2023 has so far been a productive year for the New Jersey Cannabis Regulatory Commission (CRC), the government body tasked with overseeing the state’s medical and adult use cannabis markets. The licensing process since New Jersey first launched its adult use cannabis market has been slow, but intentional and systematic.
When the state first launched adult use sales in April of last year, only thirteen dispensaries in the Garden State had their doors open for customers. A little more than a year has passed and now 27 dispensaries at this time have opened their doors for adult use customers.
Holistic Solutions, a dispensary based in southern NJ
The CRC has been a busy body this year, issuing hundreds of conditional licenses to microbusinesses and standard licensees (temporary licenses awarded to applicants giving them the green light to obtain local approval, find real estate and apply for a conversion to an annual license). Of the annual licenses they have awarded in 2023 so far, 18 have gone to cultivators, 12 to manufacturers, 35 to retailers and one laboratory. That’s an additional 65 cannabis businesses given approval to start operations.
Just last week, Holistic Solutions, based in Waterford, New Jersey, announced that they started serving adult use customers. Holistic is New Jersey’s first Black woman-owned cannabis licensee, with Suzan Nickelson at the helm. “We are thrilled to have the opportunity to serve adult-use customers at Holistic Solutions,” says Nickelson. “Our mission has always been to provide education and access to natural healing solutions, and we are excited to continue that mission for all of our customers.”
The Cannabis Quality Conference takes place in New Jersey this year, October 16-18, 2023. Click here to learn more.Valley Wellness, the first independently owned dispensary to open in the state, also opened its doors to adult use customers last week in Somerset County. “While the market is expanding, it takes cannabis companies months, if not years, to open,” Sarah Trent, owner of Valley Wellness, told reporters. “So we expect our product selection will remain stable and similar over the next year or so. That said we are anxious to add new products made from local New Jersey growers and manufacturers.”
With all these new licensees and a larger marketplace comes tax revenue the state is eager to see. Back in March, legislators in the state approved a bill that would allow cannabis businesses to deduct ordinary business expenses on their state tax return that they are prohibited from deducting on their federal tax return, the dreaded 280E tax code that cannabis stakeholders know as a painful thorn in their side. Governor Murphy signed that bill into law yesterday, which should lessen the massive tax bills that cannabis businesses in the state are accustomed to seeing.
As the state’s cannabis market continues to blossom, a large number of those new licensees are expected to come online before the end of the year.
By Abraham Finberg, Simon Menkes, Rachel Wright No Comments
A little over a year ago, we at AB FinWright took a look at the newly-opened adult-use cannabis market in Montana and posed the question: Is Cannabis the Next Gold Rush for Montana? Now, with our 20-20 hindsight, we can see that cannabis sales have taken off in the Treasure State and the tax dollars are rolling in. But political infighting has arisen that threatens to derail the will of the voters who approved adult-use. In addition, arbitrary local approval has set many cannabis entrepreneurs on edge, wondering if they’ll have a business a year from now.
Sales: Predicted Versus Actual
When voters passed Initiative I-190 in 2020 and adult-use commenced January 1, 2022, the Cannabis Control Division (CCD) of the Montana Department of Revenue expected total adult-use sales in 2022 to top $130M. Montana’s imbibers blew that figure out of the water. By the end of last year, the Treasure State had notched up almost $210M of adult-use sales, alongside $93M of medical sales, for a total of almost $304M. With a state population of only 1,085,000, that translates into $280 of cannabis sales per capita. For context, Oklahoma sold $214 of cannabis per person in 2022, while California did only $135/person last year. (It’s estimated that 55% of California’s sales are made by illegal dispensaries, which would translate into a far more robust total of $301 of cannabis/person.)
How Has the Tax Situation Changed in Montana?
At the beginning of 2022, we noted that Montana charges a 4% cannabis tax on medical sales and a 20% cannabis tax on adult-use sales. A 3% maximum local tax was part of the new law, but only 3 counties had enacted it. Fast forward a year and 17 more counties have chosen to enact the local tax, all of them charging the maximum 3%. 10 states allow adult-use sales and have no local tax, which leaves 26 counties that have prohibited adult-use sales (the red counties).
The good news: wholesale sales are exempt from cannabis taxes, and there is no regular sales tax on retail sales, so there is no tax-on-tax (unlike California, which has sellers calculate and collect sales tax on the sale price of their cannabis products plus the cannabis excise tax they’re required to collect).
Montana does not follow Internal Revenue Code 280E and allows normal business deductions for licensed (legal) cannabis corporations, as well as pass-through entities and individuals with licensed cannabis operations.
As State Cannabis Tax Revenue Goes Up, Fights Break Out Over the Funds
Total cannabis tax revenue for 2022 was almost $46M and is projected to rise to $53M for the fiscal year 2023-2024, which starts this July 1, 2023.
Eyeing this revenue, Governor Gianforte (R) initiated House Bill HB 462 on February 17, 2023, whose intent is to funnel revenue away from state parks and wildlife as approved by the voters, and more towards law enforcement and the state’s general fund.
I-190, along with approving adult-use cannabis, specified that the first $6M in tax revenue would go for the state program Healing and Ending Addiction through Recovery and Treatment. All remaining funds would be split between the general fund 65%, various parks and wildlife programs (32%) and veterans and surviving spouses (3%).
HB 462 would see the general fund receiving 75%, law enforcement 7.5%, veterans and surviving spouses 5%, with parks and wildlife reduced to 12.5%. Many feel this subverts the will of the electorate.
On almost the same day as HB 462 was introduced, another bill was put forward, AB 420, which would eliminate the 4% cannabis tax and 3% local tax on medical marijuana. The bill’s sponsor, Representative Mike Hopkins, a Republican from Missoula, believes that adult-use tax revenues are “more than capable” of funding the adult-use program as well as the other addiction and parks and wildlife programs enumerated in I-190. The bill is being countered by the Montana League of Cities and Towns which believes that repealing that tax would create a $4.5M dent across those communities who instituted the local tax.
Both bills have been tabled in committee and will continue to be debated in the second half of the 2023 legislative session.
Retail, Cultivation & Manufacturing – Grandfathered Licenses Only, for Now
Original adult-use legislation stated that, from January 1, 2022, until July 1, 2023, only Montana medical licensees who were licensed on November 3, 2020 (or had an application pending with DPHHS on that date) might be issued a license for cultivation, manufacture or sale of adult-use marijuana. In an explicit effort to give current Montana-based dispensaries a temporary advantage over out-of-state players, the new law imposed an 18-month moratorium on all new licenses. Once the moratorium expires, new license holders will be limited to a small Tier 2 license, which restricts the amount of cannabis they can grow.
New license holders will need to show one year of Montana residency in order to even apply. That being said, there’s nothing stopping an out-of-state business from buying an existing business from a current Montana resident.
Near the North entrance of Yellowstone in Park County, Montana
In an update to this legislation, a rider was recently added to HB 128 that would extend the licensing moratorium two more years, to July 1, 2025. The bill was approved by committee on February 14, 2023 and will come before the House later in this legislative session. In a recent presentation on cannabis in Montana, Bozeman cannabis attorney Christopher Young commented, “I’ve talked to Jason Ellsworth (R, Senator, President of the Montana Senate), and I’ve been told HB 128 is going to pass.”
HB 128 Has Many Medical Cannabis Businesses Worried
The number of medical cannabis cardholders has dropped drastically since adult-use became legal, from 40,522 registered cardholders on January 1, 2022, to 22,325 on January 1, 2023, a reduction of 45%. For those dispensaries that initially chose to remain exclusively medical (18% of all dispensaries), as well as those that, for one reason or another, missed the boat to sell adult-use, they have seen a significant decline in revenue. Consequently, a significant number have been eagerly awaiting the July 1, 2023 to apply to sell adult-use cannabis. The possibility of having to wait an additional two years has them very concerned.
At a hearing on HB 128, Norman Huynh of Pacific Valley told lawmakers he believes he can’t continue to sell only to medical cannabis cardholders because he doesn’t make enough. “There are only a finite amount [sic] of cardholders left,” he stated.
An adjustment in HB 128 is being debated which would allow 16 medical shops to become adult-use that had applied for adult-use before January 1, 2022 but who didn’t complete the process. Without this adjustment, many of these medical dispensaries believe they’ll face bankruptcy.
Opt-In, Opt-Out – Fickle Counties Have Cannabis Companies Nervous
Initiative 190 legalized adult-use cannabis by default in the counties that voted for it. In 2021, the Montana legislature hammered out implementation of adult-use cannabis in House Bill 701, and one provision of this bill allows counties and municipalities to vote to opt-out of legalization.
Pray, a town near Livingston, Montana
Granite County, which became a green county when nearly 55% of voters approved I-190, chose to do just that, opting-out of adult-use sales on June 7, 2022. The county’s sole dispensary, Top Shelf Botanicals, had begun selling to recreational users and estimates 80% of its customers are now adult-use. It has responded to the opt-out by drafting a new initiative to get voters to opt-back-in to adult-use sales. Their struggle to re-win the hearts of Granite County’s voters is ongoing and appears to be an uphill battle.
While Granite is the first county to opt-out of adult-use sales, changing them from a green county to a red county, movement is under way to opt-out in Cascade County, Carbon County, Ravalli County and Flathead County, among others. The opt-out movement is gaining strength in the state and has Montana dispensaries concerned. “The opt-out provision is very problematic, and I think it’s more problematic than people recognized at the time,” says Kate Cholewa, lobbyist with the Cannabis Industry Association. “What other business would people accept being in the position of potentially losing their business every two years?”
Taxability of Discounted Products – Department of Revenue Parses the Details
Initially, it was thought that the Department of Revenue required cannabis tax to be assessed on the regular retail price of a product, even though that product might be discounted. However, the DOR now says this is not always the case. “If the discount is offered to all customers, as opposed to a discount that is offered to only a particular individual or group, the established retail price can change.”
Examples where the discounted price becomes the new, lower established retail price: every Friday you offer everyone a 20% discount on certain products, or, you offer discounts to medical cardholders only. An example of when you must charge cannabis tax on the original, non-discounted price: a discount offered to a particular group, such as veterans or students. (Why medical cardholders are not considered a particular group is unclear, but this information is from the state’s website.)
Tax Comparison to Other States
We stand by our original assessment that Montana is actually a low-tax state for cannabis operators. First of all, it doesn’t follow federal statute 280E, but instead allows the deduction of regular operating expenses on state income taxes. In addition, unlike some states like California, Montana does not charge sales tax on top of cannabis taxes i.e., it doesn’t charge tax-on-tax.
If one examines tax rates, while Montana’s adult-use tax is high at 20%, its medical tax of 4% is a low one. The local tax of 3% (compared with Los Angeles’s 10% adult-use local tax, for example) is quite low and is not charged by 37% of the counties that have adult-use sales.
And if AB 420 is passed and the medical and local cannabis taxes are repealed, Montana will truly enter the ranks of low tax cannabis states.
By Abraham Finberg, Simon Menkes, Rachel Wright No Comments
This is Part One where we examine the state of the market, licensing, approvals and sales. Part Two will delve into all things taxes. Stay tuned for Part Two, coming next week!
On the surface, New Jersey’s new adult use cannabis program is similar to the program of its larger neighbor across the Hudson. Like New York, New Jersey is attempting to right generations of social wrongs by providing support for disadvantaged applicants and expunging people’s records for prior cannabis-related offenses.
However, the Garden State is in many ways a more cautious state. It is, after all, one of only two states where it’s still illegal to pump your own gas. Although the Cannabis Regulatory Enforcement Assistance and Marketplace Modernization Act (the CREAMM Act) became effective August 19, 2021, New Jersey has gotten off to a slow start. April 22, 2022 marked the first day of legal adult use cannabis sales, and only thirteen dispensaries participated, all of them Alternative Treatment Centers (medical cannabis dispensaries) who’d received a coveted “Authorization to Operate” from the state’s Cannabis Regulatory Commission (CRC).
Types of Licenses
In addition to the standard types of cannabis licenses: retailer, cultivator, manufacturer, wholesales, distributor and delivery, New Jersey has also approved a microbusiness license, which will be limited to 10 employees or less and 2,500 square feet or less of operation space. A cannabis business may apply for more than one type of license.
The State Capitol in Trenton, New Jersey
The CREAMM Act limits the issuance of cultivator licenses to 37 (not including cultivation licenses issued to microbusinesses). However, the state has decided to abolish that cap in order to boost the sagging cannabis market, and the cap will expire February 22, 2023.
The CREAMM Act also describes three special sub-types of licensees:
Social Equity business – owned by people who have lived in an Economically Disadvantaged Area. Will receive special priority.
Impact Zone business – located in an Impact Zone (towns with higher-than-average unemployment, crime and cannabis arrests), owned by people from an Impact Zone, or employing residents of Impact Zones. Will also receive special priority.
License Fees
Licensing fees vary widely, from $1,000 for a microbusiness, to $10,000 for a retailer and from $5,000 for a small cultivator to $50,000 for the largest cultivation operation. Alternative Treatment Centers applying for adult use licenses will pay $100,000 for a single dispensary, $400,000 for a single cultivation license and up to $1,000,000 if they’re a vertically integrated business with 3 adult use dispensaries.
“FINAL AGENCY DECISION: APPROVAL” Doesn’t Mean Approval To Operate
As of February 9, 2023, approximately 950 cultivators, dispensaries, and manufacturers had received CRC letters marked “FINAL AGENCY DECISION: APPROVAL OF CONDITIONAL LICENSE APPLICATION.” However, the letter stated recipients “shall not engage in purchasing, possessing, selling…cannabis or cannabis products.” Instead, it gave permission to 1) rent/purchase a site, 2) gain municipal approval and 3) apply to the CRC to for conversion to an annual license, which will allow them to actually operate. The conditional license phase is 120 days with an automatic 45-day extension.
On October 27, 2022, the first 18 annual adult-use licenses, which do allow the holder to open an adult use cannabis business, were issued, and as of January 13, 2023, only 46 annual adult-use licenses had been awarded.
Notoriety doesn’t seem to be moving the time table much faster. Famous rapper and actor Ice T and his ex-playboy bunny partner, Charris B, have been given conditional approval by the CRC and have obtained location approval from Jersey City. They are now waiting for conversion to an annual license, which as of mid-February 2023, they had still not been granted.
Current Sales
From April 22 to the end of June, New Jersey had collected $4,649,202 in tax revenue from sales of adult use cannabis. That amount included $219,482 in Social Equity Excise Fees and was based on $79,698,831 in total sales of adult use cannabis. The 3rd quarter of 2022, July through September, saw a jump in sales of adult use cannabis in New Jersey to $116,572,533. With medicinal cannabis sales included, the total went up to $177,710,764.
Stay tuned for Part 2, covering taxes in the Garden State, coming next week!
When people have to make important decisions, we often consult a third party to increase our knowledge and confidence in a product. For instance, when choosing a car, an individual may weigh heavily on safety ratings and other awards from organizations such as Consumer Reports. These awards are often boasted and a heavy focus in car commercials because it tells the consumer that a third party has deemed their car valuable to own. For more than 100 years, the Association of Official Agricultural Chemists (AOAC® International) has operated in this exact manner, and has set the bar and guidelines for testing in the cannabis industry through its special program called the Cannabis Analytical Science Program, also known as CASP.
The CASP program is designed to develop standards and validation guidance to evaluate testing methods, as well as the methods’ ability to detect the target organism or compound on the cannabis matrix. With the addition of new states permitting the legal sale of both medical and adult use cannabis and no federal governing body overseeing testing regulations, the value of AOAC cannot be understated, as these guidelines allow cannabis testing laboratories to have their own third-party reference to look to when choosing a compliant testing method to implement in their laboratory.
AOAC was founded in 1884 by the US government as the standard setting body in the country and, in 1991, became an independent association known as AOAC International, with a goal of building a reputation as an international, consensus-based standard-setting body and a conformity assessment organization in analytical sciences. As an independent third-party resource, AOAC has the Performance Tested Methods’ (PTM) and Official Methods of AnalysisSM (OMA) programs for certification of analytical testing methods in both biology and chemistry.
If analytical methods, including proprietary test kits, are deemed acceptable, AOAC provides approved certification, their seal of approval that the method works as designed. Though multiple factors are considered to determine if AOAC approval is given; accuracy and precision of the method are among the most important. For example, when validating a cannabis method for microbiology, AOAC will contract an independent testing facility to conduct a series of tests with known spiked samples to measure the recovery limit of the target microorganism. This allows the organization to determine if the method is sensitive enough to be named an AOAC-approved method through either the PTM or OMA conformity programs. Another way of ensuring the validity of results is by conducting an inclusivity and exclusivity study on a method. In this type of experiment, target organisms are tested while also spiking with non-target organisms to see if there will be a high rate of false positives.
In cannabis, discussions have grown surrounding testing of four strains of Aspergillus, which are A. terreus, A. flavus, A. fumigatus and A. niger. By spiking cannabis with one of the four Aspergillus strains and on a separate sample with a non-target Aspergillus strain such as A. clavatus, it ensures that only the target strains are being recognized and recorded on the method being tested.
This methodology limits the likelihood of unconfirmed positives occurring, ensuring the validity of the results. Of course, when a method is undergoing an actual AOAC evaluation for approval, the testing requirements for both the sensitivity and inclusivity/exclusivity experiments are much more thorough than the explanation above.
Regardless of which AOAC-approved method you select, you can feel confident that most of the “heavy-lifting” is done and that the method is accurate and precise enough to implement in a cannabis testing facility. In turn, the cannabis testing laboratory then only needs to complete their own internal method verification to ensure the method works with their processes, people, environment and product, but on a much smaller scale and aligns with state regulations.
On a consumer safety level, AOAC-approved methods are designed to keep cannabis consumers safe. Whether they are an adult using cannabis or medicinal cannabis patient, the product that is being sold should be held to the highest safety standards. By having a laboratory that is utilizing an independently approved AOAC method, an additional layer of confidence is achieved that the product being consumed is safe. This ultimately limits the number of costly recalls from dispensaries and minimizes risk to consumers. At the end of the day, cannabis testing laboratories want to keep the public safe and it is our job to do so. This means implementing these independently approved methods from agencies such as AOAC at various touch points in the seed to sale cycle to ensure the data is validated and reliable.
Overall, just as it is equally important to get a non-biased and reputable third-party approach to your automobile search, a scientist that is responsible for choosing methods in their cannabis compliance laboratory should also consider these third-party approvals. As a scientist, the goal every day is to report accurate data to help the client and the consumer equally. The cannabis compliance laboratories are the last line of defense in preventing harmful or contaminated products from getting into the marketplace and any extra assurance we have with our testing methodology is always encouraged. Ultimately, AOAC’s work is important and their standard of quality and safety is a must-have in the cannabis laboratory.
Just over a month ago, a handful of dispensaries in New Jersey began selling cannabis to adults over the age of 21. The state issued licenses for adult use sales to seven alternative treatment centers (ATCs), otherwise known as medical cannabis businesses already established in the state. In total, thirteen dispensaries in the state started selling cannabis to adults over 21.
The seven companies awarded adult use licenses were Ascend, Curaleaf, GTI, Acreage, Verano, Columbia Care and TerrAscend. The state’s roll out created a lot of controversy over allowing already established, larger medical cannabis businesses and multi state operators to begin adult use sales before smaller businesses and social equity applicants get licensed.
Sales totals in the first month of New Jersey’s adult use market
Earlier this week, the New Jersey Cannabis Regulatory Commission (CRC) held a public meeting where regulators discussed progress, sales totals so far, conditional license applications and more. According to the meeting notes, between April 21 and May 21, retailers in New Jersey did $24,201,875 in cannabis sales with 212,433 transactions. During the meeting, regulators considered 46 conditional license applications and four testing lab license applications.
According to NJ.com, six new dispensaries were awarded licenses to begin adult use sales. Of the six new retail locations, Curaleaf opened their Edgewater location to adult use customers and Ayr Wellness received approval to begin adult use sales at all three of their medical locations in Eatontown, Union and Woodbridge. Ascend and TerrAscend also received approval to begin adult use sales act their locations in Montclair and Lodi, respectively.
About two weeks ago, the CRC testified before the state’s Senate Judiciary Meeting to share progress on the legal cannabis market, just over a year after the CRC was established. Jeff Brown, executive director of the CRC, discussed the agency’s goals and some challenges ahead of them. Brown says the CRC will be focusing on additional rules for adult use, modernizing the medical rules, enforcing regulatory compliance and information sharing in the near future. He also mentioned a couple challenges the industry is currently facing that they wish to address, including: expanding access to capital for entrepreneurs , removing impediments to finding real estate, educating municipalities to open up opportunities for applicants and ensuring medicinal cannabis access is unimpeded by recreational sales.
“We have made great strides in all of these efforts, and when we look at how New Jersey compares against other states, we fair pretty well,” Brown told lawmakers. “Beginning recreational sales on 4/21/22 was an important milestone. But it doesn’t mark the end of the process, it marks an important step in a multi-year effort to establish New Jersey as the premier cannabis market on the East Coast.”
Regulators in New York are continuing their push forward in launching the adult use cannabis market. They have approved 58 conditional licenses for hemp growers to begin cultivating cannabis for the adult use market. In just the past few months, the state has already awarded 146 conditional licenses for cultivation.
The Office of Cannabis Management (OCM) in New York also announced their “Get Ready, Get Set” virtual workshop series, designed to help social equity applicants prepare for license applications and better understand the conditional licensing program.
Earlier this year, following an amendment to state law, the OCM launched the conditional licensing program to ensure that hemp farmers in the state with a desire to grow adult use cannabis could get started in the 2022 season.
Applications can be filed with the OCM for conditional licenses through June 30, 2022, with a $2,000 non-refundable application and licensing fee. The licenses are only for farms that have already grown hemp in New York State.
“New York is building the most inclusive cannabis industry in the country and including small farmers with an expertise is an essential component in accomplishing that goal,” says Chris Alexander, executive director at the OCM. “The growing season isn’t waiting for anyone and I’m grateful for the hard work of the CCB and my colleagues at OCM to ensure these licenses are being reviewed as quickly as possible so New York’s farmers can take full advantage of the growing season and cultivate the products that our equity entrepreneurs will be the first to sell when they open their dispensaries this year.”
Once again, the U.S. Food and Drug Administration (FDA) has issued a number of warning letters to companies selling hemp-derived cannabidiol (CBD) products. This time around, the FDA sent these warning letters to companies that had statements on their website claiming CBD is an effective treatment or prevention of Covid-19.
In this latest round, the FDA sent a total of seven warning letters to:
Just some of the many hemp-derived CBD products on the market today
Earlier this year, a slew of preliminary research studies went viral for shedding light on promising signs that certain cannabis compounds could help treat or prevent Covid-19. The conclusions from most of that research is: It is still too early to tell if any of these studies will show evidence of cannabis treating Covid-19, let alone if they mean cannabis products can be used as a treatment or preventative for Covid-19. However, the research is significant and we should keep an eye on any developments that come from those studies.
The hemp-derived CBD market has a history of clashes with the FDA over health claims. Since the Farm Bill legalized cannabis with less than 0.3% THC back in 2018, the hemp-derived CBD market has proliferated, with all sorts of companies seizing the opportunity. Jumping on the health and wellness trend, companies incorporated this messaging into their marketing campaigns. Over the past four years, the FDA has issued dozens and dozens of warning letters and threatened enforcement actions to companies making unsubstantiated health claims about CBD.
While CBD definitely does have medical benefits, such as being used as an anti-inflammatory or anticonvulsant, preliminary research alone is not enough to say it does. Products need to be approved by the FDA with a new drug application (NDA) in order to make those claims. Therefore when companies make unsubstantiated health claims about their CBD products, like claiming it can prevent Covid-19, they are violating the FD&C Act by marketing “unapproved new drugs” or “misbranded drugs.”
The bottom line is companies that are marketing CBD products need to ensure that their marketing materials and labeling comply with FDA requirements and avoid making unapproved drug claims.
If legal cannabis isn’t already a key facet of American culture, it is well on its way. The multibillion-dollar industry is already ubiquitous in politics, and consumers are increasingly seeing various types of marketing from cannabis brands, from billboards to magazine ads to organic content on social media. It may not be long before sports fans see more of their favorite athletes talking up CBD products for pain management or even see a dispensary chain claim naming rights for a stadium.
The next big marketing frontier for cannabis brands is professional sports sponsorships. And in some respects, it makes sense that athletes might be natural brand ambassadors for an industry focused on pain management and mental health relief. But there are obstacles unique to the highly regulated cannabis market that, paired with the already legality-heavy proposition of sponsorship deals, mean a long road ahead. Here are some key considerations for cannabis and CBD brands looking to a future of sports sponsorships.
The Current Climate
Many leagues have already embraced sponsorship deals with CBD brands, from NASCAR to the United Soccer League. The four pillar sports in the U.S.—the National Football League, the National Basketball Association, the National Hockey League and Major League Baseball—have already relaxed their rules and testing protocols related to athletes and cannabis. In 2019, the NFL reached an agreement with the players’ union to study the pain management benefits of cannabis and in 2020, the NFL announced players will no longer be suspended for positive tests and increased the threshold of allowable THC for positive tests. And stars like powerhouse tight-end Rob Gronkowski and former Denver Nuggets Al Harrington in retirement have attached their names to cannabis and CBD brands.
After dismal profits through the COVID-19 pandemic, the “Big Four” sports leagues may want to consider opening an entirely new sponsorship category via cannabis and CBD. Additional pressure might come from athletes themselves, who want alternative treatments for pain and anxiety. As the public looked in from the outside as the MLB negotiated a new collective bargaining agreement and as leagues renegotiate CBAs generally, player pressure could continue to move the needle on league acceptance of cannabis products.
If sports leagues are expecting to allow cannabis sponsorships in the future, they are likely waiting for federal approval for cannabis
As much as this means less stigma for cannabis, it also illustrates the constant fragmentation that makes it difficult for cannabis businesses to operate like other companies. While the NFL, NBA, NHL and MLB have all eased up on players’ use of the substance, they haven’t embraced CBD sponsorships the same way other leagues have and currently won’t allow their athletes to seek CBD or cannabis sponsorship deals as individuals. Piecemeal state legalization, strict advertising rules, enduring federal prohibitions and a lack of FDA approval are the biggest barriers specific to the cannabis industry. And, while the “Big Four” leagues are not signatories to the World Anti-Doping Agency (WADA) Code, applying their own anti-doping policies, don’t look for cannabis sponsorships or endorsements of Olympic sports or athletes any time soon—WADA prohibits in-competition use of cannabis, although it is conducting a scientific review of the status of cannabis in 2022, indicating a softening may be forthcoming.
Paired with the issues typical to sport sponsorships generally, cannabis companies have much more to consider when seeking sponsorship deals.
Threshold Sports Sponsorships Considerations Relating to Cannabis and CBD
As a threshold matter, if sports leagues are expecting to allow cannabis sponsorships in the future, they are likely waiting for federal approval for cannabis and specifically, FDA approval for CBD products. The agency decided not to allow companies to market full-spectrum CBD as a dietary supplement in August, and formal guidelines may be years away as medical and scientific data materialize either supporting or negating the health claims. In the meantime, companies and their spokespeople cannot claim certain health benefits in advertising without FDA approval.
Cannabis itself is also still a schedule 1 drug under the federal Controlled Substances Act and has historically been listed among most leagues’ anti-doping bans, although as discussed above, it appears attitudes might be beginning to shift. Even in states where adult use and medical cannabis are legal, taxes are high and advertising rules are incredibly strict. They also vary from market to market. When Connecticut legalized cannabis in 2021, state Attorney General William Tong moved to have all billboards advertising Massachusetts dispensaries removed for violating the state’s cannabis marketing restrictions. With a web of intersecting, and at times conflicting, state regulations at play, national marketing campaigns are highly challenging. The crisscrossing markets on game days and the national exposure of most athletes in the Big Four leagues will likely implicate multiple jurisdictions, and multiple sets of advertising regulations that don’t always mesh. And, even if a policy decision were made to allow some territory-restricted sponsorship deals in the cannabis space, it’s unclear if and how cannabis sponsors could exercise even local broadcasting rights—a key value driver for any sponsorship deal.
Specific Sponsorship Considerations Relating to Cannabis and CBD
In addition to the above, the host of legal and business issues generally applicable to sports sponsorships deals will likely take on a different flavor with respect to cannabis and CBD.
From a commercial perspective, one of the key issues in any sponsorship deal is whether a sponsor will receive exclusive rights in a category. It’s important that sponsors take a critical eye to how a league may have “sliced and diced” that category. For example, a would-be cannabis sponsor may not be expecting a competitor to take up rights in the CBD space. But without close attention to how the sponsorship category is defined, any oversight here could lead to sharing branding space with unwelcome neighbors.
One of the key issues in any sponsorship deal is whether a sponsor will receive exclusive rights in a category.
In highly regulated industry categories such as gambling/casino and sports betting, league policies mandate strict compliance obligations on the part of the sponsor. We should expect to see a similar approach if leagues approve cannabis sponsorships. For example, in gaming and sports betting, league requirements often demand that sponsors notify the team or league of any compliance issues—no matter how nonmaterial, and no matter if they affect any rights or activities in the sponsorship territory. If there are compliance violations, leagues and teams typically demand immediate termination rights. The compliance and disclosure obligations for a highly regulated sponsor can be onerous, and sponsors risk losing their sponsorship investment even for trivial issues that do not bear on the sponsorship. For example, should a minor casino compliance violation in Las Vegas result in termination of a sponsorship deal in New York? Similarly, if a dispensary in Seattle operating under an interstate brand receives a de minimus fine for an inadvertent sale to a minor, should that result in termination of that brand’s sponsorship deal in Colorado? While these types of compliance and termination provisions are typically negotiable to something approximating fairness, look for leagues to take a hard-line stance on compliance issues, and expect that some teams may mandate deal terms that are take it or leave it.
Similarly, leagues and teams often demand strict morals provisions allowing them to terminate if they determine, in their sole discretion, that the sponsor or its activities might cause reputational harm to the team. Although cannabis is rapidly destigmatizing, one might argue that the industry is at least historically aligned with illegality and perhaps inherently aligned with other “sin” industries like gambling, alcohol and tobacco. Teams and leagues know what they are getting into when they accept sponsorship money from these industries, and cannabis sponsors should demand that any such “morals” provisions be exercised by teams only reasonably, in good faith, and with an opportunity for the sponsor to cure any alleged issues.
Further, just like gaming and sports betting operators, cannabis businesses are restricted from marketing to minors. While state laws are a hodge-podge, sales to individuals under the age of 21 are generally prohibited, and cannabis businesses are also generally restricted from marketing to individuals under the age of 21, or even from publishing marketing materials that appeal to children—a subjective standard. These rules, of course, are likely to restrict the type of signage and activation that can occur in stadia. It also poses issues from a digital marketing and data-sharing perspective. Sponsors and teams often negotiate specific activations via social media, websites and email marketing lists. But the parties must keep in mind compliance issues regarding these activations, including taking care to scrub relevant marketing databases of users under the age of 21 and, possibly, “self-excluded” individuals. The gaming industry is familiar with self-exclusion sign-ups, which permit individuals to opt out of relevant marketing and be disallowed from entering gaming establishments. The cannabis industry may not be far behind. In 2020, the Illinois General Assembly introduced HB4134, which if passed would have permitted self-exclusion from targeting mailings, advertising and promotions and from entry into dispensaries. While this bill died, it’s conceivable that we will see efforts to pass similar bills.
Finally, in 2020-21, sponsors, teams and leagues collectively, and regardless of industry, combed through the thorny issues of the COVID-19 pandemic. We can expect to observe a continuing trend of extra scrutiny paid to force majeure and so-called “make good” provisions for missed games or unavailable benefits.
bioMérieux, a leader in the in vitro diagnostics space and a supporter of the cannabis testing market, announced last month that they have achieved the first ever AOAC International approval for PCR Multiplex Detection of STEC and Salmonella in cannabis flower for their GENE-UP® PRO STEC/Salmonella Assay. The performance tested method approval for their new assay accomodates simultaneous enrichment and detection of STEC (Shiga Toxigenic Escherichia coli) and Salmonella spp. in cannabis samples.
The method is aimed at increasing efficiency in cannabis testing labs by reducing sample preparation time for microbiological testing. With the single enrichment and real-time multiplex PCR detection, bioMérieux says their new assay can provide reliable detection of STEC and Salmonella in 24 hours using just a single test.
PCR technology is one of the most widely utilized testing methods for detecting pathogens in a variety of matrices. bioMérieux claims it is easy to use, scientifically robust and reduces costs, time spent testing and errors.
Maria McIntyre, cannabis strategic operations business manager at bioMérieux, says that AOAC performance tested method approval is setting the bar for cannabis testing laboratories and furthering cannabis science. “AOAC International impacts cannabis science by setting analytical method standards that act as the benchmark for method validation,” says McIntyre. “This simplifies the validations needed by cannabis laboratories and assures the utmost confidence in product safety and human health.”
As we continue to witness and experience the medical cannabis industry grow and mature, many of us are wondering where the head-to-head clinical studies are, and why aren’t there more clinical research studies taking place?
Cannabis products created with the intention for medicinal use often state that their formulations and products stack up against traditional pharmaceutical treatments. However, without a substantial number of clinical studies being performed, it’s difficult to truthfully make such a claim. It’s one thing to share testimonials from people who use particular products and report what their experiences were like. However, to go head-to-head in a controlled environment where factors such as underlying conditions, height, weight, medication, lifestyle and nutrition habits are taken into account to accurately compare the efficacy of a traditional pharmaceutical product versus a cannabis-derived product are two completely different things.
The Need for More Capital
Wouldn’t you agree that if a company is having tremendous success with a particular product, that they’d reinvest capital into a true clinical study to have data to support their marketing efforts? Investing into proper studies would not only benefit a company working hard to earn market share, it would benefit those who are relying on a particular product to regain a quality life. As we’ve learned over the years from numerous scientists and researchers digging into the cannabis plant at a more granular level, there’s much more to the medicinal benefits than meets the eye. Discovering new information about how cannabinoids such as CBG and CBN combined with CBD and certain terpenes can create specific effects has helped make a greater impact on the medical cannabis community. Bringing these powerful blends of anti-inflammatory, cannabis-derived compounds and other immune boosting nutraceuticals to head-to-head clinical studies could be a huge step forward towards further legitimizing the healing effects that cannabis has to offer.
Measuring Efficacy Goes Beyond COAs & Product Reviews
Determining the efficacy of medical cannabis products should be viewed in the same light as traditional pharmaceutical products. Traditional clinical studies are designed with an Institutional Review Board (IRB) approval, subject recruitment, electronic data capture as well as electronic patient reported outcomes. Some companies within the cannabis space have made attempts to conduct surveys with measuring efficacy in mind, but using outdated survey technology that hasn’t been validated only leads to insufficient data collection.
Discovering new information about how cannabinoids can create specific effects has helped make a greater impact on the medical cannabis community. Image: Peggy Greb, USDA
There is nothing wrong with adult-use cannabis. However, for the medical cannabis space to be taken more seriously, it is time for organizations to step up their efforts and take note of certain practices from traditional biotech organizations when it comes to clinical research and collecting data to correctly quantify efficacy of certain products. Well-thought-out studies designed with clinical endpoints and validated questionnaires is a strategic way for the industry to take big steps towards doing what is right for patients.
Patients Are Asking For More Research
After speaking with patients who are interested in pursuing a treatment that includes the responsible use of medicinal cannabis, the one thing they all have in common is the desire for more information that they can rely on to make better decisions. Is it time for patients to push the envelope and not purchase products from companies that are not willing to perform the clinical studies? If companies suffered a loss in sales as a result, would they reconsider their stance on reinvesting capital into clinical trials with their products?
Equally as important as proper research is perpetual tele-monitoring. The value in perpetual tele-monitoring is the data. We can showcase miraculous, life-changing stories of how medical cannabis has helped people turn their lives around. However, when seeking greater buy-in from groups like the FDA, data is key. Qualitative data can go only go so far. It’s the quantitative data that will help move the medical cannabis community forward. The ability to be able to review data on an ongoing basis would enable medical cannabis companies to evaluate how products are working based on the electronic data capture, along with questions that a company may develop to ascertain individualized product feedback.
Imagine having the ability to see patients’ data based on real-time, daily, through something as convenient as a wearable device. Understanding test results and correspondence with doctors for patients would significantly improve.
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