This is not a discussion of climate change, it’s a discussion of the impact of weather on the agriculture industry. The question for the cannabis & hemp industry, and basically the entire specialty crop industry, is what will be the impact? According to the U.S. National Climate Assessment, “Climate disruptions to agriculture have been increasing and are projected to become more severe over this century.” I’m sure that’s not much of a shock to anyone who owns a farm, orchard or greenhouse.
Every national newspaper for the past two weeks has published at least one article a day about the flooding in the Midwest, while industry newsletters and blogs have contained more in-depth stories. The question is, what can agriculture professionals do to mitigate these problems?
Relying on state and national legislators, especially heading into a presidential election year is likely to be frustrating and unrewarding. Governments are excellent at reacting to disasters and not so good at preventing them. In short, if we depend on government to take the lead it’s going to be a long wait.Instead, many farmers are looking at the future costs of outdoor farming and concluding that it’s simply cheaper, more efficient and manageable to farm indoors.
Instead, many farmers are looking at the future costs of outdoor farming and concluding that it’s simply cheaper, more efficient and manageable to farm indoors. Gone are the days when people grew hemp and cannabis indoors in an effort to hide from the police. Pineapple Express was a funny movie but not realistic in today’s environment.
Today’s hemp and cannabis growers are every bit as tech savvy as any other consumer-oriented business and one could argue that given the age of their customers (Statista puts usage by 18-49-year-olds at 40%), distributors must be even more tech savvy to compete effectively. Some estimates put the current split of cultivation at about one-third indoors/two-thirds outdoors. To date, the indoor focus has been on efficiency, quality and basically waiting for regulators to allow shipping across state lines.
A major driver in the indoors/outdoors equation is that as the weather becomes more unfriendly and unpredictable, VC’s are factoring climate disruption into their financial projections. When corn prices drop because of export tariffs, politicians lift the ban on using Ethanol during the summer months. It’s going to be a while before we see vehicles running on a combination of gasoline and CBD.
Leaving aside the case that can be made for efficiency, quality control and tracking of crops, climate change alone is going to force many growers to reassess whether they want to move indoors. And, it’s certainly going to weigh heavily in the plans of growers who are about to launch a cannabis or hemp business. Recently, one investment banker put it to me this way: greenhouses are the ultimate hedge against the weather.
For those in the cannabis industry who have missed the latest “Trump Trade Deal“- this time with the UK, don’t slumber too long before at least getting a summary update soon.
The implications of the agreement, which U.S. President Donald Trump sees as great for business (namely increasing access to the UK market for pricey U.S. pharmaceuticals) are not uniformly welcomed everywhere, and for various reasons.
The impact, however, on the U.S. cannabis industry, and beyond that, both the Canadian and burgeoning European one, will be significant, no matter what happens with the details of Brexit. There are a number of scenarios that might play out at this point. And how they do will certainly direct the future of the cannabis industry as it develops in the UK.
The one piece of good news out of all of this is that the industry will also certainly continue to flourish no matter what- and no matter where the product comes from. Even a hard Brexit will not roll the prohibition clock back.
Brexit Might Not Happen
There is this recurrent fantasy still in the room that the status quo will be retained just because (fill in the blank), but generally motivated by facing realities caused by basic survival. Let’s indulge it for a moment, presuming that British Prime Minister Theresa May does not survive her leadership post and Parliament comes to its collective senses. All of the splits right now in both the Labour and Conservative parties over the looming disaster continue to complicate things. Failing a hard Brexit disaster, however, look for things like “customs unions” and all sorts of “exemptions” to make the entrance into the UK for European food and medicine a permanent backstop. See the just announced Belgian-based emergency supply drop and alt import routes into the UK as just one example of what is likely to develop no matter what. This will also conveniently prevent the UK from starving and running out of medicine.
In other words, the trade deal will not do much to those cannabis firms who get into the market and reach end users with highly competitive pricing and smart entry strategies. U.S. producers and Canadians importing product across the Atlantic will lose on price to both homegrown British, Irish and EU produced crop. European producers will be far more competitive than U.S. firms just because pre-negotiated drug prices are not going anywhere anytime soon in the rest of Europe.
March Madness On the EU side of things, countries are prepping for worst case Brexit. It is, after all, just next month. Which is now less than a week away from starting. This means that anything related to ex-im, no matter the “trade deals” in place, is going to face delays, problems and paperwork of the additional kind. Inevitably. Even if it is just confused customs personnel uncertain of the new rules. Whatever those are. Or even if there are new rules and routes. Borders, even without walls, are respected at least in Europe.
Short of dedicating the new runway at Heathrow exclusively to food and drug imports of the emergency kind, however there is no way to avoid a few predictable and looming shortage crises. There is friction in other words, in every direction. Cannabis producers will not get a pass.
The Deal Is Aimed At Destroying The NHS On the British side of the discussion, the new UK-US trade deal has not been popular since it surfaced last summer. Why? The government would either significantly water down or lose entirely the ability to pre-negotiate drug prices in bulk (and thus hold drug company profits down). That means no more “public” health care. That alone may cause social unrest. Particularly given the shrewd marketing of the Leave Campaign that promised to “save” the NHS. Perhaps the criminal inquiries into the politically dodgy social media campaigning and fundraising techniques used to trigger the entire mess will manage to do in the courts what Parliament so far refuses to face. Then again, maybe not. American cannabis producers in particular face no particular “wins” here in the current regulatory environment. Cost is still going to be an issue.
The Business Bottom Line Beyond the morality of this (let alone Trump or Brexit beyond that) there is the business analysis of the deal. It could well be good for some American pharmaceutical companies, although that is still a big if along the other ones. People have to be able to afford their meds, particularly if the NHS (or private insurers) do not pay.
That does not count out the cannabis industry at this point. See Tilray, for starters. Also remember that the first details of this deal began to be discussed last summer – right before GW Pharmaceuticals began exporting Epidiolex into the U.S.
Cannabinoids, in other words are already in the room, and might in fact have been a figleaf gesture, President to Prime Minister, where at least in the latter case, May has now personally benefitted financially, all along. No matter what happens with Brexit. Or even if there is one. This is not the first time Trump has used the cannabis card to further political means. See the delay of Israeli cannabis to the global market for two years in exchange for moving the Israeli capital from Tel Aviv to Jerusalem just one year ago.
Bottom line, no matter how proud President Trump and the PM are over their “deal” and indeed, whether the larger disaster will actually occur to trigger it, end users also known as patients are going to look for options based on price and accessibility. And the companies who succeed here are going to have to look for ways to address that.
Mistake #5: Planning Just-In-Time Inventory Too Close to Production; Effecting On-time Deliveries
Using JIT (Just-In-Time) management is common throughout North America. JIT involves manufacturers and suppliers trying to minimize, or even eliminate, their inventory. This approach relies on suppliers to deliver materials just before production is started. When this method is done properly, it is a very efficient way to minimize production costs, but when companies do not prepare for a “crisis” situation, they will have nothing in stock to fall back on.
Minimizing inventory costs is always a challenge. It’s a never-ending contradiction trying to maintain low inventory costs while factoring the percentage of potential new growth. Calculations can fluctuate from month to month, especially when industries rely on commodity ingredients or are impacted by sudden regulatory changes like we see with the cannabis, food packaging, and health supplement markets. Front runners in these markets practice minimizing their product label inventories, but their needs might quickly change from one day to the next. They do not want to place a one-time annual label order for each SKU. If an ingredient runs out of supply or a regulatory change affects their production profile, they would be sitting on unusable labels that will go to waste.
Best Method Approach: Think in terms of what the bottom line effect will be when factoring how you should manage your inventory. Try not to reduce your inventory too low. This could cause your company to experience shipping delays when complications arise with suppliers or quality control. You should have at least one-to-two production cycles worth of inventory available for those “crisis” moments.
This backup inventory can also help reduce paying for excessive rush fees. Sometimes businesses can experience unexpected demand for a product, especially when companies consolidate production plants, acquire other companies, or have a new product launch. Supplier material shortages can greatly impact internal quality control and delay delivery times. Building a strong business relationship with your label provider is key to working around business demands and potential problems; which in turn, will help your label provider ship on-time deliveries so your production deadlines are met.
Mistake #6: Selecting the Lowest Price, But Approving the Wrong Materials for Your Product Needs
Sometimes clients buy the lowest priced labels without their procurement department knowing what the label specification requirements should be. It’s always a good business practice to shop for the best price, but it is equally as important to make sure you understand what you’re buying for that price.
Label providers vary on the quality of work they do, value-added services they offer, their production expertise, and the quality of material they use. Additionally, the hidden potential costs to lowest price shopping is that once the construction of those labels fail, it could cost you much more than a simple reorder.
Best Method Approach:Establish clear and concise procedures so your production team can forward the necessary criteria for your procurement department to have during the buying process.
brands want strong, eye-catching labels that stand out online, on the shelf, and/or on the retail floor. On a separate note, some businesses and manufacturers don’t care how long their brand and contact information remains on their product after the purchase. This gives them the flexibility to buy extremely low-quality material, but the outcome is a much lower brand awareness reminder at the end of the product’s use. But if your business model is such that you sell a “one-time use” product and all that you need is the label to survive through the POS, then the cheapest materials and lowest price might be your best solution.
In most cases, brands want strong, eye-catching labels that stand out online, on the shelf, and/or on the retail floor. Manufacturers want their labels to remain on their product, so their customers have a reminder of what they need to buy again or the ability to reread product use instructions and label warnings. Even if you don’t require the most expensive materials, using good quality, durable substrates and inks is always a solid approach.
Mistake #7: Not Preparing for Oil Based Products
One of the most popular products expected in retail for 2019 will be essential oils and/or CBD infused oil ingredients in foods, drinks, and wellness supplements. One of the most common mistakes relating to oil-based products is that entrepreneurs often forget that oils can soak into paper substrates and/or disperse certain inks, even when laminated.
Whether your product is on display in retail, or being sampled at a trade show, the last thing you want to be concerned about is your product name and contact information smearing or washing out. Even the smallest drop of oil can seep into a paper label and spread the ink to the point that you’ll have your own little tie-dye action on the label. That might look cool to some, but you lose your branding and the perception with most retail customers will be that your company is either cheap or is not professional.
Best Method Approach: There are affordable films such as polypropylene materials that will allow you to print the look you want while still protecting your branding and product. From cooking oils to industrial grade oils, the approach is the same but may require different types of films and ink solubility, so each bottle and container has oil resistant labels that maintain a professional look.Whenever one of our clients launch a new product or changes the intended surface conditions for label application, testing the label is always extremely important
If you’re feeling overwhelmed, remember that you don’t need to select all the label materials on your own. Your label provider should help you settle on the best solution.
Mistake #8: Not Properly Testing New Labels and New Product Surfaces
This is one of the most common and overlooked issues. Whenever one of our clients launch a new product or changes the intended surface conditions for label application, testing the label is always extremely important. This is especially critical when dealing with high quantity orders.
Best Method Approach: Testing parameters should be outlined by you and your label provider so both parties understand how long the label and the ink consistency should remain on the surface after purchase and use of product. There are wide variations of testing, so it will depend on the type of product and the intended industry.
For example, testing hand-applied, durable labels on powder coated metals for the boat and trailer industry require a completely different testing method compared to tests for typical food and beverage products that are machine applied. Usually, with uniform container products like food clamshell packaging, beverage cans, and supplement jars, all you will need to do is make sure to test labels on your production line, so your team is confident with the results.
In summary, preventing just one of these mistakes can yield huge cost savings no matter if your company is a start-up or a large corporation. Even if these eight common mistakes do not directly apply to your own issues, hopefully the “Best Methods” approach will give your company ideas about how you can prepare for future product releases, reduce product label issues, and improve your own quality control metrics.
If you have topics relating to product labeling that you would like me to discuss, please write to firstname.lastname@example.org. Be sure to save this article and forward it to your peers for future reference.
Disclaimer: Marguerite Arnold is the founder of MedPayRx, a blockchained ecosystem that does not use utility tokens, and that is currently going to pilot in Europe designed to eliminate such risks.
As reported here in Cannabis Industry Journallast year in a three part series, there are considerable dangers of utilizing blockchain in the cannabis industry (as well as other industry sectors) that directly affect all commercial operators as well as consumers of both the recreational and medical kind. These remain largely unsolved.
These include regulatory and compliance issues in every direction, starting with banking and securities law, but also include privacy and consumer protections. They also fly in the face of regulations imposed by governments to control inflation, set prices for medications and food, and prevent monopolies.
Beyond that, they also pose considerable if so far unexamined liabilities for businesses operating in this space (including uncontrollable volatility in basic business operations) that very much impact the basic cost of doing business.As of the beginning of this year, however, the situation is back in the news.
The Skinny On Paragon As of November last year, the company was sanctioned by the SEC in a precedent setting case on the issue of whether “utility tokens” are securities or not. In fact, the SEC found that Paragon illegally marketed and distributed digital securities under the false pretension that they were not securities. Paragon, in turn, reached a settlement with the SEC that it would return any funds received by investors prior to October 15, 2017 and pay a fine to the SEC.
As of the beginning of this year, however, the situation is back in the news. Because of the settlement agreement, it appears that a pump and dump group operating through the exchange YoBit managed to raise the token briefly from about $.10 a token to $10 in an effort to raise the cost of compensation from Paragon. This absurd rally was completely unsustainable, and as a result, fell back to $0.3 per token (albeit tripled the price of the token). But the fact that it happened at all is illustrative of the extreme risk now faced by the industry itself from this kind of tech and financial model.
Why? It means that all users (token holders) of such an ecosystem and for any purpose, would be directly exposed to such risks in the future. And on literally an hour-by-hour basis.
Utility tokens in other words, as defined by all such models (and Paragon is far from the only one), are used not only for investment in such businesses, but then bought downstream, via exchanges, by people who wish to transact in the network itself. And that is the real danger to businesses themselves by adopting such models.
Problem 1 – Utility Tokens Are Securities
The biggest issue at the heart of this conversation is this: Tokens are recognized now as securities, and further still operating in a world where pump and dump on the exchanges is a major liability for all who buy the tokens for any purpose. This means for example, that anyone who must buy a system cybercoin to transact within a blockchained ecosystem (from consumer to business manager overseeing international distribution of their product from the commercial end) would face unprecedented volatility that does not exist by using regulated currencies. Good old dollars and euros for example do not pose this kind of existential risk to businesses themselves.
In the Paragon case directly, for example, owning Paragon crypto means that monthly rent at the incubator would fluctuate in cost based on the unregulated cost of the coin, not a prenegotiated rental agreement in regular currency for space (which is far less volatile). In the current environment, such space just tripled in price.
Beyond that, no consumer in California, for example, would want to have to face the added cost of buying a hyped token (at artificially raised prices) before they can access the newest, coolest strain of bud.
Such systems in other words, are NOT just a fancy form of a digital payment solution (like Paypal). What they do dramatically increases the risk of price volatility in all business operations (also called “cost of goods sold” or COG), andto the end user while also directly exposing all to such risk at every point of production, processing and sales.
Why?Latency issues are also a major issue.
Because the cost of conducting normal, basic business operations would be directly exposed to speculating investors. Even local businesses, in other words, would be completely vulnerable to not just the fluctuations domestically or even internationally caused by doing business in multiple jurisdictions and traditional currency risk, but have direct and unprecedented exposure to a much less regulated and far more volatile price environment globally. And further one that affects literally the entire manufacturing and distribution process.
Problem 2 – Network Congestion
Latency issues are also a major issue. This is a bit more technical and complicated, but is one of the bigger reasons why most blockchain technology and solutions are still incapable of dealing with commercial industry requirements. Much less keep regulated industries in any space, in compliance.
Here is one way to think of the problem. If you have many users on a blockchain network all at once, speed of transaction goes way down and associated costs go way up.
The tokenized asset in other words, has to compete not only with people buying the token as an investment, but those using them to buy goods and services on the commercial side AND the industry processing taking place behind the scenes to fulfil and track product. This has been easy to see with Bitcoin in particular, but is not limited to the same.
Further, prioritization on a network itself (and the costs involved to overcome them, also paid in tokens) then unfairly creates a monopoly environment because of the added costs involved to speed up otherwise normally processed and critical operations. The biggest boys on the block(chain) win. Always. That is antithetical to anti-trust law.
Problem 4 – Undermining Basic Government Regulations On Cost Of Purchase
Here is the biggest conundrum, particularly facing the international cannabis industry now in the process of exporting across international borders. Governments (particularly in Europe) routinely set prices on medicine (in particular), for large contractual purchases and to insure the continued survival of public healthcare (which in Europe and the UK covers most people). See the German cultivation bid for cannabis as a prime example. The government is forcing the industry to submit prices via competitive bid that are expected to come in somewhere between 1-1.5 euro per gram. This in turn will affect not only domestically grown but imported cannabis – and from all points on the globe as the industry opens up.
That process is impossible in an environment where the cost of production itself would be (in a price volatile blockchained delivery system) inherently unpredictable and unstable because the price of production and distribution is itself a speculated upon commodity that can vary, literally, at the speed of a pump and dumped token, sold on any unregulated exchange, anywhere in the world. And as a result, is also illegal.
Welcome to the evolving world of cannabis legislation and taxation in California. With the recent 2018 midterm election, a green wave of new laws and regulations has washed ashore, and Taxnexus, a cannabis tax compliance service provider for cannabis businesses, has analyzed the results, looking for insights to guide cannabis business owners in 2019.
In summary, the trend of local counties and cities imposing new cannabis taxes on dispensaries, distributors and cultivators continues, but with some important lessons being learned.
A Brief History of California Cannabis Tax Regulations.
The legalization of cannabis in California brought with it cannabis excise tax and cultivation taxes with the hope of bringing in significant amounts of income in cannabis taxes. The state had projected $185M in cannabis tax revenue for the first six months of 2018. Although California has since collected tens of millions of dollars fewer than anticipated, it did bring in over $135M in the first and second quarters from a brand new industry.
Local governments are able to collect these taxes directly from cannabis businesses. With the green light from the state and the need for a new source of revenue, many local governments followed suit and passed laws to impose taxes on cannabis businesses operating in their jurisdictions. The need for additional revenue is even greater for localities that allow cannabis business operations given that the state takes virtually all of the state-imposed cannabis taxes while the local government entities are burdened by the related costs of regulations and enforcement at the local level.
Cannabis business taxes have an extra allure for local jurisdictions. Unlike local sales and use taxes, the state does not require local cannabis business taxes to go through the state before a portion of it gets funneled back to the localities. Local governments are able to collect these taxes directly from cannabis businesses.
Since January 1, 2018, many local jurisdictions have come onboard and placed ballot measures for their voters to decide whether to tax cannabis businesses. According to research conducted by Taxnexus, by the end of the second quarter this year, there were over 500 different local cannabis tax rates in California.The new cannabis tax measures are also continuing the trend of widely ranging local cannabis tax laws.
Midterm Results Continue Overwhelming Support for Cannabis Industry
With over 50 cannabis tax measures placed on the November 6 local ballots, most of which passed with overwhelming support from voters, the number and variation of local cannabis business taxes continue to grow. This demonstrates the continuing trend of local governments welcoming cannabis businesses, the evolving voter attitude toward recreational cannabis, and perhaps most importantly, the localities’ desire to take their cut of the new industry’s tax revenue.
The new cannabis tax measures are also continuing the trend of widely ranging local cannabis tax laws. Given that the Medicinal and Adult-Use Cannabis Regulation and Safety Act granted local jurisdictions control over deciding their own cannabis business regulations, there is no statewide uniformity. Here are a few examples of the cannabis business tax measures that were on local ballots on November 6:
While some local jurisdictions were quick to impose cannabis taxes, others have delayed in taxing their local cannabis businesses. San Francisco’s Proposition D, which received a 66% voter approval, won’t go into effect until January 1, 2021. It imposes taxes on cannabis businesses that do business in the city, whether or not they are physically located there. The new cannabis business taxes are as follows:
For cannabis retail businesses, 2.5% of gross receipts up to $1M and 5% of gross receipts over $1M.
For cannabis non-retail businesses, 1% tax of gross receipts up to $1M and 1.5% of gross receipts over $1M.
These taxes do not apply to the first $500,000 of recreational cannabis gross receipts nor revenues from medical cannabis retail sales. The measure allows the Board of Supervisors to adjust the tax rates up to 7%. The cannabis businesses taxes are expected to generate $5M to $12M in cannabis tax revenue, and will go into the City’s general fund.The new tax measures underscore the lack of uniformity in local cannabis business taxes throughout the state.
Emeryville passed a new cannabis business tax measure to increase its current nominal rate. Measure S imposes a cannabis business tax of up to 6% of gross receipts. This is estimated to generate $2M in tax revenue to be used for unrestricted governmental purposes.
Oakland is among the few local jurisdictions that placed a measure on its November 6 ballot to lower its existing cannabis business tax rates. Previously, Oakland imposed a 5% tax on medical cannabis and a 10% tax on recreational cannabis, for all cannabis activities throughout the supply chain. These are among some of the highest cannabis tax rates in the state and are squeezing out small operators. Although Oakland has long been seen as the leader in California’s cannabis industry, the high taxes are making it difficult for its cannabis businesses to compete with nearby cities that charge lower taxes. While the city acknowledged the hardship its high taxes imposed, it maintained that it could not lower the rates on its own and required the voter approval. On November 6th, Oakland voters passed Measure V by 78%, which gives the City Council the authority to lower the city’s cannabis tax rates through an ordinance. To give additional relief to the cannabis businesses in the city, this measure also allows them to deduct the cost of raw materials from their gross receipts- something they cannot do on their federal tax returns. Furthermore, local cannabis business taxes can now be paid on a quarterly basis instead of one annual payment at the beginning of each year, which was severely burdensome for most businesses.
Voters in Lake County approved Measure K by a majority vote to tax cannabis businesses in the unincorporated county effecting January 1, 2021. The county was previously only taxing cultivators at $1 to $3 per square footage depending on the method of cultivation. These rates will be reduced to $1 per square footage for cultivators and nurseries, and other cannabis businesses will be taxes between 2.5% and 4% of their gross receipts.
While there is a maximum of four cannabis businesses permitted to operate in Mountain View, over 80% of voters approved Measure Q to tax them. The measure imposes up to 9% of gross receipts to fund general city purposes, with an estimated annual revenue of $1M.Some have even set the effective dates of their cannabis tax laws several years out to allow their local cannabis businesses an opportunity to establish roots and drive out the black market.
Some jurisdictions have passed more creative cannabis business tax regimens than one rate applicable to the entire supply chain. Voters in Lompoc in Santa Barbara County approved Measure D2018 to authorize the city to impose following cannabis business taxes:
Up to $0.06 per $1 (6%) of recreational retail sales proceeds;
Up to $0.01 per $1 (1%) of cultivation and nursery proceeds;
An annual flat fee tax of $15,000 if net income is less than $2M of manufacturing and distribution proceeds;
An annual flat fee tax of $30,000 if net income is $2 Million or more of manufacturing and distribution proceeds;
A total aggregate tax of $0.06 per $1.00 (6%) of microbusinesses proceeds, not including medical cannabis transaction proceeds; and
No tax on testing.
There are signs that other localities that waited to jump onboard have learned from these high-taxing jurisdictions and opted for lower rates. There are even those localities that although they do not statutorily permit cannabis businesses to operate in their jurisdictions, they still want a piece of the action when it comes to cannabis taxes. The city of Riverbank in Stanislaus County currently does not allow cannabis businesses to operate without first obtaining a permit from City Hall and entering into a development agreement with the city that negotiates how much of their revenue the city would take. However, the voters just passed Measure B, which authorizes Riverbank’s City Council to impose a business license tax of up to 10% of gross receipts on cannabis businesses in the event the city allows cannabis businesses to operate within its city limits in the future. This tax has incentives other than the apparent potential of tax revenue. This guarantees the city a cut of the earnings of any illegal cannabis businesses, and serves as a protection in the event the permit and development agreement scheme the city has enacted is later found to be invalid.
The Chaos Continues
The new tax measures underscore the lack of uniformity in local cannabis business taxes throughout the state. Compliance is especially burdensome for delivery companies and multi-location and multi-license cannabis businesses. Cannabis businesses are required to keep up with new and evolving cannabis tax regimens, which, judging by the shortfall in cannabis tax revenues compared to their projections so far, is a difficult feat for these highly-regulated businesses.Of course, there are still some local governments that appear to have missed all the signs and have passed new high taxes.
The overall trend in 2018, persisting through the midterm elections, is that more local jurisdictions are joining the cannabis tax bandwagon, and while the tax rates and structures are still all over the map, there appears to be some movement toward honing the cannabis business rates toward that “sweet spot.”
Cities like Oakland and Berkeley that immediately began to tax cannabis businesses at high rates have lowered or taken steps to lower their tax rates to keep their competitive edge and retain cannabis businesses within their jurisdictions. There are signs that other localities that waited to jump onboard have learned from these high-taxing jurisdictions and opted for lower rates. Some have even set the effective dates of their cannabis tax laws several years out to allow their local cannabis businesses an opportunity to establish roots and drive out the black market.
Of course, there are still some local governments that appear to have missed all the signs and have passed new high taxes. In due time, they, too, will give in to the market pressures and make necessary adjustments if they want to continue to benefit from the legal cannabis industry in their jurisdictions.
Taxnexus is an automated transaction-to-treasury cannabis tax compliance solution for the entire cannabis supply chain that provides point-of-sale state and local cannabis tax calculation, sales and use tax calculation, tax data management as the authority of record, and timely filing of returns with all applicable taxing authorities.
The majority of this cost will not be picked up by private health insurers but rather the federal governmentActually, according to industry analysis, this is about 70% more than the price of one comparable drug (Onfi), and slightly more expensive than Banzel, the two competing (non-cannabinoid based) medications now available in the U.S. for this market.
Here is the other (widely unreported) kicker. The majority of this cost will not be picked up by private health insurers but rather the federal government, which is also not negotiating with GW Pharma about that high price (unlike for example what is going on in Europe and the German bid).
Why the difference?
Two reasons. The first is that Epidiolex has obtained “orphan drug” status (a medication for a disease that affects fewer than 200,000 patients in the U.S.) The second is that the majority of the insurance that will be picking up this tab is Medicaid. The patient pool will be unable to afford this. As a result, the bulk of the money will remit not from private insurance companies but rather federal taxpayers. And, unlike in say, Germany, none of this is pre-negotiated in bulk.
Co-payments are expected to range from $5 to $200 per month per patient after insurance (read: the government) picks up the tab. This essentially means that the company plans to base participation at first at least on a sliding scale, highly subsidized by a government that has yet to reschedule cannabis from a Schedule I in the U.S.
Creating, in other words, a new monopoly position for GW Pharmaceuticals in North America.
A Hypocrisy Both Patients And The Industry Should Fight
The sordid, underhanded politicking that has created this canna monster is hardly surprising given the current political environment in both the U.S. and the U.K. right now. The people who benefit the most from this development are not patients, or even everyday shareholders, not to mention the burgeoning legitimate North American cannabis industry, but in fact highly placed politicians (like British Prime Minister Theresa May). Philip May, the PM’s husband’s firm is the majority shareholder in GW Pharma. Her former drugs minister (with a strong stand against medical cannabis) is married to the managing director of British Sugar, the company that grows GW Pharma’s cannabis stock domestically.
So far, despite a domestic outcry over this in the UK (including rescheduling), there has been no political backlash in the United States over this announcement. Why not?
Look To Europe For A More Competitive Medical Market
This kind of pricing strategy is also a complete no go in just about every other market – including medical-only markets where GW Pharma already has a footprint.
For example, German health insurers are already complaining about this kind of pricing strategy for cannabis (see the Cannabis Report from one of the country’s largest insurers TK – out earlier this year). And this in an environment where the government, in fact, does negotiate a bulk rate for most of the drugs in the market. Currently most German cannabis patients are being given dronabinol, a synthetic form of THC which costs far less.
On top of this, there are also moves afoot by the German government to begin to bring the costs of medical cannabis and medicines down, dramatically. And this too will impact the market – not only in Europe, but hopefully spark a debate in every country where prices are also too high.
The currently pending German cultivation bid for medical cannabis has already set an informal “reference” price of at most 7 euros a gram (and probably will see bid competitors come in at under half that). In other words, the government wholesale price of raw, unprocessed cannabis flower if not lightly processed cannabis oil is expected to be somewhere in the neighbourhood of 3-4 euros per gram come early next year. If not, as some expect, potentially even lower than that.
Processed Cannabis Medicine vs. Whole Plant Treatment
The debate that is really raging, beyond pricing, is whether unprocessed cannabis and cannabis oil is actually “medicine.” At the moment, the status quo in the U.S. is that it is not.
GW Pharmaceuticals, in other words, a British company importing a CBD-based derivative, is the only real “medical cannabis” company in the country, per the FDA. Everyone else, at least according to this logic, is placed in the “recreational camp.” And further, hampered still, with a lack of rescheduling, that affects everyone.
If that is not an organizing issue for the American cannabis industry, still struggling with the many issues inherent in the status quo (from insurance coverage and banking to national distribution across state lines) leading up to the midterms, nothing will be.
Opiate abuse is a far-reaching international public health issue, impacting tens of thousands of people every year in the United States alone. As the epidemic continues to spread, the medical community is faced with the immense task of researching and developing safer, non-addictive treatment alternatives for patients of chronic pain and other ailments. The controversial and oft-debated notion of cannabis as an opiate alternative has become increasingly well-researched and gained considerable credibility in recent years. The new challenge lies in advancing the cannabis industry to the point of being a legitimate medicine that can be prescribed and administered by doctors.
Opioids are among the most commonly prescribed medical treatments for severe chronic pain, yet prescription opioid overdoses killed more than 165,000 Americans between 1999 and 2014 according to the Department of Health and Human Services. In fact, the health and social costs of opioids are estimated to be as much as $55 billion a year. As such, it has become more imperative than ever that mainstream medical practitioners take notice of the cannabis plant’s powerful healing properties and shift away from potentially harmful pharmaceutical medications.
The evidence of cannabis’ safety and efficacy is well established. For instance, in a literature review of 38 studies evaluating medical cannabis’ efficacy for treating pain, 71 percent concluded that cannabinoids had empirically demonstrable and statistically significant pain-relieving effects. In addition, a 2015 meta-analysis of 79 studies found a 30 percent or greater reduction of pain with the use of cannabinoids compared to placebos. Further, an analysis of a decade of randomized, double-blind placebo-controlled clinical trials on cannabis for treating pain concluded that cannabis should be a first line treatment for patients with painful neuropathy and other serious and debilitating symptoms, who often do not respond to other available medications.
Not only is cannabis demonstrably safe and effective, but numerous studies also present compelling evidence that the prescription of opiates has dropped sharply in U.S. states and countries that have legalized medical cannabis. For example, a study in the Clinical Journal of Pain followed 176 chronic pain patients in Israel over seven months. Researchers found that 44 percent of participants stopped taking prescription opioids within seven months after starting medical cannabis. Patients cited the following reasons for using cannabis instead of pharmaceutical drugs: 65 percent reported less adverse side effects, 57 percent cited better symptom management and 34 percent found that cannabis had less withdrawal potential than their other medications.The evidence of cannabis’ safety and efficacy is well established.
The tide is quickly turning as many respected doctors are beginning to advocate for the tremendous medical potential of cannabis as a replacement for prescription pills. That said, if the cannabis industry is to help solve the crisis inflicted by modern pharmaceutical painkillers, we must develop next-generation scientifically formulated products and advocate to improve their accessibility.
Inhalation and oral methods of cannabis consumption have no reliable dosage as medicine, rendering them unfit for administration by health professionals. These mainstream consumption methods also have extremely low bioavailability and bioactivity. Bioavailability for ingested cannabis products is only 6 percent and for inhalation methods can be as low as 2 percent. Oral absorption of THC is slow and unpredictable, with peak blood concentration occurring 1–5 hours post dose. Similarly, inhalation methods can take up to two hours to have any effect. The next phase of the medical cannabis industry must focus on fixing problems that prevent cannabis from being a universally recognized health tool. Fortunately, scientists are making major advancements in cannabis delivery technologies, offering novel and innovative administration methods that have proven both effective and reliable.
With products like Evolve’s NanoSerum™ representing a promising solution to help reduce the morbidity and mortality associated with prescription opioid use and abuse, meaningful progress is already underway. It’s been a long and challenging road to arrive at this point, but our efforts are only just beginning. Achieving long-term change on a national and international scale will require professionals from all levels of the cannabis, science and medical communities to push for advanced product offerings that provide consistent, standardized dosing in healthier, smokeless modes of delivery.
The medical cannabis program in Pennsylvania has only been functional for a few months now; patients began getting access to the drug back in February of 2018. In a press release, MPP says only a small number of cultivators and dispensaries are currently operating. This fact, coupled with the need to purchase processed forms of cannabis, has created product shortages and costly medicine for patients.
It is expected that this move could help alleviate some of those problems in the state’s new program. “Allowing cannabis in its natural, flower form and expanding the list of qualifying conditions will have a huge positive impact on seriously ill Pennsylvanians,” says Becky Dansky, legislative counsel for the Marijuana Policy Project, who helped lead the legalization effort in Pennsylvania’s legislature. “By being able to provide medical marijuana in plant form, producers will be able to get medicine into the hands of patients much more quickly and for much lower cost to patients,” says Dansky. “This is vitally important for patient access right now while the program is still getting off the ground and production is not yet at full capacity. We hope these rules are promulgated as quickly as possible so even more patients will be able to find relief.”
The qualifying conditions added to the list for patients seeking medical cannabis is set to include cancer remission therapy as well as opioid-addiction therapy, which are two very notable additions. With more qualifying conditions and a potentially cheaper form of medicine, these changes could improve the program’s efficacy in treating patients.
Cannabis pricing, globally, is a topic that is going to remain heated if not highly fluid for some time to come. Why? Government regulation (or lack thereof), compliance and even transport along with different models for commerce and consumption are creating an odd and absolutely uneven map of commodity pricing. We live in a world where accurate information is hard to come by. Even from ostensibly “official” sources that track operational markets. Black or legit.
It may sound complex today but it used to be a lot harder. As of just 2014, the UN’s Office of Drug Control listed the price of a gram of (black market) cannabis in Lichtenstein at $1,020 (as reported by a bemused Business Insider). While this could have been a simple matter of misunderstanding that Europeans frequently use commas rather than periods as decimal points in numbers, the fact that this was later corrected to $10.13 suggests human error in transcription rather than reporting. And the world has certainly changed since then.
Yet with no international legal marketplace or even platform yet in existence to track the global price of legal cannabis in different jurisdictions, this is the kind of issue that faces not only those in the industry but those trying to analyze it.
That said, there are beginning to be data points for those who are interested and those who must have this information for professional reasons. Here is a break-down of regional (legal) prices, per gram from a selection of sources generally considered fairly accurate. This is also made a bit more difficult by the difference in measurement systems and currency fluctuations. For ease of reference, these figures are in grams and U.S. dollars. An ounce is about 28 grams.
Medical grade cannabis also means different things in different markets. Outside the U.S., in Canada and the EU in particular, medical grade cannabis must meet a certification process that adds to the cost of production considerably. Certainly in comparison with outdoor grows. It is still, for the most part, imported, from either Canada or Holland, although look for that to start changing this year as domestic cultivation in multiple countries finally gets seriously underway.
Pricing really depends on where you are. It is also dropping fairly dramatically in established markets. The most recent example of this is Oregon – which has seen its higher-than-normal state retail market begin to normalize with California, Washington and Colorado. This is the price of establishing regulatory schemes on a non-federal level. That said, the competition is so extreme at the moment that Oregon, in particular, is a buyer’s market, with recently reported prices as low as $1 and change for a gram.
Retail pricing, in particular, will remain all over the place on a national level, especially given the amount of local competition between dispensaries underway. On average, however, medical grade-ish cannabis runs between $6-30 a gram, retail.
According to the website Cannabis Benchmarks, which tracks U.S. wholesale prices, the domestic spot index of wholesale cannabis was at $1,292 per pound at the end of January. Or about $5 per gram.The theory that the legit market has to price the black market out of existence is unpopular with those who want to collect more taxes from rec sales.
Nationally, at the moment, uncertainty over how the new post-Cole Memo world will play out, plus oversupply in certain markets, is creating strange pricing. Note to consumers, particularly in recreational markets: There are deals to be had.
This market is interesting for several reasons. The first is that several of the regional governments are considering establishing a Canadian $10 per gram price for the recreational market. Medical grade runs about $8 at the moment in local currency. That means, with a 20% differential in current f/x rates, a recreational gram will be set at USD $8 and a medical gram at about $6. That said, the theory that the legit market has to price the black market out of existence is unpopular with those who want to collect more taxes from rec sales.
Theories abound about the future of recreational pricing, but for the moment, a great deal of supply and new producers will keep prices low at least through 2019. After that? It is impossible to even guess. At that point, Canadian producers will still be supplying at least German medical patients with some of their imported bud. Regardless, the country will continue to play an important role in global pricing – even if it is to set a recreational and medical standard that plays out in markets already from the EU to Australia.
Like Canada’s market, although for different reasons, the Israeli official price on legal cannabis is absolutely constant. It is set by government policy. Those who have the drug legally, in other words with a doctor’s prescription, pay about $100 for a month’s supply. That amount on average is about 28 grams. That means that a medical gram in Israel will set you back about $3.50 per. U.S. not Canadian.
Price deltas here are the most impacted by changing national laws, standards and medical legalization. There are only two semi-legitimate recreational markets at the moment that include THC. Those are Holland and Spain. In Holland, via the coffee shops, the low-end of passable bud starts at between $12-15 per gram and goes up to about $30 for the really exotic breeds. This being Holland, they exist and are obtainable. In Spain, add the cost of joining a social club (about $50), but in general, the cost of a gram is about $10.Price deltas here are the most impacted by changing national laws, standards and medical legalization.
Medical markets in places like Germany are still skewed by integration of the drug into the country’s healthcare system and the fact that it is still all imported. The horror stories are real here. Patients must pay out-of-pocket right now for cannabis flower that is also being pre-ground by local apothekes for an additional price per gram that is eye-wincingly high. However, once the price and supply normalize, look for a medical standard here of about $10 for a month’s supply. That will be about 28 grams too.
Germany, in other words, will eventually be one of the cheapest markets for patients after reimbursement by insurance. That shapes up to be about $0.50 per gram at point of sale. It could be far less for those who are able to obtain authorization for higher amounts up to five ounces per month. The flat fee stays the same. Do the math. That works out to some pretty cheap (high grade) medical relief.
Black market cannabis and hash, which is also far more common in Europe than the U.S. at least, is fairly widely available for between $12 and $20 a gram.
The rise of cannabis production in Eastern Europe and the Baltics (which is also still largely pending and based on ongoing government talks and emerging distribution and cultivation agreements) will also dramatically drive down the cost of legal cannabis in the EU within the next several years. Production in this part of the world, along with Greece, may well also source rec markets all over the continent once that happens.
Africa & Central and South America
While the African cannabis trade has yet to break out – even in the media much of yet, there is definitely something green growing in several African countries including South Africa and Ethiopia. That trade unlike most of what is going on in South America with the possible exception of Uruguay is already looking for export opportunities globally. With African cannabis going for less than a buck a gram in most places (as in about a fifth of even that), look for certified African medical cannabis in select Western markets where price is going to be a major issue. Think medical standards. On the South American front, prices are equally low. However, remember that these are not regulated markets yet. And domestic government standards, starting with GMP and both indoor and outdoor grow requirements are basically non-existent. Growers who want to export to higher regulated markets are planning accordingly.
It goes without saying that in places where cannabis is both illegal and carries the death penalty or other harsh penal retaliation, that the price is not only much higher, but the source is black market. In the UAE for example, a gram will set you back well over $100.
Munich, Germany- In a darkened movie studio on the east end of town, the Digital Insurance Agenda or DIA, the largest insurtech conference in the world, kicked off its annual event in mid-November. The sold-out event attracted about 1,000 top insurance executives from 40 countries and all six continents.
CannabisIndustryJournal attended from the perspective of investigating the overall status of digitalization in the industry. However, there were a couple of things we were on the hunt for. The first was to see how and where blockchain has begun to penetrate the industry. This revolutionary processing and identification layer of digital communications is coming – and fast – to the insurance industry everywhere.
We were also there of course to see if cannabis was anywhere on the agenda. Digitized or not.
By way of disclosure, I am also a high tech entrepreneur with my own insurtech, blockchain-based start-up that we are in the process of launching. MedPayRx is intended to be the first insurance product that will help patients access their meds facing nothing but their co-pay and help insurers automate the approvals process for all prescription drugs and medical devices.
By definition, in Germany, this includes medical cannabis.
Ultimately, our mission is to take the paper and the pain of all reimbursement out of the prescription process. At present, as anyone with a chronic condition knows, many medications and medical devices must be paid for out of pocket first and then reimbursed via a claims process that is paper-based, laborious and expensive. This is not a model that works for anyone. Certainly not poor and chronically ill patients who face this process at least monthly. And certainly not insurers who are now facing higher drug costs if not more claims reimbursements for the same from an aging population.
In a country like Germany where 90% of the population is covered by public health insurance, the situation also poses quandaries of a kind that are rocking the fundamental concept of inclusive public healthcare.
The Impact of Digitalization On The Insurance Industry
As one insurance executive and speaker mentioned from the stage during DIA, there are few industries that are more universally despised than insurance in general. And few verticals where the existing mantra is “you cannot do it worse.” The insurance industry is well aware of that. Further, for all insurances that are not “mandatory” the competition is fierce for consumers’ bucks. Particularly in places like Europe where insurance is also seen as a kind of savings scheme.
If you are a private insurer, of any kind, or offering services to both end consumers and B2B services, you are out of the game if you are not now thinking how to streamline and upgrade all aspects of your business in the digital era. There are many start-ups now tackling what is euphemistically called “cloud2cloud” integrations.
What does that mean?
According to DIA co-founders Reggy de Feniks and Roger Peverelli, the influence of tech in general is here to stay and is now driving widespread innovation across the industry. “The DIA line-up and the massive response among the audience show that insurtech is now mainstream,” says de Feniks. “This edition clearly showed the…ever growing attention for artificial intelligence, machine learning and other shapes of advanced analytics.”
“Platform thinking, thinking beyond insurance and creating new insurtech enabled services will be the next challenge for insurers,” added Peverelli.
Subtext? Insurers want your data. They want to use tech to analyse and understand it. The technology is here. But is the regulation? Specifically, in an industry that wants to know everything about you, how is privacy understood and implemented with revolutionary tech?
A Cloud-Based Future
Paper is rapidly becoming an old-fashioned concept in insurance, much like it has in banking. And like banking, insurance has a strong “financial” side to it. Germans, for example, tend to use insurance policies as retirement accounts, (the idea of a 401K is almost unheard of here). And by far, the most dynamic and digitalized part of the industry tends to be in areas unrelated to healthcare.
Some of the most interesting start-ups at DIA were actually weather-based.
The challenges of these types of insurtechs of convincing both regulators and the industry that such services are not only feasible but needed, pale in comparison however, to the challenge now facing all public health insurers.
And while they were certainly present at DIA, this industry segment was underrepresented at the November gathering. There is a reason for this. The real threat to consumer medical privacy is only growing, not receding in an era where data can be seamlessly transferred globally and digitally.
For that reason, blockchain has many uses and applications in this part of the vertical.
MedPayRx – even as a pre-seed start-up, was not, even this year, the only blockchain-based service we found in attendance at DIA. Next year look for even more.
Blockchain might be the next new “buzzy” tech, but in the insurance industry, there is a real reason for it.
What Was The Response To A Cannabis-Themed “Insurtech?”
As readers in the United States know, health insurance and cannabis is a loaded subject. And while insurance services are beginning to be available as high-risk commercial services for the industry, inclusive health insurance is still off the table because of the lack of federal reform.
Other places, however, the issue is taking a fascinating turn. And in Germany, right now, the situation so far has shaped up to be cannabis vs. public health insurance. It is a mainstreaming trial drug in other words. For that reason, beyond any lingering but rapidly fading stigma, it is a fertile time to be in the middle of it, with a tech solution.
It is also perfect timing from the digitalization and privacy perspective. Unlike the U.S., Germany in particular has tended to keep its insurance services, certainly on the health front, undigitalized because of privacy concerns. That is no longer feasible from a cost perspective. It is also increasingly one that has to be dealt with from a tech and regulatory one.
Why Is CannabisIndustryJournal At DIA?
My nametag identifying me as both “media” and of a certain green source, was the source of endless discussion with everyone I talked to. Many attendees were extremely curious about why a cannabis industry publication was at an insurance conference. And most people, certainly the non-Germans in attendance, were unaware that per federal law, cannabis is now, at least in theory, covered by public health insurance here.
Medical insurance that treats cannabis just like “any other drug” is a discussion at the forefront of the medical community in Europe. Even if not at health insurance industry events like DIA. Yet. In the last year, in fact, Dutch insurers have started refusing to cover the drug as the German government moved forward on mandating coverage.
In other places, like Australia, Israel and Canada, the conversation is also proceeding, albeit slowly within the context of public health coverage.
However compliance and tracking of the drug itself, not to mention the need for research on how cannabis interacts with other drugs mandates a consideration of how digital health records, privacy and tracking can exist in the same conversation. And further, can be accessed by the insurance industry, the government and policy makers as reform moves into its 2.0 iteration – namely federal recognition of the drug as a legitimate medicine.
We at MedPayRx think we have one answer. And next year, we hope to present from the stage as we continue to move forward with engaging the insurance industry here on all such fronts. Not to mention helping move the conversation forward in other places. And of course, launching services.
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