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Flower-Side Chats Part 11: TILT Holdings

By Aaron Green
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Flower continues to be the dominant product category in US cannabis sales. In this “Flower-Side Chats” series of articles, Aaron Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

TILT Holdings (NEO: TILT) is a publicly traded cannabis company with business divisions including Jupiter Research, distributor of CCELL in the US, as well as cannabis operations Commonwealth Alternative Care in Massachusetts and Standard Farms in Pennsylvania and Ohio. Unlike many publicly traded companies, TILT has focused their business on B2B sales staying away from retail operations. TILT recently announced a partnership for vertical cannabis operations with the Shinnecock Nation on Long Island, New York called Little Beach Harvest.

We interviewed Gary Santo, CEO of TILT Holdings. Prior to joining TILT, Gary worked at Columbia Care where he was the vice president of investor relations. Gary has a background in finance with several startup companies.

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

Gary Santo: My career started about 26 years ago in finance at a startup. It was a financial services intermediary startup company where we did a lot of B2B work. From there, I branched out and continued to work with what I consider to be startup companies and companies going through a massive transformation. What’s been interesting is no matter whether that industry is finance, or whether it was gaming and leisure – where I was doing casino equipment – or whether it was life sciences, there were all so many common threads to how those businesses work. They were all complex and all had stories that needed to be told.

Gary Santo, CEO of TILT Holdings

I looked at cannabis around 2017 or 2018. A friend of mine said, “you should really look at this space, because this could be a great way to cap off your career. It’s an emerging space. It’s a story space. It’s a space that’s just looking for some level of normal operational competency.” So, I was lucky enough to find Columbia Care. I joined them back in 2019 and helped take them public. They were the first cannabis company I had seen that was focused on being pragmatic and operational, not flashy, like so many of the companies that went public. They showed me that there is a way and a path in cannabis, that can be pragmatic, that can be operational, and where certain business rules do in fact, apply.

In July of last year, in the middle of COVID, I joined TILT, because I saw an opportunity to have that rebirth story, that complete turnaround story. It’s a B2B story that fits almost every part of my career up to this point.

Green: You have business units within TILT that span a diverse array from cultivation to manufacturing and technology. How do you see the business units of TILT working together in synergy?

Santo: That was the first question that was posed when I joined. We had three divisions at the time. We had our technology and accessories division with Jupiter that focused on inhalation. This includes the power packs, the cartridges, all the packaging that goes into that and also packaging for cannabis in general, not just for vapes. We had the software and services division in Blackbird which also does a bit of distribution in California and Nevada. Then we had our plant-touching side with vertical operations on the East Coast.

We quickly figured out that the software and services were not a place where we had good line of sight. That market is very competitive and irrationally priced. So, we leaned into the other two parts of the business which were profitable. TILT went through a rebirth when it went public with the same kind of wide mandate in 2018 that a lot of companies had back then. They had acquired some interesting assets. Jupiter has been profitable since day one. On the plant-touching side, we have assets in Massachusetts and Pennsylvania, that are in underserved, limited-license and supply-constrained markets, and those were profitable as well.

The way they work together is if you think about Jupiter’s business model, they are a distributor of the CCELL vaping technology. It’s a ceramics-centered cart. They were instrumental. The founder of Jupiter, who’s the chair of our board, Mark Scatterday, really helped the Chinese factory, Smoore, who owns CCELL and the patents on CCELL, to develop that technology from their use in the tobacco space, which is where it had been for quite some time, and bring it into the cannabis space.

Jupiter has always had a forefront position as a distributor. We have our own R&D shop, but the way we sell there is B2B. We will sell vape cartridges and power packs either as stock items with Jupiter and CCELL logos or on a customized basis. If there’s a bespoke mouthpiece or something we can take one of our existing designs, white label it and put different badging or color combinations.

The CCELL business grew to over 700 customers, including MSOs, LPs, brands, and in about 36 different states and in 15 countries. As we looked at how best to lean into our plant-touching assets coming into 2021, the question was, could you replicate that where you own more of the supply chain? The issue with being a distributor is if you don’t own enough of the supply chains, the margins aren’t quite as eye-popping as they are in the plant-touching side. So, we’ve built a robust wholesale business, selling into about 90% of the retail stores in Pennsylvania from our manufacturing and distribution facility, and selling into about 50 or 60% of the retail stores in Massachusetts from our operations. We thought that created a strong window for us to do the same exact thing: offer up our facilities to create product whether it be on a bespoke basis with one of our brands, or a white-label basis, or straight-up contract manufacturing. We then leverage that distribution network, and that’s where the pieces all started to fit together.

We started this year with probably about 15-20% of our revenue was coming from people who were customers of both plant-touching and non-plant-touching businesses. We’re up to over 30% now and really, we just started leaning into the strategy in the start of 2021.

Green: In Q2 TILT showed continued growth in revenues and EBITDA with the Q3 report recently released. Where are you seeing growth in revenues right now? What’s got you excited?

Santo: With Jupiter, it’s been great to watch the vape industry come back. I think you could not have thrown much more at the vaping industry than what was thrown out there in late 2019, with the vape crisis rolling right into a respiratory pandemic. I think what we saw there was consumer demand remains strong. For every percentage point vaping was down, smokable flower is up. So, inhalation is clearly the absorption method of choice.

Obviously, the utility and the convenience of the vape was less important to people working from home. You can now smoke a pre-roll, whereas you’d never do that in your office setting. You might go outside and take a quick draw on a vape and then go back to work. That’s one of the reasons we saw a little bit of choppiness in 2020. We started to see that that business come back towards the end of the year with a lot more consistent ordering, and this year, it’s gone into full throttle. All-in-ones – the disposables – have returned to ordering so that means more power packs and more cartridges. It’s been a pleasant return to normalcy.

Now, I think Jupiter has been outpacing the broader vaping market in terms of year-over-year growth. That’s exciting granted the margin profile is certainly not as eye-popping as the plant-touching businesses. With Jupiter, we’re talking mid 20%’s on gross margin and low-to-mid teens on EBITDA.

Plant-touching aspects are where we’re super excited. These are facilities that a little over a year ago, prior management was thinking of selling off mostly because they thought there was tremendous value there. And it made sense. When I joined the firm, one of my first jobs was to look at a strategic view of the entire company and break down each of the business units. It became very clear that Massachusetts, Pennsylvania, and recently Ohio, we’re going to be the significant growth engines for us, but not necessarily in retail.

A lot of the MSOs go and play in several stores and focus on sales per square foot. We are leveraging that B2B wholesale strategy. That’s exciting to us and the approach that we’re taking. It’s not about selling bulk flower. It’s not about selling just our own brands. It’s about really partnering with brands that are going to be coming from West to East. Whether it’s California, Washington State, or Colorado, brands that have managed to stake out a claim in the most hyper-competitive spaces in a race to the bottom market in terms of pricing, have held their price point and held their ground. We think they play exceptionally well here on the East Coast where we’re just getting started. The East coast is nowhere near the depth of market that you see over in California.

What we offer, what makes it exciting, is that we’re not trying to buy those brands. We think brands are where this industry is going. But we don’t know which brands are going to win any more than anyone else does. We know it’s expensive to own a brand and it’s hard to keep a brand fresh. So, we’re doing partnerships and those partnerships are literally on a SKU-by-SKU basis. In some cases, it’s a straight licensing deal, and in other cases, we share the gross profit. Brands come in, like Old Pal, for example, and we’re able to educate them on how different it is to sell their ready-to-roll pack in Massachusetts compared to what they do in California from the packaging to the formulation, and what can be on the labels, all those kinds of things. It’s been eye-opening.

The feedback has been better than I would have ever expected. I knew we would land a few brands. I wouldn’t have thought we would have already signed four brands on something we just announced strategically in January. We had MJ BizCon, where we were getting hit up all over the place with additional brands. I think between that, and then the work we’re doing in New York State, it shows that we’re differentiated and how we’re approaching this market. We’re in this to last, not to just squeeze every last basis point and ride the wave into the shore. We want to still be out here playing in the ocean in any market, whether it be this market, the legalized market, or whatever the market throws at us.

Green: When you are partnering with brands, what does that look like?

Santo: It depends on the jurisdiction. In Pennsylvania, you can’t really do pre-rolls there. You can’t sell the ready-to-roll pack that comes with a lighter. I can sell the pouch with flower, but I can’t sell you rolling papers. I can’t sell you a lighter because you might “figure out how to put that all together and smoke a joint.”

Part of the issue is being able to marry what makes that brand, “the brand?” And how do we keep that brand fidelity when we know we have certain restrictions, whether it’s medical-only market in Pennsylvania, or THC levels in Ohio. That’s where we spend time working with the brands, helping to develop which SKUs they want to see hit the market first. Everybody says they want to be a number one brand in every market and it’s not realistic. You might carve out a niche if you want to be number one in a certain type of product. We work with brands to figure out where their niche is going to be.

Green: You recently announced a partnership with the Shinnecock Nation. How did you decide on a partnership with them? Why does it make sense? And can you talk to kind of the tribal aspect of it and how that differentiates you in the New York market?

Santo: We had been looking across the Northeast and want to build sort of some type of Northeast corridor for brands to come East because we think having that tri-state region right would be distribution most of these brands would love to have. We had been looking for ways to get into New York. It is incredibly expensive and incredibly difficult. We saw deals earlier this year. One was $75 million for the old MedMen assets and money has to be invested into building out the growth facility further.

My former shop, Columbia Care, spent about $45 million purchasing a bunch of greenhouse space on eastern Long Island. We thought the return on that kind of expense was just not there.

So, looking at how we look at brands and how we look at the market in general, we love partnerships where both sides are incentivized. An investor introduced us to Conor Green. They are a shop out of Chicago, and they had been advising a lot of different Native American tribes, including Shinnecock, on how to enter the cannabis space. We were very impressed when we met with the Shinnecock on how they were viewing cannabis. A lot of people want to just get in and ride that green wave I talked about and don’t fully understand how to translate the passion for the plant into a functional operating company. I was incredibly impressed by the thoughtful, pragmatic way the Shinnecock worked through setting up their cannabis control infrastructure on their sovereign grounds. They had their own standalone Cannabis Control Commission, setting up the regulations to mirror very closely what was going on in New York state where they are ready should that time come where wholesale can occur across sovereign state lines. They were really being thoughtful about what they were looking for in a partner.

A rendering of Little Beach Harvest, a dispensary and “wellness lounge” proposed for Southampton

We like the location out in eastern Long Island. The next closest dispensary is about 30 minutes away. It’s a great neighborhood with good access. We’re creating a vertical operation that has a large dispensary selling on the tribal grounds. The numbers look great. Once wholesale comes, and we do think wholesale will come to the state, the ability to reach all of New York State from that tribal ground is incredible. We have the ability to expand the facility if the demand is great. They’ve already approved adult-use on tribal grounds. Little Beach Harvest, which is the name of the Shinnecock enterprise we’ve partnered on, does have to go through the process of applying to the Shinnecock Cannabis Regulatory Division to get approval. But they’ve already got all the framework in place for both medical and adult-use. So, it gives us a chance to really get going strong in New York.

From a dollars and cents point of view, it only costs $700,000 to get in – about half in cash half in stock. If Conor Green hits their milestones and we get open when we think we can, there could be another two and a half million or so in stock. Every dollar we put in is now going towards building the facility, not towards just the right to build the facility.

We love this deal from a social equity standpoint. It’s unique. This is not a facility we will take over and own. At the end of the day, it is owned by the Shinnecock. They will be receiving 75% of the free cash flow. Our contract runs nine years and it’s got some automatic extensions if we hit certain milestones. If we decide to build bigger, that opens up the contract again. It’s a symbiotic relationship. We provide financing. We provide training. We provide the horsepower to help them scale. They provide the license. They provide the passion and the understanding of the plant, and really a great group of folks who are so interested in investing and seeing a true economic, sustainable engine out on that plot of land. We couldn’t be more excited.

Green: What trends are you following in the cannabis industry right now?

Santo: We are keeping our eyes on where the form factor is going. CPG is where we think the world is heading to at some point. I think in Massachusetts, it moves quicker. When you look at Pennsylvania, and as you watch these markets trying to transition from purely medical to medical and adult-use, we’re seeing some grinding of the gears. Some states did a great job. Pennsylvania is a little bit of a no man’s land where right now the legislature and the Department of Health are fighting with each other, saying one got ahead of the other. So, it’s hard to get new products approved. If you can’t get new products approved that migration towards adult-use becomes that much harder. You would want to broaden out the form factors. So, we are keeping an eye on what’s allowable in those states.

We are also keeping a strong eye on how we can expand further with additional partnerships, maybe in New Jersey, maybe in Connecticut, who knows? We must be responsible. Those deals take a while to find and a while to get done.

In the Northeast, there’s been a slowdown in cannabis sales. I think it’s too soon to know exactly what’s driving that. But it’s also an industry that’s going to normalize at some point from these explosive growth rates that have been reported for all these years. It was inevitable it was going to start to slow down. That’s what happens with mature industries.

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

Santo: I think every day I find instances of new uses for the plant. I was not one who thought much about cannabis growing up. I was a bartender. I was kind of on a different side of the world. But cannabis is amazing. I first was introduced to use cases by my dad. He’s suffering from arthritis in his knees, and he had gotten a medical card. He was getting CBD and THC balms that he puts on his knees.

As I look deeper into the plant, it amazed me that if this was a plant that was discovered today, and nobody knew anything about it, you’d probably be buying it down the aisles of Whole Foods. It’d be in every drugstore. It’d probably be over-promoted at that point. But it’s got that long legacy of prohibition, and social inequity. So, it’s making it harder to adopt. Obviously, being Schedule 1 doesn’t help either.

I am excited to see more and more people start to incorporate it responsibly in their mainstream lives and really promote a lot of that counterculture. It really is no different than other ways that people use to manage stress and anxiety and manage pain. That’s what keeps me coming to work each day, frankly. No, we’re not saving lives necessarily. But at the end of the day, I think we really are improving them and giving people alternatives to opioids and benzos and things like that. So, I think as long as that keeps happening, I’ll still be here.

Green: Okay, great. That concludes the interview.

Santo: Thanks, Aaron.

Cannin Commentary

A Closer Look at Village Farms

By Cannabis Industry Journal Staff
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Village Farms International (NASDAQ: VFF) manages and operates greenhouse facilities in North America. They’ve worked with growers for over 30 years and started supporting cannabis growers in 2017.  The company was founded by Michael A. DeGiglio and Albert W. Vanzeyst in 1987 and is headquartered in Delta, Canada. But is Village Farms stock a strong buy?

What is Village Farms International?

Village Farms International has a long history of managing and operating energy efficient grow facilities for agricultural crops. This includes cannabis, recently, and vegetables which bring in over $200 million in revenue annually.

Their 2021 acquisition of Pure SunFarms, one of Canada’s best known cannabis brands, gave them around $17 million in extra revenue and a large opportunity in the flower competition in Canada. Current goals have them taking 20% of the flower market share. They also deal in vapes, oils and infused edibles.

Bottom Line: Is Village Farms Stock a Strong Buy?

Village Farms stock shows plenty of promise. They have a large footprint in Texas as well, supporting hemp cultivation and processing into CBD products for distribution in the USA. With a small stake in Altum International, they also have a presence in Asia.

Excitingly, their subsidiary Balanced Health Botanicals, has come out with their Synergy Collections of SKUs (cannabinoids such as CBDA, CBG, and CBG with non-hallucinogenic mushrooms and Kava roots). These products will come as tinctures, capsules and drinks (around 31 SKUs pending) and should diversify their product offerings even more.

Their revenue remains strong, with adjusted EBITDA up 49% YoY and Pure SunFarms reporting 12 straight quarters of positive adjusted EBITDA. They have a lot of cash and are paying off their debt and recent acquisition costs quickly. With really low P/S, Price/Book and EV/Revenue ratios (all under 4) we see a bargain price now for a company that should slowly grow for the next six quarters.

Village Farms stock presents a longer buy and hold opportunity but the recent price drop (37% in 1 year?!) is making much more of an enticing deal now.

For all these reasons we rate VFF as Strong.

83% of Cannin’s fundamentals prove true within 30 days or less on 100+ recommendations over the past 3 years.

How Section 280E is Still Hindering the Cannabis Industry

By Jay Jerose
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The cannabis industry is an unprecedented industry and one under constant review and control. Following the November 2020 elections, fifteen states and Washington DC have legalized adult use cannabis, a number that will continue to grow as legalization slowly becomes more widely adopted in other states. Beyond that, a continuously growing number of states allow residents to purchase legal medicinal cannabis, and many have also decriminalized adult use. However, it still remains a Schedule I substance under the Controlled Substances Act and is therefore illegal on all accounts at the U.S. federal level, which creates a number of issues for businesses in the cannabis industry duly operating in states where it has been legalized.

Not only is it difficult for cannabis companies to avail themselves of alternative banking solutions, but there are also obstacles in place preventing these companies from taking advantage of notable tax deductions. The primary obstacle being Internal Revenue Code (IRC) Section 280E.

What is Section 280E?

Section 280E is a relatively short code section, only 77 words to be exact, but it carries significant weight and can have a debilitating effect on the taxable income of marijuana [sic] related businesses (MRB). Section 280E of the IRC prohibits taxpayers who are engaged in the business of trafficking certain controlled substances, including cannabis, from deducting typical business expenses associated those activities. Section 280E, which was enacted in 1982 during the “War on Drugs” era, has become increasingly relevant for cannabis businesses. The cannabis industry has grown substantially in recent years with annual market values expected to reach $30 billion by 2025.

However, while Section 280E greatly restricts the tax deductions of state-legal cannabis businesses, there is some reprieve. Current IRC provisions permit state-legal cannabis businesses, including growers, producers, wholesalers or retailers, to deduct the Cost of Goods Sold (COGS) in computing their US federal income tax liability, despite the application of Section 280E.

Impact of Section 280E on Businesses

 What does Section 280E mean for cannabis businesses today? It is intended to prevent dealers from claiming tax deductions for their business expenses, interpreted to include state-legal cannabis businesses, reduced deductions that result in increased taxable income and MRBs will face higher federal tax rates. 

The IRC disallows any deductions or credits paid or incurred during a tax year if those deductions or credits relate to trafficking controlled substances. The courts have taken the position that the term “trafficking” in this case means “engaging in a commercial activity – that is, to buy and sell regularly.” Simply, the law denies cannabis businesses any U.S. federal income tax deduction for ordinary and necessary business expenses, despite being duly licensed as a legal business in their state of operation.

Typically, the ability to deduct ordinary business expenses means that a business is subject to federal tax on its net income (i.e., gross receipts minus expenses). However, the definition of Section 280E and the classification of cannabis as a Schedule I substance severely hinders legal cannabis companies from taking advantage of tax deductions for actual economic expenses incurred in the ordinary course of business, which results in a significantly higher effective tax rate as compared to other businesses.

Legal Actions and Challenges to Section 280E

There have been court challenges and concessions made to Section 280E. Specifically, the 2007 court case Californians Helping to Alleviate Medical Problems, Inc., v. Commissioner. This court case reinforced the precedence that Section 280E does not apply to cost of goods sold. The Internal Revenue Service (IRS) defines cost of goods sold to be “expenditures necessary to acquire, construct or extract a physical product which is to be sold.” Generally, for a retail MRB, this means that the direct cost of acquiring cannabis products for resale. Deductions for rent, utilities, wages, insurance and other operating costs common to ordinary businesses are generally disallowed. New York State has specifically indicated that it intends to follow Section 280E for its own income tax calculations, disallowing these same deductions against New York taxable income

Tax Court and Section 280E

The Tax Court has also been aggressive in tamping down efforts by MRBs to separate cannabis related and non-cannabis related activities. The courts argue that these separate activities constitute a single trade or business when they share a close and inseparable organizational and economic relationship. In addition, the risk of cannabis related activities tainting a taxpayer’s other business concerns exists if services or employees are shared between an MRB and a non-MRB. Allocation of expenditures to cost of goods sold, as well as any allocations of costs between MRB and non-MRB entities, need to be well thought out and supported by defensible tax and accounting positions.

The Future of MRBs and Section 280E

All indications point to an increased frequency of IRS audits of MRBs compared to audits of non-cannabis related businesses. Therefore, documenting the methodology behind the calculation of costs of goods sold is even more important for MRBs. It is vital to consult with a tax advisor to ensure you are maximizing your cost of goods sold deductions and preparing the best documentation possible to support your 280E tax positions.

Disclaimer: The information presented in this article should not be considered legal advice or counsel and does not create an attorney-client relationship between the author and the reader. If the reader of this has legal or accounting questions, it is recommended they consult with their attorney or accountant.

Leaders in Cannabis Formulations: Part 4

By Aaron Green
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Natural cannabinoid distillates and isolates are hydrophobic oils and solids, meaning that they do not mix well with water and are poorly absorbed in the human body after consumption. Cannabinoid oils can be formulated into emulsions to form a fine suspension in water to improve bioavailability, stability and flavor. Vertosa is a cannabis infused ingredients company specializing in emulsion technologies. Their technology can be found in a range of CBD and THC containing beverages found on shelves today.

We spoke with Austin Stevenson, chief innovation officer at Vertosa, to learn more about emulsification technology and some of the challenges in testing cannabis infused beverages. Stevenson joined Vertosa in 2019 after spending time as a cannabis advisor at CanopyBoulder as an entrepreneur in residence. Prior to Vertosa, Stevenson ran the hemp and CBD analytical testing laboratory business unit for Eurofins.

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

Austin Stevenson: I got involved in the cannabis industry nearly seven years ago, when I was an advisor to an accelerator in agriculture technology in Africa. I went to the MIT Innovation Laboratory, and I saw a whole bunch of farmers cultivating green leafy vegetables in the middle of the Kalahari Desert, which piqued my curiosity. I learned that it was all done via hydroponic indoor cultivation and freight containers. I got back to the US and put my detective hat on, and learned that it was really the cannabis industry that was driving innovation in terms of indoor and sustainable agriculture. At that point, I took it as an opportunity to dive in and started, again, as an advisor at an accelerator in Colorado. From there, I’ve been on the amazing cannabis journey.

Green: And how did you get involved with Vertosa?

Austin Stevenson, Chief Innovation Officer at Vertosa

Stevenson: I became an advisor at CanopyBoulder to a few software companies and got on the founding team there as well as at a few cultivation companies and other license types across the supply chain. Immediately before Vertosa, I ran the business unit for hemp and CBD testing at Eurofins, one of the world’s largest analytical chemistry laboratories, specializing in Ag Pharma. My clients were your traditional retailers: CVS, Kroger. Our team analyzed thousands, maybe hundreds of thousands of SKUs of infused products.

At one point I had to tell one of my clients at Eurofins, that all of their beverage SKUs were failing potency tests. Their supplements, OTC products, some of the confections, cosmetics, were all passing, but the beverages were failing potency testing. Cannabinoid ingredients were floating to the top, sinking to the bottom, even leaching into the can liners. It just wasn’t working, so we had to tell them that those beverages could not go to market. On this same day, I happened to run into my longtime friend and business partner in the industry (now Vertosa CEO) Ben Larson at a conference in Oakland, who was running the Gateway Incubator at the time, but had met our other partner and founder, Dr. Harold Han. Ben told me, “I have this PhD chemist, a surface chemist from BioRad. He’s been experimenting with techniques, taking cannabis oils and turning them into fast acting emulsions for beverages. I’d like for you to check it out because I’m considering building a business around this.” I said, “Alright, show me the technology. Let me take it back to the lab, analyze it, verify it, and then try it. See if it works.” Lo and behold, it did. I fell in love with the product. I saw the problem firsthand at my lab and now I saw a solution, so I knew that the next part of my cannabis journey would be to join Ben and Harold in building a business together focused on being the number one technology solving the problem of stability and potency for the infused beverage market.

Green: What is the core technology of Vertosa?

Stevenson: Our focus at Vertosa is being the best delivery mechanism for cannabinoids. That means that we have a portfolio of different technologies that we’re using to take cannabis oils and turn them into fast-acting liquid emulsions, as well as powder-based APIs. When we began, we were using nano-emulsification. We are using nanotechnology in the food space, with a few different methods for creating those nano-emulsions, to infuse a diverse range of different products – everything from seltzer waters to dealcoholized wines and teas.

Green: So, it’s a portfolio of products with the basic idea of encapsulating the oil into smaller components. Can you highlight some of the challenges when you were first developing the product with testing? My assumption is that it was relatively new for testing labs. How did you support method development with them so that you are accurately reporting cannabinoid content?

Stevenson: The biggest problem that we faced at Vertosa is that there’s no one size that fits all. The chemistry of an infused seltzer water is different than the chemistry of a dealcoholized wine. The reason is because, quite literally, the ingredients are different. They’re different products. When we’re making the emulsions for these beverages, all the ingredients have to be compatible – the ingredients in the emulsion as well as the ingredients in the beverage. We’ve had to design a portfolio of different emulsions for different beverage types to ensure compatibility in any scenario, otherwise there could be instability, causing separation between the emulsion and the ingredients.

Additionally, we’ve seen challenges in the packaging type as well as the manufacturing techniques, specifically sterilization, thermal processing, chemical treatment, or the lack thereof. These three core variables (ingredients, packaging, and manufacturing technique) are where all the challenges in potency testing arise. For example, you have an infused beverage that is going to be packaged in an aluminum can. There is a polarity between cannabinoids and the can aligners that ultimately could create leaching, or an absorption type of effect.

At Eurofins, we would see beverages that were supposed to contain CBD in the can but were testing at 0 milligrams, despite manufacturers confirming that they had added the CBD. All the CBD had been absorbed into the can liner. Our teams of method development chemists and management had learned to acid rinse the can liner so that we would be able to capture the cannabinoids and identify them. That was a step that we had to learn through trial and error, and we were able to bring this over and build upon this at Vertosa.

Here at Vertosa, the biggest challenge in the lab currently is that there aren’t consistent methods for analyzing beverages. Every lab has different standards, and the instrumentation hasn’t always been calibrated. To ensure that these low dose beverages are measured properly, you have an accurate LOQ to identify the cannabinoid content. Part of the challenge is that the analytical chemistry community has only started to collaborate here recently, literally in the last few months as the AOAC made a call to action for methods for beverage.

At Vertosa, we’ve had to work together with the labs and ask if they have a method for developing beverages. It’s a three-step approach: we send a lab the oil, the emulsion, and the finished product, and ensure that the accurate cannabinoid profile is being diluted across the entire chain to make sure that each step the instrumentation has been calibrated the correct way. We want to make sure that they calibrate it into the HPLC and that the correct cannabinoid profile is always consistent in the finished product. It’s a lot of intimate hand-holding with the labs.

Green: So, you took it upon yourself to go out and get the methods validated, anticipating the need for finished goods testing with your customers and partners?

Stevenson: That’s right. From the beginning, we understood that the problems we are setting out to solve are consistent potency testing and accurate dosing. We wanted to be able to say confidently that when you work with us, you’re going to pass potency tests every time. And if you don’t, we’re going to uncover the reasons why.

For us, we have been able to provide that consistent and reliable ingredient. And yes, there’s been stumbles along the way, but those stumbles are the learnings that make us better. In the beginning, we had just one formula but the chemistries of different beverages vary too much for that to work. We also know that packaging type and manufacturing processes play a role. So, we now have a portfolio of different emulsions, such as conventional, natural, and organic, that can work with any given varibale and that have verifiable potency.

We anchor ourselves to the promise that our clients will pass potency, because that’s the biggest problem most brands have.We know the ingredients inside and out – knowing how heat plays a role, how polyphenols play a role, how oxygen plays a role, and helping the labs and our brand partners succeed while minimizing all the risk and pain that they go through with failed potency. You’d be surprised how many people are using the wrong product in formulation. A new client will come to us frustrated after adding CBD isolate powder to their beverage and seeing it fail potency tests. That’s where we’re able to come in and correct the course.

Green: Someone comes in with a magic wand. What do they solve for you?

“Efficacy research is the most interesting aspect of industry research to me.”Stevenson: If I had a magic wand, I would use it to accelerate efficacy research to validate and verify specific cannabinoids/terpene formulas for targeted effects. In other words, I’d love to have a peer-reviewed, scientifically validated cannabis formula for any desired effect, like anxiety or pain relief, aid in sleep, or increased energy, for example. At Vertosa, we’re currently investing in third party academic research to empower our clients with validated information; however, it takes a lot of time, money, and effort conducting research and clinical trials. It’s a long but essential and beneficial process!

Green: What trends are you following in the industry?

Stevenson: In the world of edibles and ingestibles, I’m extremely interested in exploring onset times and bioavailability technologies, as well as trends in ingredients. More of our clients are interested in rapid onset times so that consumers feel the effects within minutes of consumption, removing some of the stereotypical hesitation around edibles and wondering when “it’ll hit.” It’s also fascinating to explore and integrate minor cannabinoids as well as active and functional ingredients and how they interact together in an ingestible.

I’m also extremely interested in keeping up with changing regulatory policy around consumption lounges and access in recently recreational states. Open consumption lounges are a fantastic solution to further normalizing cannabis usage and decentralizing alcohol in our culture, as consumer behavior is increasingly reflecting a move away from alcohol towards more health-conscious choices.

Green: What are you most interested in learning about?

Stevenson: Efficacy research is the most interesting aspect of industry research to me. Most of us cannabis professionals are passionate about the plant, and anecdotally know how cannabis can be used to improve quality of life. However, the scientific and academic community needs to see hard evidence. As we build the industry in a post-prohibition era, there is more access to research grants to evaluate the efficacy and safety of cannabis. The National Institute of Health (NIH) has identified four (4) key areas of cannabis research eligible for grant funding: (1) cannabinoid research (2) cannabidiol research (3) endocannabinoid system, ECS research, and (4) therapeutic effects of cannabinoids. It’s the latter two, ECS and therapeutic effects, that really spark my curiosity. At VERTOSA, we’re spending a lot of time and resources with our Scientific Advisory board to help accelerate this research, and I’m personally excited about the forthcoming discoveries we make, which will help our entire industry grow and thrive!

cannabis close up

The Future of Cannabis: Perspectives from Industry Leaders

By Aaron Green
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cannabis close up

With 2022 comes a new year for cannabis. Mid-term elections, political forces shifting and several cannabis-related bills in the legislature make federal legalization seem like a reality closer than ever before. On the cannabis market’s side of things, disruptions are always occurring. Consumer spending on different product categories, new technologies for extraction processes, new cannabinoid and medical research and entirely new types of products including things like nanoemulsion tech have all been playing a role in market trends.

As our readers have probably noticed, we’ve been publishing conversations with industry leaders from every corner of the market. For this piece, we wanted to do something different. Instead of showing you a conversation with one individual, we asked the same question to seven different leaders in the cannabis space during interviews. The idea here is to see what interests people most in the cannabis industry. Are they excited about new research? Or new product development trends? Or do they believe a certain market is headed in a new direction?

So, what trends are you following in the industry? Below you’ll find seven responses to that question from various leaders in the cannabis space. We also want to hear from you though. What trends are you following? Leave a comment at the bottom of the article and let us know!

What trends are you following in the cannabis industry?

Brooke Butler, VP of Partnerships at Simplifya

Butler: I am obsessed at this point with the new states that have legalized, especially on the East Coast, like New Jersey and New York. I’m interested in the local jurisdictions and what’s going on with people opting out or opting in and how that’s playing out. The interesting thing about the pandemic is we had so much more cannabis reform than anybody expected. We went fast because suddenly, jurisdictions now need more money. They have budget shortfalls that they’ve got to account for, and I think they’re starting to realize that cannabis is a great way to do that. If I’m in New York, and I don’t have an adult use store, but New Jersey is about to open all their adult use stores, everybody’s going to be driving across state lines and giving that tax revenue to New Jersey. So why not regulate it and make it safe for your constituents, and get tax revenue for your jurisdiction that you can then put to use for education, or community centers and things like that? So, we’re really seeing the evolution of that change and California is a great example of that. We’ve seen a lot of jurisdictions where when the state first legalized back in 2018, they were like, “there’s no way we’ll ever do it,” and they’ve started coming around. That for me is really exciting. I love watching people’s minds shift and trying to figure out what’s really driving that.

Arthur Jaffee, Founder & CEO of ECS Brands

Jaffee: I’m following the regulatory landscape closely. There’s a lot of confusion and complexity around that topic. There are different cannabinoid conversion procedures for delta eight now and all these other derivatives to THC have made things much more complicated from a regulatory standpoint. There’s also been an increase in production of cannabinoids from non-cannabis sources where there’s no evidence at all yet in terms of proving safety. At least with cannabis, we have decades of public use, safety and consumption data that really supports a generally safe product profile. With some of these synthetically derived cannabinoids, people just assume that “bio-identical” guarantees being safe, but there’s no evidence and therefore should absolutely not be assumed. Synthetic cannabinoids require extensive research because the slightest modification in molecular composition can be very dangerous. Evidence is key, and it just doesn’t exist yet. We know that cannabinoids that are naturally existing and derived from the plant are safe, and ultimately designed for the body. when you start manipulating the molecular composition it may be hurtful.

Ricardo Willis, CEO at Hanu Labs

Willis: Hotels and restaurants are a big thing for me. I talked to a few people last night who own a restaurant in Oklahoma, and they’ve gotten one of the first permits to be able to include cannabis offerings in their restaurant. Our products fit well in resort, hotel, or restaurant settings, especially when you want to offer customers a safer device to use. Having been a chef, I can just imagine all this food on the table and then having a vaporizer that is portable flip over on the table, ruining everything. So, I want something that’s stationary. It’s right there, as the centerpiece. Also, people are going to use cannabis in these places, like hotels no matter what. So, do I want somebody using a blowtorch to light their rig? Or do I want someone using a safe device that has automatic shut off and things of that nature. So that’s important.

Lastly, pricing is a trend that I’m following closely. We’ve seen a huge dip in the pricing in California flower. I want to see if that trend is going to matriculate over to the concentrates, which is one of my favorite spaces because I’m a dabber. I know that vape carts are losing some steam in the pricing categories. We saw one-gram carts that were $60, several months ago. Now companies are offering one-gram carts at $28. It’s going to affect the industry.

Marc Lakmaaker, SVP of Capital Markets at Audacious

Lakmaaker: I’m looking at how brands develop in markets and what kind of what products resonate. You’ve got the cannacurious coming in, you’ve got new demographics coming in. And then you’ve got the existing cannabis culture. For companies that are authentic, it’s very important to have that connection to the culture. It’s more than just about cannabis, it’s about lifestyle. But then on the other end, there’s a lot of people that are coming in for a variety of reasons, the medical, recreational, whatever. So, what I’m trying to look at is what is resonating with which target groups. What kind of products really hit this spot in terms of branding, but also the actual product offering and trying to see if we’re seeing a movement towards either form factors, or entourage effect kind of products, terpenes, etc. so you know, what do people want.

I’m seeing that increasingly, if they’re cannacurious that are coming in and get acquainted with cannabis over certain period of time, they’ll probably go for a lot of value options. But then same as with certain alcohol cool brands, or fashion or whatever, we are now seeing a movement where the people that have been in the market for six months to a year are I slowly move into the higher ends. I think that’s something that’s happening, where people who have been in cannabis for a while are now becoming more discerning in the products that they’re going for, and how do those mechanisms work.

Sam Andras, AIA, Principal of MJ12 Design Studio and Executive Vice President of Professional Services at urban-gro (Nasdaq: UGRO)

Andras: One of the most fascinating things to me about this industry is everyday there seem to be 10 new technologies.   Eventually, one of those technologies is likely to be successful. You’ve got things like grow pods, you got Agra fi, modular, rooms, modular driver, and semi. This industry is filled with trending technology. And I think one of the greatest challenges as an architect is to understand how to work with the client, to really understand their philosophy and what they’re trying to accomplish and working with their grower. It is important not to restrict a grower to one specific cultivation method, but to explore how you can design a facility that allows a client to modify a cultivation methodology down the road. Designing flexible facilities that can adapt and adopt the future technologies is critical.

Derek Smith, Executive Director of Resource Innovation Institute (RII)

Smith: So, I see the need for MSOs and certainly publicly listed companies, to report on ESG. We are essentially the “E” of the ESG. We have the environmental data on energy, emissions, water and waste, to support the MSOs with that data need. That to me is a perfect storm where there’s pressure to do the reporting and we have a tool and an infrastructure that’s broadly supported, recognized by governments, by utilities, by cultivation operations, supported by the supply chain. We’re here to help serve that need. We’re a non-profit. We’ll protect the data of the companies, and then they can get in the queue to be recognized as leaders for being part of this effort. That to me is an exciting trend right now. Everybody wants to make a commitment and show progress on sustainability and we’re going to help them be able to do that.

Tyler Williams, CTO and Founder at CSQ

Williams: I think the big one right now is the delta-8 THC, especially on the CSQ side. We’re watching that and looking at how we need to adjust our standard. On November 1, we have our next Technical Advisory Committee meeting, and we’re going to be talking about the next revisions to the standard. Delta-8 is going to be one of the things we’re going to be talking about and something that we’ve been watching and trying to educate ourselves on, because there’s not just going to be delta-8, there’s other ones that are coming on the market that are going to be, you know, essentially the same as delta-8, where they’re in this gray area. We don’t want just the government to say, “Nope, you can’t do this at all.” Hopefully we can help the industry a little bit by at least providing some standardization there. That’s probably the biggest trend that we’ve been watching.

The Do’s and Don’ts of Cannabis Labeling

By Jon Bernard
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As more states legalize the use of cannabis for both medicinal and adult use, the market is growing exponentially. For growers and dispensaries, that means bringing their ‘A’ game when it comes to marketing their cannabis products – and that includes labels.

Not only do your cannabis labels need to be compliant with regulations, but you also need to make sure they stand out from the competitors. However, while creating a label seems like it should be easy, it can be a challenge to navigate the complex and murky legal landscape.

But don’t worry, we’ve got your back! Let’s take a look at the key federal regulations you need to be aware of, what NOT to put on cannabis labels and expert advice to help you find the perfect label material for your brand. Let’s get started.

Cannabis Labeling Requirements: What You Need to Know 

As of now, cannabis has not been ruled legal in all 50 states. However, states where cannabis is legalized determine their own set of rules and guidelines. These legislative guidelines are constantly being updated and revised for the labeling and packaging of cannabis products, so staying compliant can be challenging for dispensaries and manufacturers.

It’s important to follow general federal regulations for your product, such as the nutrition facts section (Image: TEKLYNX)

Since packaging laws vary by state, it’s important to follow general federal regulations for your product, as well as check your state for cannabis-specific label requirements.

At the very least, you should understand and follow cannabis labeling regulations in accordance with the Federal Food, Drug, and Cosmetics Act (FDCA). Let’s dive right into the basic elements that FDCA requires when labeling cannabis products.

  • Name and Location of Business: It is critical to always include the name and location of your business on both the inner and outer information panel. In doing so, customers always have a way to contact you for any questions. If you are worried about taking up too much space, a QR code is a great way to offer additional information.
  • Product Identity: Is your product meant to be used for adult or medicinal use? You must include what your cannabis product is or does on the Product Display Panel (PDP) so it’s easy for customers to locate.
  • Net Quantity of Contents: Net quantity refers to the total weight or volume of a finished product (excluding packaging) and is federally mandated on labels. For packaged liquid cannabis products, net quantity should be labeled in fluid measure. Meanwhile, packaged solid, semi-solid and viscous cannabis products should be labeled in dry weight.
  • Warning Statements: Since cannabis is still listed as a Schedule 1 Controlled Substance, it’s recommended to include warning statements for the specific product types. For example, the warning statement should stay “for medical use only” for all medical cannabis products.
  • List of Ingredients: You must include a complete declaration of all ingredients in your cannabis product. This must be listed on the informational panel on the outer packaging. If there is no outer packaging, then it must be placed on the product package itself.
  • Disclosure of Critical Facts: In general, this includes critical information that customers would want to know when buying your product. This can include:
    • Suggested use for the product
    • Application instructions
    • Expiration date 

What NOT To Put On a Cannabis Label

Proper cannabis labeling can ensure you remain compliant with regulations and legal requirements. Without compliance, you won’t be able to sell your products and could lead to a hefty fine – and nobody wants that! Here are the things you should stay away from adding to your label:

Unapproved Health Claims: As of now, both federal law and state laws do not recognize cannabis as a dietary supplement or substance that can help prevent, cure or treat serious diseases. For that reason, your safest bet is to stay away from making any false health claims on labels and websites.

An example of a cannabis flower label in Oregon with all of the required information.

Obscured Fonts: Text and font issues can muddle the look of your cannabis label and land you into compliance issues. Most states require cannabis labels to have a font and text size that is prominent, clear and easy to read for information panels. Therefore, it is critical to find typography that showcases your brand while maintaining compliance with federal and state regulations.

Faulty Ingredient List: Cannabis labels must accurately include the types of compounds present, it’s percentage and dosage found in the product. Plus, it is required that all cannabis products include cannabinoid profiles and provide a list of any active ingredients.

Considerations for Labeling Materials

To cut through the noise in a highly competitive retail environment, it’s critical to carefully consider the label materials for your cannabis product. Here are some things to consider.

Label Material Choice: Polypropylene or Paper

Take into account what your cannabis product is (tincture, gummies, etc.) when choosing your label material. For example, if it’s a liquid cannabis product, your label can come into contact with the liquid itself, causing damage and risk the label falling off over time. For that reason, the polypropylene label would be the better choice because it’s waterproof, oil-resistant and offers more durability. On the other hand, if your cannabis product does not require a lot of protection and you are looking for a more affordable option, then paper labels would be the better option.

Coating Choice: Matte or Glossy

Choosing between matte or glossy finish depends on your preferred brand aesthetic. If you are looking to dazzle some customers and have a vibrant design on your cannabis label, then it’s best to choose a glossy finish because it holds the ink better. As a result, your label design will appear striking and crisp when printed! But, maybe that’s not the vibe of your cannabis brand so you’re looking for something more traditional. If so, a matte finish is a better choice because it absorbs some of the ink – producing that vintage, distressed look!

Final Thoughts

Your cannabis products deserve to stand out and shine in this booming market. But your product won’t even make it to the market if you are not following label requirements. Proper cannabis labeling ensures that the product is compliant, builds trust with your customers and boosts your credibility within the space. Since requirements are constantly evolving in this new industry, you must always triple-check with both federal and state regulations for the most up-to-date information in regards to cannabis product labeling. In doing so, you’ll be able to design an enticing package with proper labels that will earn heart eyes from consumers, while providing essential information about your product.

At Delic Labs, We Have a Dream: A Cannabis Better Future

By Dr. Markus Roggen, Amanda Assen, Dr. Eric Janusson
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Many people associate cannabis with eco-friendly, counter-cultural movements, but we know the environmental impacts of the cannabis industry are significant. Given the climate crisis, cannabis production companies have a responsibility to ensure future demands of the industry are met in an environmentally sustainable way. We also know that as the world is seeing the impacts of climate change, consumers are changing their spending habits 1. As a result, companies also have the financial incentive to seriously consider implementing more environmental policies, to align their interests with the interests of consumers. Unfortunately, restrictions on cannabis research and the legal industry create barriers to implementing many environmentally friendly alternatives in production. However, this does not give us an excuse to do nothing while we wait – there are many steps that can be taken while we work to overcome these barriers. Our team at Delic Labs aims to help companies ensure the environmental and economic sustainability of the cannabis industry. So, we did some research and developed the Cannabis Better Future (CBF) concept, a guide that considers the impacts of cannabis cultivation and processing on the environment. The pillars of CBF are:

  1. Use of renewable/recyclable materials in production

The packaging used for legal cannabis products is infamously excessive. A standard 3.5-grams of dried cannabis is estimated to come packaged in more than 70 grams of plastic. This seemingly redundant packaging is done to meet regulations surrounding cannabis packaging that often require single-use plastic with labels and warnings at specific sizes 2. Despite this, there is work being done to get biodegradable packaging approved in the industry.

More companies, such as Knot Plastic, are using plant-based materials to provide medical-grade biodegradable alternatives to single-use plastic 3. As members of the industry, we should support these companies and call for regulations to approve biodegradable packaging. As for immediate actions that can be taken, we can turn to companies that reduce the amount of plastic from the industry that ends up in landfills. The Tweed x TerraCycle Cannabis Packaging Recycling Program accepts all cannabis containers from licensed producers in Canada – free of charge – and melts down the plastic to create new products 4. This includes tins, plastic bags, tubes and bottles with child-proof caps. The program has saved more than 165,000 containers from ending up in landfills.

  1. Upcycle biomass waste

It is estimated that for every pound of cannabis harvested, up to 4.5 pounds of plant waste is generated 5. Cannabis biomass waste can be discarded in four different ways: via landfill, composting, in-vessel digestion or incineration 6. Cannabis bio-waste usually ends up in landfills because this is the cheapest method. However, landfill disposal represents a missed opportunity for companies to use biomass waste for economic and environmentally-friendly uses.

Converting biomass for other uses will drastically limit waste

To reduce landfill waste, some companies are looking at sustainable bio-circular solutions, where cannabis biomass is converted into something of industrial use such as compost, bio-plastics and paper packaging for cannabis products 7.  The easiest way to reuse cannabis biomass with current regulations in place is to upcycle it to produce compost and greywater that can be used for industrial cultivation 8. Currently, bleach is commonly used to remove THC from biomass, making it unfit to be used for these purposes 6. However, Micron Waste Technologies Inc. have shown enzymatic denaturation can be adopted on the industrial scale to remove THC from the biomass, resulting in reusable water and compostable matter 8. Turning to this alternative method would also reduce the amount of required fertilizer and replace bleach with a more environmentally-friendly solution.

  1. Recycle production side streams

Terpenes are the compounds in cannabis that give it distinctive aromas and flavors sought after by consumers.During the cannabis drying stage, over 30% of terpenes can be lost along with the water phase from the product 9. This terpene-containing water phase gets trapped in drying rooms and decarboxylation ovens and is usually thrown out. To reintroduce the terpenes in their products, companies usually purchase them 10.However, they instead could be recapturing terpenes that are otherwise going to waste, and re-introducing them into their products. Recapturing terpenes would not only reduce the production and shipment energy that goes along with purchased terpenes, but also the costs of buying them.

There are many other wasted by-products that can be recycled. Ethanol that has been used as extraction solvent can be reused as cleaning solvent, reducing the need to purchase ethanol separately for cleaning purposes. Further, the condensation caught in HVACs can be recycled to water plants.

  1. Optimize production energy efficiency
LED lights use less energy and omit less heat than other more traditional options

A study by Summers et al. 11 found that from producing one kilogram of dried cannabis flower, the emitted greenhouse gasses emissions range from 2,283 to 5,184 kg of CO2. Electricity used for indoor cultivation is the major culprit in producing these emissions. In fact, over $6 billion is spent annually to power industrial cannabis growth facilities in the U.S. alone12. Growing outdoors is significantly more energy efficient; however, non-auto flowering, high-THC cannabis plants depend on the specific timing of daylight (and darkness) to grow properly 13. Optimal conditions for these plants are not always achievable in outdoor setting. Meanwhile, auto-flowering plants that are hearty outdoors are generally lower in THC content 14. Promoting research into generating more stabilized cannabis cultivars may help outdoor growing be a more feasible solution. Given the recent work being done with genetically modified and transgenic plants, upregulating THC production in cannabis and increasing the heartiness in different climates is well within the realm of possibility 15–17.

In the meantime, cultivation facilities can do their part to maintain a controlled growth environment with reduced energy waste. Companies that are still using high-intensity sodium lights should consider switching to high-efficiency LED bulbs 12. These are a good alternative option as they produce less heat, and as a result, require less mechanical cooling. It has been shown that many plants, including cannabis, might even do better under blue-red LED lights 18,19. Growth under these conditions correlated with an increase in THC and CBD levels, and overall larger plants 18. In addition to low energy consumption, LED lamps have flexible mobility and a tunable spectrum range. This makes it possible to mediate the spectrum specifically for cannabis crops by controlling each spectral range and manipulating spectral quality and light intensity precisely. Finally, lights can also be brought closer to plants, to further reduce the amount of mechanical cooling needed.

  1. Utilize high-precision processes

Reducing energy use while maintaining production rates can only be done if the process is optimized. Our own research improves process optimization in the cannabis industry. A key component of industrial optimization is reducing wasted time on various machines. For cannabis producers, this machine “junk time” can accumulate when the instrumentation is not progressing the reaction.

Reducing energy use in this case means ensuring machines are not in operation if they are not progressing the reaction. For example, many companies spend approximately two hours on the decarboxylation step because decarboxylation is always complete after two hours 20; however, decarboxylations are often complete in as little as thirty minutes 21. Companies can save energy by installing a monitor on decarboxylation systems to stop reactions once they are complete.

Reducing the environmental impacts of the cannabis industry is crucial to combat the developing climate crisis. While lifting restrictions on cannabis research and mitigating stigmas surrounding the legal industry will be what ultimately paves the way for meaningful changes toward a sustainable industry, cannabis companies cannot wait for regulatory changes to occur before considering eco-friendly practices. As outlined by CBF, there are existing actions which all companies can take to reduce their carbon footprint immediately. Delic Labs, and many other companies we have noted, aim to support companies in making these decisions for a better future for cannabis.

References:

  1. Statista Research Department. Share of consumers worldwide who have changed the products and services they use due to concern about climate change in 2019. https://www.statista.com/statistics/1106653/change-made-consumer-bevaviour-concern-climate-change-worldwide/ (2021).
  2. Akeileh, O., Moyer, E., Sim, P. & Vissandjee Amarsy, L. Chronic Waste: Strategies to Reduce Waste and Encourage Environmentally-Friendly Packaging in Canada’s Legal Cannabis. https://www.mcgill.ca/maxbellschool/files/maxbellschool/policy_lab_2020_-_strategies_to_reduce_waste_and_encourage_environmentally-friendly_packaging_in_canadas_legal_cannabis_industry.pdf (2020).
  3. Bauder, P. Ry Russell of Knot Plastic️: 5 Things We Must Do to Inspire the Next Generation about Sustainability and the Environment. (2020).
  4. Waste360 Staff. Tweed, TerraCycle Take Cannabis Packaging Recycling Across Canada. (2019).
  5. Peterson, E. Industry Report: The State of Hemp and Cannabis Waste. CompanyWeek (2019).
  6. Commendatore, C. The Complicated World of Cannabis Waste Generation (Part One). Waste 360 (2019).
  7. Drotleff, L. Cannabis-based packaging and paper could reduce waste, promote sustainability. MJBiz Daily(2020).
  8. Waste 360 staff. Micron Secures U.S. Design Patent for Waste Treatment Tech. Waste 360 (2019).
  9. Challa, S. R. DRYING KINETICS AND THE EFFECTS OF DRYING METHODS ON QUALITY (CBD, TERPENES AND COLOR) OF HEMP (Cannabis sativa L.) BUDS. (2020).
  10. Erickson, B. Cannabis industry gets crafty with terpenes. chemical and engineering news (2019).
  11. Summers, H. M., Sproul, E. & Quinn, J. C. The greenhouse gas emissions of indoor cannabis production in the United States. Nature Sustainability 4, (2021).
  12. Reott, J. How Does Legalized Cannabis Affect Energy Use? Alliance to Save Energy (2020).
  13. When To Plant Cannabis Outside: A State By State Guide. aPotforPot.comhttps://apotforpot.com/blogs/apotforpot/when-to-plant-cannabis-outside-a-state-by-state-guide/ (2020).
  14. 15 Pros And Cons of Autoflowering Cannabis. aPotforPot.com https://apotforpot.com/blogs/apotforpot/15-pros-and-cons-of-autoflowering-seeds/ (2019).
  15. Ye, X. et al. Engineering the Provitamin A (β-Carotene) Biosynthetic Pathway into (Carotenoid-Free) Rice Endosperm. Science 287, 303–305 (2000).
  16. Giddings, G., Allison, G., Brooks, D. & Carter, A. Transgenic plants as factories for biopharmaceuticals. Nature Biotechnology 18, 1151–1155 (2000).
  17. Hu, H. & Xiong, L. Genetic Engineering and Breeding of Drought-Resistant Crops. Annual Review of Plant Biology 65, 715–741 (2014).
  18. Wei, X. et al. Wavelengths of LED light affect the growth and cannabidiol content in Cannabis sativa L. Industrial Crops and Products 165, (2021).
  19. Sabzalian, M. R. et al. High performance of vegetables, flowers, and medicinal plants in a red-blue LED incubator for indoor plant production. Agronomy for Sustainable Development 34, (2014).
  20. LunaTechnologies. Decarboxylation: What Is It and Why Is It Important? LunaTechnologies.
  21. Shah, S. et al. Fast, Easy, and Reliable Monitoring of THCA and CBDA Decarboxylation in Cannabis Flower and Oil Samples Using Infrared Spectroscopy. (2021).

2021 Cannabis Packaging Virtual Conference

By Cannabis Industry Journal Staff
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2021 Cannabis Packaging Virtual Conference

Sponsored by Dizpot

Click here to watch the recording

Agenda

Supply Chain Logistics: Cannabis Challenges in States, Interstate and Overseas

  • John Hartsell, Co-Founder & CEO, DIZPOT

In this session, Hartsell discusses the current state of the supply chain, how the supply chain crisis impacts the cannabis industry, how the holidays impact logistics and much more.

The Future of Sustainable Packaging

  • Ross Kirsh, CEO, Dymapak

This talk discusses the critical aspects of sustainability in packaging, misconceptions of mainstream terminology (i.e. sustainability vs. recyclability) and more.

Cannabis Labeling from Seed-to-Sale: Doing More with Less

  • Nick Recht, Sales Manager, TEKLYNX

This presentation delves into cannabis labeling and how your company can leverage software and technology to make labeling less manual, more streamlined

Sustainability is Multi-Dimensional

  • Colette Bazirgan, Sustainability Manager, Calyx Containers

The presentation gets into the dimensions of sustainability, designing with intention, responsible manufacturing and more. Participants get a better understanding the journey through education and reporting: responsible sourcing, transportation and supply chain.

Click here to watch the recording

Artisanal Cannabis Extraction – An Interview with Precision Founder Nick Tennant

By Aaron Green
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Cannabis and hemp derived concentrates are a rapidly growing product category. Formed by extracting cannabis using a variety of methods including ethanol, butane hash oil and CO2, concentrates find their way into consumer packaged goods as ingredients for infused products or as stand-alone products such as resins, rosins, distillates and hash.

Precision Extraction Solutions (Precision) was founded in 2014 to provide equipment and services to cannabis and hemp processors. In October 2021, Agrify (NASDAQ: AGFY) purchased Precision in a $50M cash and stock deal. The move positions Agrify to offer end-to-end infrastructure solutions for cannabis cultivators and processors.

We interviewed Nick Tennant, SVP of Innovation at Precision, now a division of Agrify. Nick founded Precision after seeing a need for quality equipment in concentrate processing. Prior to Precision, Nick was involved in a vertically integrated cannabis business in Michigan where he gained experience in cultivation, extraction and retail.

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

 Nick Tennant: I’ve been in cannabis about 17 years now. I had family in Colorado and California who I started to interface with around 2006. Around 2008, Michigan passed their cannabis law, and we were one of the first businesses to get licensed. The subsequent five years from that law getting passed, up to 2013, I did pretty much everything in terms of commercial cannabis – cultivation, retail, edible manufacturing, you name it. Concentrates didn’t really exist in a meaningful way; the products definitely were there, but the technology wasn’t. I looked at technology at the time and it was very primitive, so we made a shift to focusing on concentrates. We launched Precision in 2014 and we basically shot out of a cannon, doing a million dollars in sales in our first 90 days. Since then, we grew the company up to 60 employees and substantial amounts of revenue. We sold Precision to Agrify in October of this year.

Green: Tell me about that transition from a cannabis products company to an equipment manufacturer.

Nick Tennant, SVP of Innovation at Precision Extraction Solutions

Tennant: It was a gradual transition. As I started to see the extraction niche expand, I really started to put more time and resources into it. When we launched Precision and were met with such success in just the first 90 days, I knew that I had to abandon everything else I was doing to focus on this. My former partners took over the businesses, like the grows. We worked out individual circumstances regarding how I was going to leave those businesses and focus full time at Precision.

Green: So, big news recently with the acquisition, congratulations on that! Tell me about Agrify and why a deal with Agrify made sense to you.

Tennant: The strategic rationale is that we are providing an end-to-end infrastructure solution. They have the horticultural aspect, an excellent public vehicle, and plenty of cash on the balance sheet to continue to scale the business and acquire additional constituents within the cannabis infrastructure. Getting to the point where you can exit the businesses, it’s a long road, and our business is very niche. We were seeking to partner with t a bigger player in the industry with more resources that would help us to scale what we were trying to do, and Agrify was the perfect fit.

Green: You’ve got several areas of focus at Precision ranging from ethanol extraction, distillation, and butane hash oil (BHO) extraction. Where are you focusing the business going forward?

Tennant: Going forward we want to provide that end-to-end one-stop shop infrastructural solution for any cannabis products company. We want Agrify to become the dominant and fastest growing player in the cannabis industry for infrastructural solutions, whether that’s horticulture or extraction. We’re continuing to expand our product portfolio into other niches so that if you’re building a cannabis facility, you only need to come to one company and the process is as simple as possible.

Green: What kinds of products are you seeing the consumer gravitate towards?

Tennant: I think that cannabis will remain to be very artisanal because of the uniqueness of the plant. If you look at similar industries, I could compare it to craft beer or winemaking. I think that hydrocarbon and water hashes will continue to play a substantial role. I also think that ethanol and distillate-based products will hold market share just like the Budweiser and Kendall Jacksons of the world.

People love the native sort of essence of the plant, that this is a plant sort of bestowed upon us by the universe with all these unique healing and restorative properties. I think that trying to capture those properties and that native essence of what’s going on within the genome of the plant and translate that into a product is going to be the theme that continues to dominate, and I think that for several reasons. For the same reason somebody will go to Whole Foods, and they’ll buy the local organic grown fruit or vegetables, people are going to gravitate towards artisanal cannabis products. People that consume cannabis, generally speaking, are more naturalistic or homeopathic than most.

Green: Precision has technology for a range of extraction methods where the focus has been on cannabis. Are you seeing any new markets outside of cannabis?

Tennant: Yes. We’ve dealt with varieties of different botanical extraction companies over the years, but they’re a very small segment of our business. We’re a cannabis business. Non-cannabis extraction may make up less than 1% of our business so it’s very small.

Green: What trends are you following in the cannabis industry?

Tennant: Consolidation, I would say, is a big one. MSOs are consolidating and buying up the small players. The second major trend is regulation, and what’s going on in DC. Beyond that, you obviously have new states coming online, shifting consumer trends, things like that. I would say these last two are less impactful from a macro standpoint, but nonetheless, still things that we follow.

Green: Following up on consolidation, do you see a demand for larger systems now?

Tennant: I’d say 95% of what we do is under 2000 pounds a day, which we consider artisanal. You’re not going to see large scale production consolidation because you have fragmentation by state. It would be most efficient for a cannabis manufacturer to manufacture everything in one location but it’s just not possible with the state laws. It’s very fragmented. Somebody like a Trulieve might have 20 different manufacturing operations, all running similar processes. Perhaps we will see more upon national legalization and the opening of state borders.

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

Tennant: I am constantly learning. That’s just how my brain is, and the type of person that I am.  I’m interested in a variety of topics, but I think I’m most interested in how capital markets are going to materialize and substantiate around the federal legalization because we’re in this weird space of cannabis. It’s weird, because you have a boom industry that’s generating massive amounts of revenue and massive amounts of tax dollars, but you must remind yourself that there is no real liquidity in this market, meaning you can’t finance things. A typical cannabis company that wants to go out and get capital is getting rates between 16 to 18%. There’s just a capital restriction since cannabis is a Schedule I substance, and these large lenders don’t want to play into that.

The question in my head and the big catalyst for the entire industry is: what happens when we get a descheduling, decriminalization and/or legalization on a federal level? How does that affect the large funds sentiment to deploy this zero-interest rate capital that we’re seeing in the rest of the world? We’re seeing it in mortgages. We’re seeing it in every aspect of the world. There’s free money printing, but it’s not flowing into cannabis because those federal laws are prohibiting it as such. Ultimately, as more infrastructure comes online, these companies are not going to have to scrape by to build a $3 million lab. They can finance it at a reasonable interest rate, and the infrastructure can come online.

That’s going to be better for the consumer. There will be more infrastructure, more products, more research and development, more retail locations. Everything gets better, more convenient, and more robust. I would think that finance interest rates are the largest lever within the industry right now, and because of that, you’ll likely see cannabis capital markets go pretty crazy when legalization comes around.

Green: Okay, great. That concludes the interview.

Tennant: Thanks, Aaron.

Sustainability in Packaging: A Q&A with Dymapak CEO Ross Kirsh

By Aaron G. Biros
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Ross Kirsh launched Dymapak in New York City in 2010. Born into a family with a storied history in manufacturing, he founded the company after working for several years in Hong Kong where his interests, skills and passions for product development took shape.

Filling a niche for smell-proof bags in smoke shops, the business grew as he immersed himself in cannabis markets around the country. After designing and inventing a patented, first of its kind child-resistant pouch for Colorado’s first adult use sale in 2014, the business has continued to achieve global scale and today is recognized as the worldwide leader in cannabis packaging.

While the cannabis industry has long drawn the ire of environmentalists because of its energy problem when it comes to cultivation, the packaging side of the business faces very similar issues; the cannabis industry also has a plastic problem. In most states where cannabis is legal, state regulations require producers and dispensaries to package all cannabis products in opaque, child-resistant packaging, with several states requiring dispensaries to place entire orders inside large, child-resistant exit bags prior to customers leaving with their purchase.

Dymapak, led by Kirsh, is working on initiatives to help address environmental sustainability in cannabis packaging and turn interest into action industry wide. Ross will offer insights and the business’s action plan at the upcoming Cannabis Packaging Virtual Conference December 1. And ahead of that chat, we caught up with him to learn more.

Aaron G. Biros: Tell me a bit about yourself and how Dymapak came to be. What brought you to the cannabis space and where you are today?

Ross Kirsh, CEO of Dymapak

Ross Kirsh: My family has deep roots in manufacturing. Back in the mid 1970s, my uncle and his brothers all launched separate manufacturing businesses after one of the brothers moved to Hong Kong to open a handbag and luggage factory. The 70s happened to be a unique time to work abroad in Hong Kong given few US companies were operating there when China first announced its open-door policy around 1979. And as you can expect, he became a sourcing agent for many large companies in the US who needed trustworthy boots on the ground.

I went to college, pursued IT and in the back of my mind always knew product development and the manufacturing process was too interesting not to follow. I already knew Hong Kong was ripe for learning entrepreneurship so I went abroad to learn more, and fell in love with the culture, the opportunity and the people.  Immediately after graduation, I moved to Hong Kong. I began working with my family, who taught me the trade – end to end. I helped develop several product lines and lived next to one of our factories in southern China to immerse myself.

After 3.5 years abroad, I began running sales operations back in the US. Fast forward a year back in the states, I had unique customers that owned tobacco and smoke shops telling me that cannabis packaging existed in the market, but not really what everyone was looking for. In truth, the business was born the minute a customer said, “Can you make me a retail ready smell-proof bag?” I figured I could, and the rest – as they say – is history.

What began and was established in 2010 truly took shape at an accelerated pace in 2013, when my relationship with one of the first dispensary owner/operators in Denver – Ean Seeb of Denver Relief – came with a golden opportunity; Invent a child resistant package for cannabis, one did not exist but it was mandated under Colorado’s first-ever recreational cannabis regulations. I spent 7 out of the next 8 weeks in China developing a solution and am proud to say our bag was used in the first recreational sale when Colorado went legal in January 2014. From there, the business grew rapidly, and organically throughout the industry.

Biros: Environmental sustainability is a big issue for cannabis. Not just on the energy intensive side, but particularly when it comes to packaging and its plastic problem. How is your company approaching this issue and are you working on any initiatives to eliminate or reduce plastic waste?

Kirsh: We recognize firsthand the issues that plastic presents. While the material is full of advantages, the disadvantages are both imminent and critical to understand.

What many don’t realize is, for most cannabis packaging that’s recyclable to actually BE recycled, the customer must first find a drop off location, either at a dispensary or elsewhere that accepts the material. The process relies exclusively on the consumer to take action because the products cannot be recycled curbside. And unfortunately, the stats show that very few consumers take the time to bring the packaging back in order to recycle it.

So, yes, we produce recyclable bags in our portfolio, but we really want to get to the source of the problem here – pollution. We looked in a few different areas. And we developed a different bag made with 30% post-consumer resin, meaning 30% is made from reused plastics.

Even more, we recently partnered with a socially conscious, industry leader in the space, Plastic Bank, which builds regenerative, recycling ecosystems in under-developed communities. They work to  collect plastic waste from the ocean – extracting it to ensure its opportunity to enter the recycling ecosystem. Through our partnership with Plastic Bank, we’ll help prevent more than six million plastic bottles from entering the ocean this year alone. And I’m really proud of that.

Biros: Where do you see the cannabis packaging industry going in the next five years?

Kirsh: I think that’s a fascinating question. Sustainability will play a huge role in the future of this market. Just like we are seeing single use plastic bags being phased out across the country, we’ll see that happen to other areas too as part of this larger trend.

I predict more on-time and on-demand needs in the future; the ability to see traceability in real time, similar to the pharmaceutical industry. People will expect batch numbers and lot numbers, with data, in real time. It’ll become central to the business.

Gaining and cultivating trust will be another big hurdle for companies in this sector soon. With federal legalization comes a greater sense of professionalism and more sophistication for the market.

Yet, the continued pressure on environmental sustainability will be the biggest change in the next five years. When you look at sustainability in the packaging industry, paying attention to the format or choice of material should be top of mind. For example, if you’re shipping a glass jar, the amount of space that takes up in a shipping container has a huge impact on the environment, what’s called a hidden impact. One shipping container can hold millions of bags, but you need eight shipping containers for glass jars to get the same amount of storing capacity. That’s about efficiency, which is a bit more hidden, and I hope that consumers will become more and more knowledgeable about what companies are doing to stay environmentally sustainable.

Biros: Ross, thank you very much for your time today.

Kirsh: My pleasure, Aaron.