contaminants and moisture. During the cannabis product manufacturing process, especially during extraction and formulation, you can also conduct tests for potency and safety.

Each test serves a different purpose and may be required for regulatory compliance, labeling, and COAs.

Mastering Track-and-Trace for Processors

Reporting through Metrc and BioTrack involves more than just using software. You need to meticulously track cannabis from cultivation to sale, recording every activity you engage in and every step you complete.

From receiving raw materials to packaging finished goods, you should follow best practices to ensure your operations are properly recorded. Real-time data entry, regular audits, and ongoing training sessions may come in handy when it comes to single-item and batch tracking.

If you want to simplify this process, using solutions that integrate inventory management with state reporting requirements can be a lifesaver, and that's exactly what Distru does!

Environmental Compliance & Waste Management

Your cannabis processing facility must comply with environmental regulations regarding waste disposal, which often requires specific handling procedures for hazardous materials like solvents. Moreover, you must carefully manage your water usage and energy consumption in extraction and processing activities to minimize environmental impact.

Sustainable practices may be required by your state or municipality, so you must adhere to local and state environmental guidelines at every stage of your operations.

Employee Safety Regulations & Training Programs

OSHA (Occupational Safety and Health Administration) regulations also apply to cannabis product manufacturing, particularly those concerning potential hazards, such as chemical handling, machinery operation, and confined spaces. So, you must ensure they're followed in your facility.

Besides that, you need to train your staff in key areas, including emergency procedures and hazard communication, and make sure all your employees wear PPE. It's crucial to document both your training programs and safety protocols to maintain a safe working environment.

Avoiding Common Compliance Violations

Cannabis processors can commit compliance violations at different points in the manufacturing process. Common pitfalls include inaccurate labeling, incorrect packaging, inadequate testing protocols, improper inventory tracking, and failed reporting.

Unfortunately, these errors can lead to many other problems and even put consumers at risk. For example, you can be penalized for skipping tests or displaying incorrect information about a product's cannabinoid content on its packaging. That's why it's essential to implement prevention strategies and robust quality control, provide thorough employee training, conduct regular internal audits, and stay up-to-date on changing regulations.

How Distru ERP Streamlines Compliance for Cannabis Processors

Once you understand all the regulations you must comply with and the most important aspects to consider for your processing activities, there's only one last step: using the right cannabis manufacturing software to streamline your operations.

Fortunately, that's exactly what you've found here. Distru is designed to help you tackle the complexities of processing compliance without making it feel overwhelming.

By using our solution, you gain access to a centralized platform equipped with powerful features that will help you adhere to the industry's strict regulations at every stage.

With Distru's software, you can streamline inventory tracking to optimize processing workflows. From raw materials to finished goods, every stage is meticulously recorded, ensuring accurate records for state reporting and audit trails.

Our cannabis ERP solution also integrates with quality control systems and helps you track and record test results, keeping all the information you need about your cannabis products in a single platform.

Distru also offers real-time analytics, gives you clear visibility into your processing operations, and supports reporting by integrating with state-mandated track-and-trace systems like Metrc and BioTrack while facilitating the management of key documentation, from COAs to shipping manifests.

But what we're describing here is just a small part of everything Distru can do for you. To explore our solution firsthand, schedule a quick demo here!

Success Story: Scaling a Processing Operation: Drops case study

Do you want to see how a real cannabis processor leveraged Distru to streamline compliance and scale effectively? Let's explain how our solution has helped Drops Candies.

The solventless gummy and extract producer encountered major challenges across multiple areas of its processing activities. For example, production bottlenecks affected stock and sales, miscommunications caused order completion issues between the sales team and retail partners, and errors were common while manually handling operations across multiple spreadsheets.

Luckily, Distru was an effective solution for this cannabis processor. Thanks to our software, the Drops team can now:

Build Bills of Materials (BOMs) for different product SKUs and map manufacturing plans on an automated calendar to fully forecast current and future production runs.
Easily integrate with LeafLink to fulfill sales orders faster while reducing the risk of lost revenue, slowdowns, and miscommunications.
Internally audit operations to detect potential Metrc discrepancies early and avoid compliance issues.
Save many hours of valuable time on different tasks, including reporting!

To be more specific, Drops saves over 150 hours of work per month, creates and fulfills sales orders six times faster, and eliminates inventory outages to reduce revenue loss to $0.00 by using Distru!

Final Thoughts: Streamlining Compliance for Cannabis Processors

Cannabis processors are subject to a complex regulatory landscape that continues to evolve almost daily, but it's entirely possible to keep up with such changes and ensure compliance. You just need solid knowledge and the right tools.

If you understand federal and state laws, optimize your operations, and equip yourself with innovative, useful solutions, you can ensure that your processing activities pave the way for business success.

Cannabis industry trends don't lie—automation is changing the game! To further enhance your processing operations, rely on comprehensive manufacturing and compliance software like Distru!

‍