According to a press release published July 1, ASI Global Standards announced the launch of their newest audit standard: the Cannabis Safety & Quality Scheme (CSQ). The scheme is built around ISO requirements and the Global Food Safety Initiative (GFSI) requirements.
With input from a number of stakeholders in the cannabis space, the CSQ scheme is designed for the cannabis industry and by the cannabis industry. Each standard was developed by industry professionals and stakeholders, like growers, manufacturers and processors, to meet market, consumer and regulatory requirements from seed-to-sale.
The CSQ scheme is built on four standards:
Growing and Cultivation of Cannabis Plants
Manufacturing and Extraction of Cannabis
Manufacturing and Infusion of Cannabis into Food & Beverage Products
Manufacturing of Cannabis Dietary Supplements
There is a public comment period in effect now, and those wishing to provide input have until July 31 to do so. If certification bodies or accreditation bodies want to find more information and get involved in the CSQ certification or accreditation process, they are encouraged to reach out via email at email@example.com.
On May 13, months after the Israeli government originally signed off on cannabis exports, a free export order was finally approved by outgoing Minister of the Economy Eli Cohen. This is also sixteen months after the government approved exports of locally grown cannabis (at least in theory) and after the country began importing earlier this year as domestic patients were given priority for existing medical supplies.
However, all the internal barriers have now been officially removed. Exporters who wish to sell medical cannabis abroad are now able to obtain a license, as the order enters into full force by mid-June. The new regulation specifically requires that such products have obtained GMP certification (the pharmaceutical-grade cert required for all medical cannabis in Europe’s medical markets).
Licensing Already Underway
At least two Israeli companies have already obtained such licensing approvals. Cannabics, a company located in both Israel and Bethesda, Maryland, has obtained final approval of its drugs for export to both Canada and Europe, as well as Australia. The company is licensed by the Israeli Ministry of Health to conduct research and development on cannabinoid-based medications and cancer and operates a facility in Rehovot.
Cannabics describes itself as an American pharmaceutical company with R&D operations in Israel.
However, there is another interesting twist to all of this. Cantourage, a German company founded by entrepreneurs behind Pedianos, one of the two earliest importers of medical cannabis into the country (created in 2015 and subsequently purchased by Aurora), announced its import of the synthetic dronabinol to Germany from BOL Pharma, based in Israel, in late April. In doing so, they also became the first company to challenge Canopy Growth in its domination of the synthetic cannabinoid market which remains about one third of reimbursed prescriptions by volume (at least ffor publically insured patients) of cannabinoid medications.
Why Is This Development So Significant? The European and Canadian markets are clearly leading the world in at least the consumption of cannabinoid-based medications – which by definition are based on extractions of the plant, beyond floß (or flower). Israeli producers have been banned from entering these markets for the last several years due to internal political struggles domestically, and an apparent deal between Israel and American presidents Benjamin Netanyahu and Donald Trump to delay market entry.
This delay also impacted Israeli firms hoping to enter the first German cultivation bid, which was finally decided last spring. It is expected that the first domestically cultivated product will be distributed to local apothekes as of this fall, although this may be slightly delayed as a result of fallout from the COVID-19 pandemic.
This delay is not expected to impact the import market in the country, which is the source of all flower-based medicine here, and will continue to be a strong market segment. The bid itself only called for a limited production of cannabis in Germany, and was already too little to meet the needs of domestic patients.
However, what the potential lag in German product also does is open a door for Israeli products to now enter the market before German-produced cannabis becomes available.
A Steep Uphill Climb What the COVID-19 pandemic has clearly affected, more than drug entry, however, is something almost as important – namely doctor education. For a producer or distributor to get sales via German pharmacies, they also have to ensure that doctors are prescribing the drug. This is a lot easier if the product is a generic, like dronabinol, because doctors can write prescriptions for a drug which can now be sourced from several sources. It becomes a little harder to do that with any formulated substance, and further one with a “brand” name. Especially because German doctors are right now are on the forefront of an uneasy “flattening the curve” scenario as the economy continues to cautiously resume somewhat normal operations.
The challenge that remains, indeed not just for Israeli entrants, but everyone with new product formulations, is educating doctors about prescribing such medications, and further, obtaining insurance approvals for those who have been prescribed such drugs.
Cost, which is beginning to be addressed by the regulated pricing established here for domestically produced cannabis, is still in the room too.
The Market Continues To Open Regardless of the struggle, and the costs involved, it is clear that the German market is obviously now finally opening to Israeli firms and on the processed medical front (as opposed to “just” flower).
Further it is also a sign that the market here is maturing, and even specializing.
No matter the obstacles, in other words, and despite the pandemic, the global market for cannabinoid drugs continues to expand.
In a press release published, last week, Perry Johnson Registrars Food Safety, Inc. (PJRFSI) announced they are now officially the first certification body to be granted accreditation for cannabis certification in the United States by ANAB.
PJRFSI has developed a cannabis certification standard that uses GMP- and GAP-based scheme to help growers, manufacturers and retailers meet a wide range of different state regulations. The goal of the standard, according to the press release, is to provide guidelines for cultivation, manufacturing and retail best practices across the country.
Because each state has very different rules and requirements for cannabis companies, the certification requirements can be confusing and vary widely from state to state. With the release of this new standard, PJRFSI wants to simplify cannabis markets in the United States and hopefully get various states on a same or similar page.
According to Terry Boboige and Lauren Maloney, president and accreditation manager at PJRFSI respectively, they have a lot of hope for what the future holds in terms of unifying cannabis rules and requirements. “The team at Perry Johnson Registrars Food Safety Inc. is incredibly excited to be the first company in the United States to achieve formal accreditation for our Cannabis and Hemp Certification Program,” says Boboige and Maloney. “We believe this nationally-recognized program will help the budding cannabis and hemp industries to strengthen, legitimize, and separate themselves from companies that do not have formal certification. Certification to this standard will forever help enhance companies’ image, credibility, and reliability. Accredited certification exemplifies to the public that certified organizations who supply cannabis and hemp products and services have internal safety systems that can inspire confidence.”
In our previous post, we touched on the fact that state-legal medical and recreational cannabis businesses (including indirect cannabis businesses) could not receive federal financial assistance due to the continued Schedule I status of cannabis under the Controlled Substances Act (CSA). While state-legal medical and recreational cannabis businesses have been adversely affected due to government imposed shelter-in-place restrictions across the United States, they are unable to take advantage of the multi-trillion dollar stimulus packages that are designed to help small businesses because they are engaged in “federally illegal” activities. As described below, applicants applying for federal loans must certify, under penalty of perjury, that they are not engaged in “illegal” activity.
While it is our view that state-legal medical and recreational cannabis businesses should be entitled to assistance as they are hurting like every other business, we explain why such businesses cannot receive financial assistance under the Paycheck Protection Program and the SBA’s Economic Injury Disaster Loan Program due to the facts that these businesses do not comply with federal law.
As previously discussed, Section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the “Act”) directed $349 billion to the Small Business Administration (SBA) to administer to small businesses harmed by COVID-19. As a result, businesses can apply for Paycheck Protection Program (PPP) loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), traditional 7(a) loans, 504 loans, and microloans, and can also receive investment capital from the Small Business Investment Company program.
Paycheck Protection Program (PPP)
Generally, the following businesses are eligible to receive loans under the PPP:
Any business, 501(c)(3) nonprofit organization, 501(c)(19) veterans organization or Tribal business with not more than 500 employees whose principal place of residence is in the United States;
Any business that meets the SBA employee-basedsize standards for the industry in which it operates (if applicable);
Any business that is a “small business concern” as defined in Section 3 of the Small Business Act, 15 U.S.C. 632, and meets the SBA employee-based or revenue-basedsize standards corresponding to its primary industry; or
Any business that is a “small business concern” under the SBA’s “alternative size standard” as of March 27, 2020, which standard is met if the business has not more than:
(i) maximum tangible net worth of $15 million, and
(ii) an average net income of $5 million (after Federal income taxes, excluding any carry-over losses) for 2 full fiscal years before the date of application.
Importantly, to apply for PPP, an applicant must make a good faith certification that the applicant is eligible to receive a PPP loan. An applicant must certify, under penalty of perjury, that it “is not engaged in any activity that is illegal under federal, state or local law.” (Borrower Application Form, page 2).
Consequently, because state-legal marijuana businesses (including indirect marijuana businesses) are operating in violation of federal law, applicants cannot make such certification, they remain ineligible to participate in the PPP.
Economic Injury Disaster Loans (EIDLs)
The CARES Act also provided a slew of changes to the SBA’s pre-existing EIDL program, which provides small businesses with working capital loans of up to $2 million to assist to help overcome the temporary loss of revenue as the result of a declared disaster.
The Act set out new rules making it easier for small businesses harmed by COVID-19 to receive loans quickly and efficiently; the Act added $30 billion to the EIDL loan fund, with an additional $10 billion added for the EIDL Grants connected to the EIDL loans.
The CARES Act also expanded eligibility to include businesses with no more than 500 employees, any individual operating as a sole proprietor or an independent contractor, and tribal businesses, cooperatives and ESOPs with no more than 500 employees. Small business concerns and small agricultural cooperatives who meet the SBA’s applicable size standards are also eligible, as well as most nonprofits.
However, to receive an EIDL loan, applicants must make a good faith certification that the applicant is eligible to receive an EIDL. An applicant must certify, under penalty of perjury, that it “is not engaged in any illegal activity (as defined by Federal guidelines).” (COVID-19 Economic Injury Disaster Loan Application).
The SBA has clarified that the limitation on applicants “engaged in any illegal activity” (13 CFR § 120.110 (h)) refers to all applicants engaged in “illegal activity under federal, state, or local law.”
In a Statement of Position issued on April 1, 2019 (the SOP), the SBA clarified that “illegal activity” includes “[a]pplicants that make, sell, service, or distribute products or services used in connection with illegal activity, unless such use can be shown to be completely outside of the Applicant’s intended market.” (SOP 50 10 5(K))
The SOP indicated that both (i) Direct Marijuana Businesses1 and (ii) Indirect Marijuana Businesses2 cannot receive SBA assistance due to the limitation on applicants “engaged in any illegal activity.”
It is the SBA’s position that, “because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity.”
Consequently, because state-legal cannabis businesses (including indirect marijuana businesses) are operating in violation of federal law, applicants cannot certify that they are “not engaged in any illegal activity,” they are not eligible to receive EIDLs.
“Direct Marijuana Business” mean “a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to recreational use and medical use even if the business is legal under local or state law where the applicant business is or will be located.”
“Indirect Marijuana Business” means “a business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to aid in the use, growth, enhancement or other development of marijuana. Examples of Indirect Marijuana Businesses include businesses that provide testing services, or sell or install grow lights, hydroponic or other specialized equipment, to one or more Direct Marijuana Businesses; and businesses that advise or counsel Direct Marijuana Businesses on the specific legal, financial/ accounting, policy, regulatory or other issues associated with establishing, promoting, or operating a Direct Marijuana Business. However … [the] SBA does not consider a plumber who fixes a sink for a Direct Marijuana Business or a tech support company that repairs a laptop for such a business to be aiding in the use, growth, enhancement or other development of marijuana. Indirect Marijuana Businesses also include businesses that sell smoking devices, pipes, bongs, inhalants, or other products if the products are primarily intended or designed for marijuana use or if the business markets the products for such use.”
The recent decision in Germany on the reclassification of CBD (kudos to the European Industrial Hemp Association) as something other than “novel” has now opened an interesting new discussion in Germany and by extension, Europe.
It basically means that hemp plants, if they are European in origin, can be grown (under the right regulatory structure starting with organic) and even extracted without ever being considered a “novel food.”
Look for (hopefully) similar discussions now across Europe and the UK where the Food Safety Authority is also examining similar policies.
What this ultimately means, however, is that the market is clearly opening on the CBD front, but only for products that make the grade.
What should the average producer or manufacturer from North America think about when setting up a supply chain for export?
Thanks to the new treaties in place between the United States, Canada and Europe right now, there are market openings in the cannabis industry in Europe. Starting with the fact that the cannabis bug has clearly hit the continent, but there is actually not enough regulated product to be found yet and just about anywhere.
This is keeping prices high right now, but do not expect that to last.
Regardless, pricing of imports will not be like anything you have experienced if your background is state or even national market in the U.S. or Canada. There are higher regulations in every direction in Europe. Understanding how to translate the same into equivalencies that do not bankrupt you, overprice your products, or worse, get you in trouble with authorities is a critical first step, and not one to be taken lightly.
Get professional guidance from the country you are hoping to export to, at minimum. And that includes the legal kind. Every step of the way, you have to be certified with, at minimum, federal if not at an international certification.
No matter what cannabinoid is in the mix, this is ultimately a plant-based product. All rules one would normally think about when talking about other food products (for starters) are in the room.
While it is far from “this easy” (although thanks to the USDA’s decision about hemp, not to mention the FDA update on its own deliberations, there are now federal standards), think about the problem this way: If you were the world’s best chocolate bar, or even tomato juice, how would you hit Europe right now?
They have tomatoes here, and unbelievably great chocolate already. What is it about your offering that can stand out? This is the million-dollar question. There are a few people and companies doing this right now, but it takes experience, and understanding the multiple regulatory guidelines involved. Once you figure that out, then you need to look at your supply chain, piece by piece and literally from the plant through end production for where you fit, and where you might not, into the regulatory discussion and market you hope to enter.
The Medical Discussion
There is now the possibility of exporting medical grade hemp and hemp extracts from the United States to Europe. However, everything must be GMP-certified to a medical standard, from organic production on up. This is an international standard, not an American one.
That qualification does not exist much in the cannabis industry in the United States (although ISO very much is) yet. Although it is dawning. On the Canadian side, there are plenty of companies in the discussion, because there is already a beaten path to export.
As the German cultivation bid proved, European certification, certainly is a high barrier to reach. Indeed, it is not only GMP certification in the room on the medical side but also rules about the import of all plant products.
From this perspective, it is also easier to import “finished” product rather than plant.
The Recreational Discussion
Before anyone gets too excited about recreational reform, the reality is that Europe is not going to step ahead of the UN (which has now pushed its next deliberation on the topic to the end of 2020). Yes, there are trials in a couple of places, but far from earth-shaking (recreational trials in the land of the coffee shop anyone?)
More interesting, of course, is what has just happened on the CBD side. But before American hemp farmers get too excited about this, they have hemp and farmers in Europe. And quite a few people have seen the light on this one already.
Sure New York state exports to Europe are probably in the offing, but so are hemp exports from the Southern states where the weather is warmer and the labor cheaper.
Certified labs, processing and extraction, and labelling are all in the mix. And every step must be documented as you go.
How to Proceed?
Whatever your crop or product is, take stock of the certifications you have now. If your plant was not organic, forget export anywhere. You are out of the international game.
However, with this taken care of, look at the certification requirements in Europe for extraction, processing and import of food and plant products and obtain production partners with the same – either in the US or abroad.
With luck, patience, skill and knowledge, yes, the doors are slowing opening, even to U.S.-based cannabis trade of the international kind.
Just don’t expect it to be easy, and leave lots of time for workarounds, pivots and even re-engineering at every point of the way.
Cannabis that contains more than 0.3% THC is not eligible for USDA organic certification, due to the crop’s Schedule I status. While some hemp farmers are currently on the path to obtain a USDA organic certification, the rest of the cannabis industry is left without that ability.
Growers, producers, manufacturers and dispensaries that utilize the same practices as the national organic program should be able to use that to their advantage in their marketing. Ian Rice, CEO of Envirocann, wants to help cannabis companies tap into that potential with what he likes to call, “comparable to organic.”
Rice co-founded SC Laboratories in 2010, one of the first cannabis testing labs in the world, and helped develop the cannabis industry’s first testing standards. In 2016, Rice and his partners at SC Labs launched Envirocann, a third-party certification organization, focused on the quality assurance and quality control of cannabis products. Through on-site inspections and lab testing, Envirocann verifies and subsequently certifies that best practices are used to grow and process cannabis, while confirming environmental sustainability and regulatory compliance.
“Our backyard in Santa Cruz and the central coast is the birthplace of the organic movement,” says Rice. California Certified Organic Farms (CCOF), founded in Santa Cruz more than 40 years ago, was one of the first organizations in the early 1990s that helped write the national organic program.
“What we came to realize in the lab testing space and as the cannabis market grew, was that a lot of cannabis companies were making the organic claims on their products,” says Rice. “At the time, only one or two organizations in the cannabis space were making an attempt to qualify best practices or create an organic-type feel of confidence among consumers.” What Rice saw in their lab was not cannabis that could be considered organic: “We saw products being labeled as organic, or with certain claims of best practices, that were regularly failing tests and testing positive for banned chemicals. That really didn’t sit well with us.”
At the time, there was no real pathway to certify cannabis products and qualify best practices. “We met with a few people at the CCOF that were very encouraging for us to adopt the national organic program’s standards for cannabis. We followed their lead in how to adopt the standards and apply a certification, building a vehicle intended to certify cannabis producers.”
Because of their background in lab testing they added the requirement for every crop that gets certified to undergo a site inspection, sampling, as well as a pesticide residue test to confirm no pesticides were used at all during the production cycle. One of their clients is Coastal Sun Farms, a greenhouse and outdoor cannabis producer. “They grow incredible products at a high-level, commercial scale at the Enviroganic standard,” says Rice. “They have been able to prove that organic cannabis is economically viable.”
The Envirocann certification goes a bit beyond the USDA’s organic program in helping their clients with downstream supply chain risk management tools (SCRM). “Because of the rigorous testing of products to get certified and go to market, we are getting way ahead of supply chain or production issues,” says Rice. “That includes greater oversight and transparency, not just for marketing the final product.”
A good example of using SCRM to a client’s advantage is in the extraction business. A common scenario recently in the cannabis market involves flower or trim passing the pesticide tests at the lab. But when that flower makes it down the supply chain to a manufacturer, the extraction process concentrates chemical levels along with cannabinoid levels that might have previously been acceptable for flower. “I’ve witnessed millions and millions of dollars evaporate because flower passed, but the concentrated final product did not,” says Rice. “We’ve introduced a tool to get ahead of that decision-making process, looking beyond just a pass/fail. With our partner labs, we look at the chromatograms in greater detail beyond regulatory requirements, which gives us information on trace levels of chemicals we may be looking for. It’s a really rigorous audit on these sites and it’s all for the benefit of our clients.”
Envirocann has also recently added a processing certification for the manufacturing sector and a retail certification for dispensaries. That retail certification is intended to provide consumers with transparency, truth in labeling and legitimate education. The retail certification includes an assessment and audit of their management plan, which goes into details like procurement and budtender education, as well as basic considerations like energy usage and waste management.
While Envirocann has essentially adopted the USDA’s organic program’s set of standards for what qualifies organic producers, which they call “Enviroganic,” they also certify more conventional producers with their “Envirocann” certification. “While these producers might not be considered organic farmers, they use conventional methods of production that are responsible and deserve recognition,” says Rice. “A great example for that tier would be Fog City Farms: They are growing indoor with LED lighting and have multiple levels in their indoor environment to optimize efficiency and minimize their impact with waste and energy usage, including overall considerations for sustainability in their business.”
According to a press release published last week, the U.S. Hemp Authority (USHA) announced that FoodChain ID, a global leader in food safety, testing and sustainability, is now the exclusive certifying body for the USHA certification seal.
FoodChain ID’s claim to fame is their widely-recognized Non-GMO Project Verification labeling standard, but they also offer services in the food, beverage and ingredient industries, including the entire food supply chain, as well as being a leader in USDA Organic certifications.
The effort to provide quality standards and guidance for best practices in the hemp and CBD markets is led by a coalition of organizations with the same goal: to legitimize the industry and gain consumer trust. The effort is funded by the U.S. Hemp Roundtable and joined by the Hemp Industries Association, the U.S. Hemp Authority, testing laboratories, agronomists, quality assessors and other industry-leading firms.
In order for a hemp company to get the certified seal, they must prove that they can meet strict standards, pass an independent third-party audit as well as enter a licensing agreement. The certification seal is an attempt to provide some legitimacy to the ever-changing hemp and CBD markets in the United States.
Marielle Weintraub, president of the U.S. Hemp Authority, says that through the program’s independent, third-party lab testing, the certification seal provides consumers with truth in labeling and transparency. “The U.S. Hemp Authority Certification Program is our industry’s initiative to provide high standards, best practices, and self-regulation, giving consumers an easy way to identify hemp-derived products that can be trusted,” says Weintraub. “We are striving for ingredient transparency and truth in labeling.”
According to Weintraub, the standards and best practices for the program are routinely updated and improved. There will be a public session where they discuss those standards and update industry stakeholders on their progress at the Natural Products Expo West on March 2nd.
Mark Dabroski, senior vice president, commercial services at FoodChain ID, says that hemp products are becoming increasingly common in the food, beverage and health and wellness markets. “Hemp seed oil and protein markets have been increasing exponentially over the last decade,” says Dabroski. “With the category’s expected growth at a 46% CAGR to reach $2.8B by 2023, the need for self-regulation and transparency are critical.”
“As consumers increasingly demand to know what is in the foods and products they buy, our suite of testing and verification services helps meet this demand,” says Dabroski.
If you were at Davos this year, you heard alot about CBD. The cannabinoid will again be a headliner in business analysis and bottom line reports this year. But as the market matures, globally, what is the real temperature of the industry? And how fast will regional hiccups resolve?
Regulatory Issues Are In The Room
From the US state markets to the EU, hemp is coming into its own, even though almost everyone also refers to it as CBD (cannabidiol).
In the United States, things are even more murky because of a lack of federal reform and the individual rules and regs of existing state markets. To an extent, the market is being “federalized” on the testing front (see ISO for example) and GMP (at the federal pharmaceutical level), producers are beginning to be able to get certified on a global scale. However, the vast majority of the U.S. market is not anywhere close to the regulatory muster now required of even the most-humble commercial hemp farmer anywhere in the EU.
In Europe, the entire cannabis discussion is already far more defined, and as a result, very much likely to set the rulebook globally, especially as so many people want to import here. And this is going to be a bugbear for the next two years. The rules on EU Bio for starters, are still in flux. And where this ties into GMP downstream, those who brave such waters are in for choppy seas for the time being.
Tie this into Novel Food, and this is an area right now that should only be charted by the most experienced navigators, and not just using the stars.
The Battle Is On – Both On The High Seas And The High Streets
For all the desire to bring “whole plant” into the room, (in other words recreational cannabis and medical cannabis with the THC still attached), CBD fever at least has spread in Europe faster than any pending flu epidemic from China.
There are positives and negatives that come with this discussion. Namely, the ever pounding need to commercialize the legal industry and remove all Drug War stigma and barriers from the discussion.
CBD-only legalization is also a powerful answer to those who claim that if CBD is legit, then the police will not chance busting people, no matter how much THC is or is not in the offending substance in question.
These are also the same people frequently who also have a stake in some level of the industry as it legalizes. And this is also where some of the fiercest battles for regulatory control and definition have also begun to happen.
Where they have come to a head (see Italy), it appears that governments are indeed reconsidering the whole “insurance” if not “home grow” discussion. Not to mention, as a result, recreational after that. The conversation in Italy, of all places, right now, is a good indication of this trend. It is a conservative country in every way, yet it is the first to not only cancel a government controlled monopoly license, but also the largest country in Europe to again tinker with limited home grow of cannabis plants.
Ironically this is also the place where the most dedicated “CBD revolutionaries” have also hit. In places like the UK right now, the lack of appetite for EU regulatory control generally (see Brexit) has resonated, particularly with a pro cannabis crowd sick and tired of more delay on a topic whose day in the sun has finally come. If not more government wobbles on discussion on the medical side (see the recent NHS decision to ignore cannabinoids and chronic pain).
In other places like Europe however, and this certainly showed up at Davos, CBD is a hardy foot soldier if not cannaguerilla from the hills that is beginning to chalk up discussions if not yet wide-ranging sovereign victories.
This is absolutely clear to see in places like the African market (and Lesotho is about to become a hot ticket globally if not within the African continent). Indeed, the first seeds were sown several years ago).
Yes, it is ridiculous that CBD is being banned. And it is also obvious that governments are unwilling to be bankrupted over medical cannabis of any kind or THC concentration, and know they must also seek other ways to deal with the issue.
CBD, in other words, is a kind of Che Guevara that is going to take down a few of the established orders in this revolution that is now global. And for that very reason, taking on a character if not place at the table all of its own.
Cannabis businesses have a lot to look forward to in 2020. After a bipartisan push through the House, the Safe Banking Act currently awaits passage in the Senate and then the president’s signature. If all goes well, the bill will allow the financial sector to finally service cannabis businesses – from banking to investments and insurance.
What else can cannabis business look forward to this year? Check out HUB’s Top 5 cannabis industry predictions for 2020.
Hemp/CBD products go to market in droves. The passage of the Farm Bill and the ease of shipping hemp across state lines has led to a production boom for the crop. With little federal regulation around manufacturing and distribution, hemp/CBD products from edible oils to clothing and anti-inflammatory lotions are extremely profitable. Expect final federal Domestic Hemp Production Program rules on acceptable levels of THC in hemp/CBD products to be published sometime in 2020. These will be based on the current rule draft. There’s a strong push to move industrial hemp into the federal crop insurance program, which is also likely to happen in 2020.
Product liability insurance is no longer a luxury. Thanks to significant vaporizer, battery and contamination claims currently in the courts, cannabis business can expect higher product liability premium rates in 2020. Expect rates to jump as much as 30 to 40%, depending on the resolution of these cases. For this reason, carriers will be more diligent about underwriting and may even ask for certification of insurance from vendors, and additional insureds on third-party policies. Exercising more caution and oversight when selecting vendors is a must for cannabis businesses operating in 2020 under this premise. It’s critical for all organizations to take a hard look at business practices before entering partnerships moving forward.
Phase II industry growing pains surface. Now that the cannabis gold rush is dying down, businesses are poised to enter Phase II of their growth.Those who failed to institute proper hiring processes, including background checks, as well as protocols to promote security and prevent theft are currently facing challenges. Significant industry consolidation is making way for cannabis conglomerates to become multi-state operators. Directors and officers that made poor investments or acquisitions are facing scrutiny at the hands of the SEC or business investors. Without D&O insurance, or adequate limits, directors and officers could find their personal finances drained. Insisting on adequate D&O protection going forward is a best practice for cannabis executives.
Product and state regulatory testing expands. High-profile manufacturers and distributors of cannabis are standardizing their cannabis, hemp and CBD ingredient labeling. However, many others are taking advantage of the lack of rules currently surrounding cannabis production by falsifying labels and misrepresenting THC content in products. This has led to recent lawsuits and claims. As a result, states will begin to administer product testing and license regulations and enforce carrying time limits, track and trace and bag and tag rules. Get ready for fines, penalties and increased non-compliance liabilities in 2020.
Increased availability of policies and limits. Both the cannabis industry and the number of insurance carriers entering the market continue to grow steadily. Businesses are enjoying higher liability limits as a result – to the tune of $15M on product liability and $60M on property. Coverage for outdoor cannabis crop is now a possibility, and workers’ compensation coverage can function as a blanket policy for businesses across state lines as well. Should the Safe Banking Act pass soon, stay tuned for additional insurance opportunities as well.
2020 Growth and Beyond
The 2020 presidential election will bring the federal legalization of cannabis to the forefront of public discourse. While the law may not change yet, passage of the Safe Banking Act and increased regulatory action at the state level will highlight the successes and failures of the 33 states and the District of Columbia that have legalized cannabis in some capacity. These will serve as a guiding light for federal legalization down the road.
You have read the press releases. You may have heard about such ideas at a recent cannabis conference in and around the EU of late. Or you may have encountered new distributors coming into the game with a German presence and a decidedly interesting ex-im plan that sounds a bit, well, off the map.
No matter how geographically creative some of these plans are, the problem is that many of these ideas literally do not make economic sense. Either for the companies themselves (if not their investors), and certainly not for patients. Not to mention, truth be told, the looming price sensitivity issues in the European market that North Americans, for starters, seem to still just be waking up to.
Some Recent Examples….
Yes, exports from Denmark have been much in the news lately (including into both Germany and Poland). Truth be told, however, this makes about as much sense, economically, as importing ice to eskimos. Why? Denmark, for all its looser regulations and less-uptight approach to the cannabis discussion generally, is one of the most expensive labour markets in Europe. Fully automated production plants are one thing, but you can build those in other places too. Especially warmer climates, with lots of sunshine. German production, as it comes online, will also make this idea increasingly ludicrous.
Who on earth got on this bandwagon? It seems that the enthusiasm in the room began when Denmark began to import to Germany (where the disparities in wages in production are not so noticeable). However, lately, several Canadian companies with a Danish footprint have been eying Poland of late.
And on that particular topic – there are many who are doing the math and trying to figure out, as the alternatives get going, if even Canada makes much sense, or will in a few years.
Low Wage Markets With Sunshine Are Hotspots For European Cannabis Production
Like it or not, the European market is extraordinarily price sensitive – namely because it is not “just” consumers called patients picking up the tab but health insurance companies demanding proof of medical efficacy.
That starts, a bit unfortunately, with understanding wage economics across Europe. The warmer the climate, in other words and the further east on the map, wages drop precipitously. That is “good” for an industry looking to produce ever cheaper (but more compliant) product.
It is also good, at least politically, for countries whose elected leaders are being forced to admit that cannabis works, but are less than copacetic about encouraging local production. See Germany for starters, but places like Austria, Poland and most recently France (which has just embarked on a first of its kind medical cannabis trial).
Here, no matter the temporary buzz about Denmark, are the places that cannabis production makes sense:
Portugal: The country is a newcomer in the cannabis discussion this fall, although in truth, the seeds of this reality were sown several seasons ago when Tilray began to build its production plant in the country in 2017. They are far from the only company who has seen the light, and these days, farmers are getting hip to the possibilities. Especially if they are already exporting crops throughout Europe.
Spain: The industry that can afford GMP certification is getting going, but everyone else is stuck in a limbo between pharmaceutical producers and the strange gray market (see the patient clubs in Barcelona). That said, political groups are beginning to discuss cultivation as an economic development tool, if not sustainable food and medication strategies.
Greece: The weather is warm, and the investment climate welcoming. Of all the countries in the EU, Greece has embraced the economic possibilities that cannabis could bring. How that will play out in the next years to come is an intriguing story.
Italy: The southern part of the country in particular is ripe for cannabis investment and it’s full of sunshine. However, as many have noted, organized crime in this part of the world is a bit fierce and starts with the letter M.
Malta: The island is a comer, but does importing cannabis from here really make economic sense? There are trade routes and economic treaties tying the island both to the apparently Brexiting British and Europe. Why not, right? Just remember that along with labour, transportation costs are in the room here too.
And Just Outside The EU…
The country now (sort of) known as North Macedonia and struggling to get into the EU if France would just get out of the way is also going to be a heavyweight in this discussion for years to come. Wages, of course, will increase as part of EU membership, but in general, this country just north of Greece is going to play a highly strategic role in exports throughout Europe.
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