Tag Archives: California

Marguerite Arnold

A Busy 4th Quarter Heralds An Amazing Cannabis Year Globally

By Marguerite Arnold
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Marguerite Arnold

In retrospect, when the cannabis history books are written, 2018 may come to represent as much of a watershed year as 2014. Much has happened this year, culminating in a situation, much like at the end of the first year of modernization, where great victories have been achieved. But a long road to true acceptance and even basic and much broader medical use still beckons. Even if the new center left ruling coalition party in Luxembourg has just announced that recreational cannabis reform is on its agenda for the next five years.

This is a quick and by no means a full review of both fourth quarter activity globally, and how that ties into gains for the year.

Canada Legalizes Rec Sales

Beyond all the other banner headlines, October 17 will go down in history as the day that Canada switched the game.

Will 1017 replace 420? Not likely. But it is significant nonetheless.

What does this mean for the rest of the industry (besides international border checks and lifetime bans for Canadian executives and presumably others traveling into the U.S. to cannabis industry conferences at present)? For starters, a well-capitalized, public industry which is building infrastructure domestically and overseas like it is going out of style.

This is important for several reasons, starting with the fact that the big Canadian LPs are clearly not counting on supplying Europe from Canada for much longer. Why? The big European grows that were set up last year are starting to come online.

So Does California…

And other significant U.S. states (see Massachusetts this month and Michigan) are following suit. However the big issue, as clearly seen at least from Canada and Europe, is there is no federal reform in sight. That opens up a raft of big complications that so far, most U.S. firms have not been able to broach. That said, this situation is starting to change this fall, with two U.S. firms entering both Greece and Denmark, but in general, a big issue. Canadian firms are still trying to figure out how to both utilize the public markets in the U.S. without getting caught in detention when crossing the border.the U.S. is continuing to be a popular place to go public for Canadian firms

Regardless, the U.S. is continuing to be a popular place to go public for Canadian firms, who are also looking for access to global capital markets and institutional capital. Right now, Frankfurt is off limits for many of them. See the Deutsche Börse. That said, with the rules already changing in Luxembourg, one firm has already set its sights for going public in Frankfurt next spring.

The German Situation

Like it or not, the situation in Germany is key to the entire EU and increasingly a global enchilada, and no matter where companies are basing their cultivation sites at this point, there are two big gems in the European cannabis crown. Deutschland is the first one because of the size of the economy, the intact nature of public healthcare and the fact that the German government decided to mandate that sick people could get medical cannabis reimbursed by their public health insurer.

german flag
Photo: Ian McWilliams, Flickr

Ironies abound, however. In the last quarter, it is clear from the actions of the Deutsche Börse that Frankfurt is not a popular place to go public (Aurora went public on the NYSE instead in late October).

The cultivation bid was supposed to come due, but it is now likely that even the December deadline might get pushed back again, interminably at least until April when the most recent lawsuit against the entire process is due to be argued.

In the meantime, there is a lot of activity in the German market even if it does not make the news. Distribution licenses are being granted all over the country (skip Berlin as there are already too many pending). And established distributors themselves, particularly specialty distributors, are increasingly finding themselves the target of foreign buyout inquiries.

There are also increasing rumours that the German government may change its import rules to allow firms outside of Canada and Holland to import into the country.

The German market, in other words, continues to cook, but most of it is under the surface a year and a half after legalization, to figure things out.

The UK

Next to October 17, the other date of note this fall of course was November 1. The Limeys may not have figured out Brexit (yet). But cannabis for medical use somehow made it through the national political fray this summer. Hospitalized children are compelling.

UKflagNow the question is how do other patients obtain the same? The NHS is in dire straits. Patients must still find a way to import the drug (and pay for it). And with newly imposed ex-im complications coming Britain’s way soon, there is a big question as to where and how exactly, patients are supposed to import (and from where). All looming and unanswered questions at the moment.

But hey, British doctors can now write prescriptions for cannabis.

Greece and Malta

Greece and Malta are both making waves across Europe right now. Why?

The licensing process that has continued into the fall is clearly opening up inexpensive cultivation in interesting places. Greece is growing. Malta, an island nation that is strategically placed to rival Greece for Mediterranean exports across Europe is still formalizing the licensing process, but don’t expect that to last for long.

Look for some smart so and so to figure out how to beat Brexit and import from Malta through Ireland. It’s coming. And odds are, it’s going to be Malta, if not the Isle of Mann that is going to clinch this intriguing if not historical cultivation and trade route.

Poland

Just as October came to a close, the Polish government announced the beginning of medical imports. Aurora, which went public the same week in New York, also announced its first shipment to the country – to a hospital complex.

Let the ex-im and distribution games begin!

It is widely expected that the Polish market will follow in German footsteps. Including putting its cannabis cultivation bid online whenever the Polish government decides to cultivate medical supplies domestically. The country just finalized its online tender bid system in general.

Does anyone know the expression for “pending cannabis bid lawsuit in Warsaw” in Polish?

Notable Mentions

While it gets little press outside the country, the Danish four year experiment is reaching the end of its first year. While this market was first pioneered by Canopy/Spectrum, it was rapidly followed by both Canadian LPs and others entering the market. Latest entrant this quarter? A tantalizingly American-British conglomerate called Indiva Ltd. as of November 21.

Italy is also starting to establish a presence in interesting ways as multiple firms begin to establish cultivation there.

There are also increasing rumours and reports that Israel might finally be able to start exporting next year. That will also disrupt the current ecosystem.

And most of all, beyond a country-by-country advance, the World Health Organization meeting in early November and in the early part of December is likely to keep the pressure on at a global level for rescheduling and descheduling the cannabis plant.

This in turn, is likely to set the stage as well as the timeline for rec use in Luxembourg. Look for developments soon.

A busy time indeed. Not to mention a quarter to end a very intriguing year, and certainly destined to sow returns for years to come, globally.

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Discussing Lab Accreditation: The New ISO 17025:2017 Standard

By Aaron G. Biros
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FSC logo

At this year’s Food Safety Consortium a couple weeks ago, the newly launched Cannabis Quality Track featured a number of panels and presentations that highlighted the many intersections between food safety and cannabis. One particular topic of interest was measuring the quality and safety of cannabis products through laboratory testing. At the event this year, representatives from the leading laboratory accreditation bodies in the country sat together on a panel titled Accreditation, Regulation & Certification: Cannabis Labs and Production.

Representatives from ANSI-ASQ National Accreditation Board (ANAB), the American Association for Laboratory Accreditation (A2LA) and Perry Johnson Laboratory Accreditation (PJLA) discussed the new ISO standard, common issues that labs encounter when getting accredited, the future of the cannabis lab industry and certifications for food safety and quality.FSC logo

The panelists included:

  • Tracy Szerszen, president/operations manager, PJLA
  • Natalia Larrimer, engagement and program development manager, ANAB
  • Lauren Maloney, food safety program accreditation manager, Perry Johnson Registrars Food Safety, Inc. (PJRFSI)
  • Chris Gunning, life sciences accreditation manager with A2LA
Tracy Szerszen
Tracy Szerszen, president/operations manager, PJLA

The new ISO 17025:2017 standard was a topic addressed pretty early in the panel. Tracy Szerszen introduced the topic with a recap of the 2005 standard. “With 17025, for those that are familiar with the older version, 2005, there are really two sections of the standard for that one,” says Szerszen. “The newer standard is a little bit different, but there is a quality management system review that we do and we look at the laboratory to ensure that they are testing appropriately based on what they applied for. So, for cannabis labs, they typically have the same scope in types of methods with respect to microbiology and chemistry, and we are making sure they are following the standard from a technical standpoint, meaning they have the right equipment, the appropriate personnel and also have a quality management system.”

Chris Gunning followed that up with a closer look at the changes coming to the new 2017 standard. “If you are familiar with the 2005 version, you know that a lot of the clauses started out with a ‘you shall have a policy and procedure for doing X,’” says Gunning. “One of the major changes to the 2017 version is it gives laboratories more latitude on whether they need to have a policy/procedure to do certain things.” Gunning says the 2017 version is much more of an outcome-based standard. “As far as assessing to it, it becomes a little harder from our side because we can’t say you have to have this quality manual or you have to have this procedure that were going to assess you to. We are more open to looking at the outcomes.”

Christopher Gunning, life sciences accreditation manager with A2LA
Christopher Gunning, life sciences accreditation manager with A2LA

The most interesting change to the ISO standard comes with addressing the idea of risk. “One of the newest concepts in this standard is risk and how you assess your risk to your organization how you assess risk of impartiality, how you assess your measurement uncertainty when you are creating decision rules,” says Gunning. “Those are the big concepts that have changed in the 2017 standard in that it is more outcome-based and introducing the concept of risk more.”

After discussing some of the broader changes coming to the 2017 version, the panelists began delving into some common pitfalls and issues labs face when trying to get accredited. “From our experience, in Michigan, the new standard was written into the regulations, but a lot of labs were already accredited to 2005,” says Szerszen. “So, we actually contacted the state and explained to them that they have three years to transition. And some states will say ‘too bad, we want the 2017 ISO,’ so some of the cannabis labs are asking us to quickly come back so they can get appropriate licensing in the state and do a transition audit quickly.” She says most states seem to be comfortable with the current transition period everyone has, but it certainly requires some discussion and explanation to get on the same page with state regulators. “November 29, 2020 is the deadline for moving to the new 2017 standard.”

In addition to state requirements like traceability and security on top of an ISO 17025 accreditation, labs can run into issues not typically encountered in other testing markets, as Gunning mentioned during the panel. “One of the hardest parts of getting accredited is the need for properly validated methods, for all the different matrices in samples,” says Gunning. “Some of the biggest hurdles for new labs getting assessed are validation and the availability of reference materials and proficiency testing samples that meet their state requirements.” Those are just a handful of hurdles that labs aren’t usually anticipating when getting accredited.

Natalia Larrimer, engagement and program development manager, ANAB

Another big topic that generated a lot of dialogue during the panel was the need for a national accreditation standard for cannabis testing labs, one that Natalia Larrimer is advocating for. “Many laboratories are operating facilities in more than one state and what they are facing is a different set of criteria for laboratory recognition in each state, says Larrimer. “One initiative that we would love to see more support for, is a set of uniform requirements nationally. ACIL is currently working on developing these type of requirements which would be in addition to the ISO/IEC 17025 standard and specific for cannabis industry…” Larrimer says she’d like to see these requirements recognized nationally to get labs on the same page across multiple states. “This includes requirements for things like security, traceability, proficiency testing, sampling and personnel competence. The industry would greatly benefit from a uniform cannabis testing program across the US, so that testing facilities in Oregon are operating to the same criteria as facilities in California or Colorado, etc.”

The panelists went into greater detail on issues facing the cannabis lab testing industry, but also delved into certifications for food safety and quality, an important new development as the infused products market grows tremendously. Stay tuned for more highlights from this panel and other talks from the Food Safety Consortium. We will be following up this article with another that’ll shed some light on food safety certifications. Stay tuned for more!

Why Comply: A Closer Look At Traceability For California’s Cannabis Businesses

By Scott Hinerfeld
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Compliance should be top of mind for California’s cannabis operators. As the state works to implement regulations in the rapidly-growing cannabis industry, business owners need to be aware of what’s required to stay in good standing. As of January 1, 2019, that means reporting data to the state’s new track-and-trace system, Metrc.

What Is Track-and-Trace?

Track-and-Trace programs enable government oversight of commercial cannabis throughout its lifecycle—from “seed-to-sale.” Regulators can track a product’s journey from grower to processor to distributor to consumer, through data points captured at each step of the supply chain. Track-and-trace systems are practical for a number of reasons:

  • Taxation: ensure businesses pay their share of owed taxes
  • Quality assurance & safety: ensure cannabis products are safe to consume, coordinate product recalls
  • Account for cannabis grown vs. cannabis sold: curb inventory disappearing to the black market
  • Helps government get a macro view of the cannabis industry

The California Cannabis Track-and-Trace system (CCTT) gives state officials the ability to supervise and regulate the burgeoning cannabis industry in the golden state.

What Is Metrc?

Metrc is the platform California cannabis operators must use to record, track and maintain detailed information about their product for reporting. Metrc compiles this data and pushes it to the state.

Who Is Required To Use Metrc?

Starting January 1, 2019, all California state cannabis licensees are required to use Metrc. This includes licenses for cannabis: Proper tagging ensures that regulators can quickly trace inventory back to a particular plant or place of origin.

  • Cultivation
  • Manufacturing
  • Retail
  • Distribution
  • Testing labs
  • Microbusinesses

How Does Metrc Work?

Metrc uses a system of tagging and unique ID numbers to categorize and track cannabis from seed to sale. Tagged inventory in Metrc is sorted into 2 categories: plants and packages. Plants are further categorized as either immature or flowering. All plants are required to enter Metrc through immature plant lots of up to 100/plants per lot. Each lot is assigned a lot unique ID (UID), and each plant in the lot gets a unique Identifier plant tag. Immature plants are labeled with the lot UID, while flowering plants get a plant tag. Metrc generates these ID numbers and they cannot be reused. In addition to the UID, tags include a facility name, facility license number, application identifier (medical or recreational), and order dates for the tag. Proper tagging ensures that regulators can quickly trace inventory back to a particular plant or place of origin.

Packages are formed from immature plants, harvest batches, or other packages. Package tags are important for tracking inventory through processing, as the product changes form and changes hands. Each package receives a UID package tag, and as packages are refined and/or combined, they receive a new ID number, which holds all the other ID numbers in it and tells that package’s unique story.

Do I Have To Enter Data Into Metrc Manually?

You certainly can enter data into Metrc manually, but you probably won’t want to, and thankfully, you don’t have to. Metrc’s API allows for seamless communication between the system and many of your company’s existing tracking and reporting tools used for inventory, production, POS, invoices, orders, etc. These integrations automate the data entry process in many areas.As California operators work to get their ducks in a row, some ambiguity and confusion around Metrc’s roll out remains. 

Adopting and implementing cannabis ERP software is another way operators can automate compliance. These platforms combine software for point of sale, cultivation, distribution, processing and ecommerce into one unified system, which tracks everything and pushes it automatically to Metrc via the API. Since they’ve been developed specifically for the cannabis industry, they’re designed with cannabis supply chain and regulatory demands in mind.

As California operators work to get their ducks in a row, some ambiguity and confusion around Metrc’s roll out remains. Only businesses with full annual licenses are required to comply, leaving some temporary licensees unsure of how to proceed. Others are simply reluctant to transition from an off-the-grid, off-the-cuff model to digitally tracking and reporting everything down to the gram. But the stakes of non-compliance are high— the prospect of fines or loss of business is causing fear and concern for many. Integrated cannabis ERP software can simplify operations and offer continual, automated compliance, which should give operators peace of mind.

Seed to Sale Show

Seed to Sale Show is the only national show focused solely on innovative best practices, science, and cutting-edge technology surrounding the whole life cycle of the cannabis plant grown, processed, and sold in a regulated market.

This February 12–13, more than 3,000 of the nation’s leading professionals will convene in Boston, MA, at the forefront of the cannabis industry’s technological advancement and modernization, to learn about the latest innovations behind the growing, extracting, infusing, marketing, and retailing of cannabis in three highly-focused educational tracks

New Taxes for California Cannabis Industry

By Jasmine Davaloo
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Welcome to the evolving world of cannabis legislation and taxation in California. With the recent 2018 midterm election, a green wave of new laws and regulations has washed ashore, and Taxnexus, a cannabis tax compliance service provider for cannabis businesses, has analyzed the results, looking for insights to guide cannabis business owners in 2019.

In summary, the trend of local counties and cities imposing new cannabis taxes on dispensaries, distributors and cultivators continues, but with some important lessons being learned.

A Brief History of California Cannabis Tax Regulations.

The legalization of cannabis in California brought with it cannabis excise tax and cultivation taxes with the hope of bringing in significant amounts of income in cannabis taxes. The state had projected $185M in cannabis tax revenue for the first six months of 2018. Although California has since collected tens of millions of dollars fewer than anticipated, it did bring in over $135M in the first and second quarters from a brand new industry.

Local governments are able to collect these taxes directly from cannabis businesses.  With the green light from the state and the need for a new source of revenue, many local governments followed suit and passed laws to impose taxes on cannabis businesses operating in their jurisdictions. The need for additional revenue is even greater for localities that allow cannabis business operations given that the state takes virtually all of the state-imposed cannabis taxes while the local government entities are burdened by the related costs of regulations and enforcement at the local level.

Cannabis business taxes have an extra allure for local jurisdictions. Unlike local sales and use taxes, the state does not require local cannabis business taxes to go through the state before a portion of it gets funneled back to the localities. Local governments are able to collect these taxes directly from cannabis businesses.

Since January 1, 2018, many local jurisdictions have come onboard and placed ballot measures for their voters to decide whether to tax cannabis businesses. According to research conducted by Taxnexus, by the end of the second quarter this year, there were over 500 different local cannabis tax rates in California.The new cannabis tax measures are also continuing the trend of widely ranging local cannabis tax laws.

Midterm Results Continue Overwhelming Support for Cannabis Industry

With over 50 cannabis tax measures placed on the November 6 local ballots, most of which passed with overwhelming support from voters, the number and variation of local cannabis business taxes continue to grow. This demonstrates the continuing trend of local governments welcoming cannabis businesses, the evolving voter attitude toward recreational cannabis, and perhaps most importantly, the localities’ desire to take their cut of the new industry’s tax revenue.

The new cannabis tax measures are also continuing the trend of widely ranging local cannabis tax laws. Given that the Medicinal and Adult-Use Cannabis Regulation and Safety Act granted local jurisdictions control over deciding their own cannabis business regulations, there is no statewide uniformity. Here are a few examples of the cannabis business tax measures that were on local ballots on November 6:

San Francisco

While some local jurisdictions were quick to impose cannabis taxes, others have delayed in taxing their local cannabis businesses. San Francisco’s Proposition D, which received a 66% voter approval, won’t go into effect until January 1, 2021. It imposes taxes on cannabis businesses that do business in the city, whether or not they are physically located there. The new cannabis business taxes are as follows:

  • For cannabis retail businesses, 2.5% of gross receipts up to $1M and 5% of gross receipts over $1M.
  • For cannabis non-retail businesses, 1% tax of gross receipts up to $1M and 1.5% of gross receipts over $1M.

These taxes do not apply to the first $500,000 of recreational cannabis gross receipts nor revenues from medical cannabis retail sales. The measure allows the Board of Supervisors to adjust the tax rates up to 7%. The cannabis businesses taxes are expected to generate $5M to $12M in cannabis tax revenue, and will go into the City’s general fund.The new tax measures underscore the lack of uniformity in local cannabis business taxes throughout the state. 

Emeryville

Emeryville passed a new cannabis business tax measure to increase its current nominal rate. Measure S imposes a cannabis business tax of up to 6% of gross receipts. This is estimated to generate $2M in tax revenue to be used for unrestricted governmental purposes.

Oakland

Oakland is among the few local jurisdictions that placed a measure on its November 6 ballot to lower its existing cannabis business tax rates. Previously, Oakland imposed a 5% tax on medical cannabis and a 10% tax on recreational cannabis, for all cannabis activities throughout the supply chain. These are among some of the highest cannabis tax rates in the state and are squeezing out small operators. Although Oakland has long been seen as the leader in California’s cannabis industry, the high taxes are making it difficult for its cannabis businesses to compete with nearby cities that charge lower taxes. While the city acknowledged the hardship its high taxes imposed, it maintained that it could not lower the rates on its own and required the voter approval. On November 6th, Oakland voters passed Measure V by 78%, which gives the City Council the authority to lower the city’s cannabis tax rates through an ordinance. To give additional relief to the cannabis businesses in the city, this measure also allows them to deduct the cost of raw materials from their gross receipts- something they cannot do on their federal tax returns. Furthermore, local cannabis business taxes can now be paid on a quarterly basis instead of one annual payment at the beginning of each year, which was severely burdensome for most businesses.

Lake County

Voters in Lake County approved Measure K by a majority vote to tax cannabis businesses in the unincorporated county effecting January 1, 2021. The county was previously only taxing cultivators at $1 to $3 per square footage depending on the method of cultivation. These rates will be reduced to $1 per square footage for cultivators and nurseries, and other cannabis businesses will be taxes between 2.5% and 4% of their gross receipts.

Mountain View

While there is a maximum of four cannabis businesses permitted to operate in Mountain View, over 80% of voters approved Measure Q to tax them. The measure imposes up to 9% of gross receipts to fund general city purposes, with an estimated annual revenue of $1M.Some have even set the effective dates of their cannabis tax laws several years out to allow their local cannabis businesses an opportunity to establish roots and drive out the black market.

Lompoc

Some jurisdictions have passed more creative cannabis business tax regimens than one rate applicable to the entire supply chain. Voters in Lompoc in Santa Barbara County approved Measure D2018 to authorize the city to impose following cannabis business taxes:

  • Up to $0.06 per $1 (6%) of recreational retail sales proceeds;
  • Up to $0.01 per $1 (1%) of cultivation and nursery proceeds;
  • An annual flat fee tax of $15,000 if net income is less than $2M of manufacturing and distribution proceeds;
  • An annual flat fee tax of $30,000 if net income is $2 Million or more of manufacturing and distribution proceeds;
  • A total aggregate tax of $0.06 per $1.00 (6%) of microbusinesses proceeds, not including medical cannabis transaction proceeds; and
  • No tax on testing.

Riverbank

There are signs that other localities that waited to jump onboard have learned from these high-taxing jurisdictions and opted for lower rates. There are even those localities that although they do not statutorily permit cannabis businesses to operate in their jurisdictions, they still want a piece of the action when it comes to cannabis taxes. The city of Riverbank in Stanislaus County currently does not allow cannabis businesses to operate without first obtaining a permit from City Hall and entering into a development agreement with the city that negotiates how much of their revenue the city would take. However, the voters just passed Measure B, which authorizes Riverbank’s City Council to impose a business license tax of up to 10% of gross receipts on cannabis businesses in the event the city allows cannabis businesses to operate within its city limits in the future. This tax has incentives other than the apparent potential of tax revenue. This guarantees the city a cut of the earnings of any illegal cannabis businesses, and serves as a protection in the event the permit and development agreement scheme the city has enacted is later found to be invalid.

The Chaos Continues

The new tax measures underscore the lack of uniformity in local cannabis business taxes throughout the state. Compliance is especially burdensome for delivery companies and multi-location and multi-license cannabis businesses. Cannabis businesses are required to keep up with new and evolving cannabis tax regimens, which, judging by the shortfall in cannabis tax revenues compared to their projections so far, is a difficult feat for these highly-regulated businesses.Of course, there are still some local governments that appear to have missed all the signs and have passed new high taxes. 

The overall trend in 2018, persisting through the midterm elections, is that more local jurisdictions are joining the cannabis tax bandwagon, and while the tax rates and structures are still all over the map, there appears to be some movement toward honing the cannabis business rates toward that “sweet spot.”

Cities like Oakland and Berkeley that immediately began to tax cannabis businesses at high rates have lowered or taken steps to lower their tax rates to keep their competitive edge and retain cannabis businesses within their jurisdictions. There are signs that other localities that waited to jump onboard have learned from these high-taxing jurisdictions and opted for lower rates. Some have even set the effective dates of their cannabis tax laws several years out to allow their local cannabis businesses an opportunity to establish roots and drive out the black market.

Of course, there are still some local governments that appear to have missed all the signs and have passed new high taxes. In due time, they, too, will give in to the market pressures and make necessary adjustments if they want to continue to benefit from the legal cannabis industry in their jurisdictions.


Taxnexus is an automated transaction-to-treasury cannabis tax compliance solution for the entire cannabis supply chain that provides point-of-sale state and local cannabis tax calculation, sales and use tax calculation, tax data management as the authority of record, and timely filing of returns with all applicable taxing authorities.

Ellice Ogle headshot

Designing a Recall Plan for Your Company

By Ellice Ogle
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Ellice Ogle headshot

Bearing through four voluntarily recalls in the first two months since the transition window ended, the California cannabis industry showed its commitment to providing safe goods for its consumers. Recalls are considered the removal of products deemed unsafe at the point of retail. With unsafe product already on shelves, it is that much more important to have a thought out strategy if a recall need arises. Currently, the California Department of Public Health-Manufactured Cannabis Safety Branch is the only regulatory agency in the state of California with recall stipulations for California cannabis companies. Thus, the onus is on individual cannabis companies to initiate their own recall plans.

Why establish a recall plan if one is not compulsory? To start, a cannabis product recall is more challenging than recalls in other industries because of the classification as a Schedule 1 drug and the misunderstanding and stigma of the drug that promotes fake news. These considerations affect the way both the government officials and consumers perceive cannabis recalls – not preparing ahead of time could be devastating to your brand. Furthermore, a recall is not just a one day headache – in December 2017, the Inspector General of Department of Health and Human Services  found that food companies took 57 days on average to initiate a recall after the Food and Drug Administration (FDA) first learned a product was potentially hazardous. Not only is a recall tricky to navigate and time intensive, a recall can also be costly – a joint study by the Food Marketing Institute (FMI) and the Grocery Manufacturers’ Association (GMA) in the USA found that 77% of the study respondents estimated the financial impact to be up to $30 million dollars; 23% reported even higher costs. One major factor of the financial impact to consider is that many retailers do not remove only the affected products, instead sweeping entire lines and brands. To estimate how much a food recall would cost your company, researchers Moises Resende-Filho and Brian Burr developed a model to estimate the direct costs of a food recall. To take a step back, it is true that, while recalls can be tricky to navigate, time intensive and costly, recalls are generally infrequent. At the same time, you never know where or when a recall could happen. For example, your manufacturing process might be flawless, but a supplier may suddenly issue a recall or the retail facility is compromised. Moreover, not all recalls are equal – imagine that consumers would react differently to an undeclared allergen on the label versus a life threatening pathogen in a product distributed to patients with weakened immune systems. Ergo, it is strategic for every cannabis company (grower, manufacturer, retail, etc.) to have a recall plan to be ready for any type of recall situation.

Take these 6 tips in designing a recall plan:

Food processing and sanitation
Product recalls due to manufacturing errors in sanitation cause mistrust among consumers.

Before a Recall

1) Be familiar with how recalls work by staying up to date with recalls

2) Write a recall plan. Select a recall template and fill in your company information, but also take into consideration any regulations on recalls at the federal, state, and county levels.

During a Recall

3) Record everything that was said and done. If there was no prewritten recall plan, during a recall is a good time as any to begin documenting all actions and communication – internal within the management team and external with business partners (suppliers, retailers) and external with the consumers.

4) Find the flaw in the product. Why is the product being recalled? This is important to know, whether it was your item or not, to better answer the next question of “What happens with the recalled product?” The most common causes for a recall in the USA are identified in the joint study mentioned above by the FMI and GMA.

After a Recall

5) Reevaluate the recall plan. Compare to a reputable third-party auditing standard (example here is Safe Quality Food Institute’s SQF Food Safety Code for Manufacturing Edition 8). Updates to the recall plan are inevitable and constant. The changes may be due to updates in company products, adjustments in the recall network or the experience gained when going through a recall. Also keep an eye out for updates to templates of recall plans. Conduct mock recalls with different recall origins.

6) Reevaluate the food safety plan. After finding the flaw in the product, identify the flaw in the process and improve. Examples to improve the food safety plan may be to: amend the supplier approval program, refine process flow, polish the sanitation program or revise the preventative maintenance program. The foundation of a recall plan is having a robust food safety plan to minimize the risk of running a recall.

California Midterm Ballots To Bring Green Wave of Cannabis Tax Regulations

By Jasmine Davaloo
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As state and local jurisdictions rake in millions of dollars in tax revenue from the state’s legal cannabis industry, new states, counties and cities are piling onto the cannabis tax bandwagon. There are currently hundreds of local cannabis business taxes in place in California. On the November ballots, there are 47 new local cannabis tax measures. In fact, even some local jurisdictions that outlaw cannabis operations want a piece of the green pie and are asking voters to impose cannabis business taxes.

More cannabis tax measures being passed means more regulations and compliance responsibilities for cannabis businesses. This is especially taxing (pun intended) for multi-licensed and multi-location cannabis businesses. With hefty monetary penalties and even revocation of business licenses as consequences of noncompliance, adherence to state and local tax regulations is of paramount concern to cannabis businesses. Below is a list that Taxnexus has put together showing all of the cannabis tax measures on the November 6 ballots in California:

Taxnexus is an automated transaction-to-treasury cannabis tax compliance solution for the entire cannabis supply chain that provides point-of-sale state and local cannabis sales and use tax calculation, tax data management as the authority of record, and timely filing of returns with all applicable taxing authorities.

California City and County Cannabis Tax Measures November 6, 2018 Ballots

City County Measure Name Proposal
Adelanto San Bernardino S Adelanto Marijuana Tax To authorize the city to impose a tax on marijuana businesses of up to $5.00 per square foot on nurseries and up to 5% on other businesses.
Atascadero San Luis Obispo E-18 Atascadero Cannabis Business Tax To impose a tax on cannabis businesses at annual rates not to exceed $10.00 per canopy square foot for cultivation, 10% of gross receipts for retail cannabis businesses, 2.5% for testing laboratories, 3% for distribution businesses, and 6% of gross receipts for all other cannabis businesses.
Atwater Merced A Atwater Marijuana Tax To authorize the city to impose a 15% tax on marijuana businesses.
Benicia Solano E Benicia Marijuana Business Tax To authorize the city to impose a tax of up to $10 per square foot for marijuana nurseries and 6% of gross receipts for other marijuana businesses.
Capitola Santa Cruz I Capitola Marijuana Business Tax To authorize the city to tax marijuana businesses at a rate of up to 7% with no expiration date to fund general city purposes.
Chula Vista San Diego Q Chula Vista Marijuana Business Tax To authorize the city to tax marijuana businesses at the following rates: 5% to 15% of gross receipts or $5 to $25 per square foot for cultivation.
Colfax Placer C City of Colfax Cannabis Business Tax To tax cannabis businesses at annual rates not to exceed $10.00 per canopy square foot for cultivation (adjustable for inflation), 6% of gross receipts for retail cannabis businesses, and 4% for all other cannabis businesses.
Colton San Bernardino U Colton Marijuana Tax To authorize the city to impose a tax on marijuana businesses of up to $25.00 per square foot on nurseries and up to 10% on other businesses.
Emeryville Alameda S Emeryville Marijuana Business Tax To enact a marijuana business tax at a rate of up to 6% of gross receipts to fund general city purposes.
Fresno Fresno A Fresno Marijuana Business Tax To tax marijuana businesses at rates of up to $12 per canopy square foot and up to 10% of gross receipts for medical dispensaries and other marijuana businesses, with revenue dedicated to the city’s general fund an a community benefit fund.
Goleta Santa Barbara Z2018 Goleta Marijuana Business Tax To authorize the city to tax marijuana businesses at the following initial rates with a cap at 10% of sales: 5% for retailers; 4% for cultivators; 2% for manufacturers; and 1% for distributors/nurseries.
Hanford Kings C Hanford Cannabis Business Tax To tax cannabis businesses at an annual maximum rate of $7 per square foot of canopy for cultivation businesses using artificial lighting only, $4 per square foot of canopy for cultivation businesses using a combination of artificial and natural lighting, $2 per square foot of canopy for cultivation businesses using natural lighting only, and $1 per square foot of canopy for nurseries, 1% of gross receipts of laboratories, 4% of gross receipts of retail sales, 2% of gross receipts of distribution and 2.5% of gross receipts of all other types of cannabis businesses.
Hesperia San Bernardino T Hesperia Marijuana Tax To authorize the city to impose a tax on marijuana businesses of up to $15.00 per square foot on nurseries and up to 6% on other businesses.
La Mesa San Diego V La Mesa Marijuana Business Tax To authorize the city to tax marijuana businesses at rates of up to 6% gross receipts and up to $10 per square foot of cultivation.
Lassen Lassen M Lassen County Commercial Marijuana Business Tax To authorize the county to enact a tax on commercial marijuana at rates of between $0.50 to $3.00 per square foot for cultivation and 2.5% to 8% on gross receipts for other businesses, such as retail, distribution, manufacturing, processing, and testing.
Lompoc Santa Barbara D2018 Lompoc Marijuana Business Tax To authorize the city tax marijuana businesses at the following rates: $0.06 per $1 of non-medical retail sales proceeds; $0.01 per $1 of cultivation proceeds; $15,000 for net income less than $2 million of manufacturing/distribution proceeds; $30,000 for net income $2 Million or more of manufacturing/distribution proceeds; a total aggregate tax of $0.06 per $1.00 of microbusinesses proceeds; and no tax on testing.
Malibu Los Angeles G Malibu Marijuana Business Authorization and Tax To authorize the sale of recreational marijuana in the city and imposing a general tax at the rate of 2.5% of gross receipts on the sale of recreational marijuana.
Marina Monterey V Marina Marijuana Business Tax To authorize marijuana businesses to operate in the city and authorizing the city to tax marijuana businesses at rates of up to 5% of gross receipts, with revenue funding general city purposes.
Maywood Los Angeles CT Maywood Marijuana Business Tax To authorize the city to tax marijuana businesses at a maximum rate of 10% of gross receipts to fund general city purposes.
Moreno Valley Riverside M City of Moreno Valley Commercial Cannabis Activity Tax To enact a tax on cannabis sales and cultivation, not exceeding 8% of gross receipts and $15 per square foot of cultivation.
Morgan Hill Santa Clara I Morgan Hill Marijuana Business Tax To authorize the city to tax marijuana businesses at annual rates up to $15.00 per canopy square foot for cultivation and up to 10% of gross receipts for all other marijuana businesses.
Mountain View Santa Clara Q Mountain View Marijuana Business Tax To enact a tax on marijuana businesses of up to 9% of gross receipts to fund general city purposes.
Oakland Alameda V Oakland Marijuana Business Tax Amendments To amend the marijuana business tax law to: allow marijuana business to deduct the cost of raw materials from their gross receipts and to pay taxes on a quarterly basis; and allow the city council to amend the law in any manner that does not increase the tax rate.
Oroville Butte T Oroville Marijuana Tax To authorize an annual gross receipts tax on cannabis businesses at rate not to exceed 1%, with initial rates of 5% on retailers and manufacturers; 4% on cultivators; 3% on distributors; 2% on nurseries; 0% on testing laboratories; and 7% on microbusiness to generate approximately $300,000 to $600,000 in annual revenue.
Paso Robles San Luis Obispo I-18 Paso Robles Cannabis Business Tax To impose a maximum tax rate on every person or entity operating or conducting a cannabis business within the City a cultivation tax of up to$20.00 per square foot of space utilized in connection with the cultivation and processing of cannabis; a gross receipts tax of up to 10% for all cannabis transportation; a gross receipts tax of up to 15% for all cannabis manufacturing, testing, and distribution; and a gross receipts tax of up to 10% for dispensaries.
Pomona Los Angeles PC Pomona Marijuana Business Tax To authorize the city to tax marijuana businesses at rates of $10.00 per canopy square foot for cultivation and up to 6% of gross receipts for all other marijuana businesses to fund general city purposes.
Riverbank Stanislaus B City of Riverbank Cannabis Business License Tax To authorize the City Council of the City to impose a business license tax at a rate of up to 10% of gross receipts on cannabis businesses and dispensaries, to help fund general municipal services.
San Bernardino San Bernardino W San Bernardino Marijuana Tax To authorize the city to impose a tax on marijuana businesses of up to $10.00 per square foot on nurseries and up to 6% on other businesses.
San Diego San Diego AA City Council Marijuana Business Tax Measure To authorize the city to tax marijuana businesses at the following rates: $14 per square foot; up to 8% on manufacturing and distribution; up to 10% on medicinal retail; up to 12% on adult-use retail; and up to 3.5% on testing.
San Francisco San Francisco D San Francisco Marijuana Business Tax Increase To tax marijuana businesses with gross receipts over $500,000 at a rate between 1% and 5%, exempting retail sales of medical marijuana, and expanding the marijuana business tax to businesses not physically located in San Francisco.
Santa Ana Orange Y Santa Ana Recreational Marijuana Business Tax To authorize the city to tax marijuana businesses at rates of $0.25 to $35.00 for gross square footage and up to 10 percent for cultivating, manufacturing, distributing, selling, or testing.
Santa Clara Santa Clara M Santa Clara Marijuana Business Tax To authorize the city to tax commercial marijuana businesses up to 10% of gross receipts and up to $25 per square foot for cultivation.
Simi Valley Ventura Q Cannabis Business Tax To enact a maximum tax on gross receipts of cannabis businesses in the City after January 1, 2019, as follows: for testing, 2.5%; for retail sales, retail delivery, or microbusiness retail, 6%; for distribution not to consumers, 3%; for manufacturing, processing or nonretail microbusiness, and any other type of business not otherwise specified, 4%; and for cultivation, a tax per square foot of canopy ranging from $2.00 per square foot of canopy to $10.00 per square foot of canopy, depending on the type of lighting (artificial or natural) used.
Solvang Santa Barbara F2018 Solvang Marijuana Business Tax To authorize the city to tax marijuana businesses at an initial rate of 5 percent of gross receipts with a cap of 10 percent and a maximum annual increase of 1 percent.
Sonora Tuolumne N City of Sonora Cannabis Business License Tax To enact a business license tax at a rate of up to 15% of gross receipts on cannabis businesses, to help fund general municipal services; and increasing the City’s appropriations limit for the Fiscal Years 2019-2023 by the amount of tax proceeds received.
Suisun Solano C Suisun Marijuana Business Tax To authorize the city to impose a tax of up to $25 per square foot and 15% gross receipts for marijuana businesses.
Union City Alameda DD Union City Marijuana Business Tax To authorize the city to tax marijuana businesses at rates of $12.00 per square foot for cultivation and 6 percent of gross receipts for other businesses to fund general municipal services.
Vista San Diego Z Vista Retail Medical Marijuana Sales and Tax Initiative (November 2018) To authorize commercial retails sales of medicinal marijuana for up to 11 retailers and enacting a 7% tax on the business’ gross receipts.
Contra Costa R Contra Costa County Marijuana Business Tax To authorize Contra Costa County to tax commercial marijuana businesses in the unincorporated area in the amount of up to $7.00 per canopy square foot for cultivation and up to 4 percent gross receipts for all other cannabis businesses to fund general County expenses.
El Dorado N, P, Q, R, S Commercial Cannabis Tax Measures To impose a general tax on any independently authorized commercial cannabis activity in the unincorporated areas of El Dorado County at rates up to: $30 per square foot or 15% for cultivation; 10% for distribution, manufacturing, and retail; and 5% for testing laboratories, effective until amended or repealed, with estimated annual revenue of $1,900,000 to $52,800,000.

To authorize outdoor and mixed-light (greenhouse) commercial cannabis cultivation for medicinal use on parcels of at least 10 acres zoned Rural Lands, Planned Agricultural, Limited Agricultural, and Agricultural Grazing that are restricted in canopy size, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.

To authorize outdoor and mixed-light (greenhouse) commercial cannabis cultivation for recreational adult use on parcels of at least 10 acres zoned Rural Lands, Planned Agricultural, Limited Agricultural, and Agricultural Grazing that are restricted in canopy size, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.

To authorize the retail sale, delivery, distribution, and indoor cultivation of commercial cannabis for medicinal use on parcels zoned Community Commercial, Regional Commercial, General Commercial, Industrial High, and Industrial Low that are restricted in number and concentration, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.

To authorize the retail sale, delivery, distribution, and indoor cultivation of commercial cannabis for recreational adult use on parcels zoned Community Commercial, Regional Commercial, General Commercial, Industrial High, and Industrial Low that are restricted in number and concentration, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.

Lake K Lake County Marijuana Business Tax To authorize the county to enact a marijuana business tax at the rates of $1.00 per square foot for nurseries and cultivators and between 2.5% and 4% for other businesses.
San Joaquin B Unincorporated County of San Joaquin Cannabis Business Tax To impose a special tax on commercial cannabis businesses in unincorporated San Joaquin County at a rate of 3.5% to 8% of gross receipts, with an additional cultivation tax of $2.00 per square foot of cultivation space.
Tuolumne M Tuolumne County Commercial Cannabis Business Tax The County to impose a 0%-15% gross receipts tax on commercial cannabis businesses (but no less than $0-$15 per square foot for cultivation businesses as annually increased by a consumer price index) in the unincorporated area of Tuolumne County, and to authorize the Board of Supervisors to implement and adjust the tax at its discretion, with funds staying local for unrestricted general revenue purposes, including but not limited to public safety, health,environmental protection and addressing industry impacts, unless repealed or amended by voters.

Logistics and Supply Chain Management in California

By Aaron G. Biros
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Just a couple weeks away, the California Cannabis Business Conference, taking place in Anaheim, CA October 22-23, will host a series of panel discussions where attendees can expect to learn from industry leaders on a variety of topics. As businesses in the state adjust to new regulations and the market matures, one particular topic seems to highlight a challenging new space: distribution.

Track 1 at the CA Cannabis Business Conference, Distribution, Retail and Delivery, will begin early afternoon on Monday at the show, where a panel discussion titled State of Cannabis Distribution: Scaling Cannabis Distribution and Expectations of a Distributor, will tackle a range of issues involving logistics and supply chain management in California’s cannabis industry.

Michael Wheeler, vice president of Policy Initiatives at Flow Kana, will host the panel, joined by Chris Coulombe, CEO of Pacific Expeditors, Jesse Parenti, programs director of Nine Point Strategies and Brian Roth, vice president of sales at KUDU Technologies. According to the agenda, the session will cover inventory management, shipping and transport, managing product data, order fulfillment, manifest creation and reporting on it all. Michael Wheeler says regulatory compliance is one issue they plan on discussing. “Currently the biggest pressure on compliance is the desire by some operators to live under the proposed regulations, instead of the current emergency regulations,” says Wheeler. “Add to this recently signed legislation and we have lots of opportunistic actions each with their own perception of compliance.”

Another important topic they plan on discussing is driver training and hiring practices. According to Chris Coulombe, drivers are one of the top two most important customer-facing teams in the organization. “Between the sales team and the fleet operation, drivers represent half of the face of your company,” says Coulombe. “Much like the sales team, they interface with your retail partners directly, and subsequently provide a sizable portion of the foundation that retailers will use to judge your company’s competency and efficiency.”

Chris Coulombe, CEO of Pacific Expeditors
Chris Coulombe, CEO of Pacific Expeditors

When hiring new drivers, Coulombe recommends the standard background and driver record checks, but urges looking for experience in sales and driving as well. “Find those that have leadership experience and are comfortable operating in quasi-structured environments,” says Coulombe. “To that end, we seek solution oriented candidates that are personable, experienced in troubleshooting on their feet, and understand how to operate inside the structure of an organization.”

Coulombe also emphasizes the importance of driver training in any distribution company. “We built our driver training from scratch based on collective experiences from the military,” says Coulombe. “However, creating this from scratch is not necessary at this point, some insurance companies, such as our broker, Vantreo, provide in house driver training and certification solutions as a risk mitigation measure for companies that they represent. We recommend speaking with your insurance company to find what packages they have available.” Proper training for your drivers can help increase efficiency in operations, decrease maintenance and insurance costs and provide for better employee engagement. Coulombe also says many insurance companies have standard operating procedures for drivers to help supplement your company’s protocols.

Chris Coulombe and the other panelists will dive much deeper into this issue and other supply chain topics at the upcoming California Cannabis Business Conference, taking place in Anaheim, CA October 22-23.

Dr. Ed Askew
From The Lab

Quality Plans for Lab Services: Managing Risks as a Grower, Processor or Dispensary, Part 5

By Dr. Edward F. Askew
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Dr. Ed Askew

Protection in the Court of Public Opinion

In the last four articles, I have outlined areas that impact your operations as they apply to laboratory quality programs. But this article will take a different path. It will focus on protecting your crop and brand along with any business that utilizes your crop, such as dispensaries or edible manufactures in the court of public opinion.

Now, the elephant in the room for cannabis companies is the difference between rules written by the state and their enforcement by the state. There are many anecdotal stories out there that can be used as case studies in identifying ways to protect your brand. Remember, consumers and the media caught them, not the regulators.

Cheating in the cannabis industry: growers, dispensaries, edibles manufactures, etc. This includes:

  1. Finding laboratories that will produce results that the client wants (higher potency numbers)
  2. Not testing for a particular contaminant that may be present in the cannabis product.
  3. Selling failed crops on the gray or black market.
  4. Claiming to regulators that the state rules are unclear and cannot be followed (e.g. So, give me another chance, officer)

So why should you be worried? Because, even if the state where you operate fails to enforce its own rules, the final end-user of your product will hold you accountable! If you produce any cannabis product and fail to consider these end-users, you will be found out in the court of public opinion by either the media or by the even more effective word of mouth (e.g. Social Media).

So, let’s take a look at some recent examples of these problems:

  1. “Fungus In Medical Marijuana Eyed As Possible Cause In California Man’s Death”
  2. “Pesticides and Pot: What’s California Smoking?”
  3. Buyers beware: California cannabis sold Jan. 1 could be tainted”

Each of these reports lists contamination by microbial stains or pesticides as being rampant within the California market whose products are used for medical or recreational use. Just imagine the monetary losses these cannabis businesses faced for their recalled cannabis product when they got caught. Remember, consumers and the media caught them, not the regulators.Institute a quality program in your business immediately.

How can you be caught? There are many different ways:

  1. Consumer complaints to the media
  2. Secret shopper campaigns (more to come on that in the next article)
  3. Media investigations
  4. Social media campaigns

What are the effects on your business? Product recalls such as these two to hit the California market recently.

So, what should you do to produce an acceptable product and provide reasonable protection to your cannabis business? Institute a quality program in your business immediately. This quality program will include areas of quality assurance and quality control for at least these areas.

  1. Growing
  2. Processing or formulating
  3. Shipping
  4. Dispensing
  5. Security
  6. Training of staff
  7. Laboratory services

Setting up and supporting these programs requires that your upper management impose both a rigorous training program and make employee compliance mandatory. Otherwise, your business will have an unreasonable risk of failure in the future.

Further information on preparing and instituting these types of quality assurance and quality control programs within your business can be found at the author’s website.

Two Recalls Hit California Cannabis Market

By Aaron G. Biros
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Just weeks ago, the first voluntary cannabis product recall occurred under California’s new regulations. According to an article on MJBizDaily.com by John Schroyer, the recall for their vaporizer cartridges affects almost 100 dispensaries in California.

Bloom Brands, the company issuing the voluntary recall, mentioned in a press release that batches sold between July 1-19, 2018 were contaminated with the pesticide Myclobutanil and therefore does not meet the Bureau of Cannabis Control (BCC) standards. Below is an excerpt from the press release:

We are working closely with the BCC to remedy this issue and expect clean, compliant products to be back on shelves in three weeks…. At Bloom, we are continuing to work with the BCC and other partners to ensure that the space is properly regulated and safe for all customers. Transparency and safety remain our top concerns and we will provide updates as additional information becomes available. We apologize for any concern or inconvenience this serious misstep has caused. We thank you for your continued trust and confidence in our products.

Then, just days later, Lowell Herb Co. issued a voluntary recall on their pre-rolls. First reported by MJBizDaily.com, it appears the products initially passed multiple lab tests and was cleared for retail sales. Weeks after the batch passed tests, a laboratory reversed its decision, saying the products failed to pass the state’s testing standards. The contaminant in question was not mentioned.

The CCIA post calling out the BCC
The CCIA post calling out the BCC

Many seem to think these recalls are a product of the BCC’s unrealistic expectations in their lab testing rules. In a Facebook post days ago, the California Cannabis Industry Association called out the BCC for their unworkable rules. “The BCC has set testing standards that are nearly impossible to meet,” reads the post. “As a result recalls like this will be the norm and the industry will suffer a bottleneck in supply. Testing standards need to be realistic, not impossible.”

On July 13, California issued the first draft of their proposed permanent regulations, which would update and change the current emergency regulations. The proposed action levels for a batch to pass a pesticide test can be found on pages 105 and 106. The state’s regulatory bodies are holding public meetings on the proposed rules throughout August and stakeholders can also submit comments via email.