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A Conversation with the Founders of Veda Scientific: Part Two

By Aaron G. Biros
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This is the second piece in a two-part conversation with the founders of Veda Scientific, CEO Leo Welder and CSO Aldwin M. Anterola, PhD. To read part one, click here.

In part one, we chatted about their backgrounds, their approach to cannabis testing, their role in the greater industry and how they came into the cannabis industry.

In part two, we’re going down a few cannabis chemistry rabbit holes and realizing that what we don’t know is a lot more than what we do know. Join us as we delve into the world of volatile compounds, winemaking, the tastes and smells of cannabis, chicken adobo and much more.

Aaron: Alright so you mentioned the GCxGC/MS and your more advanced terpene analysis. How do you envision that instrument and that data helping your customers and/or the industry? 

Leo: Some of the things that we envision will help is a better understanding of what compounds and what ratios will lead to desirable outcomes, things like better effects, aroma and flavor. By better understanding these things it’ll help the industry create better products.

I have a personal connection to this. My wife has some insomnia and she’s always had to take various forms of OTC pharmaceuticals to help with sleep. She tried using a 1:1 vape pen and it was a miracle worker for her for several months. The local dispensary had a sale on it, and she bought some extra. Unfortunately, even though she used it the same way as before, she got very serious anxiety, which obviously didn’t help her sleep. Every time she used the vapes from this same batch, she felt the same extreme anxiety. Sadly, she now had a lot of this product that she couldn’t use because it kept her awake rather than helping her sleep, so she went back to trying other OTC solutions. That’s a problem for both consumers and the industry at large. If people find something that works and provides a desired effect, they need to be able to rely on that consistency every time they purchase the product, leading to similar outcomes and not exaggerating the problem. That’s why I think consistency is so important. We’re taking two steps forward and one back when we have inconsistent products. How do we really grow and expand the availability of cannabis if we lose trust from our consumer base? What a lab can do and what we can do is provide data to cultivators and manufacturers to create that consistency and ultimately allow the market to expand into other demographics that are currently wary and less tolerant of that variance.

Vials of cannabis samples being prepped for collaborative research with the CESC

On a similar note, we have been having a lot of discussions with the CESC [Clinical Endocannabinoid System Consortium] down in San Diego. They are an advanced cannabis research group that we have been working with for over a year. We’ve started looking at the idea of varietals. To be more specific, because I’m not a wine connoisseur, varietals are the pinot noirs, the cabernets and sauvignon blancs of the industry. In the cannabis industry, consumers have indica and sativa, though we still argue over what that concept really means, if anything. But for the sake of argument, let’s say we have this dichotomy to use as a foundational decision tool for consumers- call it the red and white wine of the cannabis industry. How inaccessible would wine be if we just had red or white? Imagine if you went to a dinner party, really liked the wine you were drinking, and the host could only tell you that it was a red wine. You can’t go to a wine store and expect to find something similar to that wine if the only information you have is “red.” At a minimum, you need a category. So that’s what varietals are, the categories. The data that we can produce could help people in the industry who identify and establish the varietals based on their expertise as connoisseurs and product experts to find what those differences are chemically. Similarly, we’re also looking at appellation designations in California. So, we want to help provide tools for farmers to identify unique characteristics in their flower that would give them ability to claim and prove appellation designation.

Aldwin: The GCxGC/MS allows us to find more things besides the typical terpene profile with 20 or 40 terpenes. It allows us to go beyond those terpenes. The issue sometimes is that with a typical one-dimensional GC method, sure you could probably separate and find more terpenes, but the one dimension is not enough to separate everything that coelutes. And it’s not just terpenes. Some terpenes coelute with one another and that’s why people can see this inconsistency. Especially if you use a detector like an FID, we can see the compound limonene on the chromatogram, but there’s another terpene in there that is unknown that coelutes with limonene. So, this instrument is helping us get past the coeluting issue and solve it so that we know what peaks represent what terpenes.

The other bonus with our GCxGC/MS is that the coeluting compounds that were masked behind other terpenes are now revealed. There is a second dimension in the chromatogram where we can now detect some compounds in cannabis that would be hiding behind these large peaks if it were just a one-dimensional GC. Besides terpenes, we’ve found esters, alkanes, fatty acids, ketones, alcohols and aldehydes, as well as thiols. The terpenes are so plentiful in cannabis that these other compounds present at lower levels cannot be seen with just one-dimensional GC. There are just so many compounds in cannabis that the ones in small amounts are often masked. My analogy to highlight the importance of these minor compounds is like a dish; I am from the Philippines and I like chicken adobo. My father does it differently from my mom and someone else will do it differently in a different region. The base of the sauce is vinegar and soy sauce, but some people will do it differently and maybe add some bay leaf, garlic, pepper, or a touch of another spice. It’s still chicken adobo, but it tastes differently. Just like in cannabis, where yes, you have the same amount of THC in two different plants, but it’s still giving you a different experience. Some people say it’s because of terpenes, which is true in a lot of cases, but there are a lot of other volatile compounds that would explain better why certain dishes taste different.

2-D chromatogram showing four peaks separated by the GCxGC. With a traditional 1-D chromatogram, these peaks would coelute and not separate.

Leo: There’s been some recent developments too here that show it’s very significant. It’s like the difference between bland and spicy. And it could be the thiol. We identified a thiol in cannabis at the same time as other scientists reported an article that just came out on this subject.

Aldwin: Thiols are sulfur containing compounds that produce very powerful odors, giving cannabis the skunky smell. Skunks also produce thiols. It is very potent; you only need a little bit. It turns out that yes, that paper described thiols and we also saw them in our GCxGC/MS. These are the kinds of things that the GCxGC can show you. Those very tiny amounts of compounds that can have a very powerful impact. That’s one that we know for sure is important because it’s not just us that’s finding out that GCxGC can detect this.

Not everything is about THC or the high amount of the compounds in the flower. This paper and our concurrent findings indicated that the skunkier smelling strains contained very small amounts of thiols and you can recognize their presence quite readily. It’s not a terpene, but it’s producing a distinct flavor and a powerful smell.

Aaron: Okay, so why is this useful? Why is it so important?

Leo: I would say two things in particular that we know of that are issues currently, both related to scents. We mentioned this earlier. We do know that farmers with breeding programs are trying to target particularly popular or attractive scent profiles, whether it be a gas or fruity aroma. Right now, when they get the flower tested and review the terpene profile, it isn’t enough information to help them identify what makes them chemically distinct. We hear time and again that farmers will say their terpene profile is not helpful in identifying specific scents and characteristics. They are looking for a fingerprint. They want to be able to identify a group of plants that have a similar smell and they want a fingerprint of that plant to test for. Otherwise, you have to sniff every plant and smell the ones that are most characteristic of what they’re targeting. For larger operations, walking through and smelling thousands of plants isn’t feasible.

Once we can identify that fingerprint, and we know which compounds in which ratios are creating the targeted aroma, we can run tests to help them find the best plants for breeding purposes. It’s about reproducibility and scalability.

Another value is helping people who are trying to categorize oils and strains into particular odor categories, similar to the varietals concept we’ve been talking about. Currently, we know that when manufacturers send multiple samples of oils with the same or similar scent to be tested, the results are coming back with significantly different terpene profiles. There is not enough data for them to chemically categorize products. It’s not that their categories are wrong, it’s just that the data is not available to help them find those boundaries.

Those are two issues that we know from conversations with customers that this particular piece of equipment can address.

Aldwin: Let’s start from what we find, meaning if you are using the GCxGC/MS, we are finding more terpenes that nobody else would be looking at. We have data that shows, for example, that certain standards are accounting for 60% or so of total terpene content. So a large percent is accounted for, but there is still quite a bit missing. For some strains there are terpenes that are not in common reference standards. Being able to know that and identify the reason why we have different terpenes in here unaccounted for is big. There are other things there beyond the standard terpenes.

Dr. Anterola working with the GCxGC/MS

What excites me sometimes is that I see some terpenes that are known to have some properties, either medical or antibacterial, etc. If you find that terpene looking beyond the list, you’ll find terpenes that are found in things like hardwood or perfumes, things that we don’t necessarily associate with the common cannabis terpenes. If you’re just looking for the limited number of terpenes, you are missing some things that you might discover or some things that might help explain results.

Leo: It’s also absolutely necessary for the medical side of things. Because of the federal limitations, cannabis hasn’t been researched nearly enough. We’re missing a lot of data on all of the active compounds in cannabis. We are finally starting to move into an era where that will soon be addressed. In order for certain medical studies to be successful, we need to have data showing what compounds are in what plants.

Drs. John Abrams and Jean Talleyrand of the CESC launched the Dosing Project in 2016. They have been studying the impact of cannabis flower for indications such as pain mitigation and sleep improvement, and now more recently mood, and appetite modulation. They categorize the THC & CBD content as well as flower aroma into 3 cannabinoid and 3 odor profiles. They are able to acquire quite a bit of data about how odor correlates with the outcomes. Because they were initially limited in terms of underlying natural product content data, they contacted us when they found out we acquired this equipment in 2020, and have stated that they are certain the data we will now be producing will take their research to the next level of understanding.

Aldwin: For quality control you are looking at specific things that would reflect properties in cannabis. There should be a 1:1 correspondence between properties observed and what we are measuring. The current assumption is that the terpenes we are looking at will tell us everything about how people would like it, with regards to flavor and smell preference. But we know for a fact that the limited terpenes most labs are measuring do not encapsulate everything. So, it is important for QC purposes to know for this particular strain or product, which everyone liked, what is it in there that makes everybody like it? If you just look at the typical terpene profile, you’ll find something close, but not exact. The GCxGC/MS shows us that maybe there’s something else that gives it a preferred property or a particular smell that we can explain and track. In one batch of flower, the consumer experiences it a certain way, and for another batch people experience it another way. We’d like to be able to understand what those differences are batch to batch so we can replicate the experience and figure out what’s in it that people like. That’s what I mean by consistency and quality control; the more you can measure, the more you can see.

Aldwin: Speaking to authenticity as well, in a breeding example, some growers will have this strain that they grew, or at least this is what they claim it to be, but what are the components that make those strains unique? The more analytes you can detect, the more you can authenticate the plant. Is this really OG Kush? Is this the same OG Kush that I’ve had before? Using the GCxGC/MS and comparing analytes, we can find authenticity in strains by finding all of the metabolites and analytes and comparing two strains. Of course, there is also adulteration- Some people will claim they have one strain that smells like blueberries, but we find a compound in it that comes from outside of cannabis, such as added terpenes. Proving that your cannabis is actually pure cannabis or proving that something has added terpenes is possible because we can see things in there that don’t come from cannabis. The GCxGC/MS can be used as a tool for proving authenticity or proving adulteration as well.  If you want to trademark a particular strain, we can help with claiming intellectual property. For example, if you want to trademark, register or patent a new product, it will be good to have more data. More data allows for better description of your product and the ability to prove that it is yours.

Leo: One thing that I think is a very interesting use case is proving the appellations. It is our understanding that California rolled out a procedure for growers to claim an appellation, but with strict rules around it. Within those rules, they need to prove uniqueness of growing products in specific regions. The GCxGC/MS can help in proving uniqueness by growing two different strains in two different regions, mapping out the differences and seeing what makes a region’s cannabis unique. It’s valuable for growers in California, Oregon, Colorado to be able to prove how unique their products are. To prove the differences between cannabis grown in Northern California versus plants grown along the Central Coast. And of course, for people across the world to be able to really tell a story and prove what makes their cannabis different and special. To be able to authenticate and understand, we need to have more comprehensive data about properties in those strains. It could be terpenes, it could be esters or thiols. That’s what we’re excited about.

Aaron: From your perspective, what are some of the biggest challenges and opportunities ahead for the cannabis industry?

Aldwin: Getting ready for federal legalization is both a challenge and opportunity. A challenge because when it is federally legal, there will be more regulations and more regulators. It is also a challenge because there will be more businesses, more competition, that might get into the industry. It is opening up to other players, much bigger players. Big tobacco, mega labs and massive diagnostic testing companies might participate, which will be a challenge for us.

But it’s also an opportunity for us to serve more customers, to be more established at the federal level, to move to interstate commerce. The opportunity is to be ready here and now while other people are not here yet.

Another challenge and opportunity is education. Educating consumers and non-consumers. We have to realize and accept that cannabis is not for everybody, but everyone is a stakeholder, because they are our neighbors, parents or part of the medical establishment. It would be a disservice not to educate the non-consumers.

The medical establishment, they don’t have to be consumers but they need to know about cannabis. They don’t know as much as they should about cannabis and they need to know more, like how it could affect their patients for better or for worse, so they know how to help their patients better. There could be drug interactions that could affect the potency of other drugs. They need to know these things. Educating them about cannabis is a challenge. It’s also an opportunity for us to now come in and say that cannabis is here to stay and be consumed by more and more people, so we better know how to deal with it from a medical perspective.“This bucking bronco of a growth style will throw a lot of people off. We need to figure out what we can grab on to and ride out these waves.”

Law enforcement needs to be educated too. What THC level in the blood indicates impairment? It is still a challenge because we’re not there yet, we don’t have that answer quite yet. And it’s an opportunity to help educate and to find more answers for these stakeholders, so we can have regulations that make sense.

Leo: To Aldwin’s point, the biggest opportunity comes along with federal legalization as well as expanding the customer base beyond the traditional market. Since adult use was legalized in CA, we haven’t yet seen the significant expansion of the consumer population. We’re primarily seeing a legal serving of the market that already existed before legalization.

The reality is cannabis can be used in different ways than what we think of. We know it has medical benefits and we know it is enjoyed recreationally by people looking for high THC content and the highest high. But there is also this middle ground, much like the difference between drinking moonshine and having a glass of wine at dinner. The wine at dinner industry is much bigger than the mason jar moonshine industry. That’s really where the opportunity is. What’s the appeal to the broader market? That will be a big challenge, but it’s inevitable. It comes from everything we’ve talked about today, consistency in products, educating people about cannabis, normalizing it to a certain degree, varietals and appellations.

As an entrepreneur, I’m looking at this from a business perspective. Everyone talks about the hockey stick growth chart, but it is a very wavy hockey stick. I expect to see very significant growth in the industry for a while, but it will have a lot of peaks and valleys. It’ll essentially be whiplash. We are seeing this in California right now, with sky high prices in flower last year down to bottom of the barrel prices this year. We have to all figure out how to hang on. This bucking bronco of a growth style will throw a lot of people off. We need to figure out what we can grab on to and ride out these waves. The good ones will be fun and the bad ones will be painful and we know they are coming again and again and again. That’s the biggest challenge. People say ‘expect tomorrow to look a lot like today,’ but you really can’t expect tomorrow to look anything like today in the cannabis industry. Tomorrow will be totally different from today. We need to figure out, within all this chaos, what can we hang on to and keep riding the upward trajectory without getting thrown off the bronco.

Leaders in Cannabis Formulations: Part 5

By Aaron Green
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Natural cannabinoid distillates and isolates are hydrophobic oils and solids, meaning that they do not mix well with water and are poorly absorbed in the human body after consumption. Cannabinoid oils can be formulated into emulsions to form a fine suspension in water to modulate bioavailability, stability and flavor.

Happy Chance is a cannabis infused products company offering better-for-you products to their customers. Happy Chance recently launched a low-glycemic index fruit bite line made from fresh ingredients, distinguishing them from traditional gummies. Splash Nano is a cannabis infused products ingredients company specializing in nano emulsions. Happy Chance utilizes Splash Nano technology in their fruit bites formulations.

We spoke with Katherine Knowlton, founder of Happy Chance, and Kalon Baird, co-founder and CTO of Splash Nano to learn more about their products and how they came to do business together. Prior to Happy Chance, Knowlton worked as a chef. Prior to Splash Nano, Baird was a consultant to the cannabis industry.

Aaron Green: Katherine, how did you get involved in the cannabis industry?

Katherine Knowlton, Founder of Happy Chance

Katherine Knowlton: I am a chef by trade. I went to culinary school in 2015. My partner also got into the cannabis space in 2017, which was right around the time when adult use cannabis became legal in California. As a chef, I am very passionate about cooking for optimal health and well-being. I noticed right away the abundance of candy- and sugar-laden products on the market. I set out to create a wellness driven product blending healthy, whole foods with a better value proposition, better-for-you and better-for-the-planet.

Green: Okay, great. Kalon, same question: how did you get involved in the cannabis industry?

Kalon Baird: I left a corporate job in 2011 and started cultivating in Southern California. I started to develop techniques for horticulture and developed a connection with the plant. I was a consultant for many years, and then decided to take a different path when legalization happened and got into the regulated manufacturing space. My goal was to bring new products to market to help satiate the demand for the infused category, the non-smokeable categories and to pursue niche product development.

Green: Tell me about your recent product development interests?

Kalon Baird, Co-Founder and CTO of Splash Nano

Baird: We’re interested in the research that comes out regarding cannabis minor constituents. We work with other research labs doing two-dimensional chromatography. We’re trying to figure out what compounds exist in the plant that aren’t just the major cannabinoids, and how to work with them in a pharmacological context so that they can be standardized and replicated at scale.

So, it’s not just about making a sugary THC gummy, it’s about seeing what minor cannabinoids, what minor terpenoids and what other unknown compounds can we explore, and then put back into products.

Green: That’s 2D GC-mass spec?

Baird: Yeah, it’s GC-by-GC and tandem mass spec. There are only a couple people that make that piece of equipment. The lab that we work with on that project is called Veda scientific. They’re one of the only people in the cannabis space that uses that machine. And they’re right in our backyard. The tech enables us to further quantify terpene profiles and helps to differentiate our products.

Green: I’d like to focus first on the Splash Nano technology and then we’ll dig into how you got to know each other, and then we’ll finish off with learning more about Happy Chance. So Kalon, tell me more about Splash Nano.

Baird: We employ nano emulsion technology. It’s essentially the science of making oil and water compatible and suspended in a way that reduces droplet size. With nano emulsions, you create an interfacial layer that enhances absorption and solves technical problems like being able to make cannabis oil compatible in water-based matrices, and sometimes in non-water-based matrices. The idea is that as we spread out the particles and as we change attributes of how they’re coated, they’re more bioavailable, and you get a more consistent and faster onset experience like you would in the pharmaceutical or alcohol industry. It’s bringing the industry standard up to the consumer package level and the pharmaceutical level, so that people aren’t waiting the typical hour-long timeframe to absorb that first dose.

Green: Tell me about your business model.

Baird: When we started out in 2018, we were going for a manufacturing license. In the meantime, we saw the drink category evolving and we wanted to be a part of that conversation in that ecosystem. We started developing our own nano emulsions that we knew would be useful when we got our license. We knew that we would sell the base material to co-packers who would put them into beverages. We didn’t want to co-pack the beverages ourselves. So, we developed a drink additive that was our proof of concept that had legs for the technology so that we could show people how to use it. That proof of concept spun off and became its own product and now it’s in the market under the brand name Splash Nano and comes in four distinct product SKUS using minor cannabinoids as differentiators.

The Splash Nano drink additive

Meanwhile, our bread-and-butter business was working with smaller brands, like Happy Chance that needed a path to market but couldn’t get the license or couldn’t go through that whole rigmarole of a two-year waiting period and a half a million dollars and all the other stuff. So, we started taking on all these smaller brands effectively licensing their brand IP and their ideas. In the process, we ended up learning a ton about product development and it became kind of a passion.

We have three core revenue streams. One of them is contract manufacturing, or private labeling. The other one is our own product Splash Nano which is a drink additive. And then the last is we open sourced the technology and sell that as a business-to-business platform so that people can infuse their own products with our fast-acting emulsions. We’re working on a licensing model that will allow other states to create that same consistency, where we send a black box model out to them, and then they infuse the cannabis and then turn that into a product.

Green: Moving on to Katherine here. Tell me about Happy Chance, and how you came up with the brand concept and the product idea.

Knowlton: Going back to what I touched on earlier, many traditional edibles in the space are brownies, cookies and candy type of products that do not contribute to wellness. I wanted to give the wellness driven consumer an option in cannabis. I wanted to create a powerhouse edible that was not only functional and complete but that elevated the consumer’s experience as a whole because of the ingredients we choose and the whole cannabis we source.

Some of the Happy Chance fruit bites

I’m someone who values better-for-you products that contribute to optimal health and well-being. So, I set out to make something. I didn’t really know what I wanted to make in the beginning. I bought a dehydrator and a food processor, and I started messing around with different applications in my kitchen. Over 100 variations later, the fruit bite was born.

The fruit bite is made with dates – a natural sugar that delivers nutritional power: a low glycemic index and high in vitamins, minerals and antioxidants. A sweet you can feel great about. And we use pumpkin seeds which have a lot of great protein. We are working with a company in California that takes imperfect fruits and vegetables and upcycles that back into the food supply chain. We utilize the whole fruits and vegetables as a dried intermediate, capturing all the flavor of nutrients. No added natural flavors and nothing from concentrate.

Green: How does the consistency differ from a gummy?

Knowlton: The consistency is similar to a Lara bar or an Rx bar. Essentially, it’s that same consistency in a bite form and so it’s very different than a gummy. It’s a low dose, low sugar alternative to the modern-day gummy.

Green: So, you’ve got this healthy concept for the fruit bite. You’re looking at suppliers and technologies to infuse the product. How did you finally decide on Splash Nano?

Knowlton: I watched my partner lose his company a few years ago to a larger vertically integrated company. The MSO promised the moon and the stars, and they got lost in the weeds of their eco-system, ultimately losing their company. That said, I was very sensitive when I first started on this journey. I even took on my own partners who didn’t work out either. I spoke with a lot of manufacturers in the selection process. Splash Nano was the tenth manufacturer I spoke with.

It was a very organic way of meeting. I am also based in Santa Barbara where Splash Nano is located. My partner’s brother shared an office space with Kalon, so we met through that connection. I learned right away that Splash was founded on wellness, much like Happy Chance. It was important to source clean cannabis, an aspect that Kalon and his team take pride in. We quickly discovered that Kalon’s Splash Nano technology was going to work in my product. Happy Chance immediately found a home, and it has been an organic evolution of realistic business and friendship.

Green: Kalon, I’d love to get your perspective as well. How do you think about partnering with brands?

Baird: Because of our contract manufacturing experience, we’ve been able to touch approximately 50 brands over our three-year tenure in this space. We’ve seen kind of everything from the multi-state operator to the owner-operator and everything in between. I developed a passion for working with these smaller brands for a lot of different reasons. This industry is built on the success of small mom and pops. Yes, the multi-state operators do have a place and they absolutely add a lot of value. But at the same time, they have their own natural challenges. You have essentially a culture of employees versus a business owner that’s making a lot of their own decisions.

There are advantages to somebody like Katherine, who’s in the trenches of business, and understands the ebbs and flows and ups and downs of this industry and be able to get through some of those challenges a lot more organically and a lot more sustainably. Katherine has such a deep pulse on her business and on her customer and on her own money. She tends to make a lot more calculated decisions, and I really appreciate that.

There’s a lot of waste that gets accumulated in this industry through packaging, through bad decisions, and over extensions of capital. It’s sad to watch and you see these people that have great potential, but it’s kind of lost in this sort of the framework of a large organization. Again, I like multi-state operators, they’re great. There’s nothing wrong with them, but it’s just a different flavor. I’m trying to highlight the fact that working with somebody that has a pulse on her business, and the passion for what she’s doing is wonderful. It’s not just about making money; it’s about adding value.

Green: Katherine, talk to me about sustainability and how you’ve woven that into your product.

Knowlton: We’re dedicated to supporting Product, People and Planet. That’s the whole mission and ethos of Happy Chance. As a chef, I wanted to be intentional about where our ingredients come from. We only source organic and upcycled ingredients – an essential recipe in sustaining a healthy, eco-friendly plant. Intention and integrity are always at the forefront of our products. We prioritize partnering with more transparent supply chains. We want to show the world how cannabis can promote positive lifestyle changes that support living more actively and consciously.

To reiterate, we are also not using anything from concentrate. We are using the entire strawberry, the entire blueberry and so it encapsulates all the flavor and all the nutrition that you would have from a fresh fruit into our products.

Green: How do you think about sustainability in product packaging?

Knowlton: As far as packaging goes in this industry, we’re very limited in what we can do. Compostable packaging isn’t really available, but we have partnered with a packaging company that definitely has mindfulness at the core of their mission. They have established their entire supply chain to ensure they are focusing on green practices and reducing waste each step of the way. Their energy efficient machinery creates a zero-waste manufacturing process to reduce their carbon footprint and they utilize soy and vegan inks to help reduce air pollution by minimizing toxic emissions in the air. My hope for the industry is that as it continues to evolve, we can become less wasteful as far as packaging goes.

Green: Rapid fire questions for both of you: What trends are you following in the industry right now?

Knowlton: As a chef and coming from the CPG world, I’m passionate about health and wellness. I think that it’s important to stay on trend with what we’re seeing in CPG. There’s definitely a market as far as people wanting these better-for-you products. I want to bring that into the cannabis space.

Baird: We’re seeing the inclusion of minor cannabinoids, terpenoids, standardized recipes and faster- or slower-acting delivery systems. So, I’m following trends in advanced drug delivery systems paired with minor cannabinoids.

Green: What are you most interested in learning about?

Knowlton: I’m most interested in how I can take what I’ve learned in the food space and help bring that into the world of cannabis through Happy Chance. Ultimately cannabis is plant medicine. So, how can we educate people that the ingredients we choose to make products should be good for us too. I think that there’s a lot that can be done with it from a from a health and wellness standpoint.

Baird: I’m interested in learning more about the analytical overlay between quantifying and standardizing entheogens and plant medicines like cannabis into the product development process in CPG. I’m thinking of ways to blend the two worlds of traditional science and New Age medicine.

Green: Awesome, that concludes the interview. Thank you both, Katherine and Kalon.

A Conversation with the Founders of Veda Scientific: Part One

By Aaron G. Biros
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Leo Welder, CEO of Veda Scientific, founded the business with Aldwin M. Anterola, PhD in July of 2019. A serial entrepreneur with experience in a variety of markets, he came to the industry with an intrigue for cannabis testing and analysis. After teaming up with Dr. Anterola, co-founder and chief science officer at Veda Scientific, they came together with the purpose of unlocking possibilities in cannabis. From the beginning, they set out with a heavy scientific interest in furthering the industry from a perspective of innovation and research.

Through discussing their clients’ needs and understanding their complex problems, the two realized they wanted to start a lab that goes well beyond the normal regulatory compliance testing. Innovation in cannabis looks like a lot of things: new formulations for infused products, better designs for vaping technology or new blends of genetics creating unique strains, to name a few. For the folks at Veda Scientific, innovation is about rigorous and concentrated research and development testing.

With the help of some very sophisticated analytical chemistry instruments, their team is working on better understanding how volatile compounds play a part in the chemometrics of cannabis. From varietals and appellations to skunky smells, their research in the chemistry of cannabis is astounding – and they’ve only begun to scratch the surface.

In this two-part series, we discuss their approach to cannabis testing, their role in the greater industry as a whole and we go down a few cannabis chemistry rabbit holes and find out that what we don’t know is a lot more than what we do know. In part one, we get into their backgrounds, how they came into the cannabis industry and how they are carving out their niche. Stay tuned for part two next week where we delve deep into the world of volatile compounds, winemaking, the tastes and smells of cannabis and chicken adobo.

Aaron G. Biros: Tell me about how you and your team came to launch Veda, how you entered the cannabis space and what Veda’s approach is to the role of testing labs in the broader cannabis industry. 

Leo Welder, CEO of Veda Scientific

Leo Welder: I’m an entrepreneur. This is my third significant venture in the last fifteen years or so. So, I was intrigued by cannabis legalization broadly, because it is such a unique time in our history. I was always interested in participating in the industry in some way, but I didn’t see where would be a good fit for me. I used to meet monthly with a group of friends and fellow entrepreneurs for dinner and discussions and one member started working on the software side of the industry. He mentioned the testing element of cannabis in one of our meetings. I latched on to that and was intrigued by the concept of testing cannabis. I began to research it and found the role that testing plays in the cannabis industry is really significant. I found out that regulators rely pretty heavily on labs to make sure that products are safe, labels are accurate and that consumers have some protections. So, I thought that this is a space that I thought I could really find a calling in.

So, from that point I knew I needed to find a subject matter expert, because I am not one. I have business skills and experience in some technical fields but I am not a cannabis testing expert by any means. So, with that I started to look at a few different markets that I thought may have opportunity for a new lab, and I came across Aldwin’s business; he had a cannabis testing lab in Illinois at that time. I reached out to him, talked to him about my vision for the space and his thoughts and his vision and we really started to come together. From there, we researched various markets and ultimately chose to approach Santa Barbara County as our first foray together into the cannabis testing market.

Aldwin M. Anterola: As Leo mentioned, he was looking for a subject matter expert and I am very much interested in plant biochemistry. Which means I like to study how plants make these compounds that are very useful to us. For my PhD [in plant physiology], I was studying how cell cultures of loblolly pine produce lignin. Our lab was interested in how pine trees produce lignin, which is what makes up wood. Wood comes from phenolic compounds. You’ve probably heard of antioxidants and flavonoids – those are phenolic compounds. After my PhD, I wanted to do something different so I decided to work with terpenes.

I picked a very important terpene in our field, an anti-cancer compound called Taxol, produced from the bark of the yew tree. You have to cut trees to harvest it. We have ways of synthesizing it now. But at that time, we were trying to figure out how the tree produces that terpene. Of course, I’m interested in any compound that plants make. My interest in terpenes led me to cannabinoids which turn out to be terpenophenolics, thus combining the two interests in my professional field.

Aldwin M. Anterola, PhD, Co-Founder and Chief Science Officer at Veda Scientific,

So that’s the scientific and intellectual side of why I became interested in cannabis, but practically speaking I got into cannabis because of a consulting offer. A company was applying for a cultivation license, wanted to have a laboratory component of their business in their application, and hired me to write that part of their application. I was very familiar with HPLC, and had a GC/MS in the lab. I also have a background in microbiology and molecular biology so I can cover every test required at that time, and I knew I could research the other analytical techniques if necessary.

So, they did not get the license, but I figured I’d take what I wrote, once I received permission, and set up an independent laboratory together. But it’s hard to run a lab and be a professor at the same time. Also, the busines side of running a lab is something that I am not an expert in. Fortunately, Leo found me. Before that, I really got excited about this new industry. The concept of cannabis being now accessible to more people is so interesting to me because of how new everything is. I wanted to be involved in an industry like this and help in making it safe while satisfying my curiosity in this new field of research. As a scientist, those are the things that excite us: the things we didn’t have access to, we can now do. It opens up a whole new room that we want to unlock. It was my intellectual curiosity that really drove me. This opened up new research avenues for me as well as other ventures if you will. How can I be more involved? I thought to myself.

SIU boasts an impressive cannabis program, thanks largely to Dr. Anterola’s work there.

Back in 2014, I introduced cannabis research to our university [Southern Illinois University] and set up an industrial hemp program, which was DEA-licensed I gathered faculty that would be interested in studying hemp and cannabis and we now have a whole cannabis science center at the university. I teach a course in cannabis biology and because I also teach medical botany to undergraduate students, I was able to introduce [premed] students to the endocannabinoid system. Anyway, I can go on and on.

Outside of that I became involved with the AOAC and ASTM, and became a qualified assessor for ISO 17025:2017. I have been a member of the American Chemical Society since 2000 but there were no cannabis related activities there yet until relatively recently. But when they had the new cannabis chemistry subdivision, I am happy to participate in there as well . There are many avenues that I took to begin dabbling with cannabis, be it research, nonprofits, teaching, testing and more. Cannabis has basically infiltrated all areas of what I do as an academic.

Leo: I read his resume and I was like this is the guy! So back to your question, what’s Veda’s role as a testing lab in this space? What are we trying to build? We spent a lot of time trying to figure out what we wanted to be in this space. We came to understand that labs are not the tip of the spear for the market; that would be the growers, the retailers and the processors. We are a support, a service. We see ourselves as a humble, but competent guide. We provide the data for the tip of the spear, the people pushing the industry forward with support, data and the services to make sure they have the tools they need to build these great companies and great products with good cultivation practices and more, leading everyone to the next level of the cannabis industry. Our job is to support innovation, to provide quality compliance testing, to of course ensure safety, while also providing great R&D to these innovative companies.

Aldwin: I’d like to add a bit to that thought. Okay so that’s who we are, but what are we not? Because as Leo said I had a testing lab before we met [Advanced Herbal Analytics]. From there, I approach it as safety testing, making sure that before it gets to the end consumer, we are sort of like gate keepers keeping consumers safe. That’s one side to it, but we are not the people who are trying to make sure that none of the products get to the market. For some, that’s how we’re treated as.

People often look at testing labs like the police. We are not the people trying to limit products to market. Our approach is not to find faults. There is another way of being a testing lab that is less about finding faults in products and more about finding uniqueness. What makes your product different? With this new approach, we are much more focused on helping the best products make it to the shelves.

Aaron: Given that all state licensed labs have to provide the same tests as the other labs in that state, how does Veda differentiate itself?

Leo: Location was the first thing. We picked Santa Barbara County intentionally. We knew that some of the biggest operators, some of the most forward-thinking innovators were setting up shop here. Looking down the road, not just this year or next year but very long term, we wanted to start building a great, sustainable company. We wanted to build a brand that those kinds of companies would be receptive to. Building better and greater products. There’s one other lab in the county and that’s it. Whereas there are clusters of labs in other parts of the state. Part of the draw to Santa Barbara for us was that it is such a small, tight-knit community. We have worked very hard to build relationships in our community and to understand their challenges, helping them however we can.

Location and relationships. Getting to know the challenges that different size customers face, be it our greenhouse customers versus outdoor customers, or large-scale operations versus smaller manufacturing operations, the challenges are all different. Some people care about turnaround times, some more about R&D. If we understand our client’s problems, then we can provide better service. We see ourselves as problem solvers. We lean heavily on our technical team members like Aldwin, who not only have tremendous amounts of experience and education, but also great networks to utilize when a customer needs help, even when it falls outside of our local expertise.

The GCxGC/MS instrument, used for Veda’s advanced R&D testing

Last but certainly not least is the advanced R&D testing that we do. When we first started, we started talking to farmers and manufacturers trying to understand their challenges. What data were they not getting? How would a testing lab better serve them? So, we started investing strategically in certain instruments that would allow us to better serve them. We’ll get into this later as well, but we invested in a GCxGC/MS, which allows us to get more visibility into things beyond the typical panels, like more terpenes and other volatile compounds including thiols and esters. We did that because we knew there is value in that. The data our customers were getting prior just wasn’t enough to put together really great breeding programs or to manufacture really consistent products, you know, to move toward that next level of innovation in the industry.

Aldwin: Leo mentioned advanced R&D and it’s basically the same approach that I mentioned before. It’s not just telling you what you can and cannot do. It’s about asking them what do you want to do and what do you want from a lab? If we have a problem, let’s see if we can solve it. That’s how the GCxGC/MS came into play because we knew there was a need to test for many terpenes and other volatile compounds. The common complaint we received was why two terpene profiles differ so much from each other, even from the same genetics.

This is something that would actually give the customer, the cultivator or the manufacturer: data about their product that they can actually use. For consistency, for better marketing and other reasons. We are trying to help them answer the questions of ‘how can I make my product better?’

You know, for example, clients would tell us they want something that has a specific taste or smells a certain way. Nobody is telling them what makes the flavor or smell. There is a need there that we can fill. We are trying to provide data that they, the customers, need so that they can improve their breeding programs or their formulations. Data they can use, not just data they need in order to comply with regulations. They would ask us what we can do. We listen to our customers and we try and help as best we can. We don’t know every answer. We are discovering there is a lot more to terpenes than what you can find on a traditional one dimensional gas chromatogram. Some of the terpene data that our clients had previously is not really actionable data, which is where the GCxGC/MS is helping us.

In part two, we delve deep into the world of volatile compounds, winemaking, the tastes and smells of cannabis and chicken adobo. Click here to read part two. 

2022 Cannabis Industry Outlook: Your Business’ Future Depends on its Risk Management

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Cannabis risks have always outpaced the availability of insurance, in large part because of its status as a federally illegal substance and the dangers in extraction and production. But it now shares many of the same risks as other industries — catastrophic crop damage, cyber risk and a shortage of skilled workers.

With legalization becoming more common, the industry is positioned for enormous growth despite these challenges. However, enterprises that will benefit the most are those best positioned to manage risk.

Here are four obstacles to growth in the industry in 2022 and how enterprises can combat them:

Cybercrime will be the top manufacturing risk

Both cybercrime and cannabis have experienced major booms since the start of the COVID-19 pandemic. Cannabis companies watched as healthcare and pharmaceutical organizations were hit hard by cybercriminals in 2020, and now the threat could be headed their way.

For retailers, the vulnerability often lies in their POS tech

For cannabis retailers, the vulnerability lies in their dependence on point-of-sale tech, while the threat for cultivators exists within their strong use of intelligent automation to manage the grow environment. Across the industry, the lack of sophisticated IT security systems is like a beacon for bad actors.

Nearly 60% of cannabis businesses say they haven’t taken the necessary steps to prevent cyberattack, but the winds are changing. Due to these concerns and the growing attention on cybercrime in the industry, cyber coverage is expected to rise 30% or more in 2022, which puts the onus on risk management practices that will help prevent cyberattacks and ensure coverage from insurers concerned about risk.

Barriers to business growth may result in more M&A

As of summer 2021, 18 U.S. states have legalized adult use and 37 states have legalized medical cannabis.

While this is opening opportunities for many cannabis businesses, the U.S. remains a complicated market. Federal regulations continue to hinder even more cannabis industry growth by restricting lending to the industry from traditional banking and financial institutions. While it’s not illegal to do service with the cannabis industry, many institutions stay away due to its high risk.

Smaller cannabis companies are impacted most heavily by this barrier and await passage of the Secure and Fair Enforcement (SAFE) Banking and Clarifying Law Around Insurance of Marijuana (CLAIM) Acts to allow easier access to capital. Together, these two acts of legislation will provide guidelines on how to work lawfully with legal cannabis businesses and prohibit penalizing or discouraging institutions from working with them.

In the meantime, M&A activity is expected to increase in 2022 as large cannabis businesses have the means to access capital and acquire these small companies. This includes Canadian cannabis companies, unburdened by federal restrictions, who are expected to increase their cross-border mergers and acquisitions.

Severe weather isn’t easing up

Extreme natural catastrophes are no longer rare, and they have only added greater uncertainty to the industry which has always had difficulties securing crop insurance.

NASA’s Aqua satellite took this picture of the smoke over California in 2017
Photo: NASA

For example, policies that transfer wind and hurricane damage risk in Florida or wildfire and smoke taint in California are virtually non-existent for cannabis — and for outdoor growers, a single weather event can wipe out an entire crop with no recourse.

One possible solution for cannabis companies that cannot secure traditional crop insurance is parametric insurance, which pays out in full when a weather element reaches a threshold, regardless of the actual damage.

Growers with indoor operations, or those considering moving that way, must cope with energy conservation initiatives. Measures like the one in California that would require indoor growers to use LED lighting by 2023 could cost the industry millions and present a direct threat to small operations’ viability. This makes it important for cannabis producers to institute conservation measures and undertake risk mitigation measures like improved safety measures at indoor growth facilities ahead of 2022 renewals.

As a continually emerging market, cannabis risks are great. Adding to these pressures is the growing impacts of climate change and cybercrime raising the bar even further. Growth for the cannabis industry in 2022 will depend upon strong risk management solutions and the ability for cannabis companies to implement them.

2021 Cannabis Labs Virtual Conference: December Program

By Cannabis Industry Journal Staff
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2021 Cannabis Labs Virtual Conference: December Program

Sponsored by ANAB, Hardy Diagnostics and MilliporeSigma.

Click here to watch the recording

Agenda

Cannabis Laboratory Accreditation Panel

  • Tracy Szerszen, President & Operations Manager, PJLA
  • Mohan Sabaratnam, Vice President, IAS
  • Kathy Nucifora, COO, COLA
  • Chris Gunning, General Manager for Accreditation Services, A2LA
  • Aaron Biros, Editor, CannabisIndustryJournal.com

In this session, the panel answers attendee questions related to ISO 17025:2017 accreditation for cannabis testing labs. Learn some of the common challenges labs face when seeking accreditation and learn about sampling protocols, security issues, statements of conformance, calibration and much more.

TechTalk: ANAB

  • Melanie Ross, Technical Products Developer, ANSI National Accreditation Board

R & D Lab Testing: Ensuring Success with Results

  • Mark Carter, president of MC Squared Enterprises

Learn how R&D lab testing can help you, prepare for compliance batches, successfully launch new products and amp up your quality control.

TechTalk: MilliporeSigma

 

USDA’s Hemp Testing Rules Have Changed: Accelerate Your Lab’s Preparedness

  • Arun Apte, CEO, CloudLIMS

This presentation takes a deep dive into understanding the requirements for USDA hemp testing, the operational changes hemp testing laboratories need to make to comply with the new hemp testing rules and the regulatory compliance framework and quality standards the testing labs need to meet.

TechTalk: Hardy Diagnostics

  • Jessa Youngblood, Food & Beverage Market Coordinator, Hardy Diagnostics

Bringing a National Hemp Testing Panel to Market

  • Josh Wurzer, Co-Founder & President, SC Laboratories

Without clear direction from the FDA, states are filling the void by developing their own quality standards and testing requirements for hemp derived CBD products. Unlike their THC based counterparts, hemp derived CBD products are being sold across state lines raising the demand for a single testing panel that will be compliant in every state. Attendees will learn:

  • The current state of regulations nationally
  • The issues that hemp product manufacturers need to be educated on to ensure compliance,
  • The challenges labs face in offering customers a truly comprehensive panel.

Click here to watch the recording

Nonprofits Focus Lens on Delta-8-THC

By Cannabis Industry Journal Staff
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On December 2, ASTM International, released a whitepaper called “Delta-8-Tetrahydrocannabinol and the Need to Develop Standards to Protect Safety of Consumers.” On the same day, the U.S. Pharmacopeia (USP) launched an expert panel, drafting commentary and providing recommendations to protect public health. The two organizations are working in tandem to better educate the public as well as regulators on the science behind the risks that delta-8-THC products pose to the public.

The chemical structure of Delta 8 THC.

ASTM has been working in the cannabis industry through their D37 committee since March of 2017. Soon after the D37 committee launched, they began crafting cannabis standards and have grown their membership and subcommittees considerably over the past few years. USP has also been involved in the cannabis space for quite some time, developing reference standards and offering guidance for the cannabis testing market.

The ASTM whitepaper details the current landscape for hemp-based products that contain delta-8-thc derived from CBD. It includes information on what the cannabinoid is, how it’s produced, the emergence of delta-8-thc in hemp markets and the need for better safety and performance standards.

David Vaillencourt, frequent CIJ contributor and ASTM International member, says they want to identify how we can maintain public safety when it comes to delta-8-THC. “Products containing delta-8-THC are widely available to consumers despite the known and unknown risks to consumer health and safety,” says Vaillencourt. “The topic is much deeper than simply the presence of delta-8-THC. Rather it is about defining how to label products containing potentially intoxicating cannabinoids and identifying what safeguards need to be in place to minimize the risk of impurities that can further impact consumer health.”

In addition to the technical information provided, ASTM’s whitepaper also discusses the risks of synthetic cannabinoids to public health and the regulatory landscape surrounding delta-8-THC. USP’s whitepaper discusses the chemical process that creates delta-8-THC, the unregulated market and offers guidance on how to regulate the cannabinoid with labeling and testing rules.

Dr. Ikhlas Khan, chairman of USP’s expert panel on cannabis, says we need a lot more research.  “The fact of the matter is that little is known about the products labeled as containing delta-8, so much so that the FDA and CDC have both released advisories about the products,” says Khan. “Depending on how the products are produced, unknown impurities may be introduced, including minor and synthetic cannabinoid compounds that are not naturally occurring in cannabis.”

Delta-8-THC is not inherently unsafe, says Dr. Nandakumara Sarma, Director of Dietary Supplements and Herbal Medicines for USP. But as we’ve covered this before, the methods that manufacturers use to produce delta-8-THC could have harmful byproducts present in final products. “Synthetically derived cannabinoids are not necessarily inherently unsafe if they are quality controlled and shown to be safe,” says Dr. Sarma. “By using public quality standards, we can help in controlling the quality of the products and set appropriate limits for impurities.”

The folks at USP and ASTM will host a presentation on the two papers during ASTM’s 2nd Global Workshop on Advancing the Field of Cannabis through Standardization, to be held virtually Dec. 14, 2021. Click here to register.

Flower-Side Chats Part 11: TILT Holdings

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

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

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

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

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

Gary Santo, CEO of TILT Holdings

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Green: Okay, great. That concludes the interview.

Santo: Thanks, Aaron.

Cannin Commentary

A Closer Look at Village Farms

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

What is Village Farms International?

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

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

Bottom Line: Is Village Farms Stock a Strong Buy?

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

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

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

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

For all these reasons we rate VFF as Strong.

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

Leaders in Cannabis Formulations: Part 4

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

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

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

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

Green: And how did you get involved with Vertosa?

Austin Stevenson, Chief Innovation Officer at Vertosa

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

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

Green: What is the core technology of Vertosa?

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

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

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

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

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

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

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

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

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

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

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

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

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

Green: What trends are you following in the industry?

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

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

Green: What are you most interested in learning about?

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

Artisanal Cannabis Extraction – An Interview with Precision Founder Nick Tennant

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

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

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

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

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

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

Nick Tennant, SVP of Innovation at Precision Extraction Solutions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Green: Okay, great. That concludes the interview.

Tennant: Thanks, Aaron.