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Keep ‘em Safe: Cash, Records, Products, People – Technology Helps Cannabis Businesses Succeed

By Dede Perkins
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It wasnt that long ago that cannabis was underground, sometimes literally, and operators protected what was theirs any way they knew how. Before legalization, cannabis operators needed to secure their plants, cash, supplies and equipment not just from people who wanted to steal them, but also from law enforcement. The legacy cannabis market is now transitioning into a legal one, and licensed operators are joining the industry at an incredible rate, but security is still part of the success equation. Like before, operators need to protect plants, products, equipment and cash, but they now also need to protect records, privacy and data, and do so in a manner that complies with state regulations.

Cannabis regulatory authorities set security guidelines that cannabis business owners must follow in order to obtain and renew operational licenses. For instance, there are state-specific security regulations regarding video surveillance, camera placement, safes, ID verification, and more. While security measures help protect the business, they also protect the public. Its a win-win for everyone involved. Here are five best practices and techniques to protect cash, records, products and people.

Hybrid cloud storage

State regulations call for reliable video surveillance footage that is accessible, in most cases, 24/7 and upon demand by cannabis regulatory authorities and local law enforcement acting within the limits of their jurisdiction. SecurityInfoWatch.com reports that video data is the industrys next big investment, meaning there will be an increased demand and need to store video surveillance footage. Most states require video surveillance footage to be retained for a specific amount of time, often 45-90 days or longer if there is an ongoing investigation or case that requires the footage. While some businesses only retain video data for the state-required length of time, others choose to keep it longer.

Storing data on-site can become expensive and precarious. Best practices call for a hybrid cloud storage solution model as it provides on-site and both public and private cloud data storage solutions. This model provides users with the ability to choose which files are stored on-site and which files live in the cloud. Doing so improves file accessibility without impacting or compromising on-premises storage. In addition, its helpful to have two methods of digitizing data, for safetys sake. In the event an on-site storage method crashes—though hopefully this wont ever happen—theres a version available off-site via the cloud. That said, with cloud-based storage solutions come cybersecurity threats that must be managed.

Cybersecurity

Dispensaries are prime targets for burglary. Defending a storefront requires a comprehensive security plan

Due to the ongoing COVID-19 pandemic, more businesses are online than ever before. Unsurprisingly, cyberthreats are on an upward trend, including in the cannabis industry. Earlier this year, MJBizDaily reported that a data breach exposed personal information of current and former employees of Aurora Cannabis. The incident involved unauthorized parties [accessing] data in (Microsoft cloud software) SharePoint and OneDrive”. Although this breach involved only employees, confidential customer information is also at risk of being compromised during a data breach. 

On a separate occasion, an unsecured Amazon S3 data storage bucket caused a large-scale database breach that impacted almost 30,000 people across the industry, according to the National Cannabis Industry Association. The breach included scanned versions of government-issued ID cards, purchase dates, customer history and purchase quantities. Unlike the Aurora Cannabis breach, this one included customer data. 

Just like other more established industries, the cannabis industry needs to protect and secure confidential data. If you dont have a cybersecurity expert on your team, consider hiring a consultant to evaluate your risk or partnering with a credible cybersecurity technology company to implement proactive solutions. Before signing a contract, do your due diligence. Does the consultant and/or technology company understand the compliance regulations specific to the cannabis industry? Do their solutions meet the regulations in the state(s) where your facility operates? Taking the time to protect your companys data before a breach occurs is proactive, smart business.

Smart Safes 

A smart safe like this one can helps secure cash handling

Smart safes help secure cash handling, which given the difficult banking environment for cannabis companies, means theyre on the list of best practice security technology products. What is a smart safe? A smart safe is a device that securely accepts, validates, records and stores cash and connects to the other cash management technology solutions such as point of sale systems. They connect to the internet and provide off-site stakeholders visibility into a facilitys cash position.

A high-speed smart safe counts cash by hand faster than a human and is an overall more secure way to deliver cash bank deposits. At the end of the night, making a deposit at a physical bank location can be dangerous, exposing your cash and the individuals responsible for making the deposit to unsecured threats. Using a smart safe reduces that threat and also helps cannabis operators comply with financial recordkeeping and documentation requirements. Due to federal cannabis prohibition, many cannabis businesses lack enough insurance to fully cover their exposure to cash theft, which has led to a trending industry-wide investment in smart safes.

Advanced access control

Best practice access control means more than a ring of keys hanging off the facility managers belt. Advanced access control gives cannabis business owners and managers the ability to manage employee access remotely via the cloud. This feature can limit access areas within a facility, enabling an individual to revoke access instantly from a remote location making it a useful tool in the event of a facility lockdown or emergency. A mobile app and/or website can be used to lock or unlock secure doors, monitor access in real time and export access logs.

Advanced access control devices arent a standard in the industry yet. Although many state regulators dont require cannabis businesses to utilize advanced electronic access control, using this technology is a best practice and may be required in the future.

Compliance software 

Understanding the ramifications and keeping up with state-mandated compliance is challenging. While state regulations can be found online, theyre often in pieces, leaving operators unsure about whether or not they have them all. Once an operator is confident that they have the most current version of all the laws, rules, and regulations that apply to their cannabis business, making way through the dense legal jargon can be exhausting. Even after multiple readings, it can be unclear about how to apply these guidelines to the operators cannabis business, which is one reason cannabis businesses work with a trusted legal counsel to meet compliance requirements. For trusted advisors and cannabis business licensees and operators alike, cannabis compliance software solutions are designed to not just check boxes for a cannabis business, but to help everyone involved understand how the regulations apply to the operation. These solutions improve accessibility so that employees at all organizational levels understand the rules and requirements of their position and the products they work with.

In addition, compliance software can help licensees and operators establish and implement best practice SOPs to meet regulatory requirements. Because the cannabis industry is young and many operators are moving fast, many cannabis businesses are vulnerable to security breaches and threats. Prioritizing security and compliance can help cannabis leaders protect against potential threats. Investing in the latest and most innovative security technology solutions—beyond what is required by state regulations—can help operators outsmart those who seek to steal from them and position their companies as industry leaders that prioritize safety and compliance, protecting not just cash and products, but the people who work in their facilities and the customers who purchase their products.

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.

Payment Processing & Consumer Credit: An Interview with KindTap Co-Founder

By Aaron Green
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Federal regulations have made compliant credit processing in the cannabis industry difficult to achieve. As a result, most cannabis retailers operate a cash-only model, limiting their ability to upsell customers and placing a burden on customers who might rather use credit. While some dispensaries offer debit, credit or cashless ATM transactions, regulators and payment processors have recently been cracking down on these offerings as they are often non-compliant with regulations and policies.

KindTap Technologies, LLC operates a financial technology platform that offers credit and loyalty-enabled payment solutions for highly regulated industries typically driven by cash and ATM-based transactions. KindTap offers payment processing and related consumer applications for e-commerce and brick-and-mortar retailers. Founded in 2019, the company is backed by KreditForce LLC plus several strategic investors, with debt capital provided by U.S.-based institutions.

We interviewed Cathy Corby Iannuzzelli, co-founder and chief payments officer at KindTap Technologies. Cathy co-founded KindTap after a career in the banking and payments industries where she launched multiple financial and credit products.

Aaron Green: Cathy, thanks for taking the time today. How did you get involved in the cannabis industry?

Cathy Corby Iannuzzelli, co-founder and chief payments officer at KindTap Technologies

Cathy Corby Iannuzzelli: I’ve been in the payments industry for a long time. I was doing some consulting a few years ago for a client in Colorado and that gave me exposure to the issues in cannabis like the fact that you couldn’t have real payments in cannabis. Then, a close family member with health issues turned to medical cannabis when nothing else seemed to work. I was amazed by the difference it made in her life. At that point, I put those two things together and I said, I need to focus on helping this industry get a real cannabis payments solution because I thought it was ridiculous that you had an industry of this size and importance that had been abandoned by the payments industry.

Aaron Green: Can you highlight some of your background prior to entering cannabis?

Corby Iannuzzelli: Throughout my career, I’ve been a banker, I’ve been a payment processing executive and I’ve been a consultant. So, I’ve kind of done it all in the payments and financial services space.

Aaron Green: Why is it that most dispensaries only take cash?

Corby Iannuzzelli: In the US, even though cannabis is legal in many states, it’s still illegal federally. There are big banks and card networks like Visa, MasterCard, etc., who are national, even global companies and frankly, the executives of those companies don’t want to end up in jail for violating national laws. So, they have put cannabis dispensaries on what’s called a “prohibited merchants” list. This means you cannot accept Visa, MasterCard, Discover, American Express, or similar payments as a cannabis business and so it’s forcing the industry to a cash-based solution.

About the only thing you’re seeing that’s not cash in dispensaries are ATMs. But if you think about it, ATMs are machines where the consumer goes and pulls cash out and pays upwards of $5 or more in fees for doing that. They then hand that cash back to the dispensary who then has the costs of having to deal with that cash. The industry is just stuck in a cash-based business until federal legislation changes.

Aaron Green: I’ve been to some dispensaries where they accept credit cards or debit cards. What is going on there?

Corby Iannuzzelli: I’ve heard reports of consumers who’ve been able to use a credit card or a debit card in a dispensary. Sometimes the processor who sold that solution to the dispensary says, “Oh, it’s compliant, I guarantee you it’s compliant.” But if you dig in, that’s not the case. And eventually, Visa or MasterCard figures it out and shuts it down. In some cases, it’s outright fraud where the processor who sold the payment terminal to the dispensary is misrepresenting it as say a doctor’s office rather than a dispensary. There’s no merchant category code in the payment networks that says this is for processing dispensary payments, so they pretend it’s something else until they get shut down.

When they do get shut down, I’ve heard of cases in Las Vegas where it was basically 100% Visa or MasterCard one day and 100% cash the next day. It completely disrupted the whole business. It’s not just the retail store, but the inventories and everything else throughout the business.

“About the only thing you’re seeing that’s not cash in dispensaries are ATMs”

There have also been some cases where you’ll see something called a cashless ATM. In a store, they call it a debit card transaction. It’s really a cashless ATM where the consumer is making what looks to the ATM network like a cash withdrawal in $10 or $20 increments, but the consumer is getting a receipt instead of cash, and they’re turning around and handing that receipt back to the dispensary who then makes a change because the cashless ATM only dispensed in $10 or $20 increments.

Now ATM networks are looking at these cashless ATM transactions to see if they are compliant. Do consumers know the fees that they’re paying? Are these transactions coming in and looking to the network like real cash when it’s not? Cashless ATM transactions are probably the most common thing you see, but that’s being called into question after the Eaze incident where a large company was misrepresenting its terminals. The federal government stepped in and called it bank fraud and the individuals behind it, the executives, are in jail. Since then, the networks are looking at this and saying, what about these cashless ATMs? Are those transactions within our rules, or is there something funny going on here?

Aaron Green: So, to summarize here: you’ve got federal regulations at the national level that says that cannabis banking is not allowed so major institutions are not offering it. Yet you found a way through the regulations and compliance issues. I’m curious can you pull back the curtains a little bit and tell us how you came up with a solutionhere?

Corby Iannuzzelli: Well, we came up with the solution by stubbornly refusing to believe that cannabis payment processing could not be done in a compliant manner. We just said, “there is a compliant way to do this, let’s figure it out.” We took the same components that are out there for the financial services and payments industry and reassembled them in such a way that we do not violate any rules. We do not use any of the Visa, MasterCard, Discover or Amex rails, we built our own network. We have direct contracts with the merchants and direct contracts with the consumers. We control everything and all the funds flow through regulated financial institutions. So, we designed something that looks and acts to consumers and retailers the way Visa and MasterCard look and act when a consumer goes to make a purchase, but they run on a separate set of payment rails and in compliance with banking regulations and state regulations. When you’re looking at the problem from a different perspective, sometimes you can come up with a better answer.

Green: On the consumer side, what does that user experience look like?

Corby Iannuzzelli: Our product is completely digital. The consumer experience starts with integration at the online checkout. When it’s an e-commerce shopping cart and somebody is placing an order, they will see a button called “Pay with KindTap.” The first time they click that button they’re automatically brought to our integrated web app where they do a quick and easy application for our digital revolving line of credit product. If approved, they instantly go back to the checkout screen and their first purchase will just happen immediately, with flexible payment options over time. If the consumer decides they don’t want our KindTap credit and would rather have a pay now-product where we pull the funds from their bank account, then the consumer can do so. So, there is no physical card per se, it’s integrated like PayPal or Affirm at the point of checkout online. For the consumers who use KindTap credit, there is a mobile app where they can see their transactions, view statements, pay their bills, etc.

Additionally, there is a loyalty program for all purchases – KindTap credit or through the consumer’s bank, because we feel very strongly that a lot of the reasons consumers choose to pay with one card over another is the points and the rewards that they get. So, we’re providing loyalty rewards with KindTap so that consumers can get rewarded for that spending with KindTap and it’s better for the retailers.

Green: On the retailer side, what does that experience look like and what is your business model?

Corby Iannuzzelli: We are not going store by store doing integrations, rather, we’re integrating with various software, delivery and e-commerce providers. That gives us broad reach and ability to expand rapidly in various state markets where cannabis is legal. Once a merchant says “yes, I want to be a member of the KindTap Merchant Network,” then we work to get them set up on our platform in a matter of days. The merchants receive continuous support from our success team, marketing co-investment and a depth of analytics reporting. We made the entire process and ongoing operations streamlined and frictionless for both merchants and consumers.

Aaron Green: What are the benefits of moving from cash to credit type of payments?

Corby Iannuzzelli: On the retail side, there are the obvious benefits of not having all the security, safety and theft issues associated with operating a physical cash business. Consumers very often don’t carry cash anymore, except when they’re making a cannabis purchase. There are a lot of hidden costs to retailers because payments are not just about moving money from the consumer to the business.

“I really am optimistic that with so many scientific breakthroughs we’ve had that we’re going to be able to figure this out.”Payment options – or lack thereof – can shape where people shop, how much they spend and what they buy. It’s a proven science how consumers make impulse purchases. If you’re a cash-based business in cannabis, and you’re trying to get somebody to make an impulse purchase, and they walked in with $100, then you can’t get them to spend more than $100, no matter how creative your marketing is! The consumer is limited by how much cash they have in their bank account or in their pocket at that point in time. So, it’s really about the upsell that comes with the bigger basket sizes that retailers experience when you move from a cash-based business to credit and suddenly, the merchant doesn’t have to deal with long lines of consumers on payday when the store was beyond slow two days before. Now the consumer can spread purchases with the thinking, “I’d rather not be the one standing in that line on payday. I’m going to go Wednesday [instead of Friday] because I have KindTap credit so I can budget and manage my cash flow throughout the month rather than around my paydays.”

So, we think that the lack of an efficient and effective payment system for cannabis is holding back sales. We all focus on how much the industry is growing. KindTap thinks about how much faster it could be growing if it was supported by a decent payment system.

Aaron Green: What are some other cash-only markets you are looking at?

Corby Iannuzzelli: We are laser-focused on the cannabis ecosystem and bringing a compliant credit and loyalty-based digital payments solution to cannabis merchants and customers and rewarding those stakeholders for accepting/using KindTap. Additionally, we are planning to extend the KindTap Merchant Network so that consumers can use/earn our loyalty points with other goods and services they’re purchasing that are adjacent to cannabis or that are important to the cannabis consumer. That’s the direction we’re going.

Aaron Green: Today people can receive gas points for spending with their credit card. Now with KindTap, you can spend to get cannabis points?

Corby Iannuzzelli: That’s exactly right.

Aaron Green: What in either cannabis or your personal life are you most interested in learning about?

Corby Iannuzzelli: Personally, I am most interested in seeing breakthrough technologies in climate change. We’re going to need to correct this situation and I’m reading about collecting carbon dioxide from the air and burying it in the earth and things like that. I really am optimistic that with so many scientific breakthroughs we’ve had that we’re going to be able to figure this out. Certainly, it’s going to take a lot of smart people and a lot of investment, but I really look forward to watching them do their stuff and hopefully taking us out of this nightmare situation that we’re heading into if we don’t make some changes.

Aaron Green: Thanks Cathy, that concludes the interview.

Corby Iannuzzelli: All right, thanks Aaron!

Ask the Experts: The Business of Cannabis Meets the Law

By Cannabis Industry Journal Staff
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Practicing Law Institute Press’s Legal Guide to the Business of Marijuana: Cannabis, Hemp and CBD Regulation is a one-of-a-kind deep dive into the many regulations governing the industry. Aimed at attorneys representing clients in this space, the treatise offers guidance on a range of interrelated topics including state regulation of medical and non-medical cannabis; federal law, enforcement and preemption and their implications for employment, taxes and banking; and the various aspects of establishing and managing a cannabis enterprise, from growth to licensing, transport and distribution. We spoke with co-authors James T. O’Reilly, professor of Public Health Policy at the College of Medicine of the University of Cincinnati and author of leading references on food and drug law, and Edgar J. Asebey, a founding partner of Keller Asebey Life Science Law and a life sciences attorney with over twenty years of experience, about the intersection of the cannabis business and the law.

Q: From the legal industry’s perspective, how has this area of the law evolved over the past few years – and what would you advise clients in cannabis to look for when engaging legal assistance for their businesses?

James T. O’Reilly & Edgar J. Asebey: Over the past few years, we have seen a growing acceptance of the idea that lawfully serving the needs of cannabis consumers is a commendable business initiative. This evolution in thinking – tied to the myriad business opportunities cannabis presents – has given large, mainstream corporate law firms the incentive to grow practices and develop specialists in this area, which is a very positive development.

But it is not enough for lawyers to know their way around M&A and the capital markets; they must also have experience with federal regulatory bodies. As regulations continue to evolve, it is essential for practitioners to be familiar with the Food, Drug and Cosmetics Act as well as the Federal Trade Commission Act. The framework for regulating cannabis products already exists, as can be seen in the Warning Letters sent to hemp and CBD companies by both the Federal Trade Commission and Food and Drug Administration (as well as, most recently, the FDA and CDC’s warning about delta-8 THC). If a client places their hemp or CBD product into the stream of commerce, that product will be subject to FDA, FTC and relevant state laws. We strongly recommend seeking out advisors who truly understand these regulations and how they align with the regulatory agencies’ procedures and agendas.

Q: What are the most urgent legal and regulatory topics the industry is watching these days?

O’Reilly & Asebey: Our treatise follows and analyzes the most pressing legal issues facing those in the cannabis and hemp space. In our most recent edition, we add discussion of the Final Rule for the establishment of a domestic hemp production program. We think this is a significant development in that it attempted to address some of the industry’s criticism of some provisions found in the Interim Final Rule, par­ticularly around issues of sampling and testing for THC content. The Final Rule clarified issues around THC percentage testing methodologies, but disappointed many in the industry by leaving in place the low 0.3% dry weight threshold for an acceptable hemp THC level. On the other hand, The Final Rule raises the threshold for a negligent violation from 0.5% to 1.0% total THC and limits the number of violations a grower can receive in one year to one, easing potential penalties for violations.

Of course, the regulation of CBD products is on the minds of many in the industry. Key questions remain about whether cannabinoids such as delta-8 THC can be lawfully sold. Since the FDA has provided no clear guidance with regard to the sale and use of CBD and other hemp-derived cannabinoid-containing prod­ucts, well-meaning businesses find themselves operating in a regulatory gray area. While some states have raced to place delta-8 THC on their controlled substances lists or otherwise regulate it, at the federal level it remains unclear. Our book provides a legal argument showing that current regulations support the lawful production and sale of delta-8 THC. To date, this and other legal arguments have not been tested in the courts and, without FDA guidance, the delta-8 THC sector will remain gray.

Editor’s Note: The Legal Guide to the Business of Marijuana: Cannabis, Hemp and CBD Regulation is now available for purchase here.

About James T. O’Reilly

James T. O’Reilly of the University of Cincinnati College of Medicine is former chair of the 8,000-member Section of Administrative Law & Regulatory Practice of the American Bar Association and has been active in numerous ABA, Federal Bar Association, and state and local bar activities. He retired as Associate General Counsel of The Procter & Gamble Company to teach full-time, and served as a consultant to three federal agencies and to the Deputy Secretary General of the European Commission. He has authored fifty-six texts and more than 230 articles, and his work was cited numerous times in appellate opinions, including “The experts have written . . . ” in a March 2000 opinion of the U.S. Supreme Court (Food & Drug Administration v. Brown & Williamson Tobacco Corp., 120 S. Ct. 1291). He has received numerous honors and awards for his professional and electoral activities and has been listed in Who’s Who in American Law for twenty-five years. He is a graduate of Boston College and the University of Virginia School of Law.

About Edgar J. Asebey

Edgar J. Asebey, a partner at Asebey Life Sciences Law PLLC, is a regulatory and transactional attorney with over two decades of experience in federal regulation of pharmaceutical, biotechnology, medical device, food, dietary supplement and cosmetics companies. Since 2015, he has been working on cannabis-related matters and transactions, and since 2018, he has provided regulatory compliance, business transactional, venture finance and international trade services to hemp/CBD companies. Mr. Asebey practices before the FDA, the USDA, the CBP, the EPA, and the FTC, representing client companies on regulatory compliance, product approval/registration and FDA enforcement defense matters. He founded and served as president of Andes Pharmaceuticals, Inc., a natural products drug discovery company, from 1994 to 2000, and has served as in-house counsel to two life sciences companies. Mr. Asebey is a member of the American Bar Association (Section on Administrative Law & Regulatory Practice: Food and Drug Committee and International Committee), the Food & Drug Law Institute (FDLI), the Dade County Bar Association, and BioFlorida.

Content sponsored by Practicing Law Institute

“Keep the Buds Fresh” – Packaging & Paraphernalia Laws

By Justin T. Starling, Michael C. Tackeff
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Cannabis law in the U.S. is currently incoherent. What is illegal under the federal laws on the books bears little relation to what is actually happening in cities, states and counties where cannabis is legal for medical and adult use. Although legislators, lawyers and business interests are focused primarily on whether it is legal to buy, sell or grow the cannabis flower itself, the industry’s emergence is also affecting another manufacturing stalwart: packaging. If you can grow it, you can transport it. And if you can transport it, you need a container to sell it in.

As cannabis growers and retailers begin to recognize that attractive, compelling and moisture-retentive packaging can help market and sell their products to a wider audience, packaging companies are presented with an opportunity to expand into this Wild West industry. Seth Rogen is living proof that there is money to be made here: his cannabis company, Houseplant, trades on antique vibes, limited edition releases, celebrity artist sponsorships and old-school tobacco-adjacent products, splashing its unique and charismatic packaging across its website homepage.

But what do packaging industry executives need to know before venturing into the cannabis industry? Although manufacturing packaging that could be used to contain or transport cannabis products is not entirely risk-free, U.S. courts have generally refused in the past to hold manufacturers liable for making products that can be used later as drug paraphernalia. For packaging executives, two questions are of utmost importance. First, could I be held liable for producing drug paraphernalia? And second, what packaging standards must my company follow? This article will address these questions.

Criminal Status of Cannabis Under Federal & State Law 

All cannabis containing more than 0.3% THC remains illegal under federal law and under the laws of many large states, including Texas, Georgia, Tennessee and Iowa. But that’s not the full story. While facilitating cannabis production or trafficking is illegal, the federal government has enforcement priorities and restrictions on its resources. And many state and federal law enforcement officials have little incentive to pursue industries supplying trucks, packaging or lighting to a cannabis retailer in another state, as such products and services are not illegal and can be used for other industrial purposes. No law enforcement official is going to sue Staples for selling paperclips to a cannabis retailer.

Cannabis is still a “Schedule I” substance under the federal Controlled Substances Act, which is defined as substance having a high potential for abuse, no currently accepted medical use in treatment, and no accepted safe use.1 Cannabis was always a poor fit for this definition, given its efficacy in helping oncology patients cope with symptoms like nausea, but its continued classification as a Schedule I substance means that cannabis remains illegal under federal law. Despite this federal illegality, the federal government has little power—legally, practically and politically—to prosecute those engaged in the cannabis industry through activities that are legal under state law.

First, since 2014, Congress has banned the Department of Justice (DOJ) from spending a dime enforcing the federal cannabis law against individuals complying with state medical cannabis law via an appropriations rider.2 Courts have interpreted this language to mean that the DOJ may not prosecute individuals complying with state medical cannabis law,3 although there are still instances where individuals are convicted of violating the federal ban because they were found to have been out of compliance with state law.4 Though the rider only pertains to medical cannabis laws, the federal government has historically treated adult use cannabis regimes by states in a similar way.

Second, from a practical standpoint, no federal agency has the manpower to pursue even a tiny fraction of medical and adult cannabis users who are in compliance with state law, much less the industries providing support, logistics and inventory management. Though the federal ban is still on the books, no one has the power or the money to enforce it. The federal ban is thus becoming a dead letter.

Drug Paraphernalia Laws

Drug paraphernalia laws were written to provide law enforcement with other offenses to charge drug users and producers in addition to simple possession. The idea was to criminalize every aspect of the process of consuming and producing cannabis. While drug paraphernalia laws are written incredibly broadly, courts have been reluctant to apply them to companies producing packaging products.

Most packaging companies would have a defense to a suit alleging they are producing paraphernalia

Federal law explicitly defines drug paraphernalia as “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under this subchapter.”5 There are 15 categories of items listed as “per se” paraphernalia, including roach clips, electric pipes, and bongs.6 Packaging products do not fit any of the “per se” categories. The statute also specifies that, in determining whether an item constitutes drug paraphernalia, the court must consider “whether the owner, or anyone in control of the item, is a legitimate supplier of like or related items to the community, such as a licensed distributor or dealer of tobacco products[,]” among other factors.7

In addition, federal courts have been reluctant to apply the drug paraphernalia laws to packaging products.8 In addressing the predecessor statute to the current federal paraphernalia law,9 the Second Circuit ordered an indictment dismissed against a producer of glass vials commonly used for crack cocaine: “Since congress in enacting the Paraphernalia Act deliberately omitted ‘packaging’, ‘containing’, and ‘cocaine vials’ from its definition of drug paraphernalia, we conclude that the plastic containers produced by Lin were not ‘drug paraphernalia’ as defined by the act.”10 The law is not uniform, but even if a zealous federal prosecutor wants to crusade against a cannabis supplier, he must contend with the appropriations rider and this adverse case law.

Nevertheless, the federal Controlled Substances Act does allow property used to manufacture narcotics to be seized.11 It is possible that if a company created packaging for cannabis products, and the customer then used that packaging to pack cannabis, the inventory and packaging could be seized by federal law enforcement. But the same obstacles to enforcement discussed above would apply.

Every state has different paraphernalia laws, but most packaging companies would likely have defenses to a suit alleging they are producing or possessing paraphernalia, including lack of intent to use the paraphernalia for illicit purposes and applying federal caselaw as a defense.

Packaging Laws

State law is the primary vehicle for regulatory guidance on cannabis packaging. Any packaging company selling to cannabis retailers will need to consider both state law and federal packaging standards, which are often incorporated by reference into state law.

Federal Packaging Law

Producing a product that complies with all state standards at once might be a challenge, but adhering to individual state rules is doable.

The Poison Prevention Packaging Act is the primary source of child-resistant packaging law.12 This law does not currently apply at all to any sales of cannabis because cannabis is illegal in the eyes of federal law. There is no private right of action under this statute.13 That means that a packaging company cannot be sued by a private individual for violating the statute. At some point, if Congress chooses to loosen restrictions on cannabis, this would be a very easy statute to simply make applicable to sales of cannabis. The law already has a specific provision for liquid nicotine containers.14 But currently, this statute does not apply to cannabis at all.

State Packaging Laws

State laws are a different matter – each state that allows sales of medical or adult use cannabis has enacted different requirements for cannabis packaging. A comprehensive survey of state cannabis packaging law is beyond the scope of this article, but some state cannabis regulatory regimes explicitly incorporate provisions of the federal Poison Prevention Packaging Act.15 California has a similar requirement, as does Washington state.16 Producing a product that complies with all state standards at once (i.e., a “national” standard) might be a challenge. Contracts with buyers could include a representation that the packaging complies only with the laws of state X or Y.

Products Liability Issues

A detailed assessment of products liability is beyond the scope of this article. But in short, as this industry matures, packaging companies undoubtedly will be subject to the usual kinds of products liability issues for cannabis packaging. In other words, in a cannabis-tolerant state, a packaging company could theoretically be sued under a products liability theory if the cannabis is somehow spoiled by a manufacturing defect in the packaging or if the packaging product permits mold to grow and eventually be consumed by a user. Cannabis contract litigation is a complex subject given its unique legal status. One strategy to avoid these issues is to include a very specific dispute resolution procedure (e.g., mediation, arbitration or the like) in any contracts with cannabis companies in the U.S. It is also important to include a waiver of any defenses of the contract being against public policy due to the uncertain legal status of cannabis.

No transaction in the cannabis industry is entirely risk-free, and packaging executives should consult with local counsel in the states in which the packaging is manufactured and in the states in which they intend to sell products to ensure compliance with the law. But this industry is rapidly growing, and opportunity awaits for the packaging companies that are willing to work through the incoherence in the current laws.


References

  1. 21 U.S.C. § 812.
  2. Consolidated Appropriations Act, 2020, Pub. L. No. 116-93, § 531, 133 Stat. 2317, 2431 (Dec. 20, 2019).
  3. United States v. McIntosh, 833 F.3d 1163, 1179 (9th Cir. 2016).
  4. United States v. Trevino, No. 20-1104, 2021 WL 3235751, at *4 (6th Cir. July 30, 2021) (Michigan dispensary owner could never have been in compliance with Michigan’s medical cannabis laws given his prior felony conviction for cocaine possession).
  5. 21 U.S.C. § 863(d); see also generally United States v. Assorted Drug Paraphernalia, 90 F. Supp. 3d 1222, 1229 (D.N.M. 2015).
  6. 21 U.S.C. § 863(d)(1).
  7. 21 U.S.C. § 863(e)(5); see also 21 U.S.C. § 863(f)(2) (specific exemption for items exported or sold through the mail, “and traditionally intended for use with tobacco products, including any pipe, paper, or accessory”).
  8. Posters ‘N’ Things, Ltd. v. United States, 511 U.S. 513, 526 (1994) (“Similarly here, we need not address the possible application of § 857 to a legitimate merchant engaging in the sale of only multiple-use items.”) (head shop case where establishment was devoted substantially to drug paraphernalia).
  9. 21 U.S.C. § 863; see also 511 U.S. at 516 n.5.
  10. United States v. Hong-Liang Lin, 962 F.2d 251, 258 (2d Cir. 1992); see also United States v. Big Apple Bag Co., 306 F. Supp. 2d 331, 334 (E.D.N.Y.), on reconsideration in part, 317 F. Supp. 2d 181 (E.D.N.Y. 2004) (“[T]he Second Circuit has determined that trafficking in items that are used merely to package or contain drugs does not violate 21 U.S.C. § 863.”). But see also United States v. Main St. Distrib. Inc., 700 F. Supp. 655, 659–60 (E.D.N.Y. 1988) (no legitimate market for glass stirrers used in crack pipes, and where customs agent had placed dummy order using common street term for crack pipes; denying company’s motion to suppress).
  11. 21 U.S.C. § 881 (a)(3) (“The following shall be subject to forfeiture to the United States and no property right shall exist in them: All property which is used, or intended for use, as a container for property described in paragraph (1), (2), or (9).”).
  12. 15 U.S.C. § 1471 et seq.; 16 C.F.R. § 1700.20(a)(2)(iii).
  13. Doane v. Metal Bluing Prod., Inc., 568 F. Supp. 744, 746 (N.D.N.Y. 1983).
  14. 15 U.S.C. § 1472a.
  15. See, e.g., Fla. Stat. Ann. § 381.986(8)(e)(11)(e) (“When processing marijuana, a medical marijuana treatment center must: Package the marijuana in compliance with the United States Poison Prevention Packaging Act of 1970, 15 U.S.C. ss. 1471 et seq.”).
  16. Cal. Bus. & Prof. Code § 26120(a) (“Prior to delivery or sale at a retailer, cannabis and cannabis products shall be labeled and placed in a tamper-evident, child-resistant package and shall include a unique identifier for the purposes of identifying and tracking cannabis and cannabis products. If the cannabis or cannabis product contains multiple servings, the package shall also be resealable.”); Cal. Bus. & Prof. Code § 26001(i) (“‘Child resistant’ means designed or constructed to be significantly difficult for children under five years of age to open, and not difficult for normal adults to use properly.”) (identical to federal standard); see also Wash. Admin. Code 314-55-105(2)(b)(i) (all cannabis concentrates must be packaged consistent with the Poison Prevention Packaging Act).

Tissue Culture Cultivation Can Transform the Way We Grow Cannabis

By Max Jones, Dasya Petranova
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The cannabis industry is approaching a crossroads. While cultivators must ensure they are getting the greatest yield per square foot, an increasingly competitive landscape and sophisticated consumer means growers must also balance the need for volume with quality, consistent and award-winning cannabis strains.

Tissue culture propagation represents a significant leap forward in cannabis cultivation, ultimately benefiting both the grower and the consumer. The proprietary technology behind our sterilization and storage process results in the isolation of premium cannabis genetics in a clean, contaminant-free environment. Since our inception, we’ve been focused on setting a higher standard in medical (and one day adult use) cannabis by growing craft cannabis on a commercial scale through utilization of this cutting-edge cultivation technique. When taken in total, Maitri boasts access to a library of 243 unique cannabis strains, one of the largest collections in the U.S.

Trouble with Traditional Cultivation

Pathogens, insects and cross contamination all threaten the viability and value of cannabis plants. In many ways, current cannabis cultivation techniques compound these issues by promoting grams per square foot above all else and packing plants into warehouse sized grows where issues can quickly spread.

In these close quarters, pests can swiftly move from plant to plant, and even from generation to generation when propagating from clones or growing in close quarters. Similarly, pathogens can leap between susceptible plants, damaging or killing plants and cutting into a cultivator’s bottom line.

Hemp tissue culture samples

Of particular concern is hop latent viroid. Originally identified in hops, a genetic relative of cannabis, this infectious RNA virus has torn through the cannabis industry, endangering genetics, causing sickly plants and reducing yields. Plants cloned using traditional methods from an infected mother are vulnerable to the disease, making hop latent viroid a generational issue.

Minimizing or even eliminating these threats helps to protect the genetic integrity of cannabis strains and ensures they can be enjoyed for years to come. That is where the sterilization stage in tissue culture cultivation stands out.

Like cloning, tissue culture propagation offers faster time to maturity than growing from seed, allowing for a quicker turnaround to maximize utility of space, without overcrowding grow rooms. However, it also boasts a clean, disease-free environment that allows plants to thrive.

Tissue Culture Cultivation

Tissue culture cultivation allows for viable plant tissue to be isolated in a controlled, sterilized environment. Flowering plants can then be grown from these stored genetics, allowing for standardization of quality strains that are free of contamination and disease from the very beginning. Tissue culture cultivation also takes up less room than traditional cloning, freeing up valuable square footage.

A large tissue culture facility run in the Sacramento area that produces millions of nut and fruit trees clones a year.

This propagation process begins with plants grown to just before flowering and harvested for their branch tips. These branch tips undergo a sterilization process to remove any environmental contamination. This living plant material (known as explants) gets fully screened and tested for potential contaminants.

If it passes, the sample is stabilized and becomes part of the Maitri genetic library for future cultivation. If any contamination is discovered, the plant is selected for meristem isolation, an intensive isolation technique at the near cellular level.

Once sterilized and verified to be clean, the samples — often just an inch tall — are isolated into individual test tubes in our proprietary nutrient-rich medium for storage indefinitely. The cuttings are held in these ideal conditions until tapped for cultivation. This process allows Maitri to maintain an extensive library of clean, disease-free cannabis genetics ready to be grown.

Benefits for Medical Cannabis Patients

Tissue culture creates exact genetic replicas of the source plant

One of the chief benefits of tissue culture propagation is that it creates exact genetic replicas of the source plant. This allows growers like Maitri to standardize cannabis plants, and thus the cannabis experience. That means patients can expect the same characteristics from Maitri grown strains every time, including effects, potency and even taste and smell. Keeping reliable, top quality strains in steady rotation ensures patients have access to the medicine they need.

Preserving Plant Genetics

Beyond the benefits that tissue culture cultivation provides for the patient, this approach to testing, storing and growing cannabis plants also goes a long way towards protecting cannabis genetics into the future.

Cannabis strains are constantly under assault from pests and disease, potentially destroying the genetics that make these strains so special. Over-breeding and a dwindling demand for heirloom strains also threatens the loss of some individual plant genetics. Having a collection of genetics readily available means we can quickly cultivate strains to best meet consumer demand. Additionally, maintaining a rich seed bank that features both legacy and boutique strains allows us to have options for future tissue culture cultivation or for future new strain development.

Advancing Cannabis Research

Due to federal prohibition, researching cannabis, especially at the university level, can be extremely difficult. Additionally, the cannabis material that researchers have access to is largely considered to be subpar and wildly inconsistent, placing another barrier to researching the physiological effects of the plant. Clean, safe and uniform cannabis is a necessity to generate reliable research data. Utilizing tissue culture cultivation is a smart way to ensure researchers have access to the resources they need to drive our understanding of the cannabis plant.

Solvent Remediation – The Last Step for Safe, Clean Hemp Extraction

By Tom Bisbee
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Botanical extraction is not specific to cannabis and hemp, and it is anything but new. Rudimentary forms of plant extraction have existed throughout history and evolved with high-tech equipment and scientific procedures for use in pharmaceuticals, dietary supplements and botanicals.

In food production, examples of hydrocarbon extraction processes are commonplace. Nut, olive and vegetable oil production use solvents to extract the oils. Decaffeinated coffee uses hydrocarbon extraction to remediate the caffeine, and making sugar from beets, or beer from hops, also requires solvents.

As such, the FDA has set guidelines for the amount of residual solvents considered safe for consumers to ingest. Yet, without FDA guidance in cannabis and hemp, many products aren’t being tested against these standards, and consumers will ultimately pay the price.

Understanding solvent remediation technology and processes

If we use ethanol extraction as an example, the extraction process is relatively simple. First, we soak the biomass in denatured or food-grade ethanol, ending up with a final solution that is 90-95% solvent. Then, we perform a bulk removal of the solvents, which takes out most, but not all, of the solvent. The next and final step should be to strip the remaining solvents from the extract entirely.

Stripping remaining solvents in bulk requires the right equipment.

But, in order to do so effectively, you need the right equipment, and unfortunately, this is where many producers fall short. Many producers use a vacuum oven to apply heat while reducing the headspace pressure to lower the solvent’s boiling point and evaporate it off.

However, it’s a static environment in a vacuum oven, which means the material is stagnant. So, the process may effectively remove the solvents close to the surface, but solvents deep inside the material tend to get trapped without some type of agitation or mixing.

The appropriate final step to complete solvent remediation is wipe-film distillation, which feeds small volumes into a column, which is then wiped into a very thin film and heated under vacuum pressure. Although the equipment necessary is costly, this last step removes any residual solvents from the product to create a safe, effective and consumable product.

Residual solvents present huge risks

As stated, many of the same solvents used in cannabis and hemp extraction have been considered safe in food production for decades. Reviewing chemical data sheets, many of the acceptable limits on solvents were determined for ingestion, which is fine for edibles and tinctures, but many cannabis and hemp products are intended for inhalation or vaporization.

Just a few of the dozens of various products types on the market today, extracted with a variety of different solvents

Unfortunately, some solvents can have negative health impacts, especially for those using cannabis or hemp for medical purposes or with compromised immune systems. Plus, as a therapeutic and recreational substance, consumers may be consuming more than the recommended amount, as well as using the products several times a day. Unfortunately, long-term exposure or repeated inhalation of these residual solvents hasn’t been thoroughly researched.

For example, inhaling ethyl alcohol (ethanol) can irritate the nose, throat and lungs. Extended exposure can cause headaches, drowsiness, nausea, vomiting and unconsciousness. Repeated exposure can affect the liver and nervous system.

In the food industry, hexane is approved for extracting spices or hops, and this solvent is widely used in cannabis and hemp extraction. However, if used in an inhalable product, chronic exposure to hexane could be detrimental, with symptoms including numbness in the extremities, weakness, vision problems and fatigue.

Consumers deserve transparency

In the industry’s earliest days, companies were tight-lipped about their processes, the chemicals they used and how they removed them. Everyone thought they had the “secret sauce” and didn’t want to share their approach. Today, companies are more open about what they use, how they process it and providing that necessary transparency.

Lack of quality and consistent regulations in these industries creates confusion for the consumers and loopholes for producers. Some producers test for everything under the sun, and some producers know exactly which labs will pass their products, regardless of test results.

While the regulatory bodies are distracted by the amount of THC that might linger in products, getting sick is overshadowed by the risk of getting high. In the meantime, consumers are left to their own devices to determine which products are safe and which are not.

Although testing mandates and regulations will help clean up the industry, until then, consumers need to demand full-panel COAs that not only show cannabinoid potency but also accurately display the test results for residual solvents, pesticides and heavy metals.

Automated Extraction Technologies: Upping the Bar for Quality, Repeatability & Safety in Extraction

By Rob Wirtz
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Automated extraction equipment and technologies are rapidly becoming the standard in the extraction sector of the cannabis industry. Like most evolving industries, manual and operator driven processes are what starts an industry, but with explosive growth, demand for increased safety, efficiency and repeatability grows. Specifically within the cannabis industry, we’re noticing a rising demand for higher quality extracts and a safer, more repeatable environment for cannabinoid extraction. These are all reasons for the industry making a shift towards automated extraction equipment and technologies.

What Automation Looks Like in Cannabis Extraction

Automation in the cannabis industry doesn’t necessarily mean implementing robotics and creating operator-less facilities; It typically refers to automated process control. Traditional, older technologies are manual and operator-driven. This means the equipment operator is in control of all parameters of the process, which leads to inconsistencies throughout the process caused by human error. As the extraction process has many steps: ethanol holding, chilling, extraction agitation, extraction discharge, extraction solvent removal, particle filtration, semi saturated solution storage, and so much more that involves valves, pumps and controls between each piece of the process, it becomes difficult to control such a tedious process manually. When all of these processes are controlled and monitored using proper automation technology, facilities can safely ensure that each batch is run following the same process and parameters accordingly. This is critical for product consistency, a concern for manufacturers and many end-consumers. As the cannabis industry grows, matures and makes its way closer to federal legalization, product safety and consistency become a top-priority for everyone involved.

Greater Quality Control of End-Products

Automated extraction processes ensures that the same solvent ratios are used batch-to-batch

Consistency and repeatability are just as important for cannabis processors as they are for standard food or pharmaceutical processors. Deploying a manual process of equipment operating and monitoring leaves far too much room for human error, and doesn’t provide the level of control needed for the industry as it continues to progress toward stricter product regulations and requirements. On the other hand, an automated extraction process ensures that the same solvent ratios are used batch-to-batch, the same extraction temperatures and recipe parameters are implemented, the same pump and process flow rates are deployed, and all processes are repeatable, predictable and scalable while producing a safe, consistent product.

Fewer Bottlenecks

The benefits of automated extraction are directly tied to establishing greater efficiency in processes. Efficiency can be experienced via less scrap product from unmanaged batches and/or less labor to operate and control the process. Automation means allowing a recipe-driven control system monitor and control the process, eliminating process bottlenecks that have been notorious for destroying productivity in manual extraction operations.

As Cannabis Extraction Processes Become Automated, They Become Safer.

extraction equipment
automated extraction process ensures that the same solvent ratios are used batch-to-batch

A team is what drives any business forward. The safety of that team needs to be a top priority for any business leader. As cannabis extraction processes become automated, they become safer. With less equipment interaction, the likelihood for human error that could lead to safety hazards significantly decreases. Properly programmed automation can establish advanced system interlocks that check multiple points throughout the process for irregularities, and can halt a machine based on these irregularities it detects. That level of process monitoring and control is only available when automation and PLC logic controls equipment.

Data Collection and Validation

When we tie all the benefits of extraction automation together, it makes for a far more attractive system than traditional,manual processes that we’re used to seeing in the cannabis industry. In addition to the major benefits listed above, automation gives a superior level of data collection for process improvements and process validation which is key in cGMP or EU-GPM facilities. This is the future for every processing facility in the arena of cannabis. As the industry matures, it will continue to become more competitive. Facilities with automation will have the capacity to maximize their process efficiencies, produce a far superior and more consistent endproduct and will have a competitive advantage in the extraction sector.

Where Are We Now? Social Equity in the US Cannabis Industry

By Dede Perkins
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As state legalization measures begin to legitimatize the US cannabis industry, stakeholders, both those currently in the industry and those who plan to join in the not-too-distant future, grapple with the best ways to right the wrongs from the decades-old War on Drugs. While some stakeholders support residency requirements and setting aside a percentage of a state’s cannabis licenses for social equity and economic empowerment applicants, others contend that these solutions are discriminatory. Reuters reports that lawsuits against social equity programs have been filed in Michigan, Illinois, Missouri and Maine, and some have received decisions that rule against existing social equity programs. While there is disagreement on the best way to create an equitable cannabis industry, few dispute that we’re dealing with an oppressive legacy against low-income individuals and people of color and the cannabis industry is in a unique position to shape a socially responsible industry that focuses not just on profits, but also on the greater good.

Challenges for Social Equity Applicants and Licensees 

Currently, Black Americans make up 13% of the US national population, but own less than two percent of cannabis businesses owners, according to Leafly’s Jobs Report 2021. Why? There are five primary factors.

  1. In most states, cannabis licenses are expensive and difficult to get. The application process requires a team of experienced individuals to work on everything from finding and negotiating real estate contracts; to vetting and hiring architects, safety, and security consultants; to working with community stakeholders to gain local approval.
  2. After the pieces are in place, applicants have to write it all down, which is a challenge in itself. It is not uncommon for one state cannabis application to be over one hundred pages.
  3. Since cannabis is still federally illegal and listed as a Schedule 1 drug, it’s nearly impossible to get a business loan to fund the application process or, if an individual is lucky enough to get a provisional license, to renovate or build out cannabis cultivation, processing and/or retail facilities.
  4. Because of the low-income status of many social equity applicants, few have access to accredited investors or low interest loans.
  5. Finally, if an individual or organization makes it through the application process and receives both a license and funding to operate, they face ongoing operational challenges including ever-changing laws, rules and regulations. Maintaining compliance is a process in and of itself.

If cannabis industry stakeholders don’t make honest efforts to provide real solutions to these challenges in the near future, inequalities will proliferate.

Current State of Social Equity in the US Cannabis Industry

To help mend the harms of the War on Drugs and reduce the institutional challenges faced by marginalized individuals, some states have instituted social equity programs that prioritize cannabis business licenses to those previously incarcerated on cannabis-related convictions and/or those who live in zip codes with high incarceration rates for drug crimes. Some states broaden the social equity lens and include women- and veteran-owned businesses in social equity programs.

The National Association of Cannabis Businesses explains:

The goal of social equity laws is to ensure that people from communities disproportionately harmed by marijuana prohibition and discriminatory law enforcement are included in the new legal marijuana industry. Policymakers are working to address criticisms that outsiders are setting up legal cannabis businesses and profiting by doing the same things their less fortunate neighbors were arrested and given jail time for just a few years ago.

By prioritizing social equity applicants, our industry is starting to bridge the access gap and improve the odds that previously marginalized individuals will make it into the C-suite and other influential positions. But is it enough? Many argue that social equity programs won’t make a real difference until more programs include low-interest loans and/or provide access to capital sources and ongoing support after licensure.

Although social equity programs vary, many require applicants to live in a zip code with a high incarceration rate for drug crimes or have a state residency requirement, meaning that social equity applicants must have lived in the state for an established number of years before they can qualify for social equity status. In some states, municipalities are tasked with creating these programs as is the case in Los Angeles and Oakland, California.

While some states offer social equity applicants priority consideration for their licensing applications, others offer reduced application and licensing fees, technical assistance, entry into an incubator program specifically designed for social equity applicants and/or apprenticeship opportunities.

Although social equity programs focus on developing business leaders with marginalized racial and socioeconomic backgrounds, other components of these programs often include criminal justice reform, such as revising resentencing guidelines and expungement requirements for those with cannabis-related convictions. The MORE Act, for example, not only calls for federal legalization, but also for reassessing the legal status of cannabis-related convictions, arrests, and prison sentences.

US States with Cannabis Social Equity Programs

When Colorado and Washington voted in favor of adult-use cannabis legalization nearly a decade ago, lawmakers were tasked with drafting regulations for what a legal marketplace would look like in their respective states. Although legalization efforts focused on the inequities of prohibition, the War on Drugs, and the legal cannabis industry, social justice initiatives were not initially included.

Today, there are 37 states and municipalities, including Washington D.C., that have legalized medical cannabis. Nineteen of those states have also legalized adult-use cannabis. Recent data shows that one in four Americans consumes cannabis, suggesting that legalization efforts have started to normalize cannabis use among the US population.

Out of the 19 states with adult-use cannabis, 13 have developed social equity programs to help marginalized people become cannabis leaders in their markets. States that incorporated social equity programs into initial adult-use cannabis legislation include Massachusetts, California, New Jersey, New York, New Mexico, Michigan, Vermont, Illinois, Connecticut, Arizona and Virginia. Although Colorado and Washington’s laws initially did not include social equity programs, both states are now in the process of implementing them.

It’s important to note that not all US states with legal cannabis programs take the social equity approach. States with legal adult-use programs but without social equity programs include Montana, South Dakota, Maine, Nevada, Oregon and Alaska.

After Social Equity Licensure

For those social equity applicants who receive operational licensure, there is the ongoing issue of compliance. As if there were not enough pressure on social equity applicants and license holders, maintaining state-compliant businesses and developing internal policies and procedures that drive brand awareness and loyalty can be a challenge. The hard reality is that admission into a social equity program and even obtaining licensure does not ensure a business leader’s success. Besides increased access to capital, expanding social equity programs to include post-licensure support, at least for the first year or two, would improve the odds of long-term success.

All in all, social equity programs in the US cannabis industry have begun to make a difference and right some of the wrongs of the War on Drugs, but there is still work to be done. To build an industry that improves lives not only with cannabis products but also with financial opportunity, we must continue to prioritize and expand current social equity programs and fight for new social equity programs in all legal cannabis states.

Think Your Cannabis Business Complies with Temp and Part-Time Employment Regulations? You Might Be Surprised

By Stacy Bryant
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As a fast-growing cannabis company, ensuring your business stays compliant with regulatory agencies of all kinds—planning departments, the U.S. Department of Agriculture (USDA), Occupational Health and Safety Administration (OSHA) and so on—is critical for survival. But is your business also compliant with temporary and part-time employment regulations? Violating these often-overlooked regulations can land your company in hot water at best and force you to shut your doors at worst. Here’s what you need to know about risks, regulations, compliance issues and more.

The 30,000-Foot View: Part-Time and Temporary Employees 

Cannabis has proven itself to be a high-turnover industry. But in the ever-shifting, post-COVID landscape, many cannabis employers are seeing the financial and logistical benefits of hiring part-time and temporary workers.

Though the terms “part-time” and “temporary” are sometimes used interchangeably, the fact is, there are legal differences in the definitions of part-time versus temporary work. For starters, temporary employees must work for less than a year at a specific organization, and their work must have a defined end date. Temporary employees, or “temps,” often fill vacant roles in a temporary capacity, such as roles previously occupied by someone on parental leave.

Many full-time employees in the cultivation space are defined as “agricultural workers”

Part-time employees, on the other hand, can work indefinitely for a company—but they must work less than 40 hours per week. And, side note, if a part-time employee works more than 1,000 hours in a calendar year, they could be eligible for retirement benefits—so hiring managers, bear that in mind.

For employers, there are some tangible benefits in hiring part-time or temporary workers. For starters, there are often fewer upfront costs associated with hiring part-time workers (like workers’ compensation and healthcare). Establishing a strong part-time and temp employment strategy also allows for employers to quickly scale up or down based on market tendencies or shifts.

Understanding the Risks of Hiring Part-Time or Temporary Workers

While hiring part-time and temporary workers can help businesses stay agile and responsive to market demands or fill vacancies created by recent resignations, many businesses hire these types of employees without a full understanding of associated regulations. And it can get even trickier: many full-time cannabis industry workers in the cultivation space aren’t considered “employees” at all—they’re defined by the federal government as “agricultural workers.”

It’s essential that businesses classify part-time workers and independent contractors correctly. Attempting to claim a worker is part-time when they’re really a full-time employee (a practice known as “misclassification”) can save a business tax dollars in the short-term but lead to sanctions and hefty penalties down the line. For example, if a worker is misclassified and the Department of Industrial Relations finds out, they can sue the former employer for unpaid wages.

Potential fallout from noncompliance with classification or wage and hour issues includes massive fines, potential litigation and more. Federal agencies are extremely sensitive to cannabis business regulatory violations, it’s vital to adhere to proper staffing regulations and compliance. The wrong kind of attention can tank your business’s reputation and halt your operations altogether. I’ve personally worked with numerous cannabis businesses in their hiring and payroll initiatives, and I’ll say this: It may seem like a headache to cross all the “Ts” and dot all the “Is” in the beginning, but it will make a massive difference down the line.

Understanding the Regulations for Hiring Part-Time or Temporary Workers 

All employers must adhere to the regulations set forth by the Fair Labor Standards Act, which mandates that part-time employees must be treated the same as full-time employees. That means they must be paid minimum wage, be paid overtime should they exceed their determined hours, have the opportunity to take job-protected unpaid leave, and so on. I really want to stress how essential it is that employers classify their workers appropriately.

It’s also worth noting that many states have specific regulatory structures for employment, both full- and part-time.

In the heavily regulated cannabis industry, employers must exercise strict due diligence to meet all OSHA standards. Additionally, they must identify all occupational hazards and account for employees’ overtime and double time. Grow operations must also adhere to the Field Sanitation Provisions of the Occupational Safety and Health Act, which includes providing toilets, drinking water, hand sanitation facilities and hygiene information.

Avoiding Compliance Problems with Planning and Diligence 

There’s a lot more to hiring workers than businesses realize, especially in cannabis. Most companies don’t intend to be noncompliant with regulations—they simply don’t know the regulations, or they’re overwhelmed by hiring and growing so quickly. To make sure you’re compliant, you might consider building out your HR team, educating yourself as the business leader and reaching out to staffing and HR professionals in the space who can answer your questions. In this rapidly growing industry, which seems to shift and change every day, planting your feet firmly on solid regulatory ground will serve to benefit you in the event of federal legalization, massive business growth or initiatives you may want to undertake in the future.