Santa Rosa-based ShiKai Products gets business bump using cannabis ingredient

The legalization of cannabis for recreational use in California has lured tons of investor money into the so-called green rush.

That has been evident on the North Coast as some big enterprises have been on the receiving end of an influx of private equity and venture capital investments.

So how can a little guy survive and even thrive in this market?

For one Santa Rosa company, it meant relying on a strong history as an innovator of plant-based hair and skin products for 50 years. ShiKai Products used that knowledge and expertise to secure a niche in the cannabis marketplace.

Now ShiKai generates about half of its $14 million in annual sales from products that contain cannabidiol, after entering the market four years ago, said Jason Sepp, president of the company his chemist parents, Dennis and Carol, started out of their garage.

“The customers have changed so much in the last 20 years. Natural (made) consumers come from everywhere now. Everybody knows about Whole Foods. They’re in every community, whether that is Oklahoma or California,” Sepp said.

ShiKai produces a range of creams, lotions and oils containing cannabidiol, more commonly referred to as CBD, a chemical compound in cannabis that provides pain relief. Thus, these products are sold in grocers such as Whole Foods Markets and Oliver’s, in addition to supermarket chains Safeway, Albertsons, Vons and other retailers.

They range from a mentholated CBD balm with beeswax and borage oil that sells for about $20 through ShiKai’s online store, to a cream that has a double batch dosage of CBD along with avocado oil, shea butter and vitamin E that costs almost $30.

Consumers looking to try CBD topicals don’t have a lot of regulatory guidance to rely upon, though. There has been a push to market such personal care products after the 2018 U.S. Farm Bill removed hemp from the definition of marijuana under the Controlled Substances Act. That helped clarify questions surrounding the earlier 2014 Farm Bill about the legality of hemp or hemp products.

But the Food and Drug Administration has been reticent to allow any claims about CBD products. Top FDA officials cite the agency’s mission to promote and protect public health and the lack of research on the compound. It has only allowed the approval of a CBD drug called Epidiolex for treatment of seizures associated with pediatric diseases.

The agency has held the position that CBD can’t be added to any food sold across state lines and the products aren’t allowed to be marketed as a dietary supplement. The FDA also has been aggressive in sending cease-and-desist letters to companies that make claims their products can help consumers with certain medical conditions.

The FDA, however, has not made the same determination for cosmetic products, which the agency doesn’t monitor as stringently as it does food items. Therefore, customers are relying on what they see on the supermarket shelf — and this is where ShiKai has an advantage with its legacy in the natural products sector.

In fact, Sepp said after extensive vetting his company was the first CBD cosmetic provider for Whole Foods. ShaKai was honored earlier this year as one out of 32 suppliers of the year by the Austin-based company owned by e-commerce giant Amazon.

Don Clark, senior vice president of nonperishables merchandising at Whole Foods, said in a statement such producer suppliers were selected because “their dedication to excellence, quality, innovation and partnership is critical to our success.”

Sepp said Whole Foods selected ShiKai because the grocer trusted the brand given its past success in the natural products marketplace. “They came to us because we were the only ones that had any sort of legitimacy,” he said.

At Oliver’s Markets, the ShiKai products were some of the first CBD cosmetics offered by the local food chain, and they have become some of the most popular. The CBD products now account for roughly one-third of overall ShiKai sales at Oliver’s, said Jacob Peters, wellness coordinator for the Santa Rosa-based grocer.

“I believe the line is so popular because it is both very effective and affordable,” Peters said in an email.

“They also feature some unique scents like yuzu or cucumber,” Peters said of ShiKai’s products.

In fact, the success of ShiKai in the CBD market can be attributed to products that smell nothing like cannabis, Sepp said. The company buys its CBD in the form of crystalline solid or powder, and these don’t have the smell contained in oil products.

“We brought something to the market that was clean ... most importantly. It didn’t remind you of marijuana,” said Sepp, whose sister, Hilary, works as vice president of the company that has grown to about 30 employees.

ShiKai is one of few longtime companies in the natural products sector that has been able to remain independent. Dennis Sepp started the company by first using shikakai, a traditional Indian herbal powder used for cleansing the hair, and that led to the initial shampoo product as well as its name. While it has established bona fides in the sector by using ingredients that include oils derived from the borage plant and tea trees, most of its other legacy rivals have not jumped on the CBD product bandwagon. The competition comes mainly from the upstarts. And that’s made all the difference, Jason Sepp said.

“We have stuck with the same philosophy,” said Sepp, who made the company’s move to using CBD as his father retired from the business.

The Santa Rosa company’s growth in the future will come from more customers searching for products to ease pain relief from arthritis and other aches and pains, Sepp said. And that’s even though neither he nor the company can make such claims about a ShiKai product under current FDA guidelines.

And as more customers turn to CBD products, the marketplace will get more crowded. Sepp predicted well-known pain relief creams sold over the counter will start using the ingredient from the cannabis plant.

“If you go to the topical analgesic aisle in a place like Walgreens, you see lidocaine products, you see a lot of camphor and menthol products and the ones that have a really strong smell like Bengay,” Sepp said. “Everything in that industry will eventually contain CBD.”

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.