3 Pillars of Cannabis Banking Compliance

By Mark Lozzi

Few people will disagree that financial compliance isn’t the most exciting topic within the cannabis industry. But compliance is, and always will be, the engine grease to the legal cannabis market. Cannabis operators have the arduous task of dealing with multiple layers of compliance, both operational (maintaining and adhering to regulations enforced by the state licensing board) and financial. These compliance measures include managing everything from seed-to-sale systems for all plant-related activity to on-site requirements like facility access points and alarms systems to name a few.

With complex compliance requirements for the business, the last thing cannabis operators want to think about is financial compliance. We created Confia on this notion. Just as cannabis regulators impose the tracking of plants through the supply chain via a seed-to-sale system, we have developed a storyboard similarly designed to follow the money, which is the equivalent of a transaction-to-deposit system.

Having experience in regulatory technology, artificial intelligence and machine learning, we’ve been fortunate enough to work with some of the world’s largest banks across multiple countries. This experience has afforded us the luxury of working alongside regulators, chief compliance officers and chief risk officers, understanding how risk is perceived by financial institutions and how it ought to be mitigated. It was this access and knowledge that allowed us to effectively reform, enhance and improve the antiquated BSA programs with a technology-enabled process. Leveraging technology is a necessity, almost a requirement, for the cannabis industry as legalization nears and banking access begins to broaden.

Jamming cannabis requirements into an existing BSA program doesn’t scale well. BSA programs are very manual, descriptive and process oriented. So, we’ve taken our prior experience and success in banking to form Confia, distilling the complexities and simplifying the deliverables surrounding cannabis banking compliance. To best articulate cannabis banking requirements, I break it down into three pillars.

Pillar One: KYC-Enhanced Due Diligence

The first pillar is the client-onboarding bucket or KYC – Know Your Customer. In the complex world of cannabis banking, banks must know and understand their clients to great depths. It’s not enough to simply know that the client exists; you also have to understand whether or not that client could be a potential risk to the bank, and one step further, the financial system. Cannabis is a high-risk industry, so the KYC requirement is escalated to a deeper diligence and review, called Enhanced Due Diligence (EDD).

Banks need to know and understand their customers’ story, and all the key parties (officers, directors, and those with key decision-making powers or access to the bank accounts) within that organization. This includes reviewing personal, business, and legal history – not to mention watchlists and negative news presence. An initial onboarding review must then be followed with daily screening and monitoring of all watchlists and adverse media. Typically, banks do KYC refreshes every three years. In cannabis, a full refresh should be done annually with the daily monitoring systems in place.

The high-risk nature of the industry also requires a level of diligence on all parties to a transaction, even if one of the parties, whether a payer or recipient, is not a client of your bank. Unlike traditional banking sectors, reliance on other banks’ KYC programs is far less defensible in the cannabis industry.

Pillar Two: Transactional Monitoring & Detection

Tracking and monitoring the actual financial transactions comprises the second pillar required for cannabis banking. At Confia, we have focused on streamlining processes, so the cannabis operator can seamlessly support the compliance obligation for every transaction. A bank must demonstrate supporting documentation for every cannabis transaction, and gathering such information is a large undertaking in and of itself and can pose future issues if not done properly, see the pitfalls for lack of compliance. Banks are obligated to understand the nature and reason for each transaction, the source of funds, ensure cannabis licenses are in good standing for all parties, and collect evidence such as accounting records and seed-to-sale data.

Core to transaction monitoring in the traditional sense, is the overarching support through anomaly detection. Relying on information is important, but testing those inputs keeps everyone honest. It is important to evaluate transactions from a holistic point of view relative to peers and relative to the general contents of a transaction. This anomaly detection layer is your last line of defense, and as new information is collected, it continues to refine itself.

Pillar Three: Filing and Reporting Requirements

The third component to compliant cannabis banking is regulatory filing and reporting. Once a client is onboarded, the account requires an initial suspicious activity report or SAR-Initial within 30 days of that client being approved by the bank. Then, a report must be filed every 90 days after that for all the transactions of that cannabis operator. Banks must file the SAR-Initial and the Continuing-SAR reports for each cannabis client they have.

Solutions like Confia automate the filing process and support the filing with transactional data evidenced on our distributed ledger of record. This provides immutable audibility and simplifies the process for all parties involved.

Compliance Requirements After US Legalization

The anticipation of federal legalization and banking reform bills has many operators hoping for easier banking. Yet, in my opinion, regulatory oversight and audits will likely increase after such reform or legalization. As other financial institutions start to support cannabis, it will inadvertently create greater opportunity and expose the financial system to nefarious or illegitimate transaction activity. This is why cannabis banking will be carefully monitored by regulators, and more so, why banks will be slow and pragmatic in standing up their internal cannabis banking programs. Some banks may forever avoid the cannabis industry due to the known pitfalls of an industry specific program, while others may simply mitigate the possible exposure to reputational risk.

Choose Wisely: Pitfalls for Lack of Compliance

Financial compliance is the responsibility and duty of the banks, but the real losers and result of non-compliance always fall on the cannabis operators. Regulatory action against an institution may result in the bank shutting down its cannabis program or may require them to complete a remediation of all their cannabis transactions for a certain period from its clients. At the end of the day, regardless of action, the cannabis operator is the one being punished. Operators either lose their bank account and have business massively disrupted, or they are asked to provide all the compliance docs for a historic period, which is a huge undertaking and operational distraction, ultimately impacting business and productivity. So, choose your banking partner wisely.

Summarizing Key Banking Requirements

In summary, banking in the cannabis industry will undoubtedly remain a high-risk industry, with or without legalization. Although banking opportunities may expand as US policies change, there will be continued compliance and regulatory requirements for the foreseeable future.

Onboarding and ongoing screening are critical
Evidence for every transaction is a significant portion of compliance and must not be dismissed
Evaluating activity with broader strokes is essential in mitigating against money laundering
Managing the staggered filing timelines and due dates for each client

Compliance is the most crucial factor in cannabis banking at this point. It cannot be overlooked or taken for granted. Cannabis operators must take an active role in evaluating the compliance programs of their financial providers. To open a bank account is one thing, but the consideration and effort that goes into keeping a bank account is the difference that will protect your business in the long run.

September 1, 2021

6 Trends Influencing the Cannabidiol (CBD) Market Forecast Through 2027

By Shreya Bhute

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The rise in the number of optimistic regulatory frameworks instigated by various regional governments will positively anchor the forecast for the cannabidiol (CBD) market. The growing awareness regarding the benefits and effects of the product as an alternative treatment method has accelerated its preference among consumers and suppliers. Moreover, the continued advancements in the approval processes by various authorities worldwide have also made way for numerous opportunities supporting CBD market growth.

According to a report by Global Market Insights, Inc, the global CBD market size could exceed $108.8 billion by 2027.

Growing presence in cosmetics

The overall industry share from creams and roll-on products is poised to hit a 35.8% CAGR up to 2027. This is owing to the increasing scope of CBD in cosmetic applications as it is highly effective in treating skin conditions. This, as well as its anti-inflammatory characteristics from a medicinal perspective, are leading to increased demand for CBD products like creams and roll-ons.

Scope in the treatment of mental health

Some of the many infused products on the market today.

CBD market value from anxiety/stress applications exceeded USD 1.5 billion in 2020 due to the growing need for helping mental health. The World Health Organization reported that over 4.5% of the total population in Europe suffers from depression. This escalating anxiety and stress rate has encouraged healthcare practitioners to increasingly make use of CBD-based medications.

Higher demand for oral administration

Demand for oral cannabidiol administration held nearly 45% of the industry proportion in 2020 due to its growing preference considering the gradual relief of pain compared to other disorders. The increasing dependency on the oral administration route for product development by several manufacturers will add positive impetus to market growth.

Medical benefits of cannabis

Annual revenue of the CBD market from the segment of the market dealing with THC (and CBD) products is expected to cross USD 30.1 billion by 2027. This is largely due to its increasing penetration across various countries and regions on account of its legal status. Furthermore, the relatively higher THC content of the compound has led to its growing usage to combat medical conditions, including Alzheimer’s and Parkinson’s disease, among others.

Online distribution to see a considerable footprint

Ads for CBD products online regularly perform very well

The online CBD industry was responsible for more than 46% of the market in 2020. This is mainly due to the numerous advantages of online channels, like on-time delivery and adequate inventory, compared to their offline counterparts. Besides, this distribution platform minimizes the operational costs related to the maintenance of brick and mortar retail.

Australia to lead the regional landscape

Australia dominated the Asia Pacific CBD market by holding over 25% of the market share owing to the expanding geriatric population and the liberal stance of the regulating bodies in the region. The permittance to the medicinal and cosmetic use of CBD products is likely to spur regional adoption. The rising amendments in regulatory scenarios have also triggered awareness regarding the potential benefits of the product in the country. For instance, in April 2020, the Australian government released a new proposal for over-the-counter CBD in a bid to relax its narcotic scheduling whilst making it a Schedule 3 substance.

Providers of various CBD products are actively indulging in numerous growth strategies, like acquisitions and partnerships, to reinforce their market presence. For example, Mota Ventures Corp., in January 2020, acquired Spanish producer and online retailer, Sativida OU in a USD 2.2 million deal. The acquisition expanded the company’s presence in Europe and Latin America.

Although the demand for CBD is likely to experience certain hesitation from consumers in the short term, the market will witness lucrative growth in the long run. However, counterfeit and substandard quality products may potentially restrain industry expansion to some extent.

August 24, 2021

Could 2021 Be the Year of Federal Cannabis Legalization?

By Bryan Johnson

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The legalization of cannabis in the U.S. has been long in the making. Back in the early 1970s, states such as Oregon, Texas and Colorado began the process of decriminalizing small amounts of cannabis. Fast forward 50 years or thereabouts, and the momentum toward legalization is undeniable.

True, cannabis remains illegal at the federal level, but state after state is legalizing the substance for medical and adult use. California was the first to do so for medical usage in 1996. Since then, several others have jumped on the medical cannabis bandwagon, and a total of 19 states have legalized cannabis for adult use. It seems, then, that it’s just a matter of time before the federal government follows suit.

A Bit of Background

There are two key federal laws concerning cannabis that criminalize its use: the Comprehensive Drug Abuse Prevention and Control Act (CDAPCA) and the Controlled Substances Act (CSA), which is part of the CDAPCA. The CSA became effective in 1971 and grouped cannabis along with heroin, LSD and cocaine as Schedule I drugs that are tightly regulated and deemed illegal by the federal government. For its part, the CDAPCA, also enacted in the 70s, was an element of the U.S. “War on Drugs,” and served to significantly restrict manufacturing and distribution of cannabis, among other substances, and amp up related security laws.

Times have certainly changed over the decades, and so has public sentiment about cannabis use. In fact, over 91% of U.S. adults say that cannabis should be legal for adult use or medical use—this according to the Pew Research Center. Clearly, more and more states are hearing this message loud and clear given the uptick in jurisdictions legalizing the substance, be it for medical or adult use purposes.

The Booming Legal Cannabis Market

The legal cannabis business is on fire, with recent estimates suggesting that the size of the global market will climb to $84 billion by 2028. This is a staggering number that spells opportunity for budding (pun intended) entrepreneurs in the U.S. and beyond, not to mention tax authorities. It gets even better when taking into account the popularity of CBD products. CBD, which is derived from the cannabis plant but does not contain THC and is legal in the U.S., has become an integral part of the wellness industry. Experts predict that the global CBD market is on its way to reaching a value of $55 billion in years to come.

What This All Means for the Future of Cannabis at the Federal Level

No doubt about it, legal cannabis is big business. But that business is being thwarted by the failure of the federal government to change course and legalize the substance. With cannabis still considered a Schedule I drug, federal banks are unable to provide access to financial services for companies selling cannabis-related products. As otherwise stated, because federal law makes cannabis illegal, banks cannot do business with cannabis companies, which is problematic for so many reasons.

Sen. Schumer unveiling the Cannabis Administration and Opportunity Act

But good news could be on the horizon. The SAFE Banking Act of 2021, which would provide a safe harbor for banking institutions providing services to cannabis clients, was passed in the U.S. House of Representatives and referred to committee. Whether the legislation passes in its current form is anyone’s guess, though our federal legislature does seem to be nearing the relaxation of existing cannabis restrictions.

This is evidenced as well in the U.S. Senate, where the Cannabis Administration and Opportunity Act was recently introduced and is currently pending. That legislation would, among other things, remove cannabis from the CSA, introduce regulations to tax cannabis products, expunge prior convictions, and maintain the authority of states to set their own cannabis policies.

Of course, there’s no certainty that 2021 will be the year when cannabis is finally legalized (or at the very least, decriminalized) federally. Still, we’re closer to that eventuality than ever before.

August 11, 2021

4 Trends Propelling the U.S. Cannabis Testing Market: 2021-2027

By Priya Deshmukh

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As the legalization of cannabis in the U.S. continues to grow, stringent regulatory requirements around the country are being adopted to ensure that only safe and high-quality cannabis is sold. The U.S. cannabis testing market is estimated to see tremendous growth over the coming years. Further, the FDA has made several resources available for addressing cannabis products like CBD to ensure that consumers and stakeholders are getting safe products.

According to Global Market Insights, Inc., U.S. Cannabis testing market size is projected to surpass USD 4.1 billion at a CAGR of 10.4% through 2027, in light of below mentioned trends:

Strategic initiatives by major industry players

HPLC (high pressure liquid chromatography) instrument.

Prominent players operating in the U.S. cannabis testing market such as CannaSafe, Anresco, Collective Wellness of California, EVIO Inc., Digipath Inc., PSI Labs, SC Labs, Inc., Steep Hill, Inc. etc. are focusing on developing enhanced cannabis testing solutions and accreditation for gaining strong market presence. For example, earlier this year SC Labs developed a comprehensive hemp testing panel that is purported to meet testing standards in every state with a hemp program.

Citing another instance, in 2019, a leading cannabis resource Leafly, introduced the Leafly Certified Labs Program, under which a network of labs is independently assessed by Leafly for quality and accuracy. This program has been designed to address inconsistency in cannabis testing by ensuring that lab data comes from labs that have been confirmed to provide accurate results.

Rising adoption of high-pressure liquid chromatography (HPLC) technique

A lot of cannabis testing procedures are carried out using liquid chromatography. It is estimated to witness higher preference over the coming years. In 2020, the liquid chromatography segment recorded a valuation of USD 662.4 million. Further, liquid chromatography is a valuable alternative to gas chromatography when it comes to analysis of cannabinoids, pesticides and THC which is why this technology is often preferred for potency testing as it offers more precise analysis. Moreover, purification standards are highly controlled in liquid chromatography which helps in obtaining accurate results, which is complementing the segment growth.

Growing popularity of heavy metals testing for cannabis

Cannabis samples are liquified in strong acid in a pressurized microwave prior to evaluation for heavy metal content. Image courtesy of Digipath, Inc.

Heavy metals are known to be one of the major contaminants found in cannabis and its products apart from residual solvents, microbial organisms and pesticides. In addition, heavy metals are highly toxic in nature and on exposure can lead to poisoning and other complications. As a result, heavy metal testing for cannabis and its products is increasingly becoming popular. Several government organizations have made heavy metal testing mandatory for cannabis products. Moreover, increasing legalization of cannabis across several countries for adult use and medical purposes is likely to instigate the demand for heavy metal testing of cannabis products, thereby fostering the growth of heavy metals testing segment over the coming years. For the record, in 2020, the segment had recorded a market revenue of USD 352.5 million.

Increasing support from government bodies in the Mountain West

With increasing legalization for medical and adult use, the cannabis testing market in the Mountain West zone of the U.S. is likely to observe a tremendous growth over time. Moreover, growing support from various government bodies is playing a key role in enhancing the business space. For example, Montana’s Department of Revenue helps labs get licensed along with the state’s environmental laboratory that oversees inspections and licensing. Further, presence of a large number of cultivators of cannabis and manufacturers of cannabis-based products are also positively influencing the regional market growth. Considering the significance of these growth factors, the U.S. cannabis testing market in the Mountain West is estimated to register a substantial CAGR of 9.6% through 2027.

August 4, 2021

Soapbox

The Real Reason Some Industry Leaders Want Delta 8 Banned

By Robert Johnson

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As sales of Delta 8 increase, hemp and cannabis industry infighting increases right along with it. Some hemp leaders say they object to Delta 8 simply because it’s intoxicating: “Hemp is nourishing….hemp is not intoxicating,” the president of the U.S. Hemp Authority President told Hemp Grower (apparently cannabinoids can only be one or the other). Others claim that Delta 8 itself is unsafe: “Very little is known about the health effects of Delta 8,” warned the media relations director for the National Cannabis Industry Association. The U.S. Cannabis Council called Delta 8’s growing popularity “a rapidly expanding crisis” in a report that includes the heading “The Health Risks of Delta-8 THC” and claims Delta 8 “presents a public health risk of potentially wider impact than the vape crisis.”

As a cannabis and hemp industry veteran and a long-time maker of numerous hemp-derived formulations (including Delta 8 products) I have to ask: who exactly is Delta 8 a crisis for, and why? I agree that we need to address the legitimate issues with Delta 8 manufacturing and create regulatory oversight that ensures consumer safety. But some Delta 8 critics may be more concerned with their own bottom line than with protecting public health. No one wants another vaping crisis, but demonizing a newly popular cannabinoid or trying to get it banned doesn’t solve the problem of an unregulated space—and it won’t end the demand for Delta 8, either.

John Kagia of New Frontier Data points out that the Delta 8 boom is “a phenomenon that has taken the industry quite by storm”—and while that storm’s rising tide saved many hemp farmers from financial ruin, it has not lifted every boat. Some cannabis leaders consider Delta 8 an incursion into “their” market. Indeed, Delta 8 can be sold in some states where cannabis remains illegal: “Unregulated Delta 8 risks becoming a competitive threat to [cannabis companies’] existing offerings, sold in states they can’t get into,” reported Tiffany Kary at the Chicago Tribune. But the threat here for cannabis operators isn’t Delta 8: it’s Prohibition. In states where cannabis is illegal, Delta 8 (which is remarkably similar in molecular structure to its federally illegal chemical cousin Delta 9) is being purchased as an alternative. Rather than villainizing a cannabinoid, let’s address retrograde, reactionary state legislatures that refuse to listen to the will of their constituents, and outdated federal laws that equate THC with heroin.

Many see Delta 8 as a threat to the licensed cannabis industry’s profit margins, not only because it can be sold in prohibition states, but because its unregulated status makes it far easier and cheaper to make and sell. Cannabis companies have to navigate an overwhelming and burdensome maze of regulatory red tape to maintain compliance, so industry-wide frustration with the total lack of oversight for Delta 8 is both understandable and justified. But calling for statewide bans on a product that competes with yours is not the solution. That’s not how markets work. (Of all people, cannabis industry professionals should know that banning cannabinoids doesn’t make them go away.) Regulating Delta 8 manufacturers and requiring rigorous product testing are reality-based measures that will make the playing field fairer for cannabis while also safeguarding public health. In the meantime, we can strongly encourage Delta 8 consumers to seek out products made by ethical operators that are transparent about their manufacturing process and provide third-party testing results—the exact same protocol we recommend for buying CBD.

Some of the many hemp-derived products on the market today.

The safety of Delta 8 products is another legitimate concern that’s unfortunately been distorted. Some alarmist headlines seem to equate the actual cannabinoid itself with hazardous material. One East Coast CBD manufacturer issued a press release announcing “a warning for consumers and manufacturers about potentially harmful chemicals within Delta 8 THC” with the cable-newsworthy headline “Dangerous Delta 8?” Smearing Delta 8 as an inherent health menace is both misleading and unhelpful. As Rick Trojan, vice president of the board of directors of the Hemp Industries Association points out, “Cannabinoids themselves have never in the history of humanity caused a death by themselves.” Once again, the problem here isn’t the actual cannabinoid: it’s the lack of regulation that allows Delta 8 products to be produced with no oversight or testing. But given Delta 8’s widespread popularity, short-sighted bans like the ones that have been passed in 17 different states will only increase the risk to public health. Retailers nationwide sold at least $10 million worth of Delta 8 products last year. I guarantee that demand will continue, and that these bans will simply empower an illegal market full of bad actors.

Finally, I remain shocked at the contempt aimed at Delta 8 because it’s psychoactive, and at those who consume it for just “wanting a cheap high.” As with all cannabinoids, we need more clinical research into Delta 8’s properties—but the research we do have indicates that Delta 8 actually has therapeutic properties very similar to Delta 9 THC, just with less psychoactivity. Anecdotal reports indicate that Delta 8 offers many of the health benefits of Delta 9 (help with sleep problems, stress, and pain management) without THC’s less-enjoyable side effects, like paranoia. As cannabis specialist and medical doctor Peter Grinspoon told Insider, “I can’t tell you how many patients I have who say, ‘I’d love to use medical cannabis instead of opiates for pain, except it makes me anxious.’ Delta-8 might be a very good option for people like that.” Believe it or not, there are plenty of people who are using Delta 8 for its therapeutic effects—which, in a nation where 136 citizens die from opioid overdoses daily, I think should be encouraged rather than derided.

With more than 140 known cannabinoids, it makes no sense for us as an industry to brand some of them as “bad” and others as “good.” Are we going to have these tugs-of-war and calls for bans over every single cannabinoid that becomes popular? Instead of arguing amongst ourselves, we could instead focus our efforts on legalizing all of these plant compounds, studying them to determine their capabilities, and creating standardized, evidence-based regulations and testing regimens to ensure consumer safety and adult use. Delta 8 is popular because it serves a need. Consumers want it, and it’s here to stay—the sooner that we as an industry recognize those facts, the better.

July 29, 2021

Soapbox

Can Cannabis Avoid Alcohol’s 3-Tier Distribution System?

By Rick Kiley

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As an experiential marketer that works with a lot of vice-oriented brands, I’ve always been fascinated by the story of the rise of spirits in the US – a history marked by ingenuity in the face of heavy restrictions, clashing social norms, crime and political ideals. Since then, those same qualities have emerged in the story of cannabis and how, against all odds, it has recently begun to push its way into the mainstream. But on the path to legalization, cannabis can also learn a lot from the spirits industry about what not to do.

For example, when laws governing the spirits industry were written in the post-Prohibition 1930s, the federal government wanted to create an equitable landscape. So, they created a 3-tier system – manufacturers or importers must sell to wholesalers, wholesalers must then sell to retailers and retailers sell to us. They figured that keeping manufacturing interests separate from wholesale and retail interests would keep any large company from owning an entire supply chain, muscling out smaller competitors.

In theory, it’s not a bad idea. Imagine the consequences of massive companies like Diageo or AB InBev using their money to pay bars and liquor stores to only stock their brands and not competitors. Add on the Tied House Laws, which basically says an entity in one of the three categories cannot have an ownership stake in any of the others, and you get a seemingly even-handed marketplace.

Tied House Laws theoretically limit one entity from monopolizing a supply chain

In truth, it makes it almost impossible to be disruptive or for new brands to break through. Other industries have innovated by cutting out the middleman and selling direct-to-consumer – something that simply cannot happen in alcohol (minus the wineries and distilleries that can sell direct out of their tasting rooms). Also, now distributors are so consolidated that there are only one or two big distribution companies in each state. So, as a company trying to bring a new product to market, you have to get into one of these highly selective and competitive distributors if you are going to be successful – a challenging ask for a small, independent brand.

Protection racket

Now, imagine that same challenge coming to the cannabis space. With legalization around the corner, the adult use (as opposed to medical use) cannabis industry could easily look like alcohol in the rules that will be set up.

Right now, adult use manufacturers can sell their products to dispensaries directly. Some use a distributor, but there is no nationwide mandate to – which is probably for the best. If a distributor isn’t a requirement, it forces brands to offer something new to differentiate themselves. It will spark innovation, rather than add an extra profit margin that will get rolled into the final price – a price that is already higher than it should be due to the murky federal legal status. Adding complexity and cost will only make it harder to compete with the illicit market. For the industry to grow, costs for illicit cannabis can’t be lower than its legal counterpart.

Of course, we are in the nascent stages of legalization here and we’ve come a long way culturally and technologically since the 30s. But remember, the rules governing alcohol were written nearly 100 years ago along with the passage of the 21st amendment repealing prohibition. Startlingly, those laws haven’t changed that much since they were written, so any mistakes made now in dealing with the cannabis industry could last for a long time.

A new way forward

What the cannabis industry needs is a new model for the adult use/recreational space, keeping some of what exists in the alcohol industry but without ever mandating use of a distributor – the middle tier. This would mean keeping Tied House Laws in place and applying them to cannabis so that a manufacturer could never hold an interest in a retailer, while still allowing them to sell directly to dispensaries and to consumers. Currently, some states allow for vertical integration, which would change under Tied House Laws.

This should be pretty simple, since most states are already separating licenses by type of activity (manufacturer, retailer, etc.) and it would promote competition while bringing the widest array of products possible to each consumer. Also, it would prevent any behemoths from squeezing out the up and comers.

extraction equipment — Constant innovation is a hallmark of the cannabis market and a key factor in continuous growth.

Of course, some retail license allowances could be considered on a case-by-case basis. For example, I would carve out an exception that growers/manufacturers could sell direct to consumers through a single “tasting room” at their brand home. This is similar to the operations of microbreweries, distilleries and wineries. It would encourage education for consumers, and provide great opportunities for brands to show why their products are better or unique.

Given the technology and logistics solutions available to businesses in a 21st century economy, mandated distributors create a sometimes-unnecessary barrier to an already efficient supply chain. If mandated, prices will inflate to cover added margin, thus making it harder to bring consumers over from the legacy market to the legal one. I’m not against the idea of a distributor – they can add tremendous value, but the mandate would seriously curtail industry growth.

Direct-to-retail and direct-to-consumer sales are necessary for the economic health and growth of the industry. Without this, using alcohol as a cautionary tale, at some point the middle tier cannabis brands will inevitably begin to wield an outsized amount of power. We are living at a time where innovation is going to be the key to explosive growth in the cannabis industry, so it’s important to do everything possible to let the market find its way without falling into a century-old trap.

July 27, 2021

The Importance of Understanding Cannabis Testing Results

By Josh Reed

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Cannabis testing is important for both operators and consumers, but there are some differences in what is important to each group. Obviously, safety and efficacy are important to both. Cannabis is primarily tested for safety reasons to ensure that consumers are receiving a product that is safe to consume and accurately labeled. In addition, consumers may look for a potency they’re used to consuming or a certain terpene profile that gives them a desired effect. Cannabis operators, on the other hand, use testing results to improve their processes and to monitor product quality versus state specific regulatory requirements that could cause their products to pass or fail.

What cannabis operators need to understand about cannabis testing results

Historically, there was an education gap on the side of the operators when it came to interpreting results. The regulated cannabis industry is still quite new and cannabis operators were initially focused on getting products to market. While there was always a focus on regulatory compliance and safety, the same level of quality control that existed in other regulated industries like food production seemed to lag. That has changed as operators have become more sophisticated and are hiring experts skilled in interpreting results and quality control. For a laboratory, hiring scientists with a regulatory background offers the operators the experience needed to ensure they’re getting accurate results that are easy to understand. This has led to more meaningful collaboration between labs and operators who work together to understand what test results mean to their processes and business operations.

OGanalytical instruments. — Consumers can easily grasp high level results in the form of charts and graphs

A common problem is that some operators see testing as just a speed bump. This doesn’t have to be the case. Third-party testing is an integral part of getting safe products to consumers. Businesses need to find a lab that understands their objectives and knows how to support the manufacturing and production cycles. Establishing a testing protocol with a lab will help ensure that there are no surprises and that products can be tested and sold as quickly as possible.

Now that operators and labs are speaking the same language, the challenge becomes translating that information into a consumer-friendly format. Consumers don’t necessarily need (or want) to explore the minutiae of every tested analyte, but they can easily grasp high level results in the form of charts and graphs. Translating the testing results into an easy-to-digest format allows consumers to better understand the products they are buying.

What are the main components of test results cannabis businesses should look for?

The first and most obvious results to look for is what was tested and if any tests delivered a failing result. A failing result is determined by comparing the tested values against the state requirements. If a product has failed testing in any area, operators will need to work with the lab and their internal teams to determine exactly what the issue is and if it can be rectified. Failing of any state required test (pesticide, microbial, metals, ….) means the product cannot be sold in its current form. Depending on the state, failing results may be required to be confirmed by another lab, processed further to remove the failing contaminants or destroyed. The production cycle to grow, process and manufacture cannabis products can take anywhere from 120 to 160 days with many different processes and handlers. Despite attempts to control all the variables that impact final product quality, failing tests do occur.

EVIO labs photo — Despite attempts to control all the variables that impact final product quality, failing tests do occur.

Once businesses have passed the state-required testing, the remaining tests are focused on product characteristics including potency and terpene profile. The potency of a product measures the levels of cannabinoids and influences both production and marketing decisions. Lower potency flower may be extracted for distillate products while higher potency flower will demand a higher price and will most likely be sold as flower or processed into concentrate products. Cannabinoid profiles go well beyond just CBD and THC. Understanding the full cannabinoid profile of a product is an important factor in how it can be marketed, and how it will be used.

The terpene profile of a product is also quickly becoming just as important to medical and adult use consumers. Terpenes play a major role in the effects that consumers experience with cannabis products. In the past, consumers relied heavily on strain names to purchase products that they believed would give them the effects that they were looking to achieve. Moving forward, we believe that consumers will be more interested in a product’s terpene profile given the strong influence that terpenes have on effects. In states like Nevada, cannabis businesses put terpene profiles on their product labels and cannabis consumers are starting to select products based on terpenes rather than raw potency numbers.

What is the most important factor in cannabis testing results?

Trust is the most important factor when testing cannabis. Operators need to trust that their lab is providing consistent, accurate and timely results. Consumers need to be able to trust what they read on the certificate of analysis, and they ultimately need to trust that the products they buy will deliver the effects that they expect.

The easiest way for businesses to increase trust in their products and testing results is transparency. When there is transparency from the testing lab to the business and customers, it will help build trust and establish a brand for the long term.

Another important aspect of this process is ensuring businesses share the right information with consumers and educate them as to what it means to them. Information overload, without explanation, will only lead to confusion. It’s important to educate employees, especially those interfacing with customers, on how to interpret and explain test results in a way that consumers can understand.

It can be challenging to translate highly technical test results into consumer-friendly language but being able to do so will enable businesses to build a stronger relationship with customers. This isn’t something that businesses need to figure out by themselves. Rely on your trusted lab partners to help design and deliver easy to understand, consumer friendly certificates of analysis. Consumers want to be educated and understand what is in their products, and how the products will work for them. Trust, transparency and education will help cannabis operators strengthen relationships and continue to grow their business.

July 21, 2021

5 Pivotal Trends Propelling Growth For the Medical Cannabis Market: 2021-2027

By Priya Deshmukh

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Growing awareness and public support for medical cannabis around the world has pushed regulatory authorities to consider the legalization of medical cannabis, which remains the major factor driving growth for the medical market. Cannabis-based medication has conventionally been used and studied to be an effective therapeutic solution for various disorders. Increasing R&D activities for the development of novel solutions and applications has led to various formulations being approved by The United States Food & Drug Administration (FDA). For instance, in 2020, the FDA had approved application of Epidiolex for treating seizures related to tuberous sclerosis complex in patients aged one year and above. On account of shifting interest towards the benefits of medical cannabis and significant technological advancements, application of medical cannabis is increasing rapidly, which is positively impacting the overall business space.

According to Global Market Insights, Inc., the medical cannabis market size was valued at USD 22.4 billion in 2020 and will record exceptional growth numbers in the coming years, considering the emergence of the following trends:

Development of new products by key market players

Prominent players operating in the medical cannabis industry such as Canopy Growth Corporation, Aurora Cannabis Inc., Aphria Inc., GW Pharmaceuticals, ABcann Medicinals Inc., The Supreme Cannabis Company, etc. are focusing on strategies pertaining to product development and acquisitions in order to gain a strong market presence. Citing an instance in 2018, GW pharmaceuticals, announced that it had received an FDA clearance for its first plant-based pharmaceutical cannabidiol for treating rare pediatric epilepsies. Apparently, the approval helped the company expand its portfolio while giving it the innovator’s advantage in cannabis-based treatments.

Rising demand for treating nausea conditions

Medical cannabis is finding extensive usage in the treatment of nausea conditions especially for the patients undergoing chemotherapy, as a part of cancer treatment. Numerous tetrahydrocannabinol- and cannabidiol-based medications have been approved for treating the symptoms of nausea. The rising incidences of cancer and nausea segments across medical cannabis markets is anticipated to register a substantial CAGR of 18.4% through 2027.

Increasing preference for topical route of administration

Topical administration of medical cannabis is gaining prominence as topical solutions such as lotions and creams can be directly applied to the skin for the treatment of an injury. They are also replacing opioids for injury-related pain management as these have shown several side effects. Topical products also allow for self-administration that’s minimally invasive, while exhibiting limited side effects. With increasing adoption of topical route of administration, the segment is estimated to register an appreciable valuation of $5 billion by 2027.

Higher sales through dispensaries

Dispensaries have become a prime distribution channel globally. Considering the stringent regulatory scenario around medical cannabis, its consumption and sales are highly monitored by authorities in order to avoid any abuse or instances that lead to addiction. It is relatively easy for both suppliers and consumers to engage in a conventional brick and mortar store model under a regional medical cannabis program. Given that, dispensaries are anticipated to retain dominance in the market over the coming years. In 2020, the segment had held a sizeable market share of 58.4%.

Rising consumption of medical cannabis in Latin America

South American countries like Argentina and Chile are the major consumers of medical cannabis in the region. While Argentina has legalized the domestic cultivation of cannabis, Chile is known to have a history of medical cannabis with various clinical trials being performed since 2014. The country is one of the leaders in the LATAM medical cannabis industry wherein the regulatory authorities keep on simplifying the laws time and again. With favorable regulatory scenarios, the regional market is projected to expand significantly by recording a CAGR of 20.9% through 2027.

July 14, 2021

Soapbox

Too Many Cannabis Firms Put Sustainability in Last Place

By Mitesh Makwana

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Cannabis has long been considered a green industry by the masses.

As a standalone item, the cannabis plant is very environmentally friendly. This is particularly true when it comes to hemp, a variety of the cannabis plant with a huge range of environmental benefits. An extremely versatile and robust crop, hemp uses far less land and water than other common crops and even captures carbon dioxide and regenerates soil. Approximately 20,000 products can be made from its seed, fiber and flower, from biodegradable plastics to food supplements, meaning all in all – it is an environmentally and economically sustainable crop

Yet as with most things, when cultivated in mass, the cannabis plant isn’t quite so green anymore. With its high demand for water, land and artificial lighting, cannabis cultivation can actually leave a large environmental footprint (this does however, pale in comparison to the food industry).

What’s more, many firms do not properly understand how to correctly treat and apply chemical fertilizers and pesticides, and use a machine gun approach to growing their crops. This can result in unnecessary bleed waste, which in turn can kill micro-organisms and contaminate soil, water and other vegetation. Packaging has also been cited as particularly environmentally unfriendly in the cannabis industry, with several organizations using single use plastic for their products, due to the strict guidelines attached to packaging products of a medical or pharmaceutical nature.

So as the CBD, medical and even adult use cannabis industries become increasingly commercialized across the globe, there is risk cannabis might start moving in the wrong direction when it comes to sustainability.

Still relatively new, the cannabis sector is nascent and exciting, with the global cannabis market size valued at $10.60 billion in 2018 and projected to reach $97.35 billion by the end of 2026. Yet as the industry grows, so too will its footprint.

I’ve seen it first-hand. The industry being hugely competitive, so for companies vying for precious investment and fighting for a spot on the stock market, often, sustainability is the last thing on their minds. In my opinion, this is wrong. Not only morally – we all play a part in looking after our planet – but it’s also a poorly calculated business decision.

It’s no secret sustainability and ESG have become a hot topic when it comes to investing. Just yesterday, Credit Suisse told CNBC that the pandemic has accelerated the trend towards sustainable investments. The bank has even introduced an exclusion strategy whereby those investing can actively exclude controversial sectors.

So with the environment firmly on investors’ minds, cannabis firms need to realize that actually, if they want to secure the support of forward-thinking shareholders, they need to consider more than just the bottom line and truly take the sustainability of their operations into account.

photo of outdoor grow operation — Outdoor growing can require less energy inputs

Luckily, there are practices which cannabis cultivators can take on board to reduce their environmental footprint. To start with – growing outdoors. This enables cannabis farmers to harness the sun’s natural power, saving them money on electricity bills and increasing energy efficiency. With cannabis being a rather thirsty plant, water use is also a major concern – although this is nothing compared to the amount of water used by cotton plants. However, it is in fact possible to design indoor operations which recycle close to 100% of the water use, including capturing the perspiration from plants – at AltoVerde this is something we are looking to implement in our upcoming Macedonian sites.

Firms keen to improve on sustainability should also cultivate in a way in which soil is fully replenished and repaired after use – this is called regenerative farming, and it’s extremely effective for maintaining and improving soil quality, biodiversity and crop yields. Another interesting concept is the use of hemp. Some farmers have started using hempcrete – a concrete-like material made from harvested cannabis plants. As if the recycling aspect wasn’t good enough, hempcrete is actually carbon negative, meaning the production of hemp for hempcrete removes more carbon from the atmosphere than it produces.

It’s been incredibly exciting to be a part of the cannabis industry and I am excited to watch its growth in the years to come. It’s taken hard work for the sector to improve its traditionally poor image and to be accepted across the globe, so now, cultivators must lead by example and stop industry from being branded as one which pollutes. By transitioning to more environmentally sustainable practices, firms will be doing their bit for the planet, attracting the investors of tomorrow and ensuring their own success for years to come.

July 7, 2021

A Guide to Outsourcing Your Cannabis Delivery Service

By Claudia Post

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If you are interested in adding a new delivery option for your cannabis dispensary, choosing a third-party service is a great move. Generally speaking, the most significant selling points of third-party delivery services are overhead cost and convenience.

Not only will third-party delivery services run your entire courier operation under a single platform, but they will also streamline your sales process with the latest technology. In addition, working with a third-party vendor will help you avoid financial risk with workers’ compensation and auto insurance expenses.

Please consider the following points to build a successful partnership with a third-party cannabis delivery service.

Research Your Local Market Regulations

Before you can outsource a delivery option for your cannabis dispensary, you need to research if it’s legal to do so in your given market. Whether medical or adult-use, each state has unique regulations for delivery services. In addition, individual counties and municipalities within these states also have their own rules concerning cannabis delivery on a more granular level.

As an illustration, Denver, CO, has had an adult-use cannabis market since 2013, but the city just passed legislation approving delivery services. So, starting in late summer 2021, third-party vendors will be the only businesses allowed to deliver cannabis in Denver legally. As can be seen, just because cannabis is legal in a particular state doesn’t mean delivery is always an option.

How Do I Vet a Potential Delivery Partner?

You must be discerning when starting a partnership with a third-party cannabis delivery service. As these delivery companies will be representing your brand in the field, you want to make the best choice possible. Luckily, there are some specific parameters you can follow in vetting a potential delivery partner.

License: Perhaps the most critical part of vetting a delivery partner is ensuring they have the appropriate license. Especially in hotbeds like California, countless unlicensed cannabis businesses are in operation, including delivery services. Therefore, asking to see their paperwork should be the very first step in vetting.

App & User Experience (UX): Taking a good look at the User Experience (UX) provided by a third-party vendor’s app or website is a great way to vet them. In the end, delivery services are all about convenience. If their ordering software is robust and offers flexibility and great reporting, they will likely provide you the springboard to retain your repeat buyers.

Payment processing can be a challenge in retail

OSHA Certification: Another critical factor to consider when vetting a delivery partner is OSHA training. Those companies who have taken steps to train their employees on safety protocol appropriately will likely make good partners.

How Does Online Ordering Work with My System?

Payment processes for cannabis dispensaries are incredibly complex. Moreover, since cannabis is still federally illegal, major credit cards and banks do not accept charges from dispensaries. Because of such complexities, the prospect of accommodating deliveries might prove to be a challenge.

Enter Scarlet Express. Third-party cannabis companies like Scarlet Express can integrate with your established system to seamlessly add delivery payments. They even offer customizable software that integrates with your menu provider and POS system while also importing essential brand elements like logos and colors.

If you are a small cannabis dispensary that has never developed online ordering, certain third-party vendors can also help you build out an eCommerce page on your website.

What About Compliance & Seed-to-Sale Tracking?

Compliance is one of the essential elements of running a successful cannabis business. However, compliance regulations can get tough to follow when you begin dealing with third-party delivery companies, namely because cannabis products change hands several times before they are finally sold to the consumer.

PlantTag — A plant tagged with a barcode and date for tracking

The state has thoroughly vetted any third-party delivery service that has received a license. Therefore, not only are they up-to-speed on compliance protocol for your given market, but they are also trained on the appropriate seed-to-sale software. With these controls in place, you can trust they assume legal responsibility for cannabis products after leaving the dispensary.

To operate compliantly, third-party delivery services time-stamp their orders, which can then be tracked through GPS in the delivery car. Finally, all cannabis products are stored within a secure lock box that is only opened at the time of delivery.

Adding a delivery option for your cannabis dispensary is a great way to entrench yourself with your clients. Working with a third-party delivery service is a painless way to expand your business.

When considering a partnership with a cannabis delivery service, be sure to thoroughly vet them and make sure they share your goals and vision. In doing so, you will ensure an invaluable partnership that will continue long into the future.