Increasing cannabis use across the US has come with increased scrutiny of its health effects. Regulators and healthcare providers are not just concerned about the direct effects of inhaling or consuming cannabinoids, however, but also about another health risk: microbial contamination in cannabis products. Like any other crop, cannabis is susceptible to contamination by harmful pathogens at several points throughout the supply chain, from cultivation and harvesting to distribution. Many state regulators have set limits for microbial populations in cannabis products. Consequently, testing labs must adopt efficient screening protocols to help companies remain compliant and keep their customers safe.
Some of the pathogens common to cannabis flower include Aspergillus fungus species such as A. flavus, A. fumigatus, A. niger and A. terreus. Cannabis might also harbor harmful E. coli and Salmonella species, including Shiga toxin-producing E. coli (STEC). Regulations vary by state, but most have set specific thresholds for how many colony forming units (CFUs) of particular species can be present in a sellable product.
The gold standard method for detecting microbes is running cultures.
Growers and testing labs need to develop a streamlined approach to remain viable. Current methods, including running cultures on every sample, can be expensive and time-consuming, but by introducing a PCR-based screening step first, which identifies the presence of microbial DNA – and therefore the potential for contamination – laboratories can reduce the number of cultures they need to run, saving money and time.
The Risk of Aspergillus Contamination
Contamination from Aspergillus species can bring harm to cannabis growers and their customers. The state of Michigan is currently undergoing the largest cannabis recall in its history from Aspergillus contamination.
If contamination grows out of control, the pathogen can damage the cannabis plant itself and lead to financial losses. Aspergillus can also cause serious illness in consumers, especially those that are immunocompromised. If an immunocompromised person inhales Aspergillus, they can develop aspergillosis, a lung condition with a poor prognosis.
A Two-Step Screening Process
The gold standard method for detecting microbes is running cultures. This technique takes weeks to deliver results and can yield inaccurate CFU counts, making it difficult for growers to satisfy regulators and create a safe product in a timely manner. The use of polymerase chain reaction (PCR) can greatly shorten the time to results and increase sensitivity by determining whether the sample has target DNA.
Using PCR can be expensive, particularly to screen for multiple species at the same time, but a qPCR-based Aspergillus detection assay could lead to significant cost savings. Since the average presumptive positive rate for Aspergillus contamination is low (between 5-10%), this assay can be used to negatively screen large volumes of cannabis samples. It serves as an optional tool to further speciate only those samples that screened positive to comply with state regulations.
Conclusion
Overall, screening protocols have become a necessary part of cannabis production, and to reduce costs, testing labs must optimize methods to become as efficient as possible. With tools such as PCR technology and a method that allows for initial mass screening followed by speciation only when necessary, laboratories can release more samples faster with fewer unnecessary analyses and more success for cannabis producers in the marketplace.
Social consumption lounges are becoming increasingly popular in legal cannabis markets. Just what are social consumption lounges? They’re a safe, enclosed space where cannabis consumers of legal age can come together and enjoy cannabis products, much like a bar environment for consuming alcoholic beverages.
Social consumption lounges are particularly attractive for their potential to bring in cannabis tourists. Although adult use cannabis can help promote tourism, tourists typically can’t smoke in most places indoors (including their hotel accommodations) nor consume on the street or in public, due to strict public consumption rules set by state regulations. This leaves the perfect set-up for consumption lounges, which provide the appropriate and legal environment for tourists to consume cannabis.
What do social consumption lounges look like in practice? What are the rules and regulations that social consumption lounges must adhere to? How and where are social consumption lounges currently legal in the United States? Here’s what you need to know.
What are social consumption lounges?
Social consumption lounges—also known as consumption lounges, cannabis lounges, cannabis consumption area and cannabis consumption lounges—are retail lounges that permit on-site cannabis consumption, such as smoking and vaping cannabis flower as well as ingesting cannabis infused products like edibles and tinctures. Similar to a bar that serves alcoholic beverages, all consumers in a cannabis lounge must be at least 21 years of age. While smoking typically isn’t permitted in retail businesses, smoking is permitted in lounges.
Mellow Yellow in Amsterdam
While state-specific regulatory bodies are responsible for developing, implementing and enforcing the rules surrounding U.S. social consumption lounges, Dutch “coffee shops” may have served as the inspiration and model for U.S. industry. Contrary to the name “coffee shops”, patrons don’t go to Dutch coffee shops for coffee. Rather, they go because the sale and consumption (including smoking) of cannabis is permitted and socially accepted. According to travel resource Amsterdam.info, Dutch coffee shop culture emerged in the 1970s when the federal government made a clear legal distinction between “hard” and “soft” drugs. Soon after in 1972, the first coffee shop named Mellow Yellow opened. Although cannabis wasn’t clearly legal or illegal, Dutch law enforcement tolerated the growing number of cannabis coffee shops, focusing instead on prosecuting heroin and lethal illicit substances. Today, the Amsterdam City Council permits coffee shops to operate after they obtain a non-transferable license, which must be displayed in shop windows, thanks to an agreement with the coffee shop union Bond van Cannabis Detaillisten (BCD).
Unlike Dutch coffee shops, U.S. social consumption lounges must adhere to numerous rules and regulations specific to their state and municipality. One major difference is who is permitted to own and operate a lounge. In some U.S. states, consumption lounges are operated by existing cannabis businesses, such as adult use and medical dispensaries. In these cases, the lounge may be required to be on the cannabis business’s existing premises. In New Jersey, this must be an “indoor structurally enclosed area of the cannabis retailer or medical cannabis dispensary that is separate from the retail sales or medical dispensary area” or “an exterior structure on the same premises as the cannabis retailer or medical dispensary, either separate from or connected to the cannabis retailer or medical dispensary,” according to the National Law Review. In many places within the U.S., “stand alone” lounges that aren’t attached to an existing cannabis business aren’t permitted.
In the Netherlands, coffee shops operate in a legal grey area with their products being supplied by an entirely underground cultivation market. Cannabis being consumed in coffee shops isn’t regulated or checked. Per regulations in the U.S. states that allow them, however, only legal cannabis may be consumed in these lounges. While consumers might be able to bring their own cannabis or cannabis products, consuming any cannabis or cannabis products obtained through the underground market is strictly prohibited.
Where are social consumption lounges legal?
The Barbary Coast lounge in San Francisco
Not all U.S. states with legal recreational, adult-, or personal-use cannabis programs permit social consumption lounges. Although it’s been a decade since Colorado and Washington voted in favor of legalization, consumption lounges are a fairly recent trend, likely because states without legal consumption spaces found out the hard way that they couldn’t accommodate tourists or anyone who wished to consume cannabis outside of their home. Here’s where social consumption lounges are legal in the U.S.:
Nevada: After the Governor signed a bill in June 2021, a new cannabis law permitting social consumption lounges went into effect in October 2021 and lounges are anticipated to open in early 2022, according to Nevada public radio station KNPR. Additionally, efforts are being made to prioritize minority-owned business owners of consumption lounges, reports local news station Fox5 KVVU-TV.
New Jersey: Although consumption lounges weren’t initially permitted in the recent regulatory framework, individual municipalities now decide whether or not to permit lounges within their communities. Atlantic City and Jersey City have approved social consumption lounges, reports Hudson County View.
New York: The state’s recently passed adult use cannabis law allows social consumption lounges, but the recreational market isn’t expected to take off until mid-2023, according to Business Insider. Lawmakers still need to adopt a regulatory framework to how lounges (along with other cannabis businesses) will operate.
Illinois: Currently, two social consumption lounges have opened, and two others are planned to open across the state,” says the Chicago Tribune.
Colorado: Similar to New Jersey, individual municipalities decide whether to permit lounges in their communities. Denver and Aurora have approved consumption lounges.
California: Given the state’s rich history of an underground market, informal social consumption lounges aren’t particularly new. However, a recently approved law officially allows social consumption lounges, reports Marijuana Moment.
The number of states considering and/or permitting social consumption lounges is growing. Which states will likely legalize them next? As noted below, it looks like Michigan, Massachusetts and Maine will be next.
Michigan: The state doesn’t allow for them now, but they could come in the future, reports WZZM13.
Massachusetts: The state is considering them, reports Boston.com.
Maine: The state delayed them until 2023, according to MJ Biz Daily.
Why are social consumption lounges becoming increasingly popular?
Consumption lounges are becoming increasingly popular for many reasons. First and foremost, they’re a win for the cannabis industry because they provide consumers with a physical place to consume safely and legally.
The Original Cannabis Cafe by Lowell Farms in West Hollywood
Second, the tourism sector benefits from social consumption lounges. “The problem is people can buy marijuana products in states that have legalized adult-use cannabis, but they have limited options when they want to consume the cannabis that they purchase legally,” explains Cannabiz Media. For instance, Las Vegas has promoted itself as a cannabis travel destination since 2017, despite lack of adequate space for visitors to consume. Meanwhile, those who don’t consume cannabis have criticized the city for its growing public consumption, complaining especially about the odor of smoked cannabis. Social consumption lounges can potentially help fix these growing pains in the state’s cannabis market.
Additionally, lounges are a win for harm reduction. Lounges provide beginner cannabis consumers the opportunity to consume alongside experts, to be shown the ropes with professionals present. Being in a community with experienced consumers provides opportunities for novices to understand how to smoke, dose and overall consume properly and safely.
Lastly, MG Magazine emphasizes other benefits including de-stigmatization, social connection, industry partnerships and product innovation.
Regulation and compliance differences between states
Without federal cannabis legalization, states are tasked with regulating their own cannabis markets. Likewise, state regulatory agencies are responsible for drafting regulations for social consumption lounges.
California and Colorado have fewer limitations, likely because both states have more experience and overall comfort with the plant. In states with more lenient regulations, 420-friendly cafes, hotels, bus tours, paint nights and other businesses are tolerated.
New Jersey has notably strict regulations for social consumption lounges. For example, the current state law doesn’t permit any stand-alone consumption spaces independent of existing permitted cannabis businesses. Therefore, a cannabis cafe or bud and breakfast isn’t permitted.
There is, however, one legal loophole in New Jersey for stand-alone consumption space. The microbusiness license model allows for temporary licenses, permitting a temporary social consumption lounge, such as for an event at a private venue. New Jersey permits them in Newark, Hoboken, Highland Park, Jersey City,Elizabeth, Long Branch Atlantic City and Trenton.
In closing, it is likely that social consumption lounges will become increasingly common especially in major U.S. cities with legal adult-use cannabis programs. While Dutch coffee shops may have inspired the emerging U.S. social consumption lounge model, their U.S. counterparts must comply with much stricter rules and regulations. Since regulations vary from state to state, it’s important to be on top of your state’s policies in order to stay compliant.
In the cannabis industry, it’s vital for your brand to stand out and engage your target customer at every touchpoint. When it comes to your visual identity, choosing the right design style is more than just what looks good to you. It comes down to creating a brand ethos, understanding your customer, defining a brand personality, assessing your budget and time and choosing a designer. In order to harness the power of illustration to take your cannabis brand’s visual identity to new heights, you must consider all of these factors when crafting your strategy.
Creating a Brand Ethos When you begin to build out your cannabis brand, developing your brand ethos is the perfect place to start. There are many factors to consider. First, remember to be true to who you are because people will see right through you if you try to be something you aren’t. Then, spend the time to write down what you’re passionate about and make sure all areas of your business and brand align with those values.
Next, understand what you do better than anyone else and scream it from the rooftops. That is your differentiator. That is what your customers will come to know you for. After defining what you do best, build up a reputation around it and continue to grow in a positive direction.
Lastly, make sure your design, packaging and messaging are all consistent and work together in a cohesive way. I’ve found that consistency is key in everything from the product quality and your look to your communications and interactions with customers.
Understanding Your Customer
Illustration work Nate did for happie infused beverages
Remember, you can’t be everything to everyone. So many people are under the impression that everyone is going to want their product, but that couldn’t be further from the truth. With the cannabis industry evolving at lightning speed, there are more consumption options than ever before. You still have those true to smoking leaf; others are looking for concentrates, while some want the smoke/smell free route of edibles and beverages. Each of these cannabis products are going to target a different audience and demographics, and all of that needs to be taken into consideration when building your brand.
For instance, edibles are an easy way for someone to first try cannabis. By taking a more educational approach to the packaging, brands can help those customers feel more comfortable with their first cannabis purchase. At the end of the day, people want to know what they are getting into and how it is going to affect them. This should always be taken into consideration when deciding on the design style for these products.
Defining A Brand Personality
I always like to reference the craft beer world when talking about cannabis these days. As craft breweries popped up, the successful ones always had two things: a great product and a great personality that connected with their community. The same should be said for cannabis.
Start with a great product and build a community that appreciates your character and wants you to stay true to it. Are you punk? Are you a stoner brand? Are you taking more of a scientific approach? Whatever speaks loudest to YOU, make sure that approach is carried through to your customer. You will earn their trust and they will appreciate that you stay true and genuine to who you are.
A mural the author created for the Milwaukee Bucks
Once you identify what your brand personality is, then you can start to make decisions on your logo, packaging and verbal communication. Get with your trusted designer and/or illustrator (more on that below), and start to make decisions about what style fits your brand best. Will your look be clever, vibrant or all-natural? Will it be illustrative or photo-forward? There isn’t a one size fits all solution.
Remember to not slack on having your communication match the look, feel and personality of your brand. With a cohesive visual and verbal identity, you’ll be able to create magical moments where the consumer feels like they are uncovering something special when they make a genuine connection with your cannabis brand.
Assessing Your Budget & Time
Budget and time are two HUGE components of deciding what visual direction to take. This is where you’ll really start making decisions about whether you should go with an illustrative design style. While illustration can take your cannabis brand’s visual identity to the next level, there are pros and cons to going that route.
Overall, illustration can be time-intensive and expensive depending on the illustrator and complexity of the work. If you want to have a different illustration for every strain you cultivate it can get pricey, but it may also set you apart from the competition. You have to weigh if the upfront cost of having something created will help differentiate your brand long-term. It is a much easier decision when you only have a couple of SKUs to start with or you choose a simpler illustration style, as these have less potential to initially set you back.
Pros:
Most importantly, you get to work with people who are as passionate about their craft as you are in yours. Find an illustrator with a style that you like that fits your brand. I find it harder to find an illustrator and ask them to conform their approach to fit your look. It can be done as there is a lot of talent out there, but if you find someone that is already creating what you like, it will be much easier to get what you’re looking for.
You’ll be able to develop a look and feel that sets you apart from the rest of the crowd. Illustration evokes emotions and tells a story, which can be quickly identified by a potential customer.
Cons:
Timing is huge. Make sure you find an illustrator you trust that can turn things around when you need it. Give the illustrator plenty of time to execute your vision as well.
Budget comes into play as now you need to hire a designer and an illustrator. There are some designers that illustrate as well, but these are diamonds in the rough.
If you need a new illustration for every product, that will cost more than simply updating a name and colors in a design system.
As many cannabis products are small format, it can be tough to truly highlight the detail in a great illustration.
Choosing A Designer
Grass Fed Studio shirt designed by the author
Finding a designer that focuses on illustration and whose style reflects your brand’s look and feel is important because it’s critical to be on the same page. Sometimes finding a designer AND an illustrator is the way to go. Even if you love the designer’s work, if it doesn’t fit with your brand’s look/feel, you won’t be happy with the end result. A good designer will be able to work with a good illustrator and vice versa.
Questions to ask potential designers include:
Are they taking new clients?
What do turnaround times look like?
How much is the project going to cost?
Do you own the artwork when they are done?
It’s incredibly important that you get along with the designer and/or illustrator you choose to work with. There are a lot of choices and it always helps to work with people that share the same values that you do. To open up your options, you can choose illustrators that are at different levels in their careers. A college student may be less expensive, but not have the professional and business experience you need, while a seasoned illustrator has more expertise to bring to the table, but may be more expensive.
The goal is for the designer and/or illustrator you choose to successfully create a visual identity to capture your cannabis brand’s essence and character.
The bottom line is that your visual identity is a critical component of your brand. Make sure you build it in the right way, so you can attract customers who align with and appreciate your cannabis brand identity’s look and feel. Cheers!
Tracy Szerszen, President & Operations Manager, PJLA
Mohan Sabaratnam, Vice President, IAS
Kathy Nucifora, COO, COLA
Chris Gunning, General Manager for Accreditation Services, A2LA
Aaron Biros, Editor, CannabisIndustryJournal.com
In this session, the panel answers attendee questions related to ISO 17025:2017 accreditation for cannabis testing labs. Learn some of the common challenges labs face when seeking accreditation and learn about sampling protocols, security issues, statements of conformance, calibration and much more.
TechTalk: ANAB
Melanie Ross, Technical Products Developer, ANSI National Accreditation Board
R & D Lab Testing: Ensuring Success with Results
Mark Carter, president of MC Squared Enterprises
Learn how R&D lab testing can help you, prepare for compliance batches, successfully launch new products and amp up your quality control.
TechTalk: MilliporeSigma
USDA’s Hemp Testing Rules Have Changed: Accelerate Your Lab’s Preparedness
Arun Apte, CEO, CloudLIMS
This presentation takes a deep dive into understanding the requirements for USDA hemp testing, the operational changes hemp testing laboratories need to make to comply with the new hemp testing rules and the regulatory compliance framework and quality standards the testing labs need to meet.
Without clear direction from the FDA, states are filling the void by developing their own quality standards and testing requirements for hemp derived CBD products. Unlike their THC based counterparts, hemp derived CBD products are being sold across state lines raising the demand for a single testing panel that will be compliant in every state. Attendees will learn:
The current state of regulations nationally
The issues that hemp product manufacturers need to be educated on to ensure compliance,
The challenges labs face in offering customers a truly comprehensive panel.
On December 2, ASTM International, released a whitepaper called “Delta-8-Tetrahydrocannabinol and the Need to Develop Standards to Protect Safety of Consumers.” On the same day, the U.S. Pharmacopeia (USP) launched an expert panel, drafting commentary and providing recommendations to protect public health. The two organizations are working in tandem to better educate the public as well as regulators on the science behind the risks that delta-8-THC products pose to the public.
The chemical structure of Delta 8 THC.
ASTM has been working in the cannabis industry through their D37 committee since March of 2017. Soon after the D37 committee launched, they began crafting cannabis standards and have grown their membership and subcommittees considerably over the past few years. USP has also been involved in the cannabis space for quite some time, developing reference standards and offering guidance for the cannabis testing market.
The ASTM whitepaper details the current landscape for hemp-based products that contain delta-8-thc derived from CBD. It includes information on what the cannabinoid is, how it’s produced, the emergence of delta-8-thc in hemp markets and the need for better safety and performance standards.
David Vaillencourt, frequent CIJ contributor and ASTM International member, says they want to identify how we can maintain public safety when it comes to delta-8-THC. “Products containing delta-8-THC are widely available to consumers despite the known and unknown risks to consumer health and safety,” says Vaillencourt. “The topic is much deeper than simply the presence of delta-8-THC. Rather it is about defining how to label products containing potentially intoxicating cannabinoids and identifying what safeguards need to be in place to minimize the risk of impurities that can further impact consumer health.”
In addition to the technical information provided, ASTM’s whitepaper also discusses the risks of synthetic cannabinoids to public health and the regulatory landscape surrounding delta-8-THC. USP’s whitepaper discusses the chemical process that creates delta-8-THC, the unregulated market and offers guidance on how to regulate the cannabinoid with labeling and testing rules.
Dr. Ikhlas Khan, chairman of USP’s expert panel on cannabis, says we need a lot more research. “The fact of the matter is that little is known about the products labeled as containing delta-8, so much so that the FDA and CDC have both released advisories about the products,” says Khan. “Depending on how the products are produced, unknown impurities may be introduced, including minor and synthetic cannabinoid compounds that are not naturally occurring in cannabis.”
Delta-8-THC is not inherently unsafe, says Dr. Nandakumara Sarma, Director of Dietary Supplements and Herbal Medicines for USP. But as we’ve covered this before, the methods that manufacturers use to produce delta-8-THC could have harmful byproducts present in final products. “Synthetically derived cannabinoids are not necessarily inherently unsafe if they are quality controlled and shown to be safe,” says Dr. Sarma. “By using public quality standards, we can help in controlling the quality of the products and set appropriate limits for impurities.”
The folks at USP and ASTM will host a presentation on the two papers during ASTM’s 2nd Global Workshop on Advancing the Field of Cannabis through Standardization, to be held virtually Dec. 14, 2021.Click here to register.
Flower continues to be the dominant product category in US cannabis sales. In this “Flower-Side Chats” series of articles, Aaron Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.
TILT Holdings (NEO: TILT) is a publicly traded cannabis company with business divisions including Jupiter Research, distributor of CCELL in the US, as well as cannabis operations Commonwealth Alternative Care in Massachusetts and Standard Farms in Pennsylvania and Ohio. Unlike many publicly traded companies, TILT has focused their business on B2B sales staying away from retail operations. TILT recently announced a partnership for vertical cannabis operations with the Shinnecock Nation on Long Island, New York called Little Beach Harvest.
We interviewed Gary Santo, CEO of TILT Holdings. Prior to joining TILT, Gary worked at Columbia Care where he was the vice president of investor relations. Gary has a background in finance with several startup companies.
Aaron Green: How did you get involved in the cannabis industry?
Gary Santo: My career started about 26 years ago in finance at a startup. It was a financial services intermediary startup company where we did a lot of B2B work. From there, I branched out and continued to work with what I consider to be startup companies and companies going through a massive transformation. What’s been interesting is no matter whether that industry is finance, or whether it was gaming and leisure – where I was doing casino equipment – or whether it was life sciences, there were all so many common threads to how those businesses work. They were all complex and all had stories that needed to be told.
Gary Santo, CEO of TILT Holdings
I looked at cannabis around 2017 or 2018. A friend of mine said, “you should really look at this space, because this could be a great way to cap off your career. It’s an emerging space. It’s a story space. It’s a space that’s just looking for some level of normal operational competency.” So, I was lucky enough to find Columbia Care. I joined them back in 2019 and helped take them public. They were the first cannabis company I had seen that was focused on being pragmatic and operational, not flashy, like so many of the companies that went public. They showed me that there is a way and a path in cannabis, that can be pragmatic, that can be operational, and where certain business rules do in fact, apply.
In July of last year, in the middle of COVID, I joined TILT, because I saw an opportunity to have that rebirth story, that complete turnaround story. It’s a B2B story that fits almost every part of my career up to this point.
Green: You have business units within TILT that span a diverse array from cultivation to manufacturing and technology. How do you see the business units of TILT working together in synergy?
Santo: That was the first question that was posed when I joined. We had three divisions at the time. We had our technology and accessories division with Jupiter that focused on inhalation. This includes the power packs, the cartridges, all the packaging that goes into that and also packaging for cannabis in general, not just for vapes. We had the software and services division in Blackbird which also does a bit of distribution in California and Nevada. Then we had our plant-touching side with vertical operations on the East Coast.
We quickly figured out that the software and services were not a place where we had good line of sight. That market is very competitive and irrationally priced. So, we leaned into the other two parts of the business which were profitable. TILT went through a rebirth when it went public with the same kind of wide mandate in 2018 that a lot of companies had back then. They had acquired some interesting assets. Jupiter has been profitable since day one. On the plant-touching side, we have assets in Massachusetts and Pennsylvania, that are in underserved, limited-license and supply-constrained markets, and those were profitable as well.
The way they work together is if you think about Jupiter’s business model, they are a distributor of the CCELL vaping technology. It’s a ceramics-centered cart. They were instrumental. The founder of Jupiter, who’s the chair of our board, Mark Scatterday, really helped the Chinese factory, Smoore, who owns CCELL and the patents on CCELL, to develop that technology from their use in the tobacco space, which is where it had been for quite some time, and bring it into the cannabis space.
Jupiter has always had a forefront position as a distributor. We have our own R&D shop, but the way we sell there is B2B. We will sell vape cartridges and power packs either as stock items with Jupiter and CCELL logos or on a customized basis. If there’s a bespoke mouthpiece or something we can take one of our existing designs, white label it and put different badging or color combinations.
The CCELL business grew to over 700 customers, including MSOs, LPs, brands, and in about 36 different states and in 15 countries. As we looked at how best to lean into our plant-touching assets coming into 2021, the question was, could you replicate that where you own more of the supply chain? The issue with being a distributor is if you don’t own enough of the supply chains, the margins aren’t quite as eye-popping as they are in the plant-touching side. So, we’ve built a robust wholesale business, selling into about 90% of the retail stores in Pennsylvania from our manufacturing and distribution facility, and selling into about 50 or 60% of the retail stores in Massachusetts from our operations. We thought that created a strong window for us to do the same exact thing: offer up our facilities to create product whether it be on a bespoke basis with one of our brands, or a white-label basis, or straight-up contract manufacturing. We then leverage that distribution network, and that’s where the pieces all started to fit together.
We started this year with probably about 15-20% of our revenue was coming from people who were customers of both plant-touching and non-plant-touching businesses. We’re up to over 30% now and really, we just started leaning into the strategy in the start of 2021.
Green: In Q2 TILT showed continued growth in revenues and EBITDA with the Q3 report recently released. Where are you seeing growth in revenues right now? What’s got you excited?
Santo: With Jupiter, it’s been great to watch the vape industry come back. I think you could not have thrown much more at the vaping industry than what was thrown out there in late 2019, with the vape crisis rolling right into a respiratory pandemic. I think what we saw there was consumer demand remains strong. For every percentage point vaping was down, smokable flower is up. So, inhalation is clearly the absorption method of choice.
Obviously, the utility and the convenience of the vape was less important to people working from home. You can now smoke a pre-roll, whereas you’d never do that in your office setting. You might go outside and take a quick draw on a vape and then go back to work. That’s one of the reasons we saw a little bit of choppiness in 2020. We started to see that that business come back towards the end of the year with a lot more consistent ordering, and this year, it’s gone into full throttle. All-in-ones – the disposables – have returned to ordering so that means more power packs and more cartridges. It’s been a pleasant return to normalcy.
Now, I think Jupiter has been outpacing the broader vaping market in terms of year-over-year growth. That’s exciting granted the margin profile is certainly not as eye-popping as the plant-touching businesses. With Jupiter, we’re talking mid 20%’s on gross margin and low-to-mid teens on EBITDA.
Plant-touching aspects are where we’re super excited. These are facilities that a little over a year ago, prior management was thinking of selling off mostly because they thought there was tremendous value there. And it made sense. When I joined the firm, one of my first jobs was to look at a strategic view of the entire company and break down each of the business units. It became very clear that Massachusetts, Pennsylvania, and recently Ohio, we’re going to be the significant growth engines for us, but not necessarily in retail.
A lot of the MSOs go and play in several stores and focus on sales per square foot. We are leveraging that B2B wholesale strategy. That’s exciting to us and the approach that we’re taking. It’s not about selling bulk flower. It’s not about selling just our own brands. It’s about really partnering with brands that are going to be coming from West to East. Whether it’s California, Washington State, or Colorado, brands that have managed to stake out a claim in the most hyper-competitive spaces in a race to the bottom market in terms of pricing, have held their price point and held their ground. We think they play exceptionally well here on the East Coast where we’re just getting started. The East coast is nowhere near the depth of market that you see over in California.
What we offer, what makes it exciting, is that we’re not trying to buy those brands. We think brands are where this industry is going. But we don’t know which brands are going to win any more than anyone else does. We know it’s expensive to own a brand and it’s hard to keep a brand fresh. So, we’re doing partnerships and those partnerships are literally on a SKU-by-SKU basis. In some cases, it’s a straight licensing deal, and in other cases, we share the gross profit. Brands come in, like Old Pal, for example, and we’re able to educate them on how different it is to sell their ready-to-roll pack in Massachusetts compared to what they do in California from the packaging to the formulation, and what can be on the labels, all those kinds of things. It’s been eye-opening.
The feedback has been better than I would have ever expected. I knew we would land a few brands. I wouldn’t have thought we would have already signed four brands on something we just announced strategically in January. We had MJ BizCon, where we were getting hit up all over the place with additional brands. I think between that, and then the work we’re doing in New York State, it shows that we’re differentiated and how we’re approaching this market. We’re in this to last, not to just squeeze every last basis point and ride the wave into the shore. We want to still be out here playing in the ocean in any market, whether it be this market, the legalized market, or whatever the market throws at us.
Green: When you are partnering with brands, what does that look like?
Santo: It depends on the jurisdiction. In Pennsylvania, you can’t really do pre-rolls there. You can’t sell the ready-to-roll pack that comes with a lighter. I can sell the pouch with flower, but I can’t sell you rolling papers. I can’t sell you a lighter because you might “figure out how to put that all together and smoke a joint.”
Part of the issue is being able to marry what makes that brand, “the brand?” And how do we keep that brand fidelity when we know we have certain restrictions, whether it’s medical-only market in Pennsylvania, or THC levels in Ohio. That’s where we spend time working with the brands, helping to develop which SKUs they want to see hit the market first. Everybody says they want to be a number one brand in every market and it’s not realistic. You might carve out a niche if you want to be number one in a certain type of product. We work with brands to figure out where their niche is going to be.
Green: You recently announced a partnership with the Shinnecock Nation. How did you decide on a partnership with them? Why does it make sense? And can you talk to kind of the tribal aspect of it and how that differentiates you in the New York market?
Santo: We had been looking across the Northeast and want to build sort of some type of Northeast corridor for brands to come East because we think having that tri-state region right would be distribution most of these brands would love to have. We had been looking for ways to get into New York. It is incredibly expensive and incredibly difficult. We saw deals earlier this year. One was $75 million for the old MedMen assets and money has to be invested into building out the growth facility further.
My former shop, Columbia Care, spent about $45 million purchasing a bunch of greenhouse space on eastern Long Island. We thought the return on that kind of expense was just not there.
So, looking at how we look at brands and how we look at the market in general, we love partnerships where both sides are incentivized. An investor introduced us to Conor Green. They are a shop out of Chicago, and they had been advising a lot of different Native American tribes, including Shinnecock, on how to enter the cannabis space. We were very impressed when we met with the Shinnecock on how they were viewing cannabis. A lot of people want to just get in and ride that green wave I talked about and don’t fully understand how to translate the passion for the plant into a functional operating company. I was incredibly impressed by the thoughtful, pragmatic way the Shinnecock worked through setting up their cannabis control infrastructure on their sovereign grounds. They had their own standalone Cannabis Control Commission, setting up the regulations to mirror very closely what was going on in New York state where they are ready should that time come where wholesale can occur across sovereign state lines. They were really being thoughtful about what they were looking for in a partner.
A rendering of Little Beach Harvest, a dispensary and “wellness lounge” proposed for Southampton
We like the location out in eastern Long Island. The next closest dispensary is about 30 minutes away. It’s a great neighborhood with good access. We’re creating a vertical operation that has a large dispensary selling on the tribal grounds. The numbers look great. Once wholesale comes, and we do think wholesale will come to the state, the ability to reach all of New York State from that tribal ground is incredible. We have the ability to expand the facility if the demand is great. They’ve already approved adult-use on tribal grounds. Little Beach Harvest, which is the name of the Shinnecock enterprise we’ve partnered on, does have to go through the process of applying to the Shinnecock Cannabis Regulatory Division to get approval. But they’ve already got all the framework in place for both medical and adult-use. So, it gives us a chance to really get going strong in New York.
From a dollars and cents point of view, it only costs $700,000 to get in – about half in cash half in stock. If Conor Green hits their milestones and we get open when we think we can, there could be another two and a half million or so in stock. Every dollar we put in is now going towards building the facility, not towards just the right to build the facility.
We love this deal from a social equity standpoint. It’s unique. This is not a facility we will take over and own. At the end of the day, it is owned by the Shinnecock. They will be receiving 75% of the free cash flow. Our contract runs nine years and it’s got some automatic extensions if we hit certain milestones. If we decide to build bigger, that opens up the contract again. It’s a symbiotic relationship. We provide financing. We provide training. We provide the horsepower to help them scale. They provide the license. They provide the passion and the understanding of the plant, and really a great group of folks who are so interested in investing and seeing a true economic, sustainable engine out on that plot of land. We couldn’t be more excited.
Green: What trends are you following in the cannabis industry right now?
Santo: We are keeping our eyes on where the form factor is going. CPG is where we think the world is heading to at some point. I think in Massachusetts, it moves quicker. When you look at Pennsylvania, and as you watch these markets trying to transition from purely medical to medical and adult-use, we’re seeing some grinding of the gears. Some states did a great job. Pennsylvania is a little bit of a no man’s land where right now the legislature and the Department of Health are fighting with each other, saying one got ahead of the other. So, it’s hard to get new products approved. If you can’t get new products approved that migration towards adult-use becomes that much harder. You would want to broaden out the form factors. So, we are keeping an eye on what’s allowable in those states.
We are also keeping a strong eye on how we can expand further with additional partnerships, maybe in New Jersey, maybe in Connecticut, who knows? We must be responsible. Those deals take a while to find and a while to get done.
In the Northeast, there’s been a slowdown in cannabis sales. I think it’s too soon to know exactly what’s driving that. But it’s also an industry that’s going to normalize at some point from these explosive growth rates that have been reported for all these years. It was inevitable it was going to start to slow down. That’s what happens with mature industries.
Green: What in cannabis, or in your personal life are you most interested in learning about?
Santo: I think every day I find instances of new uses for the plant. I was not one who thought much about cannabis growing up. I was a bartender. I was kind of on a different side of the world. But cannabis is amazing. I first was introduced to use cases by my dad. He’s suffering from arthritis in his knees, and he had gotten a medical card. He was getting CBD and THC balms that he puts on his knees.
As I look deeper into the plant, it amazed me that if this was a plant that was discovered today, and nobody knew anything about it, you’d probably be buying it down the aisles of Whole Foods. It’d be in every drugstore. It’d probably be over-promoted at that point. But it’s got that long legacy of prohibition, and social inequity. So, it’s making it harder to adopt. Obviously, being Schedule 1 doesn’t help either.
I am excited to see more and more people start to incorporate it responsibly in their mainstream lives and really promote a lot of that counterculture. It really is no different than other ways that people use to manage stress and anxiety and manage pain. That’s what keeps me coming to work each day, frankly. No, we’re not saving lives necessarily. But at the end of the day, I think we really are improving them and giving people alternatives to opioids and benzos and things like that. So, I think as long as that keeps happening, I’ll still be here.
As more states legalize the use of cannabis for both medicinal and adult use, the market is growing exponentially. For growers and dispensaries, that means bringing their ‘A’ game when it comes to marketing their cannabis products – and that includes labels.
Not only do your cannabis labels need to be compliant with regulations, but you also need to make sure they stand out from the competitors. However, while creating a label seems like it should be easy, it can be a challenge to navigate the complex and murky legal landscape.
But don’t worry, we’ve got your back! Let’s take a look at the key federal regulations you need to be aware of, what NOT to put on cannabis labels and expert advice to help you find the perfect label material for your brand. Let’s get started.
Cannabis Labeling Requirements: What You Need to Know
As of now, cannabis has not been ruled legal in all 50 states. However, states where cannabis is legalized determine their own set of rules and guidelines. These legislative guidelines are constantly being updated and revised for the labeling and packaging of cannabis products, so staying compliant can be challenging for dispensaries and manufacturers.
It’s important to follow general federal regulations for your product, such as the nutrition facts section (Image: TEKLYNX)
Since packaging laws vary by state, it’s important to follow general federal regulations for your product, as well as check your state for cannabis-specific label requirements.
At the very least, you should understand and follow cannabis labeling regulations in accordance with the Federal Food, Drug, and Cosmetics Act (FDCA). Let’s dive right into the basic elements that FDCA requires when labeling cannabis products.
Name and Location of Business: It is critical to always include the name and location of your business on both the inner and outer information panel. In doing so, customers always have a way to contact you for any questions. If you are worried about taking up too much space, a QR code is a great way to offer additional information.
Product Identity: Is your product meant to be used for adult or medicinal use? You must include what your cannabis product is or does on the Product Display Panel (PDP) so it’s easy for customers to locate.
Net Quantity of Contents: Net quantity refers to the total weight or volume of a finished product (excluding packaging) and is federally mandated on labels. For packaged liquid cannabis products, net quantity should be labeled in fluid measure. Meanwhile, packaged solid, semi-solid and viscous cannabis products should be labeled in dry weight.
Warning Statements: Since cannabis is still listed as a Schedule 1 Controlled Substance, it’s recommended to include warning statements for the specific product types. For example, the warning statement should stay “for medical use only” for all medical cannabis products.
List of Ingredients: You must include a complete declaration of all ingredients in your cannabis product. This must be listed on the informational panel on the outer packaging. If there is no outer packaging, then it must be placed on the product package itself.
Disclosure of Critical Facts: In general, this includes critical information that customers would want to know when buying your product. This can include:
Suggested use for the product
Application instructions
Expiration date
What NOT To Put On a Cannabis Label
Proper cannabis labeling can ensure you remain compliant with regulations and legal requirements. Without compliance, you won’t be able to sell your products and could lead to a hefty fine – and nobody wants that! Here are the things you should stay away from adding to your label:
Unapproved Health Claims: As of now, both federal law and state laws do not recognize cannabis as a dietary supplement or substance that can help prevent, cure or treat serious diseases. For that reason, your safest bet is to stay away from making any false health claims on labels and websites.
An example of a cannabis flower label in Oregon with all of the required information.
Obscured Fonts: Text and font issues can muddle the look of your cannabis label and land you into compliance issues. Most states require cannabis labels to have a font and text size that is prominent, clear and easy to read for information panels. Therefore, it is critical to find typography that showcases your brand while maintaining compliance with federal and state regulations.
Faulty Ingredient List: Cannabis labels must accurately include the types of compounds present, it’s percentage and dosage found in the product. Plus, it is required that all cannabis products include cannabinoid profiles and provide a list of any active ingredients.
Considerations for Labeling Materials
To cut through the noise in a highly competitive retail environment, it’s critical to carefully consider the label materials for your cannabis product. Here are some things to consider.
Label Material Choice: Polypropylene or Paper
Take into account what your cannabis product is (tincture, gummies, etc.) when choosing your label material. For example, if it’s a liquid cannabis product, your label can come into contact with the liquid itself, causing damage and risk the label falling off over time. For that reason, the polypropylene label would be the better choice because it’s waterproof, oil-resistant and offers more durability. On the other hand, if your cannabis product does not require a lot of protection and you are looking for a more affordable option, then paper labels would be the better option.
Coating Choice: Matte or Glossy
Choosing between matte or glossy finish depends on your preferred brand aesthetic. If you are looking to dazzle some customers and have a vibrant design on your cannabis label, then it’s best to choose a glossy finish because it holds the ink better. As a result, your label design will appear striking and crisp when printed! But, maybe that’s not the vibe of your cannabis brand so you’re looking for something more traditional. If so, a matte finish is a better choice because it absorbs some of the ink – producing that vintage, distressed look!
Final Thoughts
Your cannabis products deserve to stand out and shine in this booming market. But your product won’t even make it to the market if you are not following label requirements. Proper cannabis labeling ensures that the product is compliant, builds trust with your customers and boosts your credibility within the space. Since requirements are constantly evolving in this new industry, you must always triple-check with both federal and state regulations for the most up-to-date information in regards to cannabis product labeling. In doing so, you’ll be able to design an enticing package with proper labels that will earn heart eyes from consumers, while providing essential information about your product.
By Dr. Markus Roggen, Amanda Assen, Dr. Eric Janusson No Comments
Many people associate cannabis with eco-friendly, counter-cultural movements, but we know the environmental impacts of the cannabis industry are significant. Given the climate crisis, cannabis production companies have a responsibility to ensure future demands of the industry are met in an environmentally sustainable way. We also know that as the world is seeing the impacts of climate change, consumers are changing their spending habits 1. As a result, companies also have the financial incentive to seriously consider implementing more environmental policies, to align their interests with the interests of consumers. Unfortunately, restrictions on cannabis research and the legal industry create barriers to implementing many environmentally friendly alternatives in production. However, this does not give us an excuse to do nothing while we wait – there are many steps that can be taken while we work to overcome these barriers. Our team at Delic Labs aims to help companies ensure the environmental and economic sustainability of the cannabis industry. So, we did some research and developed the Cannabis Better Future (CBF) concept, a guide that considers the impacts of cannabis cultivation and processing on the environment. The pillars of CBF are:
Use of renewable/recyclable materials in production
The packaging used for legal cannabis products is infamously excessive. A standard 3.5-grams of dried cannabis is estimated to come packaged in more than 70 grams of plastic. This seemingly redundant packaging is done to meet regulations surrounding cannabis packaging that often require single-use plastic with labels and warnings at specific sizes 2. Despite this, there is work being done to get biodegradable packaging approved in the industry.
More companies, such as Knot Plastic, are using plant-based materials to provide medical-grade biodegradable alternatives to single-use plastic 3. As members of the industry, we should support these companies and call for regulations to approve biodegradable packaging. As for immediate actions that can be taken, we can turn to companies that reduce the amount of plastic from the industry that ends up in landfills. The Tweed x TerraCycle Cannabis Packaging Recycling Program accepts all cannabis containers from licensed producers in Canada – free of charge – and melts down the plastic to create new products 4. This includes tins, plastic bags, tubes and bottles with child-proof caps. The program has saved more than 165,000 containers from ending up in landfills.
Upcycle biomass waste
It is estimated that for every pound of cannabis harvested, up to 4.5 pounds of plant waste is generated 5. Cannabis biomass waste can be discarded in four different ways: via landfill, composting, in-vessel digestion or incineration 6. Cannabis bio-waste usually ends up in landfills because this is the cheapest method. However, landfill disposal represents a missed opportunity for companies to use biomass waste for economic and environmentally-friendly uses.
Converting biomass for other uses will drastically limit waste
To reduce landfill waste, some companies are looking at sustainable bio-circular solutions, where cannabis biomass is converted into something of industrial use such as compost, bio-plastics and paper packaging for cannabis products 7. The easiest way to reuse cannabis biomass with current regulations in place is to upcycle it to produce compost and greywater that can be used for industrial cultivation 8. Currently, bleach is commonly used to remove THC from biomass, making it unfit to be used for these purposes 6. However, Micron Waste Technologies Inc. have shown enzymatic denaturation can be adopted on the industrial scale to remove THC from the biomass, resulting in reusable water and compostable matter 8. Turning to this alternative method would also reduce the amount of required fertilizer and replace bleach with a more environmentally-friendly solution.
Recycle production side streams
Terpenes are the compounds in cannabis that give it distinctive aromas and flavors sought after by consumers.During the cannabis drying stage, over 30% of terpenes can be lost along with the water phase from the product 9. This terpene-containing water phase gets trapped in drying rooms and decarboxylation ovens and is usually thrown out. To reintroduce the terpenes in their products, companies usually purchase them 10.However, they instead could be recapturing terpenes that are otherwise going to waste, and re-introducing them into their products. Recapturing terpenes would not only reduce the production and shipment energy that goes along with purchased terpenes, but also the costs of buying them.
There are many other wasted by-products that can be recycled. Ethanol that has been used as extraction solvent can be reused as cleaning solvent, reducing the need to purchase ethanol separately for cleaning purposes. Further, the condensation caught in HVACs can be recycled to water plants.
Optimize production energy efficiency
LED lights use less energy and omit less heat than other more traditional options
A study by Summers et al. 11 found that from producing one kilogram of dried cannabis flower, the emitted greenhouse gasses emissions range from 2,283 to 5,184 kg of CO2. Electricity used for indoor cultivation is the major culprit in producing these emissions. In fact, over $6 billion is spent annually to power industrial cannabis growth facilities in the U.S. alone12. Growing outdoors is significantly more energy efficient; however, non-auto flowering, high-THC cannabis plants depend on the specific timing of daylight (and darkness) to grow properly 13. Optimal conditions for these plants are not always achievable in outdoor setting. Meanwhile, auto-flowering plants that are hearty outdoors are generally lower in THC content 14. Promoting research into generating more stabilized cannabis cultivars may help outdoor growing be a more feasible solution. Given the recent work being done with genetically modified and transgenic plants, upregulating THC production in cannabis and increasing the heartiness in different climates is well within the realm of possibility 15–17.
In the meantime, cultivation facilities can do their part to maintain a controlled growth environment with reduced energy waste. Companies that are still using high-intensity sodium lights should consider switching to high-efficiency LED bulbs 12. These are a good alternative option as they produce less heat, and as a result, require less mechanical cooling. It has been shown that many plants, including cannabis, might even do better under blue-red LED lights 18,19. Growth under these conditions correlated with an increase in THC and CBD levels, and overall larger plants 18. In addition to low energy consumption, LED lamps have flexible mobility and a tunable spectrum range. This makes it possible to mediate the spectrum specifically for cannabis crops by controlling each spectral range and manipulating spectral quality and light intensity precisely. Finally, lights can also be brought closer to plants, to further reduce the amount of mechanical cooling needed.
Utilize high-precision processes
Reducing energy use while maintaining production rates can only be done if the process is optimized. Our own research improves process optimization in the cannabis industry. A key component of industrial optimization is reducing wasted time on various machines. For cannabis producers, this machine “junk time” can accumulate when the instrumentation is not progressing the reaction.
Reducing energy use in this case means ensuring machines are not in operation if they are not progressing the reaction. For example, many companies spend approximately two hours on the decarboxylation step because decarboxylation is always complete after two hours 20; however, decarboxylations are often complete in as little as thirty minutes 21. Companies can save energy by installing a monitor on decarboxylation systems to stop reactions once they are complete.
Reducing the environmental impacts of the cannabis industry is crucial to combat the developing climate crisis. While lifting restrictions on cannabis research and mitigating stigmas surrounding the legal industry will be what ultimately paves the way for meaningful changes toward a sustainable industry, cannabis companies cannot wait for regulatory changes to occur before considering eco-friendly practices. As outlined by CBF, there are existing actions which all companies can take to reduce their carbon footprint immediately. Delic Labs, and many other companies we have noted, aim to support companies in making these decisions for a better future for cannabis.
Bauder, P. Ry Russell of Knot Plastic️: 5 Things We Must Do to Inspire the Next Generation about Sustainability and the Environment. (2020).
Waste360 Staff. Tweed, TerraCycle Take Cannabis Packaging Recycling Across Canada. (2019).
Peterson, E. Industry Report: The State of Hemp and Cannabis Waste. CompanyWeek (2019).
Commendatore, C. The Complicated World of Cannabis Waste Generation (Part One). Waste 360 (2019).
Drotleff, L. Cannabis-based packaging and paper could reduce waste, promote sustainability. MJBiz Daily(2020).
Waste 360 staff. Micron Secures U.S. Design Patent for Waste Treatment Tech. Waste 360 (2019).
Challa, S. R. DRYING KINETICS AND THE EFFECTS OF DRYING METHODS ON QUALITY (CBD, TERPENES AND COLOR) OF HEMP (Cannabis sativa L.) BUDS. (2020).
Erickson, B. Cannabis industry gets crafty with terpenes. chemical and engineering news (2019).
Summers, H. M., Sproul, E. & Quinn, J. C. The greenhouse gas emissions of indoor cannabis production in the United States. Nature Sustainability4, (2021).
Reott, J. How Does Legalized Cannabis Affect Energy Use? Alliance to Save Energy (2020).
Ye, X. et al. Engineering the Provitamin A (β-Carotene) Biosynthetic Pathway into (Carotenoid-Free) Rice Endosperm. Science287, 303–305 (2000).
Giddings, G., Allison, G., Brooks, D. & Carter, A. Transgenic plants as factories for biopharmaceuticals. Nature Biotechnology18, 1151–1155 (2000).
Hu, H. & Xiong, L. Genetic Engineering and Breeding of Drought-Resistant Crops. Annual Review of Plant Biology65, 715–741 (2014).
Wei, X. et al. Wavelengths of LED light affect the growth and cannabidiol content in Cannabis sativa L. Industrial Crops and Products165, (2021).
Sabzalian, M. R. et al. High performance of vegetables, flowers, and medicinal plants in a red-blue LED incubator for indoor plant production. Agronomy for Sustainable Development34, (2014).
LunaTechnologies. Decarboxylation: What Is It and Why Is It Important? LunaTechnologies.
Shah, S. et al.Fast, Easy, and Reliable Monitoring of THCA and CBDA Decarboxylation in Cannabis Flower and Oil Samples Using Infrared Spectroscopy. (2021).
Supply Chain Logistics: Cannabis Challenges in States, Interstate and Overseas
John Hartsell, Co-Founder & CEO, DIZPOT
In this session, Hartsell discusses the current state of the supply chain, how the supply chain crisis impacts the cannabis industry, how the holidays impact logistics and much more.
The Future of Sustainable Packaging
Ross Kirsh, CEO, Dymapak
This talk discusses the critical aspects of sustainability in packaging, misconceptions of mainstream terminology (i.e. sustainability vs. recyclability) and more.
Cannabis Labeling from Seed-to-Sale: Doing More with Less
Nick Recht, Sales Manager, TEKLYNX
This presentation delves into cannabis labeling and how your company can leverage software and technology to make labeling less manual, more streamlined
The presentation gets into the dimensions of sustainability, designing with intention, responsible manufacturing and more. Participants get a better understanding the journey through education and reporting: responsible sourcing, transportation and supply chain.
Cannabis and hemp derived concentrates are a rapidly growing product category. Formed by extracting cannabis using a variety of methods including ethanol, butane hash oil and CO2, concentrates find their way into consumer packaged goods as ingredients for infused products or as stand-alone products such as resins, rosins, distillates and hash.
Precision Extraction Solutions (Precision) was founded in 2014 to provide equipment and services to cannabis and hemp processors. In October 2021, Agrify (NASDAQ: AGFY) purchased Precision in a $50M cash and stock deal. The move positions Agrify to offer end-to-end infrastructure solutions for cannabis cultivators and processors.
We interviewed Nick Tennant, SVP of Innovation at Precision, now a division of Agrify. Nick founded Precision after seeing a need for quality equipment in concentrate processing. Prior to Precision, Nick was involved in a vertically integrated cannabis business in Michigan where he gained experience in cultivation, extraction and retail.
Aaron Green: How did you get involved in the cannabis industry?
Nick Tennant: I’ve been in cannabis about 17 years now. I had family in Colorado and California who I started to interface with around 2006. Around 2008, Michigan passed their cannabis law, and we were one of the first businesses to get licensed. The subsequent five years from that law getting passed, up to 2013, I did pretty much everything in terms of commercial cannabis – cultivation, retail, edible manufacturing, you name it. Concentrates didn’t really exist in a meaningful way; the products definitely were there, but the technology wasn’t. I looked at technology at the time and it was very primitive, so we made a shift to focusing on concentrates. We launched Precision in 2014 and we basically shot out of a cannon, doing a million dollars in sales in our first 90 days. Since then, we grew the company up to 60 employees and substantial amounts of revenue. We sold Precision to Agrify in October of this year.
Green: Tell me about that transition from a cannabis products company to an equipment manufacturer.
Nick Tennant, SVP of Innovation at Precision Extraction Solutions
Tennant: It was a gradual transition. As I started to see the extraction niche expand, I really started to put more time and resources into it. When we launched Precision and were met with such success in just the first 90 days, I knew that I had to abandon everything else I was doing to focus on this. My former partners took over the businesses, like the grows. We worked out individual circumstances regarding how I was going to leave those businesses and focus full time at Precision.
Green: So, big news recently with the acquisition, congratulations on that! Tell me about Agrify and why a deal with Agrify made sense to you.
Tennant: The strategic rationale is that we are providing an end-to-end infrastructure solution. They have the horticultural aspect, an excellent public vehicle, and plenty of cash on the balance sheet to continue to scale the business and acquire additional constituents within the cannabis infrastructure. Getting to the point where you can exit the businesses, it’s a long road, and our business is very niche. We were seeking to partner with t a bigger player in the industry with more resources that would help us to scale what we were trying to do, and Agrify was the perfect fit.
Green: You’ve got several areas of focus at Precision ranging from ethanol extraction, distillation, and butane hash oil (BHO) extraction. Where are you focusing the business going forward?
Tennant: Going forward we want to provide that end-to-end one-stop shop infrastructural solution for any cannabis products company. We want Agrify to become the dominant and fastest growing player in the cannabis industry for infrastructural solutions, whether that’s horticulture or extraction. We’re continuing to expand our product portfolio into other niches so that if you’re building a cannabis facility, you only need to come to one company and the process is as simple as possible.
Green: What kinds of products are you seeing the consumer gravitate towards?
Tennant: I think that cannabis will remain to be very artisanal because of the uniqueness of the plant. If you look at similar industries, I could compare it to craft beer or winemaking. I think that hydrocarbon and water hashes will continue to play a substantial role. I also think that ethanol and distillate-based products will hold market share just like the Budweiser and Kendall Jacksons of the world.
People love the native sort of essence of the plant, that this is a plant sort of bestowed upon us by the universe with all these unique healing and restorative properties. I think that trying to capture those properties and that native essence of what’s going on within the genome of the plant and translate that into a product is going to be the theme that continues to dominate, and I think that for several reasons. For the same reason somebody will go to Whole Foods, and they’ll buy the local organic grown fruit or vegetables, people are going to gravitate towards artisanal cannabis products. People that consume cannabis, generally speaking, are more naturalistic or homeopathic than most.
Green: Precision has technology for a range of extraction methods where the focus has been on cannabis. Are you seeing any new markets outside of cannabis?
Tennant: Yes. We’ve dealt with varieties of different botanical extraction companies over the years, but they’re a very small segment of our business. We’re a cannabis business. Non-cannabis extraction may make up less than 1% of our business so it’s very small.
Green: What trends are you following in the cannabis industry?
Tennant: Consolidation, I would say, is a big one. MSOs are consolidating and buying up the small players. The second major trend is regulation, and what’s going on in DC. Beyond that, you obviously have new states coming online, shifting consumer trends, things like that. I would say these last two are less impactful from a macro standpoint, but nonetheless, still things that we follow.
Green: Following up on consolidation, do you see a demand for larger systems now?
Tennant: I’d say 95% of what we do is under 2000 pounds a day, which we consider artisanal. You’re not going to see large scale production consolidation because you have fragmentation by state. It would be most efficient for a cannabis manufacturer to manufacture everything in one location but it’s just not possible with the state laws. It’s very fragmented. Somebody like a Trulieve might have 20 different manufacturing operations, all running similar processes. Perhaps we will see more upon national legalization and the opening of state borders.
Green: What in your personal life or in the cannabis industry are you most interested in learning about?
Tennant: I am constantly learning. That’s just how my brain is, and the type of person that I am. I’m interested in a variety of topics, but I think I’m most interested in how capital markets are going to materialize and substantiate around the federal legalization because we’re in this weird space of cannabis. It’s weird, because you have a boom industry that’s generating massive amounts of revenue and massive amounts of tax dollars, but you must remind yourself that there is no real liquidity in this market, meaning you can’t finance things. A typical cannabis company that wants to go out and get capital is getting rates between 16 to 18%. There’s just a capital restriction since cannabis is a Schedule I substance, and these large lenders don’t want to play into that.
The question in my head and the big catalyst for the entire industry is: what happens when we get a descheduling, decriminalization and/or legalization on a federal level? How does that affect the large funds sentiment to deploy this zero-interest rate capital that we’re seeing in the rest of the world? We’re seeing it in mortgages. We’re seeing it in every aspect of the world. There’s free money printing, but it’s not flowing into cannabis because those federal laws are prohibiting it as such. Ultimately, as more infrastructure comes online, these companies are not going to have to scrape by to build a $3 million lab. They can finance it at a reasonable interest rate, and the infrastructure can come online.
That’s going to be better for the consumer. There will be more infrastructure, more products, more research and development, more retail locations. Everything gets better, more convenient, and more robust. I would think that finance interest rates are the largest lever within the industry right now, and because of that, you’ll likely see cannabis capital markets go pretty crazy when legalization comes around.
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