By Serge Chistov

Federal legalization of adult use cannabis is still out there as a potential, but ultimately, there are no guarantees that come with such a move. Further, even with legalization, the state-to-state variations in regulations for everything from cultivation standards to packaging and transportation will make marketing country-wide a difficult proposition for most cannabis businesses. The businesses that will grow and thrive will be ones that embrace trends and opportunities that are on the horizon for 2022 and beyond.

Economic resilience even in challenging times
Large scale companies are dealing with the issue of state-to-state differences in regulations by building branded verticals in each state: from growing to packaging, as well as building stores, in order to avoid the issue altogether. It’s an expensive proposition that is out of reach for the smaller entrepreneur, but it creates an almost regulation-proof setup for these organizations.

One interesting trend that would never have been as clear if the pandemic had not occurred is that cannabis is being generally viewed as a recession-proof industry. The pandemic has put the same types of constraints on consumer activity as a recession does and the results are clear: people are still interested, perhaps more so, in cannabis-related products and will choose to continue using them, even in times of restraint.

This economic resilience has also encouraged the growth of investment opportunities in the cannabis industry. ETFs (exchange-traded funds) that cover the industry are growing in number, as more cannabis related businesses grow in size and go public.

While banking through traditional institutions will continue to be difficult for cannabis businesses, pending federal legalization, there is a lot of money being funneled into the industry, through venture capital and angel investments. There is no question that it is still a growth industry now, and into the next decade.

Technological advancements
Now more than ever, cannabis has gone mainstream. The medical uses for it in terms of stress reduction, mental health and so on, have built up markets that might have otherwise looked to more traditional pharmaceutical options. There is an interesting portion of this new mainstream market that is interested in the therapeutic effects of cannabis but not in the traditional consumption method of smoking. In addition to wanting to avoid inhaling smoke, this same section of the market is acutely aware of what they put into their bodies and what impacts their choices have on the environment at large. The result? Organic, ethically sourced and developed cannabis products are becoming more and more the norm.

Some of the many infused products on the market today.

Products that include oils, tinctures, topicals and edibles are all within the scope of what the discerning cannabis consumer is looking for. The only downfall for many of these types of products, versus a smokable, is the effectiveness of the THC. For example, edibles can take upwards of an hour to produce any psychoactive effects. That limits the function of these types of products, so the next generation of these requires technological innovation to find a solution to that limitation, such as nano emulsions.

For example, we have innovated by leveraging technology that reduces THC particles to a nano size and creates a barrier around the particle so that they can be absorbed into the bloodstream, bypassing the neutralizing effects of the digestive system. This effectively creates edibles that produce a high that is comparable to what can be obtained by smoking a joint, therefore solving the issue that edibles have had in the past.

Multinational growth opportunities
With the inability to export from the US to other growing markets, there is the opportunity for cannabis companies to expand as multinationals. Growing and marketing cannabis products elsewhere and exporting to other countries that will accept the imports, is a big opportunity. To use an existing example, Uganda has established a government sponsored program to produce and export medical cannabis to Germany. This is an important change that has other countries in particular watching to see how this evolves. Certainly, from the point of view of local economic development, it’s too good an option to ignore.

We are partnering with a chain of medical clinics in Tanzania—“Your Local Clinic”—to provide local medical practitioners with the ability to prescribe medical cannabis, once legalization is realized. This is the first step in a longer term plan that will allow us to build up legal exports to Europe.

Export to the European Union (EU) is expected to grow dramatically by 2025, leaving plenty of expansion opportunities for US companies to take their growing practices, as well as available technology for irrigation, to the next level, via Africa and potentially even Latin America.

October 20, 2021

Technological Evolution of the Cannabis Industry

By Serge Chistov

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Discussions about the evolution of the cannabis industry are often focused on the legalization of adult use and medical cannabis, the growth of the business models associated with the industry and so on. An interesting corollary to those discussions is how technology is impacting the evolution of this growth industry.

It’s no longer just a question of growing some buds and offering up a high, with little thought as to product, packaging, marketing or the end consumer. Technology has changed the way cannabis is being commodified, and that’s a good thing. After all, with more and more states making adult use legal, creating products that appeal to a wider market and demographic is in part accomplished thanks to tech.

From the growth stage

Few growers are using outdoor facilities, where the elements cannot be controlled. Until recently, indoor growers ran into issues like simulating natural light to a level that would be of maximum benefit to the plants. The amount of lighting required to be effective was very expensive to maintain in terms of electricity consumption, but that is changing.

Then LEDs came on the scene: high quality, low heat light with a far larger and more natural spectrum, versus blue and red light frequencies that are available in standard bulbs. Using far less electricity and emitting less heat, therefore requiring less need for additional air cooling, as well as longer bulb life spans, LEDs have become an industry standard.

Beyond the plant

LED lights use less energy and omit less heat than other more traditional options

As with any agricultural product, the important work is in growing the plants but thanks to technology, producers and manufacturers can now offer their customers a much wider array of products than buds for smoking. Edibles, vapes, oils, capsules and even creams are all products of technology influencing change in the cannabis industry. For consumers who aren’t interested in smoking directly, these offer promising options.

The issue consumers have often had with edibles has been the lag time from consumption to high, as the THC has to pass through the digestive system, which takes upwards of an hour, and reduces the effectiveness of the dosage as some just doesn’t make it to the bloodstream. Technology has led to the creation of a method for making non-smokable forms of cannabis just as effective as a direct to the lungs hit of a joint: nanoencapsulation.

The point of nanoencapsulation is to reduce the size of the cannabinoid to a nano size and protect it—the encapsulation part of the equation—so that it becomes soluble in water, or in the body which is 75% water. The ability to bypass the digestive system and the gastric fluids that impact the effectiveness of an edible, and get it through the stomach walls to the bloodstream, means that nanoencapsulated formulations can have the virtually the same “time to a high” effects as a joint, without the need to inhale smoke.

It’s now possible for consumers to quantify exactly how much THC they are consuming, allowing for new and different consumption styles, including micro-dosing. Finding the right “dosage” for each individual—as everyone responds differently to cannabinoids—isn’t a simple task but newer technology is setting up a path to personalization that will make it easier.

Personalization

Imagine being able to take a test that would allow you to determine the perfect balance of THC and CBD dosage, as well as the right strain of cannabis, to create the desired effect. Whether that’s a reduction of anxiety, improved sleep or the psychoactive high that cannabis is known for, technology is leading the path to ending the guessing games as to dosage and blending of different cannabinoids.

A perfect example of this is CannabisDNA, a saliva-based swab test that evaluates over 70 of an individual’s genetic markers to establish what strains and dosages are most compatible with that person’s physiology. It’s a matter of time before this technology becomes more readily available and consumers will be able to obtain a range of products created with their personalized profile in mind.

In addition to matching cannabis to an individual’s DNA, there are efforts to decode the DNA of the various strains of cannabis, to better clarify important elements like THC, CBD and other cannabinoids like CBC. This last and far more rare cannabinoid has been associated with very strong anti-inflammatory reactions. This kind of deconstruction of cannabinoids at the DNA level will make it easier for producers and manufacturers to create products that address specific needs, both medical and recreational.

Purchasing power

Boutique dispensaries are popping up to make the more mainstream consumer comfortable. And thanks in part to the recent pandemic, online purchasing has jumped, with apps and websites being developed for purchasing and shipping just the right product, any time.

Ads for CBD products online regularly perform very well

As has occurred in other areas of agriculture, there is a push towards transparency on product provenance and growth methods, so that the end consumer can make choices about what they are putting into their bodies, with as much information as possible. Field to dispensary tracking is on the table as a method to keep consumers educated and informed, which ultimately improves the connection between producers and consumers.

Add to these ideas the fact that there are serious improvements in packaging being developed, which allow buds to remain fresh and full of flavor by eliminating light, air and moisture, while still remaining child proof. This is all part of the evolution of the cannabis industry, with a view to keeping customers happy and interested in the product.

Technology within the cannabis industry isn’t an end in itself: after all, the most important part of the effort is the growth of the plants themselves. But technology can change the evolution of the industry in ways that make it more interesting for everyone, from the grower, to the manufacturer of products, the dispensary owner and the consumer as well.

April 9, 2021

Soapbox

A Look at the Rise Of The East Coast Cannabis Market

By Serge Chistov

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The rise of the East Coast cannabis market gained another foothold in late March 2021 when New York became the most recent state to legalize adult use cannabis, joining ranks with other Atlantic stalwarts, including New Jersey, Maine, Massachusetts, Vermont, Virginia and Washington, D.C.

In doing so, it opened the door to an industry that many experts agree could exceed $7 billion annually, once the market is fully established. That’s potential the cannabis market hasn’t seen since Washington became the first Pacific state to legalize adult use cannabis, almost 10 years ago (followed shortly after by Colorado, then Oregon in 2014 and California in 2016).

Unfortunately, the leaders of this great country have yet to follow suit, and cannabis remains illegal at the federal level. For those in the cannabis market, this means that state-licensed cannabis businesses must cultivate and sell their products within the confines of the state in which they are licensed. Nothing can cross state lines. Even if a business is licensed in both Vermont and New York, it can’t ship product from one state to the other without running afoul of federal legislation. Most in the East Coast cannabis market view this as a negative.

Virginia became the first state in the South to legalize adult use cannabis

While it certainly makes things more difficult, a small group of forward-thinking investors and entrepreneurs see this for what it really is: an opportunity to get in on the ground floor and establish state-specific grow operations and other supply-chain waypoints, where none or few currently exist. Think of the current state of the East Coast cannabis market as a beachhead. Right now, the industry is defined by state lines. But when the federal government finally legalizes adult use cannabis from coast to coast—and it’s only a matter of time before it does—those state lines will essentially disappear. When they do, the beachheads established now will become the infrastructure for the entire Eastern seaboard.

Take Virginia, for example. It shares its border with five states that have legalized medical cannabis but have yet to cross the bridge into adult use sales (West Virginia, Maryland, Kentucky, Tennessee and North Carolina). A Virginia-based grow operation built now has the potential to serve not just those five states but other contiguous markets including Pennsylvania, Ohio, South Carolina, and even Alabama, Georgia and Indiana. A relatively small investment now could pay huge dividends in just a few years, when the market literally blows wide open.

It’s this incredible potential that makes the rise of the East Coast cannabis market one of the most important developments in the last five years. And while the potential scale of grow operations and other cannabis businesses is certainly essential to the conversation, let’s not forget that “niche products” within the East Coast cannabis market are still very much up for grabs.

If the past decade has taught us anything, it’s that consumers are willing to pay a premium for high-quality, organically grown cannabis. Both new and long-time cannabis enthusiasts will choose — even demand — high-quality, organically grown cannabis that looks, smells and tastes fresh and doesn’t rely on harmful fertilizers, heavy metals or pesticides. They’re also enthusiastic about supporting brands that have a commitment to sustainable, eco-friendly operations.

It’s very much like the current trends we see in the grocery store aisles. Manufacturers and consumers alike are seeing the value of “whole foods.” After decades of relying on heavily processed fare, both suppliers and end-users are benefiting from higher-quality ingredients. Consumers want to know what’s in the stuff they’re putting into their bodies. When it comes to cannabis, they want to know that what they’re taking to alleviate their anxiety doesn’t include harmful chemicals. This demand has the capacity to push revenue even higher.

And when the dam finally breaks and businesses can ship product from state to state, the idea is for growers to be well-positioned geographically to become suppliers of high-quality, organically grown cannabis, for every state east of the Mississippi.

Cannabis businesses in states such as Colorado have had the past decade to prepare for the coming boom, but that doesn’t mean it’s too late to join the party. The rise of the East Coast market parallels what Colorado and the other Pacific states experienced in the early-to-mid teens—the potential to become a very real industry, with huge capacity for growth and profit. Get in on that action now!

The East Coast cannabis market—and, indeed, the entire U.S. market—also sits on the verge of another game-changing trend: following in the footsteps of other markets and realizing sooner rather than later that high-quality, organically grown, eco-friendly cannabis is the next stage of the game. Few investors and entrepreneurs see that right now, but the astute businessperson can capitalize on both trends now and position themselves and their businesses for huge returns in the very near future. The rise of the East Coast cannabis market makes that a very real possibility.

November 18, 2020

Soapbox

The Cannabis Industry, After the Election

By Serge Chistov

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While the 2020 Presidential election didn’t exactly end up in a clear landslide victory for the Democrats, there is one group that did well: the cannabis industry.

The results clearly show that the expansion of cannabis is a recognizable part of today’s society across the United States. States like New Jersey, for example, partly thanks to New York and Pennsylvania—which already allow the use of medical cannabis—traffic will start to force the state of New York’s hand and that’s a big chunk of the population of the Northeast.

If the question of legalization was on the ballot, it was an issue that overwhelmingly succeeded in delivering a clear mandate. Adult use of cannabis passed handily in Arizona, Montana, South Dakota and as mentioned above, New Jersey, and was approved for medical use in Mississippi and South Dakota.

With only 15 states remaining in the union that still outlaw the use of cannabis in any form, the new reality for the industry is here. All of these outcomes show promise as the industry’s recognition is growing.

Election outcomes and the position of the average American on cannabis

Americans are definitely understanding, appreciating and using cannabis more and more. It is becoming a part of everyday life and this election’s results could be the tipping point that normalizes the adult use of cannabis. It is becoming more widely understood as an effective and acceptable means to help manage stress and anxiety, aid in sleep and general overall wellbeing.

Voters in New Jersey overwhelmingly passed their adult use measure

This image of cannabis is aided by the many different forms of consumption that exist now: edibles, transdermal, nano tech, etc. No longer does a consumer have to smoke—which isn’t accepted in many circles—to get the beneficial effects of cannabis.

Knowledge expansion is going to move these products across state lines and eventually, the federal government will have to take notice.

Do Democrats and Republicans view cannabis through the same lens?

Cannabis is and will always be state specific. Republicans in general tend to be a little bit more cautious and there are a lot of pundits who believe that as long as the Republicans control the senate, there isn’t much of a chance for federal legalization.

President-Elect Joe Biden & Vice President-Elect Kamala Harris

There is some hope, however, that the industry will get support from the Biden administration. While President-Elect Biden has been on record as being against legalization of cannabis at a federal level, even he will eventually see that the train has left the station and momentum continues to build. In fact, Biden’s tone has changed considerably while he running for president, adding cannabis decriminalization to the Biden-Harris campaign platform.

Ultimately, how cannabis is viewed from each side of the aisle matters less than how it is viewed at the state level.

Cannabis reform under Biden

Biden had an opportunity to legalize cannabis federally in the U.S. during the Obama administration and it didn’t happen. It’s clear that the mandates of the Biden-Harris administration are going to be overwhelmed by current issues, at least in the beginning: COVID-19, the economy and climate change, to name but three.

What will be interesting is if the Biden-Harris administration goes to greater lengths to decriminalize cannabis. For example, cannabis is still a Schedule 1 drug on the books, which puts it in the same class as heroin. Biden couldn’t unilaterally remove cannabis from all scheduling, but his government could reschedule it to reduce the implications of its use.

This could, however, create more problems than it solves:

“It’s generally understood, then, that rescheduling weed would blow up the marijuana industry’s existing model, of state-licensed businesses that are not pharmacies selling cannabis products, that are not Food and Drug Administration-reviewed and approved, to customers who are not medical patients.

Biden rescheduling cannabis “would only continue the state-federal conflict, and force both state regulators and businesses to completely reconfigure themselves, putting many people out of business and costing states significant time and money,” as Morgan Fox, chief spokesperson for the National Cannabis Industry Association, said in an email on Monday.” (Source)

In reality however, there is little chance that Biden will spend any political capital that he has, particularly if the Senate remains in Republican control, dealing with the legalization of adult use cannabis.

What needs to happen for legalization to become a reality

Outside of the law, if Trump suddenly decided to legalize adult use cannabis before leaving the White House, the states would still need to agree on issues such as possession, transportation, shipment and taxation.

It’s clear that further normalization of cannabis use is required—which will likely take a good couple of years—in order for it to become as understood and as simple as wine, liquor or cigarettes.

Beyond that, it’s Congress that dictated that cannabis be illegal at the federal level and it will have to be Congress that makes the decision to change that. Even the Supreme Court has been reluctant to get involved in the question, believing this to be an issue that should be dealt within the House.

What does all of this mean for investment in the cannabis industry?

Cannabis should be part of most long-term investors’ portfolios. Like a group of stocks in a healthy market with the right balance sheets, cannabis is an expanding industry and growth is there.

Whether or not this is specifically the right time to invest, it’s always important to evaluate each stock or each company individually, from the point of view of the merits of the investment and investment objectives, as well as risk tolerance perspectives.

There isn’t any unique or special place to buy into the cannabis industry, unless it is connected to some new real estate or other opportunity that is COVID-19 related. This moment in time isn’t really any different from any other when it comes to the opportunity to own some cannabis stocks. It’s always a good time.

The short term returns of this market shouldn’t be speculated upon. There are just way more factors than the fundamentals of a company that will affect the short-term play. The country is in a transition of power, in addition to much international change taking place that can also contribute to returns in the short term, making speculation unhelpful.

The cannabis market in 2021

The cannabis industry is likely to continue to expand and grow with the select companies acquiring more and more and getting back to their cash flow. Some companies will slowly be going out of business and/or will be acquired by others going into a certain consolidation period of time. Whatever the outcomes in specific tourism dominated markets, the industry as a whole can really go in one direction.

September 9, 2020

Navigating the Cannabis Industry in the Current Climate

By Serge Chistov

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All major industries took a hit during the COVID-19 pandemic, but in many states, cannabis dispensaries were labeled as essential, which has allowed the industry to continue with some alterations. The impact now will come from what innovations and improvements the industry can leverage going forward.

From changes to protocols and buyer behaviors to supply chain disruptions, there were many new hurdles for the industry in addition to the ones cannabis businesses already faced, such as funding. But the silver lining could be that businesses within the cannabis industry become less of a specialty and more ‘every day’ than ever before.

The effects of the pandemic on the cannabis industry

Overall, the industry has fared well, in part thanks to its distinction as an essential service in states where cannabis is legal. It’s possible states made this decision for the same reason that alcohol businesses were deemed essential in most places: hospitals are not equipped during pandemic times to take care of people who are being forced to detox or those suffering from anxiety because they don’t have access to their legal drug of choice.

In a multitude of ways, cannabis businesses have adapted to bring calm in a storm while at the same time making manufacturing adjustments to meet the CDC guidelines. For example, there is more attention placed on individually pre-packaged products for single use; something that is less sharable as an experience but eminently practical.

Another area that has shifted a little is in the limiting of the exchange and interaction between business owners and staff relative to the customers. It’s all in the aim of mitigating the risk of exposure, but it has changed the dynamic in many cannabis businesses. This is the new normal for the time being and the industry has adapted well.

Ultimately, retail cannabis businesses today are no different than the retail of candy, cigarettes or alcohol. Certainly, segments of the industry have still struggled. Lack of tourism and the curbside/take out circumstances at dispensaries took their toll. But without the opportunity to still conduct business in some capacity, 50-60% of all operators would have gone out of business. Plus, as many people use cannabis to offset medical symptoms, including pain management, there is a legitimate need for cannabis to be available. The pandemic has provided the opportunity for many who might not have tried it before to give it a chance to help them medicinally.

Behaviors have changed, including those of buyers

Driven by consumer interests, many dispensaries have adapted to provide curbside pickup options, delivery of online orders and more. That has meant that the customer also needs to be more knowledgeable about cannabis: the experienced consumer knows what they like and want and can make their choices at a distance. Someone who is new to cannabis use might find navigating the choices and options a little more difficult, without the help of experienced staff. The breadth of material online and the ability of some dispensaries to share content that helps the consumer to make choices, in the absence of walking around the dispensary, have been additional tools at the disposal of businesses.

That said, the cannabis industry today is not a vastly different one: it is adapting to the new rules and new reality. Whether this way of doing business—at a distance—is a temporary or permanent solution will be dependent upon what federal and state regulators dictate in the months ahead, but there is likely to be ongoing demand for being able to order online and keep social distance protocols in place.

An interesting example is the Ontario Cannabis Store (OCS) in Ontario, Canada. This is a government run shop that has retail as well as a robust online presence, with free delivery during the pandemic. This has facilitated an increase in new customers, which had already jumped, post legalization. People who might have felt uncomfortable going into a dispensary can still learn about cannabis online and order it, from the relative comfort and safety of their sofa.

Supply chain disruptions and the cannabis industry

The industry has long been focused on overseas suppliers. With the arrival of the pandemic and restrictions on obtaining products from other countries, supply chains have been disrupted for many cannabis businesses. That has forced many to shift their supply chains to more local manufacturers, in North and South America.

In the long run, this should have a positive impact for the industry, so that despite the short-term disruption to the supply chain, which is having an impact on the industry as a whole, there could be an upside for local producers, growers and manufacturers. It will take time to know how this will all play out.

Funding and other issues for the cannabis industry

For a new cannabis startup in these times, the key will be what it has always been for any business, just to a greater degree: due diligence. Companies that want to open a cannabis business, whether during the pandemic or not, need to evaluate the opportunity as one would any investment. It’s all about the numbers: data for the industry as a whole and specifically from competition. These days, that data is widely available and more and more consultants and investors have expertise in this industry. “Overall, there is more interest in the industry than ever before”

It’s vital to be extremely well versed, particularly for businesses that are relatively new in the industry, because the single biggest issue for many has and will continue to be funding and investment. The cannabis industry is no different than any other business, except for the fact that it is a specialty business. With that comes the need to look for funding among investors who have some knowledge or appreciation for the industry.

Some of the key concerns traditional investors will have include:

Regulatory differences from state to state: since cannabis is still illegal at the federal level, there can be an array of hurdles at state and local level that make cannabis businesses trickier to work with.
There are religious based/morality issues for some lenders in dealing with the industry. These aren’t dissimilar from issues with other industries such as adult entertainment and gaming. It’s also fair to point out that, morality aside, these industries have thrived in the last several decades.

So, while traditional banking institutions will often deal with the proceeds from the cannabis industry, including allowing bank accounts for these businesses, there is far less of a chance that they would invest in a cannabis business, for fear of risking their license. They can even go so far as to refuse to include income from a cannabis business in the determination of a loan application.

There are more unique lending or investing groups that either specialize in cannabis or are starting to open their books to specialize in cannabis. Overall, there is more interest in the industry than ever before, as it becomes normalized in American society: more participants and more insiders of the industries that are willing to invest in the right idea.

Will legalization be more likely in the future?

The fact that cannabis businesses and dispensaries have been deemed essential services during the pandemic, where they legally operate, has shed new light on the relevance of these businesses and the advantages of more widespread legalization.“Consumers will help drive the innovations as they demand clean consumption methods”

In fact, the pandemic has normalized a lot of new behaviors, including the acceptable use of cannabis to help with stress and anxiety. People are, perhaps thanks to staying at home more, doing the legwork to understand how cannabis could be useful to them in managing their stress. The medicinal benefits of cannabis have long been researched and understood: consumers are coming into the fray to express their interest in it, which can only fuel the possibility of more widespread legalization.

Add to this the fact that the cannabis industry is a growth industry. There are companies and jobs that aren’t coming back, post-pandemic. There is an opportunity to grow the cannabis industry to the general benefit of many, both as business owners and employees. The revenue generated from taxation following legalization would also benefit many state coffers. Federal level legalization would be the panacea to eliminate the mixed message, state by state regulation that currently exists.

Opportunities for innovation, moving forward

As more and more people become interested in the industry, and as cannabis use is normalized within society through legalization, the opportunities for the industry can only expand.

For an industry that started on the simple concept of smoking cannabis, the advances have already been legion: edibles, nanotechnology-based formulations for effective, clean consumption and many more innovations.

In a world that increasingly sees smoking as a negative, for the obvious impact to lung health, there are so many opportunities to grow the industry to find consumption methods that are safe and still deliver the impact of the inhaled version.

Here again, consumers will help drive the innovations as they demand clean consumption methods. The technology is available to make this possible; it only takes innovation and education to find the best ways to move this industry forward.

As legalization expands—and particularly if it is dealt with at the federal level—the industry will be able to capitalize on existing infrastructure for manufacturing and distribution, allowing new businesses to grow, get funded and thrive in the new normal.