February 17, 2022
•Case Study: Building a Legacy Brand with AJ Labs
”The dream for AJ Labs is to create a 100-year company that sticks around and is a staple of the cannabis industry.”
AJ Labs is a Type 7 butane extraction lab in Isleton, California, founded by college friends Andrew Miyamoto and Jeremy Nadel. The guiding light for AJ Labs is equal parts personal passion for cannabis and a commitment to impeccable quality. Andrew and Jeremy are determined to build their dream company into a lasting legacy. AJ Labs produces a range of cannabis extracts, including live resin sauce, diamonds, and their customer favorite: water clear distillate carts.
Within months of operations, paper logs and spreadsheets piled up, obscuring visibility into financial and production records and ultimately hindering the company’s ability to make strategic decisions.
By partnering with Backbone to create a customized software solution, AJ Labs gained complete visibility into production yields and the financial implications at each step of their production process. Equipped with Backbone technology, the co-founders of AJ Labs were ready to take the first steps towards their vision of building a legacy cannabis brand.
Challenge I: Tracking Chaos
Tracking the necessary information to comply with local, state, and federal laws is daunting. Given the multiple levels of licensing needed for a Type 7 lab, co-founders Andrew and Jeremy manage ongoing audits from various agencies that range from the state cannabis department to county hazardous waste and OSHA. To remain compliant, AJ Labs relied on bare-bones batch production records and tracked all business operations on paper logs and spreadsheets.
They quickly understood the need for support but wanted a holistic option that addressed compliance, and managed various other daily processes: inventory control, team productivity, production yields, financial planning, packaging, and R&D.
Solution I: Simplified Compliance & Transparency
Once they started tracking manufacturing and finance procedures on Backbone, AJ Labs replaced their mountain of paper notes with a user-friendly, streamlined process for managing METRC compliance tags and transfers. With Backbone’s METRC integration, Andrew and Jeremy cut the time spent syncing to METRC by four hours each week.
By partnering with Backbone to create a digital record of all inputs, outputs, and processes, AJ Labs was also able to achieve full visibility of their end-to-end operations. They gained real-time access to inventory and machine information within their Backbone software and could learn about any material on-site by scanning the attached Backbone QR code.
Challenge II: Achieving Profitability
Calculating accurate Cost-of-Goods-Sold (COGS) is of paramount importance for the success of a cannabis business. A proper understanding of COGS helps maximize tax exemptions and empowers operators to set accurate prices that cover costs and truly generate profit.
Leaders at AJ Labs struggled to calculate COGS across the variety of extractions they produced for in-house brands, like Rajah, or for white-label customers like Friendly Farms, BASA, and Alta. They needed a way to track the individual materials that went into each product and the number of direct labor hours spent bringing the product to completion.
Solution II: Manage Inventory & Calculate Accurate COGS
By tracking inventory and processes on Backbone, AJ Labs could finally calculate the financial impact of each unique combination of material inputs, machine runs, and direct labor. This allowed leaders to make informed decisions about price points, inventory, and employee productivity. Among other things, AJ Labs was also thrilled that calculating cultivation tax, an exercise that often resulted in imperfect accounting and wasted time, now took only seconds with Backbone.
Challenge III: Building a Legacy Brand
While AJ Labs started as a small operation, co-founders Andrew and Jeremy sought to transform their craft-cannabis company into a long-lasting cannabis industry legacy.
Company leaders understood that cannabis consumers enjoy learning about the ingredients and processes behind their products. Long-term customer relationships hinged on their ability to demonstrate their attention to quality and consistency as extractors.
SOLUTION III: Customizable Software That Grows with You
Backbone provided AJ Labs custom-tailored software that could easily be updated to account for new processes, machinery, and product lines as the business scaled. This empowered AJ Labs with the flexibility to research, design, and launch new products while tracking corresponding cost implications throughout.
Backbone custom reports also provided the AJ Labs team with ongoing clarity. With the Backbone Lot Report, AJ Labs was finally able to provide toll clients with a transparent view of production yields and convey the entire process from starting biomass through final production; an invaluable tool for building trust with customers that frequently receive no transparency into their product manufacturing.
With clean and accurate records, AJ Labs were confident they had achieved the transparency needed to meet California compliance regulations and start building trust with customers.
The Future at AJ Labs
In addition to discovering easy compliance management, AJ Labs has a newfound reassurance that they can operate transparently with government regulators, business partners, and customers for years to come. With Backbone, AJ Labs has perfected new product development processes, and optimized inventory control and financial planning.
For Andrew Miyamoto and Jeremy Nadel, AJ Labs has been a lifetime in the making. Their team has valued a consistent journey of growth and is now ready to build AJ Labs into the legacy cannabis company of their dreams.
"Backbone has allowed us to create a vision for a corporate-size company, and the model to maintain an active picture, and situational awareness to maintain longevity in the industry.”
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