Many manufacturers know what OEM means, and they go around drafting their own OEM agreements in the hopes of tying up business. The pressure to purchase can be an important reality of OEM agreements, a form of contract manufacturing that is generally done as a way to get a supplier to change its behavior, or in hopes of pushing suppliers to behave differently in the future. OEM agreements can often make it easier to purchase products at a discount, or otherwise integrate different groups of suppliers into one consortium of complimentary OEM relationships. For example, factories may have a diverse array of OEM suppliers, from glassware to metal to plastic, and often, these suppliers dislike working together, meaning that a factory needs to spend a lot of the time to create a product in-house or needs to consolidate its suppliers into one common supplier. All of this requires that factories know how to draft OEM agreements and negotiate them with suppliers.
As with many aspects of the manufacturing process, OEM agreements are just as important in the manufacture of hemp products. Asian factories are increasingly producing hemp products for manufacturers and stores around the world, with many foreign investors wanting to invest in the United States to produce their own hemp products for the rest of the world. Many foreign factories will consider establishing an OEM relationship with a hemp producer, and while they will do so based mainly on the numbers, there is significant legal risk associated with each OEM supplier relationship. First, even though the hemp industry is generally a free market, many foreign countries still restrict the types of plants that can be grown within their borders. In China for example, hemp has long been considered an important raw material because its fibers can be woven into cloth. But China’s Ministry of Public Security has also cracked down on the production of marijuana, and it continues to do so. Cannabis-related companies in China have been busts for attempting to research and/or breed cannabis plants for purportedly medical uses. This is not to say that these activities are clearly illegal in China, but it is to say that it is clear that China wants to avoid any confusion regarding whether the term “cannabis” applies to both marijuana and hemp, and it seeks to differentiate itself from American activists on issues related to cannabis policy. While it is possible to have an OEM agreement with a Chinese factory to produce hemp products, it is vital to consider the local laws and regulations of that factory before assuming that anything goes.
In establishing OEM agreements for hemp, it is also important to review some of the potential problems in using hemp for the purpose of creating an OEM product. Although much of the cannabis industry has spawned from high-end marijuana products, such as high-grade marijuana cigarettes, hashish, or shatter, hemp remains an important raw material due to its added nutritional benefits. In recent years, several major hemp markets have emerged, each with their own niche. One of the most common markets for hemp is food-grade hemp. For this market, production remains relatively local, but the distribution spreads across several regions. This is because, despite spreading between different continents, the same domestically-sourced seeds usually wind up on the shelves of grocery chains, distributors, and other retailers. The problem arises along each step of the supply chain because food-grade hemp is so naturally absorbent. Even the slightest exposure to contaminants can cause a product to become unfit for human consumption. Indeed, when a farmer/AOEM supplier ships hemp to a factory, the material is exposed to all sorts of contaminants, both known and otherwise. Often, even in a closed container, some form of contamination can be introduced from the outside world. But even if the hemp is properly contained, the production process creates dust and other small particulates, often without any regard for the presence of THC. These contaminations can be very difficult to remove and we have seen significant crops of hemp ruined as a result of contamination. Therefore, it is important to consider all aspects of an OEM relationship, including those that are offered through Chinese factories, in order to avoid severe issues down the road.
Given our understanding of OEM relationships in the hemp industry, we have seen significant problems arise within the supply chain. Most tea and ground food-grade hemp comes from a relatively small number of resources. Some of these resources have been able to leverage their pricing so that the price of these items tends to remain consistent and expected. Other producers have only recently adopted this discipline, and the fluctuation between these two groups is enormous. This means that some suppliers want to hold onto their profits, while others want to quickly establish large-scale production. Despite often competing for the same business, you can often find these opposing groups giving away cost information to each other. The result is the complete destabilization of the hemp market in many ways. If a hemp producer can agree to an OEM agreement with another producer on a 1-year timeline, this can help avoid significant fluctuations in supply and demand.
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