Since the beginning of this year, more than 8,100 wildfires have burned in California, torching a record 3.7 million acres of land in a state with one of the largest cannabis economies in the world. With the effects of climate change continuing to wreak havoc on the entire West Coast, smoke from those fires has spread across much of the country throughout the summer.
As we approach October, colloquially referred to as Croptober in the outdoor cannabis market for the harvest season, we’re seeing the August Complex Fire creep towards the Emerald Triangle, an area in northern California and southern Oregon known for its ideal cannabis growing conditions and thousands of cultivators. The wildfires are close to engulfing towns like Post Mountain and Trinity Pines, which are home to a large number of cannabis cultivators.
Hezekiah Allen, executive director of the California Growers Association, says losses could reach hundreds of millions of dollars. Fires across Oregon have torched dozens of cultivation operations, with business owners losing everything they had. The Glass Fire has already affected a large number of growers in Sonoma and Napa Counties and is 0% contained. None of these cultivators have crop insurance and many of them have no insurance at all.
The impact from all of these fires on the entire cannabis supply chain is something that takes time to bear witness; a batch of harvested flower typically takes months to make its way down the entire supply chain following post-harvest drying and curing, testing and further processing into concentrates or infused products.
The fires affect everyone in the supply chain differently, some much more than others. Sweet Creek Farms, located in Sonoma County, lost all but one fifth of their crops to fires. Other cultivators further south of the Bay Area have lost thousands of plants tainted by smoke.
Harry Kazazian, CEO of 22Red, a cannabis brand distributed throughout California, Nevada and Arizona, says he is increasing their indoor capacity to make up for any outdoor flower loss. But he said it has not impacted his business significantly. “Wildfires have been a part of California and many businesses have adapted to dealing with them,” says Kazazian. He went on to add that most of his flower comes from indoor grows in the southern part of the state, so he doesn’t expect it to impact too much of his supply chain. Kazazian is right that this is not a new concept – the cannabis industry on the West Coast has been dealing with wildfires for years.
George Sadler, President of Platinum Vape, has a similar story to tell – the fires have impacted his supply chain only slightly, saying they had a handful of flower orders delayed or cancelled, but it’s still business as usual. “It’s possible this won’t affect the supply chain until later in the fall,” says Sadler. “There has definitely been an effect on crops that are being harvested now. It may end up driving the price of flower up, but we won’t really know that until January or February if it had an effect.”
Sadler believes this problem could become more extreme in years to come. “Climate change definitely will have an effect on the industry more inland, where we’re seeing fires more commonly – it could be pretty dramatic.”
One beacon of hope we see every year from these fires is how quickly the cannabis community comes together during times of hardship. Sadler’s company donated $5,000 to the CalFire Benevolent Foundation, an organization that supports firefighters and their families in times of crisis.
A large number of cannabis companies, like CannaCraft, Mondo, Platinum Vape and Henry’s Original, just to name a few, have come together to help with relief efforts, donate supplies, offer product storage and open their doors to families.
If you want to help, there are a lot of donation pages, and crowdfunding campaigns to support the communities impacted. The California Community Foundation has set up a Wildfire Relief Fund that you can donate to.
As employers in the cannabis industry adapt to making their businesses run and thrive in the age of COVID-19, federal, state and local jurisdictions have issued new laws and regulations providing rules and guidance on returning employees to work. Employers in the industry should be aware of, and prepare for, these rules moving forward.
Federal guidance regarding COVID testing and employees’ return to the workplace:
The EEOC has already stated that employers may administer COVID-19 tests before initially permitting employees to enter the workplace. In its September FAQs, the EEOC confirms that employers may conduct periodic tests to ensure that employees are COVID free and do not pose a threat to coworkers and customers. The EEOC also clarified that employers administering regular COVID-19 tests is consistent with current Centers for Disease Control and Prevention (CDC) guidance and that following recommendations by the CDC or other public health authorities such as the Food and Drug Administration (FDA) regarding employee testing and screening is appropriate. The EEOC acknowledges that the CDC and FDA may revise their recommendations based on new information, and reminds employers to keep apprised of these updates.
COVID questions for employees
The EEOC also confirmed that employers may ask employees returning to the workplace if they have been tested for COVID-19, which, presumably, permits employers to ask if the employee’s test was positive or negative. Please note that an employer’s right to ask employees about COVID testing is based on the potential threat that infected employees could pose to others if they physically return to work. As a result, the EEOC clarified that asking employees who exclusively work remotely and/or do not physically interact with other employees or customers about potential COVID-19 status would not be appropriate. The EEOC also stated that an employer may not directly ask whether an employee’s family members have COVID-19 or symptoms associated with COVID-19. This is because the Genetic Information Nondiscrimination Act (GINA) generally prohibits employers from asking employees medical questions about family members. However, the EEOC clarified employers may ask employees if they have had contact with anyone diagnosed with COVID-19 or who may have symptoms associated with the disease.
Sharing information about employees with COVID
The Americans with Disabilities Act (ADA) requires employers to confidentially maintain information regarding employees’ medical condition. The EEOC’s updated FAQS clarify that managers who learn that an employee has COVID may report this information to appropriate individuals within their organization in order to comply with public health guidance, such as relaying this information to government contact tracing programs. Employers should consider directing managers on how, and to whom, to make such reports, and specifically instruct employees who have a need to know about the COVID status of their coworkers to maintain the confidentiality of that information. The EEOC also clarified that workers may report to managers about the COVID status of a coworker in the same workplace.
California state guidance on employees returning to work
The state of California also recently released a “COVID-19 Employer Playbook” which provides guidance on employees to return to work. That playbook states that employees with COVID related symptoms may return to work 24 hours after their last fever, without the use of fever-reducing medications, if there had been an improvement in symptoms and at least 10 days had passed since symptoms first appeared. This was also indicated in the California Department of Public Health (CDPH) Order, issued in June, about responding to COVID-19 in the Workplace.
More recently, on August 24th, the CDPH released similar guidance which reiterates when employees who have tested positive for COVID could return to the workplace when: (1) at least 10 days have passed since symptoms first appeared; (2) at least 24 hours have passed with no fever (without the use of fever-reducing medications), and (3) their other symptoms have improved. Conversely, individuals who test positive for COVID and who never develop symptoms may return to work or school 10 days after the date of their first positive test.
Employers should also check local public health orders for their county when determining how and when to return an employee who has recovered from COVID-19. It is important to also confer with your employment counsel when implementing new policies and procedures related to COVID-19, particularly given that the guidance issued by government authorities continues to evolve at a rapid pace.
Return to work laws on the horizon
Finally, a number of local governments in California such as the City of San Francisco, Oakland and Los Angeles have enacted return-to-work ordinances generally requiring employers to offer available positions to former employees who have been separated from employment due to coronavirus related business slowdowns or government-issued shutdown orders. The California legislature is also in the process of enacting a potential law that would similarly require employers in the state to offer vacant job positions to former employees whose employment ended due to COVID.
While the San Francisco ordinance only addresses positions in San Francisco and the Oakland and Los Angeles ordinances primarily address large employers in the hospitality and restaurant industries, cannabis industry employers should strongly consider offering vacant job positions to former employees whose employment ended due to COVID in order to comply with these ordinances and other potentially applicable future laws and in an effort to avoid potential legal claims from former employees.
Employers are strongly advised to consult with counsel to make sure they are following the requirements of these new laws and regulations.
Cannabis extraction and manufacturing is big business in California with companies expanding brands into additional states as they grow. This is the fifth and final article in a series where we interview leaders in the California extraction and manufacturing industry from some of the biggest and most well-known brands.
In this week’s article, we talk with Kristen Suchanec, VP of Production at Island. Kristen converted her experience in traditional consumer packaged goods to cannabis to help create a brand that is sought after by many. The interview with Kristen was conducted on August 21, 2020.
Aaron Green: Good afternoon Kristen, I am glad we were able to put this interview together. I know you have been very busy!
Kristen Suchanec: I’m so sorry this took so long to actually work! Thank you for bearing with me. I’m happy we are able to talk.
Aaron: Great! I like to start off the conversation with a question that helps our readers get to know you a little better. So, Kristen can you tell me how you got involved at Island?
Kristen: My background is in manufacturing and planning for consumer packaged goods. I had a friend of a friend and we were just at a happy hour and I asked what he was up to. He was actually our VP of Finance at Island and he handed me a box of pre-rolled joints. They were our Island Minis and I thought it was a great customer experience. I loved the brand and packaging which made it a consumer product versus, you know, this was a few years back where cannabis wasn’t necessarily commoditized or branded. I got really excited about that because I feel like cannabis should be traditional CPG and it should appeal to different people and it should have different brands that appeal to those different groups. So I literally just started a conversation. His brother is our founder and CEO and they needed someone to run production so that was my background and it all kind of lined up and I ended up being employee number five at Island!
Aaron: Wow, employee number five – awesome! OK, great. That is some nice background about how you got involved at the company. The next questions get into product development and manufacturing. The first question is: what’s your decision process for starting a new product?
Kristen: Yea, we are right now owning the lane between cultivation and distribution. So, getting those raw materials for whether it be concentrates or flower and then converting them into that final packaging for everything. So that is what we focus on and spend all of our time with automation and trying to make that process as efficient as possible.
When we’re looking at a new product we’re not necessarily creating a new extraction, we are really looking at the market and the end consumer and what people want. At Island we’ve really focused on vape, pre-roll and packaged flower. Those are the three categories we are working on right now. We are expanding and looking to move more towards vape and live resins and specialty concentrated products that we haven’t really had in our portfolio before. What we would like to do is make sure we have the capability to manufacture that and then take a look at where we think the market is going. We are trying to go in the flower, pre-roll and vape because that is where we spent so much of our time getting pieces of automation so not everything we are bringing in house is manual.
Aaron: Now when you say the capability to manufacture that are you talking about from a packaging perspective or…?
Kristen: Yes, so we won’t do any extraction on site. It’s getting distillate, shatter and flower and then we take that and convert that either into pre-rolled joint, a package of flower or any other final product. So, we are looking at automating that packaging piece.
Aaron: Got it. OK, so the next question — and I think you kind of touched on this as well — are you involved in manufacturing to the extent that you are manufacturing the packaging?
Kristen: Yes absolutely. My whole team’s manufacturing is based out of Oakland. That’s where we do all the conversion of products. I oversee that entire team and have been really involved in a lot of the equipment that we have sourced and iterations that we’ve gone through to make sure that we’re able to automate as much as possible. We’ve really focused on the issue of weighing the material. For our flower line everything is weighed and put into a jar, capped, sealed and labeled for it to come off our lines. We don’t have anyone in packing or anything like that. Our pre-rolls manufacturing is an automated machine where it actually weighs the flower before going into the cone so we’re not having to weigh after the fact and take into account the weight of the cone because that’s so variable so we know that the customer is getting consistency. Then for the vapes, it’ssame thing – the volumetric doses everything.
I have to give my credit to everyone on the floor who is doing the day to day, they find so many new solutions since they are the ones that are hands on. I am really involved in what new equipment we need, what problems we are looking to solve and what’s causing our bottlenecks so we can continue to improve our process week over week and year over year.
Aaron: We’ll dig into some of those problems in a bit. What is your process for not just starting new product but for developing a new product?
Kristen: Yeah, absolutely. So, I think it’s really interesting to see where the market is going. What’s selling really well and especially over the past year pre rolls have been a huge growth platform for us. And especially now, we’ve seen some changes because of COVID as well. We have single joints. But then we have our Minis, which I’ve mentioned before, which are half gram joints. We’re seeing sales on those actually increased because I think people are sharing joints as people want individual things because of this pandemic.
When we go through this process, we’re really – again – we’re so focused on what the consumer wants, and what we think is going to add to our portfolio. Then when marketing and our product team comes to me, we really focus on our machinery, what we can do with it currently, and if we would need something additional. So,we’re excited about expanding into 510s right now. We’re looking at how we can automate the process of capping – we can fill right now, but not cap. And then we also take a look at packaging.
I think it’s a little different than creating like a whole new product, extraction or anything like that, but we were looking at more sustainable options for packaging for child resistance because we’re trying to move away from barrier bags as much as possible. We’re looking at, okay, how many stickers do we need to put on there? What is the labor time going into each piece of product? And again, how are we eventually going to get some consistency across product lines, etc.
So, it’s really taking all three of those components, making sure we’re getting out the customer that feels like they want. I’m having it either fit into our process or again, then go through and look at what automations meanand automation equipment investment you want to make for long term future investments.
Aaron: Are you developing new products internally, or are you relying on outside manufacturers for that?
Kristen: Not everything we do is internal. We have a big network of, you know, cultivators and extractors we work with, but we’re in the midst of getting our own cultivation and manufacturing in house by working with other companies. So with that we’re doing everything.
Aaron: Do you ever bring in external product development consultants for helping out with your processes?
Kristen: No, we don’t bring in consultants. But we have brought in another brand into our fold via a brand called Neutron Genetics. That is part of our overall portfolio. We work very closely with the founder because he has a lot of trade secrets, a lot of his own processes to make sure you’re getting the best product for that specific brand.
Aaron: In your product development, what does getting stuck look like to you?
Kristen: That’s a good question. I think one of the biggest challenges is working with the plant itself, because it’s not consistent and it’s not homogenous. You could get the same strain from the same cultivator, but it’ll be a different batch. It might be a little stickier or a little larger, etc. When you’re looking at traditional manufacturing and automation, you want consistency, homogenized liquids, same viscosity every time, and we don’t have that because the plant itself is natural and is going to have all these different expressions depending on the batch and how it was grown and how it was trimmed even.“I think it’s really the proper equipment, the proper training and then, again, continuing to evolve as a team.”
So, getting stuck means finding an off-the-shelf solution that might work for, you know, nuts and bolts or some kind of food production and then you’re going to have to convert it to actually work with the cannabis plant. So that’s what makes it so challenging, but also really exciting. In the bud, humidity and air can really throw off a manufacturing process which is really different than just doing beverages for example.
Getting stuck means really having to work with the plant concentrates specifically if you think about just the nature of those whether it be shatter, distillate or very sticky product. So again, working with machinery isn’t always what goes hand in hand. So, getting stuck is dealing with all those different formats and inconsistency using the same product day after day.
Aaron: It sounds like consistency is kind of a main topic here?
Kristen: Yeah, I think it depends on what product format we have. For example, about a year ago, we launched infused pre-rolls for Neutron where we’re putting flower, kief and shatter into a joint. So that’s going to perform differently on a piece of machinery than just straight flower.
I think it all depends on the product. Usually it happens when it’s in that machine, you’re trying to get a good flow and a good consistency. You want to have time studies, you know how long it takes to make each batch. But if a certain flower mix is performing differently, it’s getting the settings of the machine dialed, right? It’s also properly training personnel so people know how to react when things get going. Sometimes things get physically stuck in the machine as well, so to be able to react on that.
I think it’s really the proper equipment, the proper training and then, again, continuing to evolve as a team. So for our pre-roll machine, we are now on our third version of it, just because we kept running into the same roadblocks and I’m hoping that continues to evolve and we just continue to get better equipment year after year.
Aaron: I see, do you ever hire outside consultants when you do get stuck?
Kristen: We’ve worked closely with vendors. I will say that we’re not a machine shop or engineering firm. So we’re not the ones creating a lot of what we use on the floor. We’ve partnered with various vendors, which has been helpful, but we haven’t used external consultants.“When you see the huge potential and then see how much is taken out from illegal activity right now, it is frustrating to see.”
Aaron: Okay, now imagine that you have a magic wand and somebody can come in and help you. What does your magic helper look like?
Kristen: I could probably make a really long list if I’m focusing on just my manufacturing and everything! I think the next thing which we’re already thinking about that magic wand is how to get a perfectly rolled joint without having so much manual human touch to it. And like I said, we’ve really attached to that weighing problem. And we’ve seen solutions out there that you know, claim to twist and have that “perfect roll” and you don’t need to even touch it. But I think the biggest challenge there is it depends how well it’s packed. You know, you don’t want it too tight. You don’t want it too loose for that customer experience. So getting that quality, if I could wave a magic wand where I’m putting in, you know, paper on one side and out comes perfectly rolled joints, that would be my magic wand for sure. Okay, I think there’s a lot of solutions out there but to get that quality and that consumer experience that we want, I haven’t seen working practice yet.
Aaron: Okay, What’s the what’s the most frustrating thing you’re going through with the business right now?
Kristen: Again, that could be a long list! I think from a more macro-level, it’s definitely the competition with the illicit market and just how there’s not enough outlets for legal cannabis right now in the state of California. When you see the huge potential and then see how much is taken out from illegal activity right now, it is frustrating to see. We’re going to get this growth and projection of the right number of dispensary licenses and things like that are definitely a huge frustration as well as with the tax structure right now because it’s obviously contributing to people going to the illicit market.
Aaron: So what are you following in the market? And what do you want to learn more about?
Kristen: Yeah, I think that’s a great question. I think the thing I’m most excited about for the larger population isjust more research to come out about the actual attributes of the plant, or how different cannabinoids react together and can have different effects. How terpenes can affect the high, how things can be used and distantly, recreationally, etc. And really, hopefully evolve and move away from strictly some sativa, hybrid,indica classifications, and really be able to educate the consumer more about the plant so people can have a more a personal relationship to understand how cannabinoids or specific terpenes are going to give them a different effect. And again, I think that’s so interesting because it could be used for therapeutic reasons that people do consume cannabis or it could just make it a better experience for people who want to take this as an escape or a way to relax and everything. So I’m really excited because more research is going to be able to get done and we can really learn more about how all of these things interact in the body and then people can take it to a whole new experience and be more educated all around.
Aaron: Alright that’s the end of the interview Kristen! Nice chatting and meeting you!
Cannabis extraction and manufacturing is big business in California with companies expanding brands into additional states as they grow. This is the third article in a series where we interview leaders in the California extraction and manufacturing industry from some of the biggest and most well-known brands.
In this week’s article we talk with Joaquin Rodriguez, chief operations officer at GenX Biotech. Joaquin was introduced into the cannabis industry through a close personal relationship and has spent seven years researching and navigating the cannabis market before jumping into his career with GenX Biotech. The interview with Joaquin was conducted on August 4, 2020.
Next week, we’ll interview Michael Schimelpfenig, head of R&D and BHO extraction manager at Bear Extraction House. Stay tuned for more!
Aaron Green: Hi Joaquin! I appreciate you taking the time to chat today. I’m glad we were able to connect!
Joaquin Rodriguez: Absolutely! I’m looking forward to it.
Aaron: Me too! So, I like to start off the interview with a background question so people get a chance to know about you better. How did you get involved with GenX Biotech?
Joaquin: I went to school at Cal Poly for mechanical engineering and spent some time in the oil industry. In 2011 I was introduced to who would be the future founder of GenX Biotech, Shea Alderete. I spent 7 years diving into cannabis industry to better understand the landscape and Prop 215 (California’s Compassionate Use Act of 1996) and then Prop 64. In late 2017, I joined GenX Biotech to spearhead the acquisition of licensing and scale up distillate manufacturing.
Aaron: Awesome. My next questions are focused on product development. What is your decision process for starting a new product at GenX Biotech?
Joaquin: Our founder, Shea Alderete, is an innovator in product development. He specializes in formulations and new formulas for vape products. We are big on gathering empirical data. In any new product we will run a small batch and test first with heavy cannabis users to gauge their reaction to the product. We will then test with light cannabis users and finally new cannabis users so we get the full spectrum of user experiences. Throughout the process, we are gathering empirical data on things like taste and perceived therapeutic effects.
Aaron: Are you personally involved in manufacturing? Tell me about your process.
Joaquin: I am, yes. We specialize in large scale distillate manufacturing to make THC oil and we formulate batches using cannabis-derived terpenes. This what we call Sauce, a full spectrum high-terpene extract obtained from a butane hash oil (BHO) process. This is a separate extraction method from our alcohol extraction process.
Aaron: Very insightful! What is your process for developing new products?
Joaquin:GenX Biotech’s core mission is to bridge the gap between cannabis culture and the science behind cannabis. We focus more on therapeutic effects as well as recreational. We keep a pulse on the industry as a whole to see what people are doing and saying as well as new extraction methods. When we capture that data we evolve and adapt and create new formulations based on that preference and test it out. It’s a constant game of “does this look good? taste good? make you feel good? how is the potency?” It’s really a big collaboration with our end users.
We will also collaborate with other brands and manufacturers to stay ahead of the curve, share information that can make us a better company, more power in numbers is what we say. As an example, Wonderbrett is known for their high-quality flower. They have a high-end product and high-end brand recognition. We would, for example, strategize and collaborate together to utilize a unique cannabinoid and terpene profile and test that with our vape products in the market. It’s more of a collaboration than a white label relationship. In this way, Wonderbrett can expand into the extracts space via their brand. We do this with other brands as well where we’ll use their raw material and joint market the brands on the final product.
Aaron: Fantastic. Are you developing new products internally?
Joaquin: We develop all our products 100% internally.
Aaron: Do you ever bring in external product development consultants?
Joaquin: Not for products, however there are certain situations, like hardware development, where we will work with outside groups that specialize in equipment manufacturing to create something specific and one off for us. We are currently working on bringing to the market an FDA-approved inhaler technology device that is a non-combustible metered delivery device that we are really excited about. In addition, we have an incubator program with our LA partners to introduce new brands to the market which is a great asset for consulting brands looking for a home and multistate resources.
Aaron: Very cool, that’s the first I have head of inhalers in the market. For my next question feel free to answer however you like. What does being stuck look like for you?
Joaquin: Getting stuck can happen in a few different areas. With respect to manufacturing, the main bottleneck issues are consistent quality of the raw biomass materials. Mother nature does not duplicate the same results exactly every time and fluctuations can affect the cost and quality of raw goods. Other things like wear and tear on manufacturing equipment are not normally an issue as everything is stainless steel and pretty stable. But things like valves, gaskets and grommets tend to wear down with consistent use. When those fail, a whole operation can be shut down. We keep a stockpile of those on hand to make sure we stay in production.
“I support the leaders that help increase the overall knowledge for consumer and patents to know the difference between a quality product and a boof product.”Aaron: If you get stuck is it usually the same place? Or is it different each time?
Joaquin: Like I said, if we get stuck its usually in the sourcing of raw materials. Cultivators can have a bad crop or weather might affect their crop. It almost always comes down to the relationship with your cultivators. They fuel the industry and are the back bone of the whole supply chain. If they have any issues it affects everyone down line.
Aaron: Do you ever hire outside consultants when you get stuck?
Joaquin: Not really. We rely on our experience and years of operating and going through our own failures to navigate any issues with manufacturing. Collectively we work together to pivot and adapt to the ever-changing legal cannabis landscape. We do on occasion outsource to a 3rd party to help acquire raw goods. On the other hand, we separately consult for other people and groups looking to build out labs!
Aaron: That’s an excellent position to be in! For the next question imagine there’s a magic wand. What does your magic helper look like?
Joaquin: Someone that can come in and help with taxation. Triple taxation is tough. There’s the cultivation tax, manufacturing tax, state tax and local taxes. Long Beach recently lowered their local tax from six to one percent, so that is encouraging, but there needs to be a fair taxation for this industry to really thrive.
Aaron: What’s the most frustrating thing you are going through with the business?“I’m really excited for the continued education and deregulation of cannabis and its medical applications.”
Joaquin: I think that would be sales downline. With Prop 215 and the transition to prop 64, legal outlets have been heavily truncated. There are now approximately 600 legal retail outlets down from a high of about 4500 prior to prop 64. The competition landscape is really high and it’s hard to get product on the shelves without proper capital to keep the brand going. It is advantageous to partner with an established distro in order to get involved with their downline and run lean and mean.
Aaron: Now for our final question. What are you following in the market and what do you want to learn about?
Joaquin: I’m really excited for the continued education and deregulation of cannabis and its medical applications. It never should have been illegal to begin with, but with government corruption and greed it was targeted and use for multiple agendas. I support the leaders that help increase the overall knowledge for consumer and patents to know the difference between a quality product and a boof product. You have seen the results of the vape scare and there’s a good reason for it. Most people don’t want to pay the high ticket for legally compliant product so they turn to the illegal side where no regulation or testing is conducted to ensure they are getting safe, quality products.
In addition, the demand is so strong that illegal producers are able to put whatever they want in their products and sell them as if they are legit, provided they have the knock-off packaging, and those operators further harm those people because the state they are selling in hasn’t adapted to the times and has prohibited the availability of legal cannabis. Their inaction and support of the continued “war on cannabis” makes them just as guilty in the results of those people who have fallen ill or been hospitalized.
There have been lots of new studies published that are slowly making their way into social media and reaching consumers so that is encouraging. Another important element is the education of bud tenders because they are the face of the brand when the customer or patient is at a legal dispensary so they need to be educated on what makes for a quality product and how it can help or achieve a desired result for a customer or patient.
Aaron: Well, that concludes the interview Joaquin. Thanks for taking the time today to talk. This is all awesome feedback for the industry. Thanks so much for these helpful insights into product development in the cannabis industry.
Cannabis extraction and manufacturing is big business in California with companies expanding brands into additional states as they grow. This is the second article in a series where we interview leaders in the California extraction and manufacturing industry from some of the biggest and most well-known brands. Click here to see Part 1.
In this week’s article we talk with Matthew Elmes, director of product development at Cannacraft. After cutting his teeth in academic and industry research, Matthew was approached by Cannacraft leadership to bring a new perspective to their product development efforts. The interview with Matthew was conducted on July 22, 2020.
Next week, we’ll interview Joaquin Rodriguez, chief operating officer at GenX BioTech. Stay tuned for more!
Aaron Green: Hi Matthew, and thank you for taking the time to chat today, I understand you have a busy schedule!
Matthew Elmes: Thanks – yeah, last week was pretty insane!
Aaron: Well, I’m happy we found a chance to put this together. Let’s start from the beginning. How did you get involved at Cannacraft?
Matthew: I did my Ph.D in biochemistry at Stony Brook University on cannabinoid intracellular transport and metabolism. I then did a post-doc with Artelo Biosciences in endocannabinoid system modulation. While I was doing my post-doctoral research, Dennis Hunter, co-founder of Cannacraft, had learned about my work and reached out to offer me a position.
Aaron: Awesome, that’s a great feeling when people are reaching out to you! The next questions here will be focused on product development and manufacturing. What is your decision process for launching a new product?
Matthew: We do our best to anticipate what the market will want. A lot of our new product development comes from improving our current products. Things like improving stability, shelf-life and reducing bitterness. For brand-new products and technologies, we first get a lot of feedback from the marketing and sales teams and will then go into a planning session to decide what is feasible and what is not prior to moving forward.
Aaron: Do you personally get involved in manufacturing? Tell me about your process there.
Matthew: I do get involved in manufacturing. My main inputs are figuring out how much cannabis oil to use to hit a target potency around the size of a batch. This is the type of thing I do for all our beverage products like HiFi Hops, our Satori line of infused edibles, and the various gummy products sold under our brands Absolute Xtracts and Care By Design.
Aaron: Are you developing new products internally?
Matthew: For the most part we develop everything internally. We are very vertically integrated here at Cannacraft and we extract all of our oil in house. I don’t do the oil extractions myself. Most of our stuff is supercritical carbon dioxide extraction, but we have hydrocarbon and cryoethanol extraction facilities opening soon. For our gummies, we use distillate oils for the best flavor and for our droppers/vapes we use full-spectrum oils for a more sophisticated array of effects.
Aaron: In product development, what does getting stuck look like for you?
Matthew: Getting stuck happens a lot! You know, strict regulations make it challenging to source ingredients. Foods we’d like to source for a product are often too high in pesticides or heavy metals for the cannabis regulations. What’s good enough for the grocery store is very often not good enough to be compliant in the California cannabis industry. Fruits that are totally free from pesticides are hard to find. Our edibles brand Satori Chocolates actually might be the only player in the entire California cannabis industry that uses real whole fruit in our products rather than something artificial or a processed fruit paste. We actually had to source our strawberries from Italy to find ones that were both compliant in metals/pesticides and tasted good enough to meet our high standards! The same sort of challenges apply to sourcing biomass for oils.
Aaron: If you get stuck is it usually the same place? Or is it different each time?
Matthew: We’re so diversified. We have lots of different products. The process for each one can have its own issues. The problems you encounter with cannabis beverages are not the same ones that you’ll encounter with vapes, edibles, topicals or sublinguals, etc. We are one of the oldest players in the California cannabis industry (CannaCraft was founded in 2014, well before regulated recreational cannabis was a thing) so we have the advantage of working on all these issues for years longer than most of our competitors and we have largely figured out all the major ‘kinks’ already. A big part of it is also that we have assembled a great team of food scientists, chemical engineers, chemists, legal and regulatory experts, all with diverse specialties that allows us to quickly address any new ‘stucks’ and be fully confident in all of our products.
Aaron: Feel free to answer the next question however you like. What does your magic helper look like?
Matthew: I would love a magic helper! What would a magic helper look like to me? I think my magic helper is a recent undergrad with lab experience. I would have them take care of a lot of the quality and lab day to day activities. My responsibilities often make me too stuck to the computer screen where I don’t have time to get to all the experiments that I’d like to do…a trained magic helper could physically perform those experiments for me!
Aaron: OK, and now for our final question! What are you following in the market and what do you want to learn about?
Matthew: I am personally really interested in yeast grows and cannabinoid synthesis from biological organisms. We stick to only natural plant-derived cannabinoids for all our products, but it’s a new field that’s just fascinating to me. I also think that minor cannabinoids will have a bigger place in coming years. In particular I have my eye on THCV, ∆8-THC, CBG and THCP. THCP is a phytocannabinoid that was just discovered a year ago and exhibited very potent effects in preclinical models, but no one has been able to produce and purify it in appreciable amounts yet. We already manufacture and sell a ∆8-THC vape cart under our ABX brand, but for the others keep an eye out for new product announcements from us that are on the horizon.
Aaron: Well, that brings us to the end of the interview Matthew, this is all awesome feedback for the industry. Thanks so much for your time and insights into product development in the cannabis industry.
On June 19, Charles Deibel, president and CEO of Deibel Bioscience, announced two important changes to his cannabis testing laboratory: First, they changed their name from Deibel Laboratories to Deibel Bioscience. Secondly, they achieved ISO/IEC 17025:2017 accreditation.
Deibel Labs is an internationally recognized corporation of 15 testing labs in North America that’s been around for about 50 years, serving the food, beverage and personal care industries. Starting in 2018, Deibel has ventured into the cannabis and hemp markets, and recently rebranded these labs as “Deibel Bioscience.” Currently, Deibel Bioscience operates in California and Illinois, with plans underway to open labs in Florida and Pennsylvania.
Deibel’s brand is very well known in the food testing industry and has recently become a prominent voice and industry advocate in the cannabis testing community. Charles Deibel’s father, Dr. Robert Deibel, was a pioneer of the Hazard Analysis and Critical Control Point (HACCP) system. Charles Deibel has a long career in the laboratory testing space and even worked with the Department of Justice to help shape the legal case against Peanut Corporation of America and testified as an expert witness during the trial.
With respect to their accreditation, Deibel Bioscience of California (Santa Cruz) achieved it through the American Association for Laboratory Accreditation (A2LA). The lab’s scope currently holds seven chemical and microbiological test methods as well as their sampling method, with plans to expand their scope to include four more chemical testing methods in the next month.
“At our level of testing services, any lab should be able to offer accurate testing, at a fair price and a reasonable turn-around time,” says Deibel. “These three qualities are no longer defining features; rather it is our high level of service and exceptional Technical Services acumen that set us apart.”
According to Deibel, their company is drawing on decades of experience in other testing industries to provide a high caliber of technical expertise. “We are a family owned and operated corporation and are not constrained by quarterly investor demands. Our size offers economics of scale that is reflected in our service and pricing.”
A Cannabis Related Business (or CRB), whether a plant-touching operation or a provider of goods and services to plant-touching operations cannot seek protection from the bankruptcy court as it is a federal court and cannabis remains illegal at the federal level. As such, a CRB does not have the benefit of a court approved restructuring as provided by Chapter 11 of the Bankruptcy Code and does not receive the benefit of an orderly liquidation as provided by Chapter 7 of the Bankruptcy Code. However, alternatives to bankruptcy do exist and are available to a CRB.
Before the emergence of the Bankruptcy Code, businesses and their creditors had very few options available to undertake a court-supervised restructuring or liquidation other than seeking the appointment of a court neutral, typically called a receiver or special master. That “neutral” would take the business or its assets into “legal custody” or custodia legis and begin the process of dissolving the entities, selling the assets or otherwise sell the business as a going-concern. In the 1880s and 1890s with the Gilded Age coming to an abrupt halt, this process was successfully used to restructure and recapitalize the failing network of over-extended railways and rail lines, leading to the consolidation in the market that remains to this day.
Cannabis businesses can be legal and now an “essential” business but, still cannot receive the benefits of bankruptcy court.During the Great Depression, the federal judiciary established “reference” courts to deal specifically with bankrupt businesses and individuals laying the foundations for the modern bankruptcy code which is still in effect today. Many of those first precedents used to establish the bankruptcy code and rules were drawn directly from the receivership case law and receivership statutes ever-present in the historical record of common law cases and common law countries, reaching all the way back to the Courts of Chancery in Britain established soon after the Norman invasion of the British Isles in 1066.
In the United States, the equitable power of courts to initiate receiverships or other insolvency proceedings and crafting orders and decrees based on equity, as opposed as based on law or statute, is codified clearly in Article III of the United States Constitution. Today, receiverships and special masters are still utilized by state and federal courts to remedy unique circumstances where a simple bankruptcy cannot address the inequities presented in that case.
State Court Powers & Financing of Receivership Estates
State courts in particular, and California especially, have a wide body of case law supporting the equitable powers of the court, the quasi-judicial immunity of the receiver and the many equitable tools available to receivers. These powers include the negotiation and transfer of liens, with liens attaching to proceeds of sales of assets, the dissolution of a business and the establishment of a claims process akin to a bankruptcy or assignment for benefit of creditors.
One of the many overlooked powers of a receiver is their ability to bring in outside financing or capital to fund the receivership estate to maintain a business as an ongoing concern or to provide short term leverage so that assets can be properly maintained, “dusted off” and sold.
This process of bringing in new capital is typically done by the issuance of receivership certificates. These certificates are approved, ahead of time, by the court and courts can authorize that such certificates prime all other claims (including sometimes administrative claims) and that these certificates can be reduced to a security interest recorded against real or personal property.
The Mechanics of a Receivership
However, because cannabis is approved at the state level, state courts retain their equitable powers and the power to appoint a receiver over a business in need of restructuring or liquidation. There are many avenues to get to court for this benefit, but the primary path to a receivership is either through a creditor (or group of creditors) filing a lawsuit and seeking the appointment of a receiver. This scenario can be done through cooperation and stipulation but can be hostile as well. The receiver option is available and open to address the needs of insolvency for this rapidly expanding industry.Or, a legal entity, can seek dissolution protection from the state court and seek a neutral dissolution officer (a receiver) to manage that process which may include the infusion of new capital through receivership certificates, the sale of assets to third parties, the negotiation and payment of liens and claims through a claims process and the final restructure of dissolution of the legal entity in a manner similar to a bankruptcy or assignment for benefit of creditors. This voluntary petition is permitted by statute and case law and is a mechanism available to a business that is unable to file for bankruptcy protection but is in dire need of court supervision and authority to work through its insolvency problems. Further, by court order, a receiver is able to establish banking relations where a CRB may be unable.
Typically, it is recommended that any receivership filing whether by creditors, claimants or the business itself, be guided by a well-written, explicit order that outlines the parameters of the receivership, the funding requirements and limits, the rights of claimants and some sort of stay of claims against the receivership estate to give the receiver the time needed to work through all of the issues in that receivership estate. Further, outside funding can be pre-approved by the court and the priority of that funding can be established through the open process that the court provides, much akin to a debtor in possession (DIP) financing motion in bankruptcy court.
Because of the unique circumstance that CRBs find themselves in here in California, where they are a legal and now an “essential” business but still cannot receive the benefits of bankruptcy court, the receiver option is available and open to address the needs of insolvency for this rapidly expanding industry.
The Brand Marketing Byte showcases highlights from Pioneer Intelligence’s Cannabis Brand Marketing Snapshots, featuring data-led case studies covering marketing and business development activities of U.S. licensed cannabis companies.
Here is a data-led, shallow dive on the California brand, PlugPlay:
PlugPlay – Executing on Social Media
This company is about three years old and based in Los Angeles. PlugPlay distributes proprietary vaporizers and cartridges to more than 150 dispensaries throughout California.
The company’s brand identity is a bit different from the traditional California cannabis company image. They trade the typical beach, yoga and plant imagery for a more modern, contemporary and sleek theme. Furthermore, the brand ambassadors featured throughout PlugPlay’s social media and communications reflect the diversity of its market.
The demographic they target in social media is increasingly tech-savvy and on the younger side. PlugPlay uses a few very smart tactics to engage with this demographic: They experiment with bold and creative content formats, some being a bit more refined than others. They engage in the comments section with their followers in an unabashed, genuine manner. Lastly, they share information with their followers on current events effectively, whether it be the vaping crisis back in 2019 or the current coronavirus pandemic.
All of these marketing tactics have worked tremendously in their favor. In March, PlugPlay’s social media earned them the #1 spot on the Pioneer Index, up from #10 in February.
Connoisseurs know that pairing a fine cut of steak with a Napa Valley cabernet sauvignon is a sure winner. But how many are aware that pairing strawberry cheesecake with a certified Santa Cruz Blue Dream cannabis strain creates an equally delicate palatal synergy? Thanks to the California Department of Food and Agriculture’s CalCannabis Appellations Project (“CAP”), premium cannabis regions will soon have the potential to capitalize on such newfound awareness among discerning consumers.
For decades, cannabis connoisseurs have been willing to pay a premium for flower said to have been grown in certain regions or with certain techniques, but because of cannabis’ legal status, supply chains have been opaque. As a result, cultivators of distinct cannabis strains struggled to capture the full market potential of their products. That has begun to shift with implementation of California’s Cannabis Track-and-Trace System. The costs associated with implementation of the METRC1 system have been bemoaned by many in the industry, but there is also tremendous potential value in having the most transparent supply chain in the world. The CalCannabis Appellations Project is the vehicle through which brands will be able to harness that value.
The underlying premise behind the CalCannabis Appellations Project is that the distinctive qualities of a cannabis product are often attributable to where and how the plant is grown. Through this project, CalCannabis is developing a statewide appellations system2 that will allow qualifying licensed cultivators to effectively communicate information about their cannabis crops (i.e., the standards, practices and/or varietals used) through labels, advertisements and other marketing techniques. It will also prevent disingenuous cannabis cultivators from making inaccurate claims about where and how a product is grown, which protects the integrity and value of the appellation.
What is an appellation?
In general terms, an appellation is an identifying name, title or label that can be legally defined and protected. Appellations are most commonly used in the wine industry to geographically identify the origin of grapes in a particular bottle. This place-based identification system comes from an understanding that certain regions have unique environmental and growing characteristics, which result in a product that cannot be produced from other regions even when the same varietals are used. Famous wine appellations or American Viticultural Areas (AVAs) in California include the Napa Valley and Santa Ynez AVAs, and sub-AVAs such as the Russian River Valley AVA, located within the larger Sonoma County AVA.
Recognizing there are also growing regions that produce uniquely distinctive cannabis, CalCannabis is developing a process for:
Establishing an appellation (i.e., identifying regions that produce distinctive cannabis and defining standards, practices and/or varietals that must be used in those regions to qualify for an appellation); and
Qualifying to use a particular appellation once they are established (i.e., determining the cannabis cultivators that can legally label or market themselves as belonging to a particular appellation).
While the state has not released program details, it’s likely that cultivators will have to demonstrate their outdoor-grown cannabis is distinctly unique.3 CalCannabis has until Jan. 21, 2021,4 to establish these processes, but a draft is expected to be released by early January 2020.5 This is an opportunity for cultivators to organize and participate in the process to define and create unique local appellations.
What are the benefits of an appellations system?
Appellations benefit both cannabis cultivators and consumers. It allows small farmers to capture the value that consumers place on unique and local cannabis products. Allowing for product differentiation through an appellations system will prevent cannabis from becoming a commodity—a situation that could result in indistinguishable products and a single market price for cannabis regardless of how or where it is grown. Thus, an appellations system protects not only local economies and farming communities, but also consumers that care about the origin and growing practices of their cannabis.
A criticism of appellations, particularly in the wine industry, is that they can disincentivize innovation and industry growth when strict growing practices and standards are required to be a part of an appellation. This will be an important consideration as CalCannabis establishes its appellations system.
County of Origin
In addition to setting up an appellations system, the CalCannabis Appellations Project will expand upon current county of origin regulations. Unlike an appellation designation, the county of origin designation is designed to be much more inclusive—it can currently be used on any cannabis product as long as 100% of the cannabis is grown within the designated county.6 Whereas an appellation will communicate information about the quality of a cannabis product and how it was produced, a county of origin designation is more like a “Made In” label. For example, a county of origin designation can be applied to indoor cannabis whereas an appellation will likely only include sun-grown cannabis.
There is also a desire to allow city of origin designations in addition to county of origin designations, which would enable products grown wholly within the political boundaries of a city to further differentiate themselves.7 As the legal cannabis landscape changes nationwide, it may also be important to have a statewide appellation allowing products to be marketed as “Grown in California.”
What should cannabis cultivation regions be doing now?
After CalCannabis releases a draft process for establishing an appellation, the next steps will be clarified. However, not everyone is waiting. For instance, growers in Mendocino County have already started to organize.8 The Mendocino Appellations Project divided the county into 11 unique subregions based on regional growing conditions and practices that could potentially be turned into appellations in the future. The goal of the appellations outlined by the Mendocino Appellations Project is to protect cannabis products coming out of Mendocino County and preserve the region’s growing heritage.
A group in Sonoma County is also discussing the establishment of appellations with the hope that it will help differentiate their cannabis and draw attention to the unique microclimate and soil structure in parts of Sonoma County.9 The groups involved in these discussions also believe it will allow cultivators to develop strict growing standards and to protect certain strains, while creating new jobs and encouraging agritourism. Appellations will become increasingly important as sophisticated consumers begin to select quality cannabis that aligns with their preferences.
METRC is the third-party-owned software contracted by California authorities to implement the commercial cannabis track-and-trace system “from seed-to-sale.”
Passage of Senate Bill 185 calls for the use of the term “appellations of origin” instead of “appellations.”
Based on comments made during the October 23 Cannabis Advisory Committee Meeting.
Business and Professions Code Section 26063.
Based on comments made during the October 23 Cannabis Advisory Committee Meeting.
Business and Professions Code Section 26063(a).
Based on comments made during the October 23 Cannabis Advisory Committee Meeting.
On Wednesday, November 6th, the number of licenses suspended dropped to a total of 385, including 63 retailers, 61 delivery services, 47 microbusinesses, 185 distributors and 29 transportation licenses. That’s almost 5% of all the cannabis business licenses in California.
According to Alex Traverso, spokesman for the BCC, licensees were given plenty of opportunities to fix their errors. Businesses were given notice that they needed to enroll in Metrc within five days following their provisional licensing. The BCC gave those businesses a reminder roughly three months ago and sent an additional warning in late October regarding the deadline.
It’s a relatively easy fix for those trying to get back in compliance. The rationale behind suspending the licenses is that those businesses need to undergo a mandatory traceability system training so they know how to use Metrc and get credentialed. Enroll in the Metrc system, get credentialed and your license should be restored.
“It’s relatively simple to get your license out of suspension,” Traverso told KPBS News. “These are growing pains. I think we knew it was going to be a process and it was going to take some time, and that it was going to be an adjustment period for a lot of people who have been doing things one way for some time now.”
Traverso added that about 80 businesses enrolled in the Metrc system as soon as they received the notice that their license is suspended. Those licenses should be restored to active shortly, Traverso said.
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