The cannabis industry is no stranger to turbulence…

The cannabis industry is no stranger to turbulence. Operators across the country face complex challenges: record consumer demand, heightened regulatory uncertainty, and a marketplace that rewards speed as vigorously as it punishes mistakes.

In this environment, decisions made today can have unforeseen long-term consequences. Operators who underestimate the operational complexity of manufacturing risk setbacks that can ripple across their entire business. Each choice, from equipment selection to employee training, carries weight far beyond the immediate outcome.

Across the spectrum, from cultivation to manufacturing and retail, the stakes are higher than ever. Each harvest and every batch of extract carries the potential to bring a company closer to trust or disaster. Trust, in this context, is multi-layered, encompassing regulators, investors, retail partners, and consumers. One lapse in quality or consistency can erode all these relationships, making the journey back to credibility both costly and time-consuming.

The difference often comes down to standards compliance.

“My previous experiences in lab equipment and appliances allowed me to understand cannabis manufacturing is a cross between consumer packaged goods (CPG) and pharmaceuticals,” said Xylem Robotics founder Jeff Wu. “And central to the success of CPG and pharmaceuticals is a well-run supply chain with product consistency and quality. We actually screen our potential clients to see if they understand basic supply chain principles, because we want the people who purchase Xylem products to be successful in this market.”

The screening process is about more than technical knowledge. The Xylem team also attempts to ensure operators understand how product flow, traceability, and documentation affect the bottom line. Wu emphasized foundational operational understanding is a prerequisite to responsible scaling.

For decades, cannabis operated outside traditional regulatory frameworks that come naturally to the much more mature CPG and pharmaceutical industries. But as legalization expands, regulators and consumers alike expect the industry to play by the same rules as other industries. That means documenting everything, ensuring traceability, managing risk and, above all, maintaining a culture that mandates quality.

Building this culture is not a matter of simply posting rules on a wall; it requires hands-on leadership, consistent training, and clear communication so every employee understands their role in maintaining compliance and product safety.

Preparing for Increased Federal Oversight

Few people understand both the urgency and the opportunity better than Wu. After years of building systems that helped companies in highly regulated markets avoid recalls and survive audits, he entered cannabis with a pragmatic message: Good Manufacturing Practices (GMP) aren’t optional. They’re inevitable. Those who prepare now will not only survive federal scrutiny but also thrive in a more mature, trusted marketplace.

Preparation involves assessing existing workflows, identifying gaps in training or documentation, and making capital investments strategically, rather than reactively, to support long-term growth. That’s easier said than done. Many operators are trying to scale production in a patchwork of state-by-state regulations while managing thin margins, talent shortages, and constant competitive pressure.

The combination of rapid growth expectations and limited operational experience creates stress points that often manifest in inconsistent product quality, delayed shipments, or compliance oversights, all of which can jeopardize contracts and investor confidence.

Operators who embrace standardized practices put forth by GMP and the International Organization for Standardization (ISO) now will be ready for a federally regulated market in the future. Those who don’t will be exposed to operational, legal, and financial risk that scales with their production volume.

Wu broke down the current state of cannabis manufacturing, the inevitability of federal regulation, and why building a strong culture of standards compliance today will determine who leads tomorrow. His insights emphasize operational excellence is both a defensive and offensive strategy that prevents failures while positioning companies to win in a competitive, evolving market.

The State of Manufacturing Compliance

At first glance, cannabis manufacturing resembles any other CPG operation: Inputs enter the system, and products come out. But under the surface, a fundamental question defines the success of the entire process: batch or flow?

“Think of home brewers versus a beer factory,” Wu said. “Batch manufacturing [as in home brewing] groups products into lots, with the entire batch moving through each production stage sequentially. This offers flexibility but ultimately can lead to downtime and higher total manufacturing time and cost.” One potential issue with batch manufacturing, he pointed out, may occur when a manufacturing defect is discovered during the production cycle. In that case, the entire batch must be disposed of or processed again.

In contrast, flow manufacturing pushes products through the system one at a time, from start to finish without interruption. This creates a steady stream of output, reducing lead times and increasing consistency while lowering per-unit costs. However, flow systems generally require a larger investment up front.

“Regulations drive up the cost of compliance or product standards,” Wu said. “Flow manufacturing solves these issues head-on with consistency and quality, which are key drivers of success for consumer products.

“Early on, when I was an investor-operator in a California cannabis manufacturing facility, the first proto-Xylem cartridge-filling system we built was a flow manufacturing system to compete with much larger competitors like Select. It was our secret weapon, so to speak.”

For context, most cannabis companies operate with a batch system. Flower is harvested, processed, and packaged in lots. It’s then measured by the pound, the run, or the day. This approach fits the plant’s agricultural roots but leaves gaps in traceability and risk management. In contrast, flow systems, which are common in food and pharmaceuticals, continuously track inputs and outputs. This creates a tighter, more transparent chain of custody.

Wu explained why flow systems are essential for scaling. “If you batch 200 units, you’ll be profitable,” he said. “Batch 400, still okay. But at 1,000, cracks start to form. By 10,000, you’re losing money and exposing your company to operational risk. One misstep at a million [production] units can be catastrophic. Even paint specks or minor contamination can trigger multimillion-dollar legal exposure.”

He added labor costs in the United States make batch systems fundamentally unscalable at high volumes.

“Comparing batch and flow, one is efficient and one is not,” he said. “One is scalable; one is not. All large-scale manufacturing requires flow-based systems. Even pharmaceuticals are flow-based. If people think they can scale a batch approach, they’re in for a big shock.”

Lessons from Other Industries

Wu encourages operators across the spectrum to take lessons from other tightly regulated sectors that are well-established.

“If you’re working in meat packaging or foods, there is zero possibility you’re not going to hurt someone if you don’t adhere to GMP and ISO standards,” he said. “In cannabis, things like gummies are at least a little safer. Once you get water out, sugar is a natural preservative. But, I’d still be worried about mold, especially in flower. And when it comes to drinks, I’m worried about potential bacterial issues.”

He emphasized cannabis is not a hype-driven product like energy drinks. Products require disciplined manufacturing practices and reliable supply chains. Compliance is more than merely a legal checkbox. It’s a financial safeguard, Wu said. Recalls, fines, and lawsuits are not theoretical risks; they can be operational landmines.

“GMP and ISO standards ensure products are produced safely, consistently, and with quality,” he explained. “When federal legalization occurs, these standards will most likely be mandated and compulsory, but this is not what most operators want to hear due to the equipment and capital investments needed to comply. However, if operators take a pragmatic approach, GMP and ISO standards mean product consistency and quality. These lead to customer satisfaction and, more importantly, customer retention. GMP and ISO standards control for equipment and processes hygiene, which builds in risk management, and that minimizes costly recalls and legal exposure.”

The potential for federal regulation already is causing shifts in the market. Investors are starting to ask tougher questions about compliance readiness, Wu said. Retail buyers want assurances products are manufactured to the same standards used in traditional consumables sectors. In addition, employees are more willing to work for companies that value safety and consistency.

For operators wondering how to prepare for GMP and ISO standards, Wu offered a simple recommendation: Begin with documentation. Creating standard operating procedures (SOPs) and logging processes can pay immediate dividends even for businesses that are not ready for full GMP certification. Establishing written SOPs trains teams to think systematically and creates a paper trail that regulators and investors can trust.

“I came into the cannabis market during the 2018 California legalization frenzy with investments into Eaze and a processing facility,” he revealed. “The people who brought me into this market were the ‘tech bro’ crowd who were interested in fast money and fast exits. Most had little interest in understanding supply chains or manufacturing and even less interest in running such a company.

“But at the end of the day, hundreds of millions of dollars of investment capital cannot change the fact that cannabis is a perishable product that needs to be physically manufactured and requires strict supply chain management to generate profits,” he continued. “Success means simple, fundamentally sound business models with durable competitive advantages centered around product consistency and quality versus complex, flashy trends.”

The industry may still be years away from federal legalization, but for manufacturers, the clock is ticking. Standards compliance is not a one-time project; it’s an ongoing discipline. The companies that take it seriously today will be the ones that remain standing tomorrow.

“What’s fun about watching people with [Xylem’s] systems is, a lot of operators are running the model we wanted to run back when we were operators,” Wu said, chuckling. “Now you see operators actually using these systems the way they’re designed to be used.”

Many new operators enter the industry with a fundamental misunderstanding about the nature of the business, underestimating the harsh realities of manufacturing in a highly regulated space, he said. Today’s industry may not be subject to FDA oversight, but that day is coming. Developing the discipline required to consistently produce a product at scale is crucial, he said—and the sooner operators embrace that truth, the better for their bottom lines.

“Cannabis is a manufacturing business with hard costs of goods, and you will never get around that fact,” Wu said. “If you think this will be two to three years and then you can go sit on a beach, that’s not going to happen. Be ready to run a proper company that does true manufacturing work. Success comes from doing it well and producing products people want to buy.”

For operators, adopting GMP and ISO standards now will deliver more than a competitive advantage. Upgrading operations will prepare businesses for an industry that most likely will be increasingly regulated, scrutinized, and operationally demanding.