Creating incentive for honest testing and labeling
TechTalk: Millipore Sigma
Dr. Stephan Altmaier, Sr. Manager, Merck KGa Darmstadt
AOAC: Why Third-Party Accreditation Matters More than Ever
Anthony Repay, Laboratory Director, Method Testing Laboratories
Attendees will learn about the history the AOAC, the role of third-party accreditations in Cannabis microbiology testing and how to seamlessly integrate into your existing processes to enhance consumer safety.
The Evolution of the Hemp Testing Market: An Introduction
Mikhail Gadomski, Principal Chemist, Deibel Laboratories
Attendees of this session will learn:
What is the Difference Between Hemp and Cannabis?
What are Natural and Synthetic Psychoactive Cannabinoids; THC 9, CBD, THC 8, THC 10, THCO, etc.?
Status of Federal and State Testing Regulations
Cannabinoid Extraction Efficiency for Potency Analysis: An In-Depth Look of Multiple Techniques
Melinda Urich, LC Solutions Scientist, Restek
Attendees of this session will learn:
The importance of extraction efficiency.
Variables to consider when choosing a sample preparation technique.
Understanding which technique is best for your testing lab.
Solvent Remediation – The Last Step for Safe, Clean Hemp Extraction
Tom Bisbee, Production Director, EcoGen Biosciences
Attendees can expect to learn:
Understanding solvent remediation technology and processes
Residual solvents present huge risks
Consumers deserve transparency
Advancing Cannabinoid Therapeutics Through Regulated Drug Discovery
Matthew Anderson, CEO, Vanguard Scientific
Nick Herbst, VP of Engineering, Vanguard Scientific
Brian Brandley, Ph.D., Laboratory Director, Biopharmaceutical Research Co.
A panel discussion with Dr. Brian Brandley, the CSO of Biopharmaceutical Research Company, a DEA-licensed pharmaceutical company that is pioneering the legal cannabis space in the U.S. through the development of federally compliant active pharmaceutical ingredients (API) for plant-based therapeutics, and Nick Herbst, VP of Engineering at Vanguard Scientific, and the Lead Engineer for the Company’s MIDAS SCCO2 Extraction Program. During this 45-minute round table discussion moderated by Vanguard’s CEO Matthew Anderson, the panelists will provide an overview of what it takes to make ‘pharmaceutical-grade’ cannabis products. The conversation will range from facility requirements, methods development, equipment qualification, process validations and more.
GMPs for Cannabis Extraction: Don’t Overcomplicate it
Andrew Cole, Director, Client Delivery Audits, Cannon Quality Group
Attendees can expect to learn:
Understanding the basics in plain English.
Learn what you need to do to meet minimum Industry expectations for Quality and Scalability.
The global vitamin supplement market is projected to grow at 6.2% compound annual growth rate (CAGR) to $71.37 billion by 2028 with the most rapid growth now occurring in the gummy vitamin segment. Gummy supplements are expected to have the fastest CAGR at 12.6% to exceed $33 billion by 2028. Initially developed for youths, gummies are now preferred by all age segments as an alternative to tablets, capsules and pills.
As one might expect, cannabidiol (CBD) gummies are also projected to grow rapidly at a 30.7% CAGR to $13.9 billion by 2028. In terms of actual number of CBD gummies produced last year, a rough estimate would be at least 1.7 billion. For perspective that equates to 53 gummies produced every second, 24 hours a day, 365 days per year. One might reasonably ask, “So where do all these gummies come from?” and “Who makes them and under what conditions and quality assurance standards?”
There is no short answer to these questions nor confidence that all cannabinoid gummies are manufactured with adherence to a minimum set of safety and quality standards. Gummy recipes and ingredients are readily available online and there is no shortage of hobbyists who make small batches for family, friends and to sell at retail pop-ups and farmers’ markets. There are a number of well-known brands that started out in home kitchens and garages. In terms of production scale, on the other end of the spectrum are companies like Bloomios, Inc. (OTCQB: BLMS), that operates a 51,000-square-foot Current Good Manufacturing Practices (cGMP) compliant facility in Florida.
The Hobbyists
A variety of CBD products on the market today
For the hobbyist producer, they often begin to scale out of their home kitchen and take over part of their garage or basement and while the entrepreneurial spirit is admirable, most consumers wouldn’t be comfortable with their pharmaceuticals, supplements or even grocery items being manufactured under these conditions which often lack:
Rigorous sanitary practices
Measures to mitigate contaminants entering the production areas
Quarantine, chain-of-custody audit and testing of active ingredients used in production
Standardized and rigorous quality assurance testing of finished product
Certificate of Analysis (COA) for active ingredients in finished product for certainty of dosage levels
Labeling and packaging standards to ensure product information and volumes are correct
Batch record data collection, retention and audit procedures.
However, the hobbyists constitute only a very small fraction of gummy production today, and they typically take great pride in their work and show a high degree of care in production practices. Thus, when demand begins to outpace the artisanal home production capacity, many growing brands turn to contract manufacturers to assist with scaling the production side while the brand focuses on the sales, marketing and distribution side of the business. This is an ideal solution as high quality product can be produced at volume in cGMP facilities which enhances the consumer experience, confidence in the product and further grows brand value. This is a best-case scenario of small emerging brands that care deeply about their reputations and their customers’ experience scaling production and growing responsibly.
The Opportunists
The real underbelly of commercial gummy production is characterized by the pure profit seeking producers that set up semi-permanent production lines in flex-industrial spaces not suitable for food handling, with limited buildout for isolation of each production stage. This process includes: materials storage, weight/measures prep, ingredient mixing, molding, dehydration, coating, sorting and filling, labeling and finish packaging. Lacking cGMP compliant facilities and practices, they neglect or fail entirely to maintain batch records, COAs or chain-of-custody practices and have limited ability to address defective product once in the stream of commerce. Let’s refer to these manufacturers as the “Opportunists.”
Opportunists see the current cannabinoid gummy market for what it is. It is an emerging market really taking form only since the 2018 Farm Bill legalized hemp derived cannabinoids. As such it is very much in its “gold rush” phase with many of the participants having just entered the sector. Many participants have adopted ad hoc practices with no standardization and no explicit federal oversight because the FDA has yet to acknowledge any cannabinoids under its generally regarded as safe (GRAS) standard.
In addition, the FDA has excluded CBD products from the dietary supplement definition of the Food, Drug and Cosmetics (FD&C) Act. Under the FD&C Act, if a substance is an active ingredient in a drug product that has been approved or has been authorized for investigation as a new drug, then products containing said substance are excluded from the definition of dietary supplement. So far cannabinoid gummy demand has continually outstripped supply supporting attractive margins and with little oversight. The Opportunist mindset has focused on maximizing profits while they can before regulation increases costs, compresses margins and reduces profits.
The Opportunists have more cover to seek profit maximization as opposed to incurring the cost of setting up cGMP facilities and adhering to rigorous standards due to the fact that the brands consumers recognize are often manufactured by one or more third-party contract manufacturers. Some brands also want to maximize near-term profits and manufacturers with a lower cost structure can more effectively compete on price as opposed to quality.
As demand surges, some brands will supplement their third-party cGMP produced product with additional product sourced from Opportunists and “recycle” the valid COAs from their cGMP product without the cGMP manufacturer or consumers even knowing. With lax regulatory oversight, these brands are inclined to look the other way on their contract manufacturer’s production practices so long as the large volume orders are delivered on time and at lower cost.
For gummies produced by Opportunists, if there are product defect issues, the consumers likely won’t be able to rely on the batch record data and purported COAs linked to/from QR codes on the container, many of these COAs have been recycled from legitimate batches or simply doctored up and reproduced rather than generated on a per batch basis. There is limited to no audit trail and recalls are unlikely to be effective, if even initiated. A refund is the most likely solution a consumer has which leaves perhaps a much larger run of defective product in the market still unaddressed. Moreover, brands that suffer reputational harm due to quality issues can simply launch a substitute brand with a similar look through its same distribution channels and maintain much of its market share.
Best Practices
If today’s CBD gold rush sounds much like the Wild West, you would be correct. However, as more consumers become aware of cannabinoids’ health and wellness benefits in addition to the recreational uses, this larger and more diverse consumer base is raising the bar and demanding more transparency and certainty on manufacturing practices than ever before.
A roughly estimated 1.7 billion CBD gummies were produced last year
How are the leading cannabinoid nutraceutical manufacturers proactively addressing consumers’ desire for high quality, rigorously tested products manufactured in accordance with standards already imposed on mainstream nutritional supplement and prepared food manufacturers? Although the answer may be simple, the implementation and ongoing compliance is not.
The answer is voluntary adoption and compliance with the same regulations applicable to non-cannabinoid dietary supplement manufacturers. Given that the FDA has not recognized cannabinoids as dietary supplements quite yet, certain aspects of dietary supplement regulation can’t be adhered to such as notifying the FDA of structure/function claims as new products are brought to market or notice of new dietary ingredients. On the other hand, many of the regulations can and should be adhered to by cannabinoid nutraceutical manufacturers to ensure its safe, transparent orderly growth.
Chief among the FDA requirements that Bloomios and other leading manufacturers adhere to are:
Register with the FDA as a food handling and production facility.
Adopt Current Good Manufacturing Practices for dietary supplements which establishes uniform standards needed to ensure quality throughout the manufacturing process and verification of the identity, purity, strength and composition of their products.
Undertake at least annually an independent third-party cGMP audit of their facility and procedures.
Comply with Code of Federal Regulations (21 CFR 101.36) supplement label requirements to ensure that the ingredients list is accurate, and the content matches the amount declared on the label among other disclosures.
The most significant challenge in adopting all of the above best practices is cGMP facility qualification and ongoing compliance. The cGMP standards require specific facility build-out features, equipment, and of course standard operating procedures. There are significant additional costs to bring a cGMP facility on-line, additional time and required experienced personnel that can implement the operating procedures and recertification every time a production line’s configuration is changed or augmented with additional equipment.
Bloomios annual cGMP audit was conducted in August and over 130 specific requirements were evaluated and graded. While Bloomios passed the audit and evaluation, what is of far greater significance is that cGMP practices become part of a company’s culture so that these high standards are maintained year-round and not rushed into practice just for the audit.
Cannabinoid products for intimate care use are now being sold in the unregulated cannabidiol (CBD) marketplace without proper evaluation of their impact on the vaginal microbiota or women’s health. Cannabinoids can exhibit complex and at times contra intuitive actions. The addition of CBD to these products is presumably for its anti-inflammatory pain-relieving qualities even though little is understood with regards to dosing and formulating. Moreover, in states where cannabis is legal, tetrahydrocannabinol (THC) along with other minor cannabinoids are also being added to intimate care products without purview of any federal agency. In general, the impact of vaginal products on vaginal microbiota is poorly understood. Ten years ago, Jespers et al. (2012) proposed to monitor lactobacilli indicator species of the vaginal microbiota in safety trials of intimate care products. Yet today, human safety data are not required prior to commercialization of intimate care products which are currently regulated like cosmetics except for lubricants which do require a 510K filing with the FDA.
The vaginal microbiota (VMB) of healthy women is dominated by Lactobacillus species, which exert important health-promoting effects to their host through the production of antimicrobial compounds, including hydrogen peroxide and lactic acid, to prevent invasive microbes from establishing in the vaginal epithelial mucosa (Pino et al. 2019). It was established almost 40 years ago by Speigel et al. (1983), that changes to the dominant Lactobacillus species, a process called dysbiosis, and overgrowth by diverse anaerobes can result in symptomatic conditions including bacterial vaginosis (BV), vaginal candidiasis, pelvic inflammation, and endometriosis (Taylor et al. 2013). The conditions resulting from dysbiosis are also linked to fertility problems, poor pregnancy outcomes, spontaneous miscarriages and preterm birth (Laniewski et al 2020).
An example of an infused intimate care product, the Foria Awaken Arousal Oil with CBD
Complications from dysbiosis of the reproductive tract can be serious in women wanting to become pregnant and in already pregnant women, including preterm premature rupture of membranes, spontaneous preterm labor and preterm birth (Ventolini et al. 2022). Reproductive tract microbiomes from idiopathic infertile women differ from fertile women’s VMB (Tomaiulol et al. 2020; Wee et al. 2018). Numerous studies have documented the vaginal community type microbiota associated with occurrence of BV around the world showing that HIV load is inversely proportional to lactobacilli species but positively correlated with BV (Sha et al 2005) as well as endometrial and ovarian cancer development (Walther- Antonio et al. 2016; Zhou et al. 2019).
Sexual lubricants often contain antimicrobial preservatives that have been shown to directly impact lactobacilli species in the cervicovaginal microbiome. The deterioration or absence of the lactobacilli-dominated vaginal mucosal biome through exposure to over-the-counter lubricants has been linked to increased incidence of BV (Brotman et al. 2010) and release of IL-8, a proinflammatory innate immunity mediator, produced by human epithelial cells to recruit leukocytes in response to infection, initiating an inflammatory response (Fashemietal.2013). The addition of under-researched cannabinoids to these products introduces the potential for further biological activity. Cannabinoids are widely reported to exhibit anti-microbial activity in vitro. The mechanism of CBD’s anti-microbial activity is thought to be due to its ability to intercalate into cytoplasmic membranes (Guard et al. 2022) and thereby modulate membrane vesicle (MV) release from bacterial cells which is associated with cell-to-cell communications (Kosgodage et al. 2019). Treatment of the gram-negative bacteria, E. coli, with CBD inhibited MV release and resulted in higher susceptibility to antibiotics but had minimal impact on gram- positive bacterial MV release. And CBD has recently been documented to inhibit the common human fungal pathogen, Candida albicans, from forming biofilms due to increased membrane permeability, reduced ATP levels, and modified cell walls (Feldman et al 2021).
In other reporting, the in vitro antimicrobial properties of CBD were demonstrated to have selective activity across a wide range of gram-positive bacteria, including several antibiotic resistant and anaerobic strains, with minimum inhibitory concentrations (MIC) in the low ppm range (Blaskovich et al. 2021). The conditions of a study impacted the observation of inhibition; for example, if human sera were present in the assay media, the antibacterial activity was drastically reduced. This has been attributed to CBD’s propensity to bind to non-specifically to proteins and thereby become unavailable (Tayo et al. 2018). Surprisingly, CBD does not exhibit broad antibacterial activity against Gram-negative species except against the human pathogens: Neisseria gonorrhoeae, N. meningitides, Moraxella catarrhalis, and Legionella pneumophila (Blaskovich et al. 2021). Bacteria do not develop resistance to CBD, but CBD is also non-systemic because of its high serum binding activity (Tayo et al. 2018).
The active ingredients in intimate care products can impact beneficial microorganisms but also deleterious ones. CBD has become a widespread, understudied active ingredient for women’s health. Today the molecular screening tools exist to conduct large scale epidemiological studies to further understanding of the consequences of dysbiosis and document the adverse effects on women’s reproductive health outcomes. Preventative treatments to reestablish dominant lactobacilli, in particular L. crispatus could have big impacts on not only women’s health but public health (Borgdorff et al. 2014).
As Ley R (2022) recently opined on the human microbiome, “there is much left to do.” Microbiomes are essential to the proper functioning of our bodies affecting social engagement, mental health, obesity, and disease states, and little is known about differences in microbiota across different groups of humans. More research is needed on the biological activity of cannabinoids as well as regulatory oversight to protect the health and safety of consumers.
References
Blaskovich MAT, Kavanagh AM, Elliott AG, Zhang B, Ramu S, Amado M, Lowe GJ, Hinton AO, Thu Pham DM, Zuegg J, Beare N, Quach D, Sharp MD, Pogliano J, Rogers AP, Lyras D, Tan L, West NP, Crawford DW, Peterson ML, Callahan M, Thurn M (2021) The antimicrobial potential of cannabidiol. Commun Biol 4:7
Borgdorff J, Tsivtsivadze E, Verhelst R, Marzorati M, Jurrrians S, Ndayisaba GF, Schuren FH, van de Wijgert J HHM (2014) Lactobacillus-dominateed cervicovaginal microbiota associated with reduced HIV/STI prevalence and genital HIV viral load in African women. The ISME J 8:1781-1793.
Brotman RM, Ravel J, Cone RA, Zenilman JM. (2010) Rapid fluctuation of the vaginal microbiota measured by Gram stain analysis. Sex Transm Infect 86(4):297-302.
Fashemi B, Delaney MA, Onderdonk AB, Fichorova RN (2013) Effects of feminine hygiene products on the vaginal mucosal biome. Microbial Eco in Health & Disease 24:19703-08.
Feldman M, Sionov RV, Mechoulam R, Steinberg D (2021) Anti-biofilm activity of cannabidiol against Candida albicans. Microorganisms 9:441-457.
Ilha EC, Scariot MC, Treml D, Pereira TP, Sant’Anna ES, Prudencio ES, Arisi ACM (2015) Comparison of real-time PCR assay and plate count for Lactobacillus paracasei enumeration in yoghurt. Ann Microbiol 66:597-606.
Jespers V, Menten J, Smet H, Poradosu S, Abdellati S, Verhelst R, Hardy L, Buve A, Crucitti T (2012) Quantification of bacterial species of the vaginal microbiome in different groups of women, using nucleic acid amplification tests. BMC Microbiol 12:83.
Kosgodage U et al. (2019) Cannabidiol is a novel modulato of bacterial membrane vesicles. http://doi.org/10.3389/fcimb.2019.00324.
Laniewski P, Ilhan ZE, Herbst-Kralovetz MM (2020) The microbiome and gynaecological cancer development, prevention, and therapy. Nat Rev Urol 17(4):232-250.
Laniewski P, Owen KA, Khnanisho M, Brotman RM, Herbst-Kralovetz MM (2021) Clinical and personal lubricants impact growth of vaginal Lactobacillus species and colonization of vaginal epithelial cells: an in vitro study. Sex Transm Dis 48(1):63-70.
Ley R (2022) The human microbiome: there is much left to do. Nature p. 435
Pino A, Bartolo E, Caggia C, Cianci A, Randazzo CL (2019) Detection of vaginal lactobacilli as probiotic
candidates. Sci Rep 9:3355
Sha BE, Zariffard MR, Wang QJ, Chen HY, Bremer J, Cohen MH, Spear GT (2005) Female genital-tract HIV load correlates inversely with Lactobacillus species but positively with bacterial vaginosis and Mycoplasma hominis. J Infect Dis 191:25-32.
Spiegel CA, Davick P, Totten PA, Chen KC, Eschenbach DA, Amsel R, Holmes KK (1983) Gardnerella vaginalis and anaerobic bacteria in the etioloty of bacterial (nonspeecific) vaginosis. Scand J Infect Dis Suppl 40:41- 46.
Taylor BDP, Darville T, Haggerty CL (2013) Does bacterial vaginosis cause pelvic inflammatory disease? Sex Transm Dis 40:117-122.
Tayo B. (2018) Exploration of the potential for plasma protein binding displacement and drug-drug interactions of valproate in combination with cannabidiol [abstract] Amer Epilepsy Soc Ann Mtg. New Orleans LA.
Ventolini G, Vieira-Baptista P, DeSeta F, Verstraelen H, Lonneee-Hoffmann R, Leeev-Sagie A (2022) The vaginal microbiome: IV. The role of vaginal microbiome in reproduction and in gynecologic cancers. J Lower Genital Tract Dis 26(1):93-98.
Walther-Antonio MRS, Chen J, Multinu F et al. (2016) Potential contribution of the uterine microbiome in the development of endometrial cancer. Genome Med 8:1-15.
Zhou B, Sun C, Huang J et al. (2019) The biodiversity composition of microbiome in ovarian carcinoma patients. Sci Rep 9:1691.
According to a press release sent out today, ASTM International’s D37 cannabis committee has approved three new standards for environmental conditions during packaging, shipping and storing cannabis and hemp flower. The three new standards are:
Standard Specification for Environmental Conditions for Post Packaged Storage and Retail Merchandising of Cannabis/Hemp Flower (soon to be published as D8423);
Standard Specification for Environmental Conditions While In-Transit for Packaged Cannabis/Hemp Flower (soon to be published as D8432); and
Standard Specification for Environmental Conditions While Packaging Cannabis/Hemp Flower (D8450).
ASTM members will be presenting at the Cannabis Quality Conference & Expo, October 17-19 in New Jersey. Click here for more information. Jonathan DeVries, a member of ASTM, says these standards are designed for the entire cannabis supply chain, from cultivation, manufacturing and transportation all the way to the end consumers. “These standards are designed to support the safety and quality of packaged cannabis and hemp flower as it moves through the supply chain,” says DeVries. “This includes the activities following curing and drying, namely packaging, transit, and storage, until it reaches the final end user.”
Ancillary services are a hot topic in the cannabis industry, as they are in many niche industries turning to B2B marketplaces to connect with specialized expertise and products.
Platforms such as Amazon Business, Flexport, SupplyHog and others have emerged to connect mainstream business sectors with the vendors and services they need, but things look a lot different in the cannabis space. The many disparate aspects of launching, running and scaling a cannabis business—and vetting dozens of service providers clamoring for your business—can feel like playing whack-a-mole blindfolded.
While a business consultancy can do some of the heavy lifting, there are reasons why this traditional “one-size-fits-all” approach is problematic. However, the rise of legalization is creating new avenues for founders in both established and emerging markets to take charge of their destiny and secure the services that truly meet their needs.
Understanding what’s available can help founders avoid pitfalls, from inadequate insurance coverage and predatory lenders to inexperienced service providers seeking to cash in on the “green gold rush.”
The Importance of Regulatory Knowledge
One reason B2B services look so different in the cannabis industry is because the industry itself is still rapidly evolving, as new state markets for medical cannabis and recreational adult use come online and states constantly amend their regulations. There’s also the sprawling scope of compliance requirements facing a cannabis operator, from securing tightly zoned real estate to building a facility with adequate security, to integrating into the state’s seed-to-sale tracking system.
A plant tagged with a barcode and date for tracking
It’s critical to engage with experts who are knowledgeable on the regulatory variances of the state (or states) where the business will operate. Someone who has experience interpreting cannabis regulations will know, for example, if you should have a real estate lease locked in prior to applying or if a particular state would prefer you move through the pre-opening process in a different order.
Another reason ancillary services are so important is that cannabis regulations aren’t standardized on the federal level or even state to state, which requires an especially deep, granular level of understanding of market trends and compliance demands. That can make the difference not only between a successful business launch and a swift nose dive, but also between a business surviving a major disaster or setback and becoming past tense.
Insurance and Lending Issues
Every business owner knows they need insurance, for example, but not every insurance broker knows what specific coverages to lock in to ensure a payout if a dispensary is vandalized or if a wildfire burns a grow operation to the ground. While federal legislation like the Clarifying Law Around Insurance of Marijuana (CLAIM) Act could one day make it easier for national insurance companies to serve legal cannabis businesses, currently criminal conduct exclusions can be used to keep plant-touching business owners from getting their full payout.
Fires in Sonoma County devastated cannabis crops in Northern California back in 2017.
Not only does federal prohibition make it challenging for a cannabis business operator to find proper insurance coverage, access financial networks and establish employee benefits programs to keep industry jobs competitive, even seeking investment capital can leave cannabis companies exposed to unfavorable terms. Just look at the case of iAnthus, a multistate operator that claims to have been burned in a deal with Gotham Green Partners while looking for expansion funding.
So how can cannabis leadership locate and vet professional services, particularly in the critical startup stage when it feels like everything has to happen right away? That’s where the B2B marketplace trend comes in.
The Advent of Vendor-Agnostic B2B Marketplaces for Cannabis
While platforms such as Amazon Business have offerings for a variety of mainstream industries, they’re not tailored for cannabis. But there is a growing field of vendor-agnostic specialists helping cannabis founders make the right moves.
Vendor-agnostic consultancies are nimble and adaptable in a way that broad-scale platforms are not
Necessity absolutely produced this particular innovation, which upends the traditional single-funnel consultancy model to instead create a village that can raise a variety of cannabis businesses. Vendor-agnostic consultancies are nimble and adaptable in a way that broad-scale platforms are not. And rather than being tied to a particular suite of products and service providers the way traditional business consultancies often are, the vendor-agnostic approach gives both consultants and cannabis founders much-needed flexibility.
In a cannabis B2B marketplace, a pool of inventory-tracking software vendors, for example, can be sorted to allow for easy comparison shopping based on whether the operator is a single-state startup looking for basic integration with the state compliance system, or an MSO that needs a more robust platform. And the customization extends from there—vertically integrated businesses versus standalone wholesale producers, plant-touching businesses versus other professional service providers and beyond.
As more and more industries specialize, it’s no wonder ancillary services are having a renaissance and replacing the traditional one-size-fits-all model popularized decades ago. But it’s also no wonder that the cannabis industry needs an especially unique approach to professional support for niche fields. The more this industry expands, the more founders and their B2B partners need to roll with their own solutions.
Founded in 2018, Bespoke Financial is the nation’s first fintech lender focused on the cannabis industry. Led by a premier team of experts in the credit, technology and cannabis industries, Bespoke Financial has financed more than $800M in GMV across the US cannabis industry and is on track to deploy $1B by end of year 2022 via their revolving lines of credit. Bespoke’s financing empowers cannabis companies to increase purchasing power, remove working capital limitations and accelerate growth in a rapidly growing industry. The company is backed by respected venture capital firms such as Casa Verde Capital, The General Partnership, Greenhouse Capital Partners and Ceres Group Holdings.
Bespoke recently entered into a milestone partnership with Blaze as the cannabis industry’s first tech-enabled B2B lending product available in CA & MA. Through this partnership, Bespoke and Blaze will be the first to bring “Buy Now Pay Later” to the industry. With just the click of a button, vendors can utilize this BNPL feature by paying directly within the Blaze platform via Bespoke’s financing with a 60-day repayment term on all vendor payments while minimizing dispensaries’ reliance on cash transactions.
We caught up with George Mancheril, co-founder and CEO of Bespoke Financial to learn more about trends in cannabis lending and their unique partnership with Blaze. George was the company’s CFO prior to taking the CEO position in 2019. Prior to Bespoke, George was a VP at Guggenheim Partners in California.
Aaron Green: What does it mean to be a fintech lender in cannabis?
George Mancheril:Bespoke Financial is a first mover in fintech lending for the cannabis industry, equipped with a robust network of investors, industry expertise and a multi-year track record solidifying our credibility in the space. We are focused on working with established cannabis companies who can use our financing to unlock growth, profitability, and success in the near- and long-term future.
Cannabis lenders must navigate a complex web of both cannabis and financing regulations, specific to each state, while trying to identify good borrowers in a nascent industry comprised of new companies. This has caused banks, traditional lenders, and institutional investors to avoid cannabis despite the unique growth opportunities and economic potential of the industry overall.
Green: What makes Bespoke different from other cannabis lenders in the business?
Mancheril: Unlike the few cannabis lenders active in the market, Bespoke Financial combines best-in-class technology and lending products designed to address the specific financing needs of the industry to better serve our clients. Our tech platform offers a simple interface for our clients to easily access financing, monitor loan balances, and manage payments. Bespoke’s technology allows us to service a broad array of clients in numerous markets across the US, offering our clients a reliable financing partner for their immediate and future needs.
Green: What markets do you serve in cannabis? Are you able to finance plant-touching operations?
George Mancheril, Co-Founder & CEO of Bespoke Financial
Mancheril: Bespoke works with cannabis companies across the entire supply chain within 15 U.S. cannabis markets, with the vast majority of our borrowers being plant-touching operations, Our portfolio comprises cultivators, manufacturers, distributors, dispensaries, non-plant touching cannabis brands, ancillary service providers and CBD companies. Our financing options have helped a wide variety of cannabis operations overcome working capital limitations and capitalize on new growth opportunities and increase profitability.
Green: You recently announced a “Buy Now Pay Later” partnership with Blaze. What problems do dispensaries have that you are solving for there?
Mancheril: As broader economic activity slows in the US with the threat of a recession impacting both businesses and consumers, dispensaries face supply, demand, and fundraising challenges:
Consumer demand challenges:
Cannabis consumers in 2022 are significantly more price sensitive than recent years for several reasons.
High inflation over the past 1yr+ has reduced disposable income for consumers in the US.
Post-COVID return to normalcy has allowed consumers to spend disposable income on many goods and services which were largely been unavailable since the beginning of 2020 (ie travel).
Concern about a recession and slower wage growth has further reduced consumer spending.
Illicit cannabis has always been the main competition for legal dispensaries with little enforcement or curtailing of black-market activity to note in the US.
New cannabis consumers are gravitating towards smaller (but growing) product categories (edibles, concentrates, infused beverages, etc.) as opposed to just purchasing packaged flower. Dispensaries must carry a wide array of products and brands in order to better attract and service new and existing customers.
Supply side challenges:
Mature cannabis markets, such as California, have been saturated with over supply since Q2 2021 leading to inventory build ups and declining wholesale prices for cultivators, manufacturers, and brands (collectively referred to as suppliers). In this environment, suppliers are offering discounts to incentivize customers (i.e. dispensaries) who can:
Purchase larger quantities more frequently to allow suppliers to move inventory before the product quality degrades.
Pay COD for purchases as cashflow and capital are very important for suppliers during periods of economic stress.
Dispensaries without the financial means to conform to suppliers’ preferences will be at a considerable disadvantage as they will continue to have trouble sourcing popular products at the lowest possible cost.
Fundraising challenges:
Cannabis’ federal illegality has resulted in a much smaller universe of potential capital providers. Once a potential lender or investor is identified, typically the application process requires time and resources to complete which puts dispensaries in an especially disadvantageous position. Large MSOs, who tend to attract most of the available capital, can rely on internal finance teams to source capital whereas dispensaries are much more constrained and require a simpler, faster, and easier application process.
Our partnership with Blaze to offer B2B BNPL to dispensaries addresses these challenges and more. With access to our financing, dispensaries are empowered with:
Fast access to financing without a lengthy application process, entirely housed within the Blaze POS’ platform
Dispensaries on the Blaze platform do not need to seek out lenders or weigh various financing options.
No materials need to be gathered for the application.
At the click of a button, dispensaries gain access to capital which they are free to use as they see fit with no obligation.
Easy to understand financing
No obligation: dispensaries have full discretion to use our financing only when they choose.
No prepayment penalties or additional fees.
Increased purchasing power, enabling dispensaries to
Carry a wider array of cannabis products and brands to better service consumer needs.
Purchase a higher quantity of inventory from suppliers to qualify for volume-based discounts.
Pay COD for purchases to qualify for early payment discounts.
Offer lower prices to cautious consumers as a result of these discounts, thereby increasing sales and gross profit while strengthening their relationships with suppliers.
Green: Can you explain your decision to launch in CA and MA first?
Mancheril: While our ultimate goal is to offer B2B BNPL in all legal cannabis markets, we launched in CA and MA first because these states represent the largest and fastest growing markets in the US respectively. California was the first state that both Bespoke and Blaze launched in individually, so it was a natural starting point for our BNPL partnership. Massachusetts’ continued growth is compelling for any service provider and we believe our BNPL financing will be as successful addressing the needs and challenges in this newer market alongside those in more mature states.
Green: What trends are you seeing in US cannabis debt financing?
Mancheril: Since 2020, we’ve seen many MSOs increasingly rely on debt financing as opposed to equity capital. MSOs accounted for over ~80% of the debt raised over the past 2 years despite only representing a fraction of the broader cannabis market. Additionally, commercial real estate financing options for cannabis companies have increased over the same time period, driven by the growth of cannabis focused REITs. In general, by the end of 2021, we saw an increasing number of debt investors focused on higher yields participate in cannabis deals.
The recent macroeconomic volatility, increase in rates, and widening credit spreads in 2022 have slowed and slightly reversed the trends seen over the past 3 years. While banks and traditional lenders continue to wait for federal legalization, the vast majority of cannabis companies continue to have very limited access to debt financing options. Over the past quarter, we have seen debt investors leverage the recent illiquidity to negotiate higher interest rates and equity components in new debt deals, a trend we expect to continue until the broader economy strengthens or federal legalization gains traction.
At Bespoke, we empower entrepreneurs to grow their businesses without having to surrender control of their companies or visions. We are excited to continually be market leaders addressing this very vital need for cannabis companies of all sizes in all market environments.
Green: What trends are you following in US regulations and emerging markets?
Mancheril: The most recent headlines have been mixed for US cannabis regulations. Federal legalization is a huge point of focus with SAFE Banking failing (again) to survive the US Senate while the introduction of the revised CAOA offers a glimpse of hope. We believe federal regulatory changes will continue to be debated and discussed without any meaningful progress over the next 2 years but the current discussion of the CAOA revisions will provide the best insight on lawmakers’ priorities. On the local level, the list of states with adult-use sales continues to expand and we would expect to see a handful of new markets ushered in by voters in 2022.
Green: What would federal legalization mean for the cannabis lending industry? How do you stay ahead of the curve?
Mancheril: Federal legalization can occur in a variety of ways, including rescheduling cannabis (currently Schedule 1), descheduling cannabis entirely from the CSA, deferring to state specific regulation, implementing a national cannabis regulatory framework, or some combination of all of the above. The complexity of future regulatory changes makes the timeline for legalization difficult to forecast but we believe that the path forward will be comprised of multiple legislative changes over a number of years as opposed to a comprehensive reform addressing all the relevant points at once.
Based on the interests and goals of all stakeholders in this conversation, we believe that:
Cannabis de-scheduling or rescheduling is unlikely to occur before 2025
Any federal legislation which is approved will require long transition periods for new rules to be finalized, implemented, and adopted by relevant stakeholders (state regulators, courts, cannabis operators, financial institutions, etc.)
Federal lawmakers may allow for financial institutions to service the cannabis industry prior to de-scheduling through limited scope legislation like SAFE banking
Federal legislation will have a difficult time balancing deference to state specific cannabis regulation while enabling federal agencies such as the FDA and Treasury department to issue guidelines and rules for the broader industry. Too much federal agency interference will jeopardize existing & functioning cannabis markets while too much deference will impede vital oversight and consumer protection.
We believe interstate commerce will not be allowed immediately following federal legalization. Interstate commerce will benefit larger MSOs and states with mature cannabis markets (which are hampered by oversupply) at the expense of smaller single state operators and new markets. State governments are motivated to legalize cannabis in the pursuit of tax revenue and economic opportunity for their constituents, both of which would be significantly reduced for newer markets competing with out of state operators.
Regardless of which path federal legalization takes in the coming years, the net benefit for the industry overall will be clear. Setting aside the societal benefit from expunging criminal records for non-violent offenders and freeing enforcement agencies to focus on more serious issues, any progress towards legalization would significantly reduce the challenges that cannabis operators face today. Cannabis companies will see a reduction in operating expenses, a wider array of options for basic business services like insurance and marketing, and an increase in consumer demand as the stigma of illegality fades into memory. Allowing banks to service the industry would remove cash as the primary form of payment, entice larger pools of capital to enter the cannabis market, and in general de-risk the industry tremendously. Bespoke will continue in our role as market leader and cannabis industry advocate in this new paradigm by empowering our clients with even greater access to the capital and services vital to their continued success.
By Erik Paulson, Josh Swider, Zachary Eisenberg 5 Comments
Fraud
The THC content you see on a label when you walk into a dispensary? There is a very good chance the number is false.
In every state with regulated cannabis, there is a requirement to label the potency of products so consumers can make informed purchasing and medicating decisions. The regulations usually state that the THC/cannabinoid content on the label must be within a particular relative percent difference of the actual tested results for the product to be salable. In California, that threshold is +/- 10%.
The problem is, with all the focus on THC percentage in flower and concentrate products, enormous pressure has been placed on cultivators and manufacturers to push their numbers up. Higher numbers = higher prices. But unfortunately, improving their growing, extraction and formulation processes only gets companies so far. So, they proceed to ‘lab shop’: giving their business to whichever lab provides them the highest potency.
There are roughly 50 Department of Cannabis Control (DCC) licensed labs in the state, and competition is fierce to maintain market share in a maturing and plateauing industry. Whereas competition used to be healthy and revolved around quality, turnaround time and customer service, now it’s essentially become a numbers game. As a result, many labs have sacrificed their scientific integrity to chase what the clients want: higher THC potency results without contaminant failures. The practice has become so prevalent that labs openly advertise their higher potency values to gain customers without fear of recourse. Here are two examples:
Over a year ago, a few labs fed up with what was happening got together to determine the extent of the potency inflation issue. We proactively purchased and tested over 150 randomly chosen flower samples off dispensary shelves. The results were staggering. Eighty-seven percent of the samples failed their label claims (i.e., were >10% deviant of their labeled values), with over half of the samples >20% deviant of their labeled THC values (i.e., over 2x the legal permitted variance). Additionally, our labs found multiple cases of unreported category 1 pesticides in some of the analyzed samples at multiple times the legal limit – a significant public health concern. The deceit was not limited to small cultivators trying to get by but also some of the industry’s biggest brands.
The same issues and economic conditions are in play for concentrates. Manufacturers of these products also hunt for the highest D9 THC values because wholesale prices for distillate are determined by THC content: <86% for the lowest value, 86-88%, 88-90% and >90%, with a new price point for over 94%. As a result, consumers can walk into a dispensary and find concentrates like the one shown below that report>99% total cannabinoids (>990mg/g) and contains almost 10% additional terpenes. You don’t have to be an analytical chemist to realize those numbers add up to well over 100%, which is physically impossible.
Blame
Everyone can agree that the system is broken, but who is at fault? Should the blame be placed on dispensaries, many of whom use THC % as their only purchasing or marketing metric? Or on cultivators, manufacturers and distributors, who seek the highest results possible rather than the most accurate ones? Or on the labs themselves, who are knowingly reporting inflated results?
Ultimately, the individual businesses are acting in their own self-interest, and many are participating in this practice simply to stay afloat. Dispensaries can’t reasonably be expected to know which results are inflated and which are not. Cultivators and manufacturers feel obligated to use labs that provide them with the highest results; otherwise, they’re putting themselves at a disadvantage relative to their competitors. Likewise, labs that aren’t willing to inflate their numbers have to be ready to watch customers walk out the door to maintain their principles – an existential dilemma for many.
The primary reason why potency inflation has become so prevalent is that there have been no negative repercussions for those that are cheating.
The axiom is true – don’t hate the player, hate the game. Unlike most businesses, testing labs operating with integrity want meaningful regulations and oversight to assure a level playing field. Without them, the economics force a race to the bottom where labs either have to inflate more and more or go out of business. Since 2016, the DCC (formerly BCC) has taken zero meaningful actions to discourage or crackdown on potency inflation— not a single recall of an inflated product or license suspension of an inflating lab— so predictably, the problem has gotten progressively worse over time.
So, to answer the question above – who is at fault for our broken system? The answer is simple: the DCC.
Inaction
In the Fall of 2021, we began engaging with the DCC to address the industry’s potency inflation concerns. The DCC requested we provide them with direct evidence of our accusations, so we collected and shared the flower data mentioned above. The Department tested the same batches off the shelf and confirmed our results. Somehow not a single recall was issued – even for the batches containing category 1 pesticides.
We pushed for more accountability, and DCC Director Nicole Elliott assured us steps were being taken: “The Department is in the process of establishing a number of mechanisms to strengthen compliance with and accountability around the testing methods required of labs and will be sharing more about that in the near future.”
Instead, we got a standardized cannabinoid potency method (mandated by SB 544) that all labs will be required to use. On the surface, a standardized methodology sounds like a good thing to level the playing field by forcing suspect labs into accepting generally accepted best practices. In reality, however, most labs already use the same basic methodology for flower and concentrate cannabinoid profiling and inflate their results using a variety of other mechanisms: selective sampling, using advantageous reference materials, manipulating data, etc. Furthermore, the method mandated is outdated and will flatly not work for various complex matrices such as gummies, topicals, beverages, fruit chews and more. If adopted without changes, it would be a disaster for manufacturers of these products and the labs that test them. Nevertheless, the press release issued by the DCC reads as though they’ve earned a pat on the back and delivered the silver bullet to the potency inflation issue.
Here are a few more meaningful actions the DCC could take that would help combat potency inflation:
Perform routine surveillance sampling and testing of products off of store shelves either at the DCC’s internal lab or by leveraging DCC licensed private labs.
Recall products found to be guilty of extreme levels of potency inflation.
Conduct in-person, unannounced audits of all labs, perhaps focusing on those reporting statistically higher THC results.
Conduct routine round-robin studies where every lab tests the same sample and outliers are identified.
Shutdown labs that are unable or unwilling to remediate their potency inflation issues.
For some less disciplinary suggestions:
Remove incentives for potency inflation, like putting a tax on THC percentage
Set up routine training sessions for labs to address areas of concern and improve communication with the DCC
Fight
Someone might retort – who cares if the number is slightly higher than it should be? No one will notice a little less THC in their product. A few counterpoints:
Consumers are being lied to and paying more for less THC.
Medical cannabis users depend on specific dosages for intended therapeutic effects.
Ethical people who put their entire lives into cultivating quality cannabis, manufacturing quality products and accurately testing cannot compete with those willing to cheat. If things get worse, only the unethical actors will be left.
Labs that inflate potency are more likely to ignore the presence of contaminants, like the category 1 pesticides we found in our surveillance testing.
This single compound, delta-9 THC, is the entire reason why this industry is so highly regulated. If we are not measuring it accurately, why regulate it at all?
We will continue to fight for a future where quality and ethics in the cannabis industry are rewarded rather than penalized. And consumers can have confidence in the quality and safety of the products they purchase. Our labs are willing to generate additional surveillance data, provide further suggestions for improvement in regulations/enforcement, and bring further attention to this problem. But there is a limit to what we can do. In the end, the health and future of our industry are entirely in the hands of the DCC. We hope you will join us in calling on them to enact meaningful and necessary changes that address this problem.
The cannabis industry operates in a legal gray area between federal restrictions and state legalization in a constantly changing regulatory environment. Maintaining payroll and HR compliance is a burden cannabis companies face that grows exponentially with geographic expansion of the workforce.
Würk allows cannabis companies to manage payroll, human resources, timekeeping, scheduling and tax compliance, minimizing compliance risks in the ever-changing cannabis regulatory environment. The company uses its expertise and trusted partnerships to provide guidance on 280E tax law, accounting and banking. Its platform is designed to scale nationally with the growth of the industry while incorporating the local laws and regulations unique to individual states. Their clients include Cresco Labs, Canndescent and NUG.
We caught up with Scott Kenyon to ask about Würk’s approach to human capital management, challenges facing cannabis businesses and industry trends. Scott sat on the Board of Würk before becoming its CEO and chairman. Prior to Würk, Scott held leadership roles at Dell and Phunware.
Aaron Green: How did you get involved in the cannabis industry?
Scott Kenyon, CEO and Chairman of Würk
Scott Kenyon: My wife and I were early investors in a few companies in Colorado and Nevada. From early on (this was back in 2015) we learned the hard way of cannabis and how difficult it is to run these businesses, especially in those early days. We’ve progressed a ton over the years, but it’s still very difficult to run cannabis businesses.
I joined Würk about five years ago as a board member. I came on as CEO at the beginning of 2021 after our founder and previous CEO Keegan Peterson, who was an early trailblazer in the industry, passed away. So, I’ve been CEO at Würk for about 18 months.
Green: Tell me about Würk and the main problems you’re trying to solve.
Kenyon: Early on we were focused on establishing getting out of the cash business for these cannabis companies. Allowing them to pay payroll, taxes and be tax compliant electronically was a huge early advantage for us as a company. Now, fast forward seven years later and a lot of different banks (credit unions) are in the industry and that is allowing people to move money. So, that’s not as big of an advantage for us anymore, but early on that was huge.
Our advantage now is the scars on our back, for lack of a better phrase, from what we’ve gone through over the last seven years. We anticipate. We prevent. And most importantly we’ve seen all those problems for our customers. Last year, a big thing of mine was being “Smokey the Bear.” We want everybody to be Smokey the Bear: prevent fires and prevent issues for our customers. When I came in, we were the world’s best firefighters. I didn’t want that title. I wanted to prevent issues for our customers. That takes you from being a vendor to a partner.
If you look at it, on our platform we have 80% of the enterprise cannabis market, about 60% of the mid-market and then low single digits in the small business space. We have that market share because we provide invaluable experience and guidance to our customers. The biggest MSOs have different challenges from a “Joseph and Scott” dispensary, or a “Mary and Jane” grow facility. We’re able to adapt to all those different segments.
At the core of our product, we offer payroll services and what we call HCM – human capital management. That’s everything from scheduling, applicant tracking systems processing and paying your payroll taxes. So, we have the full gamut of product offerings that any type of HCM or HRIS software system does, whether you’re outside of cannabis or inside of cannabis, we’re offering the same thing.
Green: How does Würk differ from say a Professional Employer Organization (PEO)?
Kenyon: We aren’t a PEO. We don’t manage employees. At a high-level, a PEO is basically managing HR for these companies. Our platform enables HR professionals to go out there and do that. PEOs are more popular down in the small business space, because people are not at the scale to hire an HR team. We’re similar in that we’re processing payroll and have all the software that these companies need, but we’re different in that we’re not running their HR for them.
Green: How do you work benefits into the mix?
Kenyon: We leave it to the client, and we integrate their benefits provider into our platform so it’s an easy one-stop shop. We have single sign-on for a lot of our integrations. For the HR organizations, we want them to log into our platform and everything they need will be there.
Green: How is SAFE banking going to affect the HR industry in cannabis?
Kenyon: It’s going to be great for the industry, obviously. For HR specifically, it’s going to bring in more providers of payroll and more competitors for us for sure. But also it’s going to bring in more providers of services that can come in and offer that right now because of the federal illegalization.
Green: How does 280E affect your business and your customers?
Kenyon: We don’t guide people around 280E because that’s a tax specific matter. We refer them to their tax experts. We process payroll tax, which is different than what 280E affects. I think 280E was a big challenge, it’s still a big challenge, but that’s mostly because people didn’t really understand it. I think 280E was a problem five to seven years ago. In the last two years most companies are very familiar with it. That doesn’t mean 280E is the right thing. I think 280E is an awful thing. And while I think I hope SAFE banking is the first thing to fall legislatively, I think 280E has a good chance of getting across first.
On any given day my opinion on which will go first changes. I just want something to get across the line.
Green: What are some unemployment and payroll challenges your customers face?
Kenyon: We really watch unemployment changes and changes in job descriptions or job codes. For example, if an unemployment rate changed, and that unemployed person moved to a different place, which happened a lot during COVID, that company needed to report that and they needed to collect the appropriate charges or taxes there.
Green: What geographies are you in right now?
Kenyon: As of January 1, we had people on our platform in 46 states and just under 600 different jurisdictions. So, even though cannabis isn’t legal in all those states, big companies have employees across the United States.
Green: How do you help your users manage compliance across multiple jurisdictions? That must be a complex undertaking.
Kenyon: Our platform automatically plugs into the states that have electronic notifications around laws, which most states do. In our tax department, we have certain group members that are experts, let’s say, in the west coast. So, we assign people to certain regions to ensure that they have the best knowledge.
From our support piece, where a lot of our customers come in, somebody might say, “Hey, I have a unique question for Utah” and we’ll say we have a person that is specialized in Utah, but we don’t force them there, we just give them the option. But in our tax queue, we actually direct the customer like, “Hey, here’s a Massachusetts Question, so that goes to a particular person because they are our Massachusetts expert.”
Green: How do you deal with timekeeping issues like overtime?
Kenyon: Well, our system does that automatically. Let’s say they’re working overtime in a state that’s difficult to keep time for like California. In the state of California, if they’re working overtime on a Saturday or Sunday or a holiday, that’s a whole different calculation than working longer on a Thursday night. So, our platform is made to automatically calculate that for our customers. There’s no manual adjustments or coaching happening there. We just follow the state law based on where the employees are.
Green: Are you seeing any unionization of employees within the cannabis industry?
Kenyon: There’s unionization in many of our states, I don’t know the exact number, but California being the biggest, there’s a lot of union representation. Illinois is probably the second biggest union state on our platform. I’m assuming New York will be once it becomes adult use.
Green: How does Würk approach cybersecurity?
“Cannabis customers don’t want to buy on the illicit market. They want to buy from a trusted source. It just takes time to make that happen.”Kenyon: Well, we approach it very seriously and I recommend everybody take cybersecurity seriously. We test our internal systems regularly. We test our employees through phishing scams. And we’re always just trying to educate our team on the risk that we have.
I can’t share specifically the prevention steps that we’re taking, but I can tell you we partner with some of the biggest experts and make sure that we’re following everything that they’re recommending. More importantly, we’re testing for human failures, because where most failures happen is with people.
Green: What trends are you following in the industry right now?
Kenyon: Any type of activity in Congress is going to be huge for this industry. So that’s something I always keep abreast of. The next thing that comes down the line which is tied to that is interstate commerce: How is interstate commerce going to really come into play? And how does that change this industry?
Within the industry, the big question is how do we combat the illicit market? Over the last five years, I’ve heard all kinds of different ideas. But in the end, I think we have to out-innovate the illicit market, and that’s what I’m most excited about.
There are new product categories, beverage being one that is starting to gain traction. How are these new products and new variations of the cannabis plant able to treat and help people in ways that we’ve never thought of? That’s part of out-innovation. I was reading an article today about new terpenes that were discovered and how 100 products could come from each one of those new terpenes. I think we’re just still at the tip of the iceberg of product innovation.
How do we fight the illicit market? I think that is just through coming up with new products that treat different illnesses and ailments, that allow customers to get away from pharmaceuticals. Cannabis customers don’t want to buy on the illicit market. They want to buy from a trusted source. It just takes time to make that happen. They’re not going to do it when there’s a huge price difference, but they will do it when there’s a huge product difference. And right now, our products are very similar to what you can find on the illicit market. You can find vapes, you can find gummies, you can find all that in the illicit market. We’ve got to out-innovate the illicit market.
Green: What in your personal life are you most interested in learning about?
Kenyon: I am the father of two teenagers right now and I really like to learn how to be a better parent to them because it’s really frickin’ tough!
At first glance, the layout of a grow room and a factory production line might seem to have little in common. But whether a facility is producing plants or parts, adopting good manufacturing practices (GMP) can benefit plant quality, harvest consistency and production economics.
What is GMP?
Simply defined, GMP refers to a production system made up of processes, standards and safeguards designed to consistently meet a defined quality standard. In the grow house, establishing, documenting and implementing GMPs can help guard against problems ranging from plant contamination to inconsistent harvests. GMPs can be organized into five key categories, each which contribute to cultivation:
People: The people working in the grow house understand their responsibilities
Processes: Production processes are clearly documented and consistent across harvests
Procedures: Guidelines are documented and communicated to all employees
Premises: Grow rooms and equipment are clean and maintained
Products: Materials used in cultivation (fertilizers, lighting, growing media, etc.) are assessed
Optimizing each of these five P’s in production can help cultivators protect their business and their margins even as flower prices in both legacy and emerging states continue to trend downward. Below, we look at four GMP insights that can help cultivators coordinate the five Ps to achieve quality, consistency and economic objectives harvest after harvest, without massive investments in capital, even during turbulent market conditions.
#1 Know your numbers and their value
Avoid the temptation to lump production costs into very broad categories, i.e., “cost of goods.” Understanding the exact cost of all inputs that go into a grow is a precedent to cost-effective production. The price of the plant material, energy consumed, labor, nutrients, fertigation and other inputs involved in the grow should be calculated to determine the actual cost of a grow room. If rooms are set up consistently, you can multiply to get an aggregate production cost across the facility.
Growing media
Look beyond the price tag when calculating costs and consider the value each input brings to the grow. Nutrition is a good example. Understanding the concentration of specific nutrients in a product can be a better way of evaluating its value than simply looking at the cost of the goods. And consider whether added nutrients are actually adding value to the product produced. More isn’t always more. In most cases, simple salts will supply the plant with what it needs to grow.
Growing media is another opportunity to evaluate the cost/benefit of cultivation inputs. How much yield can be achieved with a particular medium compared to a different choice? For example, a bag of coco may initially appear to be the low-cost choice for cultivation. Upon a deeper evaluation, though, the cost per plant of coco is generally higher when you factor in the amount of media used for each plant (and that doesn’t even factor in the labor to fill the pots).
# 2 Reduce time waste
Among the various inputs in each growing cycle, labor represents a significant cost. Are labor hours being put to the best use and not wasted? American industrialist and innovator in mass production Henry Ford stated, “Time waste differs from material waste in that there can be no salvage. The easiest of all wastes and the hardest to correct is the waste of time, because wasted time does not litter the floor like wasted material.”
One way to see the cost of wasted labor dollars is to set up a camera and record a day of activity in the grow room during each step of a grow cycle. Or simply observe the responsibilities that are requiring workers’ time on a typical day. Watching employees’ work in the grow room may reveal how a room’s set-up is contributing to or hindering production. Are employees spending their time on tactics that add value or are they being slowed down by manual processes, such as filling containers, watering and relocating plants in the facility? Are there steps and process that could be automated, such as fertigation? Seeing how employees’ time is being used can identify opportunities to direct efforts toward functions that add value or cut costs. What would be the economic benefit of reducing a half-day of set-up time in the grow house or automating some processes?
Beyond better allocation of human capital, understanding how time is used in the growing operation can suggest changes to materials used in the grow. For example, selecting a growing media that comes in plugs and blocks with pre-drilled holes for efficiently dropping in new plants can reduce time spent filling pots or configuring containers. Automating functions like fertigation and watering can not only reduce labor time but increase the precision of delivery when it comes to water and nutrients.
#3 Introduce incremental improvements
Many manufacturers rely on pilot plants to mitigate risk before process scale-up takes place across an enterprise. The same approach can benefit the grow house. Resist the temptation to overhaul the system and instead focus on introducing one change at a time. This disciplined approach will allow you to evaluate if a change is actually delivering value and should be applied more broadly. The wisdom of a cautious approach to improvements is reflected in a quote by innovation magnate Steve Jobs, co-founder of Apple. Observing that not every innovation will be a win, Jobs stated, “Sometimes when you innovate you make mistakes. It is best to admit them quickly and get on with improving your other innovations.”
When introducing a new element into the grow, pilot it in one “sample” area before adding it to the entire operation. Then give the innovation time to be evaluated before deploying it more widely. This measured approach can help reduce the risk that accompanies making a change to processes and will allow you to evaluate the relative benefit of any change or innovation. And as changes are introduced one at a time, it is easier to determine which changes are contributing value.
#4 Satisfy the market, not just the spec
Regulatory bodies set the compliance criteria for purity or quality standards in manufacturing, but the ultimate mark of approval is awarded by customers in the marketplace. A harvest may meet all of the quality specs, but if customers don’t want to buy it, achieving GMP metrics is a moot effort. The marketplace will always have the final say on a product’s commercial viability.
Understand what the market wants and be able to replicate it consistently harvest after harvest. Manufacturing a product that meets the market’s desired performance attributes is essential to sustaining and growing operations. Production quality is only as good as the last harvest and any degradation in product quality will diminish buyers’ trust. History shows that the challenge of achieving consistent production quality and reliability isn’t just a problem for cultivators. Among several factors that doomed the short-lived Edsel sedan introduced in 1957 were problems arising from assembly workers having to use different tools and techniques. A lack of consistency in producing cars or cultivars can turn off customers and profitability.
A tension exists between achieving production consistency and the opportunity to introduce changes that improve the grow. By integrating improvements into the production system one measured change at a time, cultivators can assess which improvements to continue and what needs to be tweaked. But as manufacturing has long demonstrated, continuous improvement is an ongoing journey.
As cultivators consider the 5 Ps of people, processes, procedures, premises and products, applying these four GMP insights can help growers in emerging and legacy markets navigate changing market conditions and drive continuous improvement.
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