A Q&A with George Mancheril, Founder & CEO of Bespoke Financial

By Cannabis Industry Journal Staff

Bespoke Financial was the first licensed FinTech lender focused on the legal cannabis industry. Founded in June of 2018, Bespoke offers four types of lending products: Invoice financing, inventory financing, purchase money financing and a general line of credit. With just over two years of originating loans to clients, they have benefitted from being a first mover in the cannabis lending space.

George Mancheril is the founder and CEO of Bespoke Financial. He has over fourteen years of experience in finance, with a special focus on asset-based lending, off balance sheet financing of commercial assets and structured credit. Following a stint with Goldman Sachs, he worked at Guggenheim Partners Investment Management’s Structured Credit Group in Los Angeles where he worked on structuring esoteric asset financing for a variety of commercial assets including airplanes, container leases and receivables.

Since 2018, Mancheril and his team at Bespoke Financial have deployed over $120 million in principal advances without any defaults and across eleven states. We sat down with Mancheril and asked him about the history of his business, how it’s been received so far and how the past few years of financial activity in the cannabis sector might shape the future.

Cannabis Industry Journal: What is Bespoke Financial in a nutshell?

George Mancheril: Bespoke Financial is the first licensed FinTech lender focused on the legal cannabis industry. Bespoke offers legal cannabis businesses revolving lines of credit that address the top problem in the industry – lack of access to non-dilutive, scalable financing to capitalize on growth opportunities and improve profitability. Due to the federal illegality of cannabis, traditional banking institutions cannot work with our clients even though these operators are working within the legal regulatory framework of their state. Bespoke solves this problem for businesses across the cannabis supply chain along with ancillary companies affected by the lack of access to traditional capital markets.

CIJ: How does your company help cannabis businesses?

Mancheril: Bespoke Financial offers 4 lending products – all are structured as a revolving line of credit but each allows our clients to access capital in a unique way based on their specific needs. Our Invoice Financing product, allows businesses to borrow capital against their Accounts Receivables in order to manage general business expenses, particularly if the borrower’s business growth is slowed due to a long cashflow conversion cycle. Inventory Financing and Purchase Money Financing allow our clients to finance payments to their vendors, which helps our clients achieve economies of scale by increasing their purchasing power. Lastly our general Line of Credit allows for the most flexibility for our clients to utilize our financing by either financing payments made directly to vendors or drawing funds into the client’s bank account to manage business expenses.

CIJ: I know the company is only a few years old, but can you tell me about your company’s success so far?

Mancheril: [Clarification, Bespoke was founded in June 2018 so we’ve been around for 3 years but we now have over 2 years of originating loans to clients.] Bespoke Financial has benefitted by being a first mover in the cannabis lending space as the first licensed lender specifically addressing the financing needs of cannabis operators, starting in early 2019. Over the past 2 years we have developed and refined our proprietary underwriting model to identify over 50 active clients spanning the entire cannabis supply chain. Since inception, Bespoke has deployed over $120 million in principal advances without any defaults to date and expanded our geographic footprint across 11 states. Our growth and success highlights our company’s expertise in structuring financing solutions which address the unique capital needs of cannabis companies.

CIJ: Can you discuss how the recent M&A activity, current and recent market trends, as well as the pandemic has affected your company’s growth?

Mancheril: The cannabis industry overcame a variety of challenges presented by the COVID-19 pandemic, ending the year with record sales in both new and existing markets. The support from state and local governments, evidenced by the industry’s essential business designation and the easing of regulations, coupled with increasing consumer adoption of cannabis combined to increase the industry’s demand for capital throughout the pandemic. Bespoke was well positioned to partner with cannabis companies across the supply chain and was proud to help our clients thrive during this pivotal period.

Jeeter was able to grow sales over 1,000% within the first year of working with Bespoke

Coming into 2021, the cannabis industry and investors shared a very positive outlook for the future based on the previous year’s experience and expectations of material easing of federal regulation. While M&A activity in the industry has increased over the past 6 months, the overall consensus has been that both the frequency of exit opportunities and the corresponding valuations will continue to increase as federal decriminalization opens new sources of capital and materially changes investors’ valuation assumptions. In general, we’ve seen cannabis companies focused on both capitalizing on the increasing opportunity presented by the industry’s organic growth and maximizing the benefits of future regulation changes by utilizing the resources and capital currently available to increase revenue, expand into new markets, and work towards profitability. All of these factors have further compounded the industry’s demand for financing and we expect to see continued growth in our lending activity in line with the industry’s growth.

CIJ: Who has been your most successful client?

Mancheril: We have a handful of cases studies and client success stories here on our website. One of the most exciting growth stories we have seen has been our client DreamFields whose in-house brand, Jeeter, is now the #1 pre-roll brand in the state of California. Prior to working with Bespoke, the brand was not ranked in the top 25 but was able to grow sales over 1,000% within the first year of working with us and achieve the #1 spot in their product category.

July 1, 2021

A Q&A with Rob Sechrist, President of Pelorus Equity Group and Manager of the Pelorus Fund

By Aaron Green

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The cannabis industry in the United States represents about a $50 billion asset class making it one of the largest new asset classes in the country. Commercial real estate lending is a key enabler for companies seeking to expand and scale. Pelorus Equity Group is one of the largest commercial lenders in cannabis with over $170 million deployed since its first cannabis transaction in 2016.

Since 1991, Pelorus principals have participated in more than $1 billion of real estate investment transactions using both debt and equity solutions. Pelorus offers a range of transactional solutions addressing the diverse needs of cannabis related business operators. While most cannabis private equity lenders focus on real estate acquisition and refinancing, Pelorus has leveraged its experience in more than 5,000 transactions of varying size and complexity to offer value-add loans, a rarity in the industry.

We spoke with Rob Sechrist, president of Pelorus Equity Group and manager of the Pelorus Fund. Rob joined Pelorus in 2010 after several years in the California real estate market. In 2018, Pelorus launched the Pelorus Fund where Rob is currently the manager. The Fund converted to an REIT in 2020.

Aaron Green: How did you get involved in the cannabis industry?

Rob Sechrist: Pelorus is a value-add bridge lender. We’ve been lending for a long time, originally in the non-cannabis space. We’ve done 5000 transactions for over a billion dollars – more than a lot of banks.

In 2014, our local congressman Dana Rohrabacher passed the Rohrabacher-Blumenauer Amendment that defunded the Department of Justice from prosecuting any cannabis related business in a medically licensed state. We were a supporter of that legislation and once that passed, we took a serious look at utilizing our expertise in being a value-add lender and applying it to the largest asset class of real estate that is newly coming about today. That cannabis related asset class is about $50 billion.

Rob Sechrist, president of Pelorus Equity Group and manager of the Pelorus Fund

We decided that we had the expertise to move into this space and to build these facilities out for our borrowers so that the cannabis use tenants would have a fully stabilized facility and make it operate. After the amendment passed in 2014, by 2016 we had originated our first transaction. Since that time, we’ve originated 51 transactions in the cannabis space for over $177 million so far. It wasn’t that big of a pivot when you’re just providing the value-add loan.

“Value-add” in the loan business means that a portion of the loan amount, let’s just say is a million dollars, maybe 250,000 of that, is a pre-approved budget to go back into the property. In cannabis property those are typically tenant improvements and/or equipment to fully stabilize that tenant. So, we’re the first fully dedicated lender in the nation exclusively to cannabis and we’ve done more transactions than anybody else in the nation.

Green: What are some challenges of cannabis lending compared to traditional lending?

Sechrist: The number one challenge in cannabis is that you must disclose to your investors that you’re originating the loans to cannabis use tenants. Many people have concerns that lending indirectly might be federally illegal. If you did not disclose that to your investors when you form that capital stack to fund these transactions, you’re going to run into issues. So, you would need to create a vehicle where you disclose to your investors that you’re intending to lend into cannabis and it’s still federally illegal. Doing one-off stand-alone transactions deal by deal is not sustainable if you’re going to be a large lender.

There are other challenges. Because cannabis is still federally illegal, it gives insurers and other third parties the ability to deny a claim, or certain lender protections. Some examples include errors and omissions insurance, title insurance, property insurance, etc. and all of them say in those policies that if you’re doing something federally illegal, then the policy is null and void. So, you must think your way through very carefully all the things that could potentially be an issue. You also have to disclose to those third parties and find a way to get them to acknowledge it to make sure you have the coverage if you ever have to make a claim. That’s a very difficult process.

Green: How has the investor profile in cannabis lending changed over time?

Sechrist: Our fund was structured to allow for institutional capital from the inception. We were able to do that because we are completely non-plant touching. Our fund only lends to the owners of commercial real estate. We do not lend to any cannabis licensed operator directly whatsoever. Our borrowers – the owners of the properties – would then have a lease agreement with the cannabis use tenant. Even if it’s an owner-operator, those are separate entities. That’s how we’ve distinguished ourselves.

Regarding the investor profile, the first $100 million plus we raised was primarily from retail investors who were individuals writing checks up to a million dollars. Once we had three years of audited track record and our fund was $100 million, we then pivoted over to family offices and institutional investors and pension funds. We’re now working primarily with those types of investors.

The reason that we started with retail investors is that it’s very easy for me to explain our model to a single decision maker and answer their questions. Once I move into family offices or institutional investors, the opportunity goes to a credit committee where I’m relying on some other party to educate the investor about our investment. It’s enormously challenging at that point if it’s not me doing the talking. I know the answers, but I’m having to rely on somebody else to answer questions. We’ve tried to educate everybody we speak with and craft our documentation in such a way that even when it’s not myself answering the questions directly, people can understand how we thread the needle through some of the legal hurdles.

Green: How do you prioritize deal flow, and what are the qualities of a successful loan applicant?

Sechrist: We typically maintain a pipeline of around $150 million in transactions at any one time.

Applicants must have real estate. We’re not doing business loans or operator loans directly to tenants or business operations. So, that’s the starting point. We want a real estate piece of collateral where we feel more than comfortable with the loan-to-value and ratios and the loan to cost and other figures, that we feel that this transaction is going to be a success for our borrower and ultimately the tenant.

Next, we will only work with very experienced operators who have a proven track record where this is not their first transaction. Ideally, we are working someone who is looking to expand their operations and who is ready to either move from being a tenant of their previous facility and buying their next facility.

The next aspect that we’re looking for is the strength of the borrower’s guarantor. They must be able to qualify to support that transaction. Many of our transactions are millions or 10s of millions of dollars. You must have a sponsor that can support that size of a transaction.

Green: What sort of value-adds should a cannabis property owner look for in their lender?

Sechrist: Most people that are looking for loans are only familiar with getting loans for themselves on their owner-occupied house. Most loans have points, they have a rate and a term, loan-to-value and things like that.

“We wanted to make sure that when we underwrite the transaction, that every single piece of capital is necessary to get that facility all the way to where that tenant can start generating their first crops and make their lease payments.”When you move into construction loans or value-add lending, there are other elements that are more important than the pricing of the loan. The number one thing is to get that property fully stabilized and built as quickly as possible. Cannabis tenants are generating 10 to 15 times more revenue per month than non-cannabis tenants.

If you go to a bank and borrow money it may be a third of what it costs to borrow from us, but they process draws maybe once a month. So, if you’re having to advance the money for improvements of the property, and then the bank reimburses once a month, at a certain point you’re not going to be able to advance any more money until you get reimbursed. The project comes to a stop. So, in your mind, you might have saved an enormous amount on the pricing of the rate, but it’s costing you dearly in revenue and opportunity costs. We typically process 50 to 100 draws post-closing on transactions, and we get that facility built and the money reimbursed to all the contractors on a multiple-times-a-week basis. It’s happening in real flow all the time.

A typical problem for a tenant is that the tenant improvements are orders of magnitude higher than a non-cannabis tenant – anywhere from $150 to $250 per square foot. In addition, the equipment is often enormously expensive as well. It’s tough to put money into a buildout for a building that you may not own. Our vision at Pelorus was, let’s not force these tenants – the cannabis operators – to raise equity at the worst possible time when they’re not generating revenue through the facility. Let’s shift that capital balance for those tenant improvements and equipment from the from the tenant to the owner of the building, which is where it’s secured and adds value to that building anyway. Our vision was to shift that money from the balance sheet of the tenant over to the owner of the real estate so the tenant didn’t have to sell equity to come up with that money. Then the tenant is paying for the improvements in the lease rate and the borrower is paying for improvements in the note rate. And so we’ve shifted tenant improvements from being an equity component to now it’s just priced in the debt. This way you know what the terms are and you know what your total exposure is there.

We wanted to make sure that when we underwrite the transaction, that every single piece of capital is necessary to get that facility all the way to where that tenant can start generating their first crops and make their lease payments. Most of our peers in the space don’t look at it that way. They just do the acquisition or the refinance. They don’t do anything for the tenant improvements. They don’t do anything for the equipment. The tenant is left out there to either raise that equity or the borrower – the owner of the real estate – is having to come up with that additional capital on their own. We think you’re set up for failure in that circumstance. So, we blend all that into one capital stack. It’s important that the tenants can get all the way up to being able to cash flow and support that facility and be fully stabilized so they can refinance into a lower cost bank or credit union transaction.

Green: What federal policies and trends are you monitoring?

Sechrist: First, I think that it’s important to remind people that the Rohrabacher-Blumenauer Amendment has protected everybody from any prosecution. So, there’s no jeopardy out there that exists. The second thing I like to tell people is there are 695 banks on FinCEN’s website of cannabis Tier 1 depositors, and of those, we’re tracking numerous FDIC insured state banks and credit unions that are lending directly. We’ve been paid off by banks.

So, there’s this massive misconception that there’s no banking at all and that everything is happening by cash. The only cash buildup that happens is at the retail dispensary level because credit cards aren’t allowed for retail sales at the dispensaries. Out of the 2,000 transactions that we’ve either processed or reviewed, not one has ever not had banking set up. So, it is a big misnomer that there’s no depositor relations for Tier 1 banking, which is plant touching.

Tier 2/3 depositors are ancillary, which is what we are at Pelorus. There are 100 private lenders and dozens and dozens of state and federal credit unions or state banks and credit unions, not federal, that are FDIC insured and lending. Those banks are difficult to get loans from because they only want to do urban environments. They want to do fully stabilized companies and they want to use alternative views and the facility has to have seasoning for cash flow. It’s difficult to qualify for them. So, banking and lending exists out there, and most people are not aware of that.

Green: What are you most interested in learning about? This could be either in cannabis or in your personal life.

Sechrist: My two passions are snowboarding and racetrack driving. I just came back from the Mille Miglia race in Italy, and I do a lot of driving on the racetracks. I’m always looking to learn from those experiences.

In the cannabis sector, social equity programs are happening across the nation and cannabis licenses are being issued to operators. We would like to help participate in some system of educating these applicants that win the awards. Lending to an owner of a property who just won a license but has no experience is going to be problematic. Somebody needs to be thinking that out and making sure that these people that win have enough experience and education to set them up for success. Cannabis is one of the most complicated businesses ever, and they’ve got this license as their ticket, but they need to know how to make sure they’re going to be successful.

Green: Great Rob, that concludes the interview.

Sechrist: Thanks Aaron.

June 30, 2021

Ask the Experts: Microbiological Contamination in Cannabis & What You Should Look for

By Cannabis Industry Journal Staff

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Testing cannabis and cannabis derived products for microbiological contamination should be a straightforward conversation for testing labs and producers. However, a patchwork of regulations and a wide variety of perspectives on what we should, or should not, be looking for has left much of the cannabis industry searching for reliable answers.

Organizations like the AOAC are taking the first crack at creating standardization in the field but there is still a long way to go. In this conversation, we would like to discuss the general requirements that almost all states share and where we see the industry headed as jurisdictions start to conform to the recommendations of national organizations like AOAC.

We sat down with Anna Klavins and Jessa Youngblood, two cannabis testing experts at Hardy Diagnostics, to get their thoughts on microbiology testing in the current state of the cannabis industry.

Q: What are the biggest challenges facing cannabis testing labs when it comes to microbiology?

The CompactDry Yeast and Mold Rapid plate provides fast results.

Anna Klavins & Jessa Youngblood: For microbiology testing, it comes down to a lack of standardization and approved methods for cannabis. In the US, cannabis regulation is written on a state-by-state level. As a result, the rules that govern every aspect of bringing these materials to market is as unique and varied as the jurisdiction writing them. When we are speaking specifically about microbiology, the question always comes back to yeast and mold testing. For some, the challenge will often be centered on the four main Aspergillus species of concern – A. terreus, A. niger, A. fumigatus, and A. flavus. For others, it will be the challenges of total count testing with yeast, mold, and bacteria. These issues become even more troublesome by the lack of recognized standard methodology. Typically, we expect the FDA, USP, or some other agency to provide the guidelines for industry – the rules that define what is safe for consumption. Without federal guidance, however, we are often in a situation where labs are required to figure out how to perform these tests on their own. This becomes a very real hurdle for many programs.

Q: Why is it important to use two different technologies to achieve confirmation?

Dichloran Rose Bengal Chloramphenicol (DRBC) Agar is recommended for the enumeration of yeasts and molds.

Klavins & Youngblood: The push for this approach was borne out of the discussions happening within the industry. Scientists and specialists from across disciplines started getting together and creating groups to start to hash out problems which had arisen due to a lack of standardization. In regards to cannabis testing, implementing a single method for obtaining microbiology results could be unreliable. When clients compared results across labs, the inconsistencies became even more problematic and began to erode trust in the industry. As groups discussed the best way to prove the efficacy of their testing protocol, it quickly became apparent that relying on a single testing method was going to be inadequate. When labs use two different technologies for microbiology testing, they are able to eliminate the likelihood of false positives or false negatives, whichever the case may be. In essence, the cannabis testing laboratories would be best off looking into algorithms of detecting organisms of interest. This is the type of laboratory testing modeled in other industries and these models are starting make their way into the cannabis testing space. This approach is common in many food and pharma applications and makes sense for the fledgling cannabis market as well.

About Anna Klavins

Anna Klavins earned a Molecular and Cellular Biology B.S. degree from Cal Poly San Luis Obispo while playing for the Cal Poly Division I NCAA women’s tennis team. Since joining Hardy Diagnostics in mid-2016, she has gained experience in FDA submissions [510(k)] for class II microbiology in vitro devices. She has worked on 15 projects which led to a microbiology device becoming FDA cleared. She has recently begun participating in the AOAC Performance Tested Methods program.

About Jessa Youngblood

Jessa Youngblood is the Food, Beverage and Cannabis Market Coordinator for Hardy Diagnostics. A specialist in the field of cannabis microbiology for regulatory compliance, she is seated with the AOAC CASP committee working on standard methods for microbiological testing in cannabis and hemp. She also sits on the NCIA Scientific Advisory Council as well as the ASTM Cannabis Council.

Content sponsored by Hardy Diagnostics.

June 29, 2021

2021 Cannabis Extraction Virtual Conference

By Cannabis Industry Journal Staff

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2021 Cannabis Extraction Virtual Conference

Click here to watch the recording

Agenda

Hazards and Controls of Extraction with Liquified Petroleum Gases (LPG)

Alex Hearding, Chief Risk Management Officer, NCRMA

This presentation delves into how to identify the common hazards of extracting with LPG (butane and propane), understanding the where to find guidelines and standards for safe extraction practices and an introduction to best practices for: selecting equipment, extraction room construction, and filling LPG extraction equipment.

TechTalk: Environmental Monitoring in Cannabis Production and Processing

Tim Cser, Senior Technology Specialist, MilliporeSigma

Slow is Smooth & Smooth is Fast! Understanding the Kinetics & Thermodynamics of Cannabis Extraction

Dr. Markus Roggen, Founder & CEO, Complex Biotech Discovery Ventures (CBDV)

In this session, Dr. Roggen discusses how his lab undertook extensive experimental studies on the extraction behavior of various solvents. They analyzed thousands of real-world extractions, from various producers and for different instruments to build a machine learning algorithm that can optimize extraction processes autonomously.

TechTalk: A New Tool for Operational Compliance in the Cannabis Industry

Tony Martinez, Senior Vice President & General Manager, AuditPro

The Quest to Discover the Limits of CO2 Extraction

Jeremy Diehl, Co-Founder & CTO, Green Mill Supercritical

Learn why cannabis and hemp extraction is as much art as science, and how modifying and manipulating extraction methodologies and conditions can result in more refined products and significant cost savings.

TechTalk: Breaking the Limits with Solvent Recovery

Jürgen Heyder, Business Development Manager for Rotary Evaporation, Heidolph Instruments

The Future of Cannabis Concentrates: Developments in Hydrocarbon Extraction & Manufacturing

Michelle Sprawls, Laboratory Director, CULTA

Learn what closed loop hydrocarbon extraction is, what products you can make with this type of extraction method and what the advancements are for manufacturing and new techniques

Process Scale UP in the Cannabis/Hemp Industry

Darwin Millard, Committee Vice Chair, ASTM International

Darwin Millard provides real-world examples of the consequences of improper process scale up and the significance of equipment specifications, certifications and inspections, and the importance of vendor qualifications and the true cost of improper design specifications.

Click here to watch the recording

June 22, 2021

Unnecessary Obstacles for the Canadian Edibles Market

By Steven Burton

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The edible cannabis market in Canada is still green. Delayed by a year from the legalization of dried flower, the edibles and extracts market poses significant opportunities for manufacturers. Edibles and extracts typically have higher profit margins than dried flower (“value-added” products) and consumer demand appears to be high and rising. So, what is causing trouble for cannabis companies trying to break into edibles and extracts? Below are four observations on the market potential of edibles in Canada.

Canada’s Edibles Market: The Numbers

In 2020, Canada – the largest national market in the world for cannabis products – grew more than 60%, largely as a result of the introduction of new products introduced in late 2019, often called “Cannabis 2.0,” which allowed the sale of derivative products like edibles. Deloitte estimates that the Canadian market for edibles and alternative cannabis products is worth $2.7 billion, with about half of that amount taken up by edibles and the rest distributed amongst cannabis-infused beverages, topicals, concentrates, tinctures and capsules. More recently, BDSA forecasts the size of the Canadian edibles market to triple in size by 2025 to about 8% of the total cannabis dollar sales.

In December 2020, the Government of Canada reported that edibles made up 20% of total cannabis sales; Statistics Canada data shows that 41.4% of Canadians who reported using cannabis in 2020 consumed edibles. While sales have gone up and down over the course of the COVID-19 pandemic, there are clear indications that there is a substantial demand for edibles and extract products, which can be consumed more discreetly, with greater dosage precision and with fewer adverse effects (as opposed to smoking).

While sales of regulated edibles products continue to grow, edibles, extracts and topicals sales in Canada are facing a similar problem as dried flower sales: inventory growth is outpacing sales. Unsold stock sitting in inventory is growing at a dramatic pace, showing a clear lag in demand for these products on the legal market. How do we understand this contradiction?

1) Complex Regulatory Standards are a Major Barrier

Cannabis edibles compound the already existing problems around the conceptualization of cannabis products regulation. How should it work? Edibles can be considered in any of the following categories:

Cannabis as a pharmaceutical with medical application. Requires strict dosage and packaging requirements;
CBD as a nutraceutical with health benefits claimed. Requires specific nutraceutical regulations be followed;
Food product to be consumed. Must comply with food safety regulations around biological, chemical, physical hazards through a risk-based preventive control program. A full supply chain and ready-to-recall based system of regulatory standards need to be followed.

Incorporating elements from each of these three regulatory regimes into a single regulatory standards body is a confusing logistical and compliance challenge for both the regulators, and the producers and retailers of the product.

In mid-2019, the Government of Canada released the Good Production Practices Guide for Cannabis. This merged cannabis-specific regulations with food safety-specific regulations. Rigorous food safety requirements were combined with equally rigorous cannabis production and processing requirements, resulting in extremely laborious, detailed and specific regulations. These span everything from building design and maintenance, to pest control, to employee sanitation, to traceability – at all levels of the process. Navigating these regulations is a challenge, especially for many smaller producers who lack the necessary resources, like automation technology, to devote to understanding and tracking compliance.

2) Low Dosage Regulations Give an Edge to the Illicit Market

When edibles were legalized, THC dosage was capped at 10mg per package. For more experienced consumers, especially those who are dealing with chronic pain and other medical needs, this limit is far too low – and the unregulated market is more than able to fill this gap. One analyst from Brightfield pointed out that the dosage restriction, in combination with other regulations, will make it harder for the edibles market to grow in Canada.

It also makes the unregulated market almost impossible to beat. Barely more than half of cannabis consumers in Canada buy exclusively from government-licensed retailers, while 20% say that they will only buy unregulated products. According to a Deloitte report, 32% of legacy cannabis consumers said that unregulated products were better quality, and 21% reported that they preferred unlicensed products because there were more options available. Almost half of respondents also reported that quality was the biggest factor that would cause them to switch to regulated sources, and 28% said that higher THC content would prompt them to switch.

3) There is a Big Price Disparity between Legal and Illicit Edibles

As a result of dosage requirements and other factors, price per gram of regulated edible product is much higher than that of flower, unregulated edibles and edibles available through regulated medical distributors.

If you take the BC Cannabis Store’s price for Peach Mango Chews as an example: a 2pc package is $5.99. Since the dosage limits at 10mg per package, that’s the equivalent of $0.60/mg or $600/gram. A quick Google search reveals that an easily available edible from a medical cannabis distributor contains 300mg of THC and sells for $19.00, a price of $63.00/gram.

That means that not only is 10mg too low a dose for many users to achieve the result they were looking for, but the dosage restriction also makes the products less attractive from both a nutrition and cost standpoint. Deloitte reportsthat higher prices is the reason that 76% of long-time cannabis consumers continued to purchase from unregulated sources. The regulated industry as a whole is missing its legal market opportunity, where consumers prefer a lower price product with a greater range of dosage availability.

4) The Range of Products Available is Too Limited for Consumers

For most of 2020, chocolate edibles were the dominant product in this category in the Canadian market, garnering 65% of all edibles sales. But is this reflective of consumer wants? Despite a demand for other kinds of edibles like the ever-popular gummies, there are still only a few edible brands that offer the range of products consumers are asking for. According to research from Headset, there are 12 manufacturers in Canada making edibles but only two of them produce gummies. In comparison, 187 brands make gummies in the United States.

While some of this delay is likely due to the long licensing process in Canada and the newness of the market, there are other factors that make it challenging to bring a variety of products to market. The province of Quebec, Canada’s second-largest province, has banned the sale of edibles that resemble candies, confections, or desserts that could be attractive to children – giving yet another edge to unregulated sellers who can also capitalize on illegal marketing that copies from existing candy brands like Maynard’s.

When companies do want to introduce new products or advertise improvements to existing product lines, they are restricted by stringent requirements for packaging and marketing, making it harder to raise brand awareness for their products in both the legal and unregulated markets. Industry players are also complaining about government restrictions on consumers taste-testing products, which further compounds challenges of getting the right products to market.

In the meantime, illicit producers have also shown themselves to be savvy in their strategies to capture consumers. It is not uncommon to find illicit products packaged in extremely convincing counterfeit packaging complete with fake excise stamps. New consumers may assume the product they are purchasing is legal. Availability of delivery options for higher dosage, lower price illicit products is also widespread. All of this adds up to significant competition, even if it were easier to meet regulatory requirements.

Conclusion: Significant Room for Growth Remains Limited by Government Regulations

These four challenges are significant, but there are a number of opportunities that present themselves alongside them. A year and a half into the legalization of edibles, cannabis companies are getting a better picture of what Canadian consumers want and low dosages are proving to be desirable for Canadian consumers in some areas.

Some of the many infused products on the market today

In particular, sales of cannabinoid-infused beverages far outpaced other edibles categories last year, likely tied to the availability of these products in stores over the summer of 2020. BDSA’s research has shown that, in contrast with American consumers, the lower THC dosage for cannabis beverages is an advantage for Canadian consumers. Major alcohol brands like Molson Coors and Constellation Brands are investing heavily in this growing product area – though there the dosage limits also apply to how many products a consumer can buy at a time.

At the same time, the large quantity of unsold cannabis flower sitting in storage also poses an opportunity. While its quality as a smokeable product may have degraded, this biomass can be repurposed into extracts and edibles. Health Canada has also shown some responsiveness to industry needs when it shifted its stance to allow for Modified Atmosphere Packaging (MAP), which will help improve shelf life of products.

While strict regulatory obstacles remain, challenges will continue to outweigh opportunities and the illicit market will remain a strong player in the edibles market. As regulations become clearer and producers become more accustomed to navigating the legal space, barriers to entry into the regulated cannabis market and specifically the extracts and edibles market, will decrease. Meanwhile, those getting into the edibles market will do well to be wary of the challenges ahead.

June 9, 2021

How Effective is Your Internal Auditing Program?

By David Vaillencourt

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The word “audit” evokes various emotions depending on your role in an organization and the context of the audit. While most are familiar with and loathe the IRS’s potential for a tax audit, the audits we are going to discuss today are (or should be) welcomed – proactive internal quality audits. A softer term that is also acceptable is “self-assessment.” These are independent assessments conducted to determine how effective an organization’s risk management, processes and general governance is.

“How do you know where you’re going if you don’t know where you’ve been” – Maya Angelou

Internal quality audits are critical to ensuring the safety of products, workers, consumers and the environment. When planned and performed periodically, these audits provide credible, consistent and objective evidence to inform the organization of its risks, weaknesses and opportunities for improvement. Ask yourself the question: do your clients/vendors rely on you to produce reliable, consistent and safe products? Assuming the answer is yes, what confidence do you have, and where is the documented evidence to support it?

Compliance units within cannabis businesses are typically responsible for ensuring a business stays legally compliant with state and federal regulations. This level of minimum compliance is critical to prevent fines and ensure licenses are not revoked. However, compliance audits rarely include fundamental components that leave cannabis operators exposed to many unnecessary risks.

As a producer of medical and adult-use products that are ingested, inhaled or consumed in other forms by our friends, family and neighbors, how can you be sure that these products are produced safely and consistently? Are you confident that the legal requirements mandated by your state cannabis control board are sufficient? Judging by the number of recalls and frustrations voiced by the industry regarding the myriad of regulations, I would bet the answer is no.

What questions do internal audits address? Some examples include:

Are you operating as management intends?
How effective is your system in meeting specified objectives? These objectives could include quality metrics of your products, on-time delivery rates and other client/customer satisfaction metrics.
Are there opportunities to improve?
Are you doing what you say you do (in your SOPs), and do you have the recorded evidence (records) to prove it?
Are you meeting the requirements of all applicable government regulations?

There are potential drawbacks to internal audits. For one, as impartiality is essential in internal audits, it may be challenging to identify an impartial internal auditor in a small operation. If your team always feels like it is in firefighting mode, it may feel like a luxury to take the time to pull members out of their day-to-day duties and disrupt ongoing operations for an audit. Some fear that as internal assessments are meant to be more thorough than external assessments, a laundry list of to-do items may be uncovered due to the audit. But, these self-assessments often uncover issues that have resulted in operational efficiencies in the first place. This resulting “laundry list” then affords a proactive tool to implement corrective actions in an organized manner that can prevent the recurrence of major issues, as well as prevent new issues. The benefits of internal audits outweigh the drawbacks; not to mention, conducting internal audits is required by nearly every globally-recognized program, both voluntary (e.g. ISO 9001 or ASTM Internationals’s Cannabis Certification Program) and government required programs such as 21 CFR 211 for Pharmaceuticals.

Internal Auditing is a catalyst for improving an organization’s effectiveness and efficiency by providing insight and recommendations based on analyses and assessments of data and business processes. Additional benefits of internal audits include giving your organization the means to:

Ensure compliance to the requirements of internal, international and industry standards as well as regulations and customer requirements
Determine the effectiveness of the implemented system in meeting specified objectives (quality, environmental, financial)
Explore opportunities for improvement
Meet statutory and regulatory requirements
Provide feedback to Top Management
Lower the cost of poor quality

Findings from all audits must be addressed. This is typically done in accordance with a CAPA (Corrective Action Preventive Action) program. To many unfamiliar with Quality Management Systems, this may be a new term. As of Jan 1, 2021, this is now a requirement for all cannabis licensed operators in Colorado. Many other states require a CAPA program or similar. Continuing education units (CEUs) are available through ASTM International’s CAPA training program, which was developed specifically for the cannabis industry.

Examples of common audit findings that require CAPAs include:

Calibration – Production and test equipment must be calibrated to ensure they provide accurate and repeatable results.
Document and record control – Documents and records need to be readily accessible but protected from unintended use.
Supplier management – Most standards have various requirements for supplier management that may include auditing suppliers, monitoring supplier performance, only using suppliers certified to specific standards, etc.
Internal audits – Believe it or not, since internal audits are required by many programs, it’s not uncommon to have a finding related to internal audits! Findings from an internal audit can include not conducting audits on schedule, not addressing audit findings or not having a properly qualified internal auditor. Are you looking for more guidance? Last year, members of ASTM International’s D37 Committee on Cannabis approved a Standard Guide for Cannabis and Hemp Operation Compliance Audits, ASTM D8308-21.

If you are still on the fence about the value of an internal audit, given the option of an inspector uncovering a non-conformance or your own team discovering and then correcting it, which would you prefer? With fines easily exceeding $100,000 by many cannabis enforcement units, the answer should be clear. Internal audits are a valuable tool that should not be feared.

June 8, 2021

Flower-Side Chats Part 6: A Q&A with Fabian Monaco, CEO of Gage Cannabis

By Aaron Green

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In this “Flower-Side Chats” series of articles, Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses integrate innovative practices in order to navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

The Michigan cannabis market is making pace with big time cannabis players like California (#1) and Colorado (#2). For the first quarter of 2021, combined cannabis sales in Michigan were nearly $360 million. At that pace, Michigan could see combined sales of $1.4 billion — well outpacing 2020 sales of $984 million.

Gage is the exclusive cultivator and retailer of world-leading cannabis brands including Cookies, Lemonnade, Runtz, Grandiflora, SLANG Worldwide, OG Raskal, and its own proprietary Gage brand portfolio in Michigan. The company recently secured a $50M investment in an oversubscribed round which included a $20M investment from JW Asset Management.

We spoke with Fabian Monaco, CEO of Gage Cannabis. Fabian started Gage in 2017 after meeting his operating partners in Michigan. Prior to Gage, Fabian worked as an investment banker racking up a number of firsts in cannabis industry financing and M&A transactions.

Aaron Green: Tell me how you got involved in the cannabis industry.

Fabian Monaco: My background is in investment banking – specifically 10 years of capital market experience. I was fortunate enough to be part of the initial team that brought Tweed, now Canopy Growth public. In fact, I worked on a lot of firsts in the industry: the first acquisition, the first $100 million financing, the first IPO in the space. Shortly after that, I went to XIB Financial, which co-founded Canopy Rivers with Canopy Growth. I was working on that when I encountered these two phenomenal operators. At the time, I had visited over 100 of these cultivation facilities and these were some of the best operators in the business. So that led me to start Gage in 2017.

Green: Where is Gage currently operating?

Monaco: In the U.S., we are purely operating in Michigan. We do have a licensing agreement with a small producer in Canada, so you will see the brand there.

Green: Tell me about your choice to settle the company in Michigan initially?

Monaco: If you look at Michigan as a historical cannabis market, it was the second largest cannabis market from a medical card holder standpoint for nearly a decade, only behind California. This was probably the case until 2019, where they went to adult use. So, for us, we knew this medical base was going to be a great platform to an outsized adult-use market. And already we see that April was $154 million in sales, adding up to over a $1.8 billion dollar run rate. That’s the third highest run rate in the country, only behind California and Colorado.

Green: What is it that makes Michigan different? You talked about medical cannabis already. Is there anything else about the demographics in Michigan or the consumer base that makes Michigan special in that sense?

Monaco: In Michigan, over 70% of the population is old enough to consume. So, when you take a look at how much of the population is 21-years-old plus, relative to other markets, the total addressable market in Michigan is just huge. Then when you take a look at their consumption habits, especially when it comes to flower, Michigan is consuming some of the highest amounts on a per capita basis. Those two stats set up a scenario where we foresaw the potential of the market. To be honest, the market has exceeded our expectations. We didn’t think it would be this strong this quickly. Right now, the state is looking to be a $3 billion market by 2024 – and it could easily surpass that.

Green: Any plans for expansion beyond Michigan?

Monaco: We’ve been to eight or so different states in the past 60 or 75 days really trying to educate ourselves on the licensing structure, the markets there and the key players in those respective markets. What are some of the costs, in terms of acquisitions? We really want to branch out the Gage brand into other states across the US. The thing is, we believe in the model that Trulieve deployed. They really focus on being the number one player in a very, very big market. For instance, Trulieve is obviously one of the top players in Florida. We’re trying to mimic that strategy.

Trulieve is a dominant market force in Florida

Once we have that deep market penetration, that market share, then we’ll start to get into other states. But for now, why would you want to go and rush out to another state when you’re already in the third largest market in the country?

Green: Are there any criteria you look for in a potential expansion state?

Monaco: We look at consumption habits. We want states with similar demographics to Michigan. Close proximity states also allows us to quickly go from one state to the other without having to take a multi-hour flight to get there. States we’re considering are Northeast and Midwest states, like Illinois, Pennsylvania, Ohio, New Jersey, Massachusetts and Maryland.

Green: What kind of consumer trends are you seeing in Michigan as it relates to products?

Monaco: Flower continues to dominate. In a market like Michigan, we have some of the top flower consumers in the country on a per capita basis. We specialize in flower and flower only, so this created a perfect scenario where we are able to ramp up our brand quite quickly, from a flower standpoint.

Now that we have that brand equity, that brand power, we are going to potentially delve into other categories, including extract-based products, such as vape carts and concentrates. You hear talk about these new beverages, but we’re not seeing that take off in this market as much as people think it would. Flower still remains at the top and that’s something we highly anticipate going after for quite some time.

Green: Can you tell me about your vertical integration strategy?

Monaco: We’re one of the larger retail portfolios in Michigan right now. We have 13 locations. Nine are operational. So, we’re really in a great spot overall in terms of how big of a platform we do have – one of the larger ones – and, frankly, in one of the larger markets in the country.

The Cookies flagship dispensary in Detroit, Michigan

We actually have a little bit of a unique scenario on the cultivation side of things. We have our own three cultivation assets that are going to be producing, on average, about 1,000 pounds of product over the next couple of months as they fully ramp up. We’ve actually contracted out a lot of our cultivation. Cultivation is time consuming, and it’s also very, very costly to build out. Luckily for us, we’re a really well-established and strong brand. We had the opportunity to contract out our growing. So, we have 10 different contract growth partners. These are phenomenal cultivators, again, some of the best in the state. They grow Gage and Cookies branded product for us. We have a great breakdown from a financial standpoint. We share the retail revenue with them on a 50/50 basis. They pay a little bit too, for packaging and testing. So, basically for $0 we’re getting product on the shelf where we’re achieving 50% plus gross margins. It’s a phenomenal setup for us on the cultivation side where we went from two cultivation assets in the latter half of last year to now eight different cultivation assets, moving to 13 by the end of the year.

On the processing side, we’re just actually finishing our processing lab. We should have extract-based products launched in Q3. We’re really excited to have our own line of extract-based products. We plan to focus on vape carts to start – a very popular category in Michigan on the retail side of things.

Green: Are those cultivations all indoor?

Monaco: Yes, we’re big proponents of indoor flower. It allows us to control the quality of our flavors and consistency in our strains when we grow indoors. From our consumers, there is a very strong demand for indoor grown high-premium, high-quality products.

Green: What sets Gage apart from other competitors in Michigan?

Monaco: I think focus. We just focused on our flower. We focus on our post-production process. We hang dry everything, we hand trim everything, and we hand package everything. That’s a little bit more time consuming. It’s a little more costly. But all that effort shows in the end product which is key.

A lot of people think you can grow great quality product, you cut it down, you dry it and put it in the pack and it’s going to be great. You really need a strong attention to detail, especially in a big consuming market like Michigan, because again, they are a refined consumer. They’re looking for the best. They’ve already been consuming some of the best quality products in the country for many years now. So for us, we put a painstaking process in place for flower production, not only from the growing standpoint, but also through the end of that post production process.

Ancillary to our cultivation process is also consistently providing new varieties of flavors on the flower side of things to the consumers. When you look at the successful brands in California, what makes them special is that they’re consistently pheno hunting, coming out with new flavors. This is similar to the wine industry where the best wineries come out with a new kind of grape or mix and consumers get excited, they rush out and buy half a dozen bottles or a dozen bottles.

It’s a very similar scenario in the cannabis industry. I hate when people say that cannabis is a commoditized industry. It’s so far from the truth. You look at brands like us or Cookies, Jungle Boyz and you can see their constant innovation, their constant drive. They are always bringing something new for the consumers to try. That’s what really sets apart the best brands.

Green: What’s got your attention in the cannabis industry? What are you interested in learning more about?

Monaco: I’m always intrigued with new ways of consuming. Across the U.S. and well-developed markets like California and Colorado, you see all these interesting new ways to consume the product. You’ve got patches, sublingual strips, etc. There are so many unique ways. I am currently seeing how they play out. Are they fads? Do people get excited about them initially, and then go back to their vape carts, pens and typically dried flower pre-rolls? I’m always trying to educate myself to see what’s on the market. What’s new? Who has a new drink? How does it hit? Are people excited about it?

Also, I am constantly learning about new brands that come out. There are so many new small brands that don’t necessarily have the scale or the capital to really expand, but are producing some of the best products in the country in a cool, unique form of packaging, etc..

Green: Alright, great. That concludes the interview!

Monaco: Thanks, Aaron.

June 2, 2021

Mark Your Calendars: The Cannabis Extraction Virtual Conference

By Cannabis Industry Journal Staff

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On June 29, 2021, Cannabis Industry Journal is hosting the Cannabis Extraction Virtual Conference. From Noon to 5 pm EST, you’ll get access to five veterans of the extraction market discussing a variety of topics related to the ins and outs of extracting cannabis and hemp.

Hear from subject matter experts who will share their perspectives on cannabis and hemp extraction, supercritical CO2 extraction, post-processing, risk management, hazards and controls, optimization, closed loop hydrocarbon extraction, machine learning algorithms and more.

Alex Hearding, Chief Risk Management Officer at the National Cannabis Risk Management Association (NCRMA) will kick things off with a session exploring the Hazards and Controls of Extraction with Liquified Petroleum Gases. Dr. Markus Roggen, Founder & CEO of Complex Biotech Discovery Ventures, will follow that up with a discussion surrounding the kinetics and thermodynamics of cannabis extraction.

Other talks from the Cannabis Extraction Virtual Conference include:

The Quest to Discover the Limits of CO2 Extraction
- Jeremy Diehl, co-founder & CTO of Green Mill Supercritical
The Future of Cannabis Concentrates: Developments in Hydrocarbon Extraction and Manufacturing
- Michelle Sprawls, Laboratory Director at CULTA
Process Scale Up in the Cannabis/Hemp Industry
- Darwin Millard, Committee ViceChair on ASTM International’s D37.04 on Processing & Handling of Cannabis

You can check out the agenda in its entirety and register here. Attendees will have the opportunity to ask speakers questions during the live Q&A session that follows each session. Registration is complimentary. For sponsorship opportunities, contact RJ Palermo at Rj@innovativepublishing.net

May 27, 2021

Challenges with Process Scale Up in Cannabis/Hemp Extraction

By Darwin Millard

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What makes scaling up your process so difficult?

There are many factors that can lead to the challenges people face when scaling up their processes. These challenges are not unique to the cannabis/hemp industry, but they are exacerbated by the consequences generated from decades of Reefer Madness. In my time operating in the cannabis/hemp space, 15+ years, I have seen established equipment vendors and sellers of laboratory supplies, like Sigma-Aldrich (now Millipore-Sigma), Fisher-Scientific, Cerilliant, Agilent, and others, go from reporting individuals inquiring about certified reference materials to setting up entire divisions of their companies to service the needs of the industry. Progress. But we are still a fledgling marketplace facing many challenges. Let’s look at a few specific to process scale up.

Darwin Millard will deliver a presentation on this topic during the Cannabis Extraction Virtual Conference on June 29. Click here to learn more.Equipment Availability: Lack of available equipment at larger and larger process scales can severely impact project timelines. Making not only equipment acquisition difficult, but also limiting the number of reputable equipment manufacturers you can work with.

Non-Linear Expansion: NEVER assume your process scales linearly. Perhaps one of the most avoidable mistakes during process scale up. You will quickly find that for many processes you cannot just put in a larger unit and expect a proportional increase in output. This is because as process equipment increases so to must utilities and other supporting infrastructure, but not only that, process vessel geometry, proportions, and design are contributing factors to process efficiency as your scale of operations increases.

Hazardous Material Quantities: Just as important to the process as the equipment are the solvents and reagents used. As your scale of operations increases so does your demand and production of hazardous materials; solvents including carbon dioxide (CO2), ethanol, and liquid petroleum gases (LPG) like Butane and Propane are obvious hazards, but so too are the refrigerants used in the chillers, fuels used to power generators, steam created to heat critical systems, and effluents and wastewater discharged from the process and supporting systems. Not every municipality wants thousands of gallons of flammable substances and hazardous waste being generated in their backyard…

Contractor/Vendor Misrepresentation: Finding out in the middle of you project that your contractor or equipment vendor has never set up a system at this scale before is never a good feeling. Unfortunately, contractor and vendor misrepresentation of qualifications is a common occurrence in the cannabis/hemp space.

If all this was not bad enough, all too often the consequences of improper planning and execution are not felt until your project is delayed or jeopardized due to misallocation of funds or undercapitalization. This is especially true when scaling up your production capacity. Now let’s look at some ways to avoid these mistakes.

The Rule of 10

Construction drawings for a piece of process equipment.

When scaling up your process, NEVER assume that a simple linear expansion of your process train will be sufficient. It is often the case that process scale up is non-linear. Using the Rule of 10 is one way of scaling up your process through a stepwise iterative approach. The Rule of 10 is best explained through an example: Say you are performing a bench-top extraction of a few grams and want to scale that up to a few thousand kilograms. Before jumping all the way to your final process scale, start by taking a smaller jump and only increase your bench-top process by a factor of 10 at a time. So, if you were happy and confident with your results at the tens of grams scale, perform the same process at the hundreds of grams scale, then the thousands of grams scale, tens of kilograms scale, and so forth until you have validated your process at the scale of operations you want to achieve. By using the Rule of 10 you can be assured that your process will achieve the same yields/results at larger and larger scales of operation.

Scaling up your process through an iterative approach allows you to identify process issues that otherwise would not have been identified. These can include (but by no means should be considered an exhaustive list) improper heat transfer as process vessels increase in size, the inability to maintain process parameters due to inadequately sized utilities and/or supporting infrastructure, and lower yields than expected even though previous iterations were successful. However, this type of approach can be expensive, especially when considering custom process equipment, and not every processor in the cannabis/hemp space is going to be in the position to use tools like the Rule of 10 and instead must rely on claims made by the equipment vendor or manufacture when scaling up their process.

The Cannabis/Hemp Specific Process Equipment Trap

How many times have you heard this one before: “We have a piece of process equipment tailor-made to perform X,Y,Z task.”? If you have been around as long as I have in the cannabis/hemp space, probably quite a few times. A huge red flag when considering equipment for your expansion project!

Unless the equipment manufacturer is directly working with cannabis/hemp raw materials, or with partners who process these items, during product development, there is no way they could have verified the equipment will work for its purported use.

A good example of this are ethanol evaporation systems. Most manufacturers of evaporators do not work with the volumes of ethanol they claim their systems can recover. So how did they come up with the evaporation rate? Short answer – Thermodynamics, Heat Transfer, and Fluid Mechanics. They modeled it. This much surface area, plus this much heat/energy, with this much pressure (or lack thereof), using this type of fluid, moving through this type of material, at this rate of speed, gets you a 1000-gal/hr evaporator or some other theoretical value. But what is the real rate once an ethanol and cannabis/hemp solution is running through the system?

For a straight ethanol system, the theoretical models and experimental models are pretty similar – namely because humans like alcohol – extensive real-world data for ethanol systems exist for reference in designing ethanol evaporators (more accurately described as distillation systems, i.e. stills). The same cannot be said for ethanol and cannabis/hemp extract systems. While it is true that many botanical and ethanol systems have been modeled, both theoretically and experimentally, due to prohibition, data for cannabis/hemp and ethanol systems are lacking and the data that do exist are primarily limited to bench-top and laboratory scale scenarios.

So, will that 1000-gal/hr evaporator hit 1000-gal/hr once it is running under load? That’s the real question and why utilizing equipment with established performance qualifications is critical to a successful process scale up when having to rely on the claims of a vendor or equipment manufacturer. Except this is yet another “catch 22”, since the installation, operational, and performance qualification process is an expensive endeavor only a few equipment manufacturers servicing the cannabis/hemp market have done. I am not saying there aren’t any reputable equipment vendors out there; there are, but always ask for data validating their claims and perform a vendor qualification before you drop seven figures on a piece of process equipment on the word of a salesperson.

Important Takeaways

Improper design and insufficient data regarding process efficiencies on larger and larger scales of manufacturing can lead to costly mistakes which can prevent projects from ever getting off the ground.

Each aspect of the manufacturing process must be considered individually when scaling your process train because each element will contribute to the system’s output, either in a limiting or expansive capacity.

I go further into this topic in my presentation: Challenges with Process Scale Up in the Cannabis/Hemp Industry, later this month during Cannabis Industry Journal’s Extraction Virtual Conference on June 29^th, 2021. Here I will provide real-world examples of the consequences of improper process scale up and the significance of equipment specifications, certifications, and inspections, and the importance of vendor qualifications and the true cost of improper design specifications. I hope to see you all there.

Until then. Live long and process.

May 17, 2021

The New Delta 8 THC Market: A Q&A with the Founders of DeltaVera

By Cannabis Industry Journal Staff

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Delta 8 THC (delta-8-tetrahydrocannabinol) sprung onto the scene late last year in a big way. While similar to the much more widely-known delta-9-tetrahydrocannabinol that produces a lot of the psychoactive effects associated with ingesting cannabis, delta 8 THC can be derived from hemp with less than 0.3% delta 9 THC. Given the legality of hemp-derived products following the 2018 Farm Bill, delta 8 THC can be produced in some states where delta 9 THC still remains illegal.

While delta 8 is considerably different in its psychoactive effects from its cousin, it does overlap in some ways. It can still produce some more manageable, less “heady” versions of delta 9’s effects like euphoria and relief found in the many medical applications of cannabis. DeltaVera, a company that launched less than six months ago, aims to share that more manageable THC experience with the masses.

The sharp rise of the delta 8 market means that DeltaVera is poised for growth. With distribution contracts inked, exciting partnerships in the works and a large surge in consumer demand, the founders of DeltaVera are at the ready to capitalize on this lesser-known molecule and bring it to the forefront of the nascent hemp industry. Starting out as a small family business, Sam and Craig Andrus launched DeltaVera with their third founder, PK Isacs.

We sat down with Sam Andrus and PK Isacs, two of the founders of DeltaVera, an award-winning brand, to ask them about their plans for expanding, how they became entrepreneurs and why they think delta 8 is the next big thing in cannabis.

Cannabis Industry Journal: Tell me about your company. How did you get started in the cannabis space?

Sam Andrus: I had an early start in the Delta 8 THC industry on the sales side. We knew we wanted to get into the market, but observed a number of aspects in the space that needed to be addressed: the most important being quality control, transparency and brand trust. With this as a backdrop we launched DeltaVera. Highly curated, approachable, transparent and value-oriented with a strong focus on reliability and trust. The DeltaVera family is made up of three operating managers and the sales team. We are three founders with complementary skill sets: Craig, who has domain expertise in finance, governance and startups, PK who has experience in business and marketing and my sales experience round out the management team.

We have yet to solicit outside capital and have funded ourselves internally as we create our brand and refine our product offering. That said, we are seeing numerous opportunities in strategic partnerships and expansion, which will require additional capital. And we are excited to start this expansion process.

CIJ: What makes the Delta 8 space so remarkable? Why are your SKUs primarily formulated with Delta 8?

Sam Andrus & PK Isacs: Delta 8 THC is an alternative/complement to delta 9 THC, CBD and other cannabinoids. Its status as non-federally scheduled and its less potent psychoactive effects make it appealing in its own right. Delta 8 THC can help with healthier sleep patterns and with pain management in a way that CBD can’t, without a strong “head high” that many of our customers like to avoid. Additionally, it’s shorter lived and doesn’t give you any negative residual effects, which makes it beneficial for people on tighter schedules. These factors make it easier for us to approach markets that are inaccessible to both delta 9 THC and CBD, such as older demographics. In a world where delta 9 is legal, there will still be a place for delta 8.

While we are very proud of our suite of smokable products, we are currently focusing our efforts on edibles: our Delta Discs are our mainstay, though we are expanding our product line to include nano-emulsion products such as liquid shots and nano gummies. They strongly appeal to our target demographics; additionally, the edible market is growing very quickly in states that allow the sale of hemp-derived consumables.

CIJ: Continuing on the delta 8 front – right now it is considered a cannabinoid legal for interstate commerce, much like CBD, correct? Do you think that will change?

Sam & PK: That is currently the case. Delta 8 THC is newer, and as such, it has even more ambiguity in regards to its legal future. But what’s most exciting (and our most challenging task right now), is informing consumers about the benefits of delta 8. We are one of a few companies solely focused on the consumption of delta 8, because of its similar benefits to delta 9 and CBD – our products are the perfect happy medium: a high with less psychoactive effects and all the health benefits of both, making it a desirable alternative to all consumers.

In addition, we are looking at some combinations of delta 8/CBDA, delta 8/CBN, delta 8/THCV and are very excited to begin test marketing these combinations. These proprietary blends of minor/major cannabinoids can cater to a niche target demographic as they can be curated to have very specific and unique effects when combined in the right quantities with the right delivery system. They will also be able to serve a larger customer base as these cannabinoids can all be derived from hemp.

CIJ: How do you think the FDA would regulate your product? Do you welcome federal oversight?

Sam & PK: Regardless of whether or not we are regulated we are committed to a high level of transparency and trust. As noted in unregulated markets, like the supplement market, you don’t always know what you are getting in terms of purity and potency. We are changing that paradigm by adding unique QR codes to our sustainable containers which reference COAs [certificates of analyses] specific to the contents of the case. A lot of the space is naturally trying to avoid that kind of regulatory interference, but we are currently doing our best to self-regulate and make sure that our consumers are fully informed about what they’re receiving.

We will be the first to say that there aren’t as many laws governing delta 8 THC as there could be, and that’s why we’ve spent so much time and money on self-regulation. All of our products have very clear nutritional information in addition to test results down to one hundredth of one percent. As for what category these products should fall under: we have a wide range of products, and each one has its place under a different umbrella of regulation. We hope that the federal government will take advantage of the vast array of studies that have been conducted on delta 8 THC since it was first extracted in 1942 to step up to this product that is, in our experience, helping so many people.

CIJ: Tell me about how your business has grown so far.

Sam & PK: When we sell to a retailer, we try to provide them with as much material as possible on what delta 8 THC is and what differentiates DeltaVera’s products. Still, we’ve had some difficulty in places with limited delta 8 THC exposure. That being said, when someone tries our product, there is a high likelihood that they become a repeat customer (and they tell their friends). Given our newness to the market (Our brand launched in January 2021) initial indications are – we have a good rate of repeat orders, and we’ve heard the same from our brick-and-mortar partners.

Our distribution network has grown tremendously; we’ve taken a three-pronged approach to distribution: partnerships with like-minded companies in compatible spaces, an e-commerce market on our website, and a commission-based sales structure to reach brick-and-mortar establishments. To date, most of our distribution takes place in the latter two spaces, due to the added time and commitment involved in forming partnerships. As a company we are taking a more creative approach on how we present our product and alternative ways to consume it. We have some exciting collaborations in the works; follow us on social media to stay up to date with everything on the horizon. We are very enthusiastic about our partnerships however, with our first collaboration with WaxNax, a Denver-based company revolutionizing the cannabis dabbing experience, hitting the shelves this week.

CIJ: What is your marketing plan?

Sam & PK: We are working on building a social media presence. Natalie, who is leading the charge on social media, recommended we take an organic approach to build our base. We want to avoid falling into the “paid ad”, “spam” vibe as long as we can. We are currently focused on building a community through delta 8. Our mission is making DeltaVera a brand for all lifestyles, athletes, creatives, travelers or business professionals. We’re confident in our product, and have faith that it can speak for itself.

CIJ: How do you ensure quality in your products?

Sam & PK: Our products are of guaranteed quality with our licensed growers and manufacturers. We provide COAs, informing the retailer & consumer about each product, displaying full panel tests on cannabinoids and heavy metals. These preliminary and secondary lab tests ensure our product is below 0.3% delta 9 THC in all our products. Through third-party labs, we run full panel tests which pick up a variety of cannabinoids; for most of our products we focus on the level/purity of delta 8. Our products are screened for both contaminants and heavy metals.

All this information is housed conveniently on our website that can be reached through our QR codes.

CIJ: What are your plans to grow the business in the future?

Sam & PK: We feel very confident in our three methods of distribution: partnerships, e-commerce and a commission-based sales structure. We’ve made tremendous ground on partnerships, and are very excited about numerous partnerships we have in the pipeline. We’ve reached out to some incredible groups in the CBD space, the THC space and a few groups that you wouldn’t normally associate with cannabinoids, but with whom we’ve workshopped some really creative ideas that we’re really looking forward to bringing to market.

Readers can use promo code “CIJ” to get 15% off their first order here.