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Quality Systems 101: CAPA Programs Drive Improvement & Prevent Costly Mistakes

By David Vaillencourt
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PlantTag

No business is perfect, especially when humans are part of the equation. But, how do you tackle fixing quality issues as they arise? The goal of this article is to shed some light on the value of a CAPA program and why many states are making them mandatory for cannabis businesses.

Let’s consider the following situations:

  • Analytical lab results for a production batch test above the limit for a banned pesticide or microbial contamination
  • You open a case of tincture bottles and some are broken
  • A customer returns a vape pen because it is leaking or ‘just doesn’t work’

Do you…

  • Document the issue?
  • Perform some sort of an investigation, asking questions of the people involved?
  • Ask for a retest? Then, if the test comes back positive, move on?

Let’s go through each one of these and understand why the suboptimal answer could be costing your business money:

You don’t document the issue

I hear excuses for skipping on documentation all the time.

  • “It’s not a big deal”
  • “It was a one off”
  • “The glasses probably broke in transit”
  • “They are cheap and easily replaceable”
  • “It’s not worth the time”
Tracking and documenting supplier shipments can help you identify supply chain issues.

In the situation of a couple of broken bottles in a shipment, what if it was the seventh time in the last two months? If you haven’t been documenting and tracking the issue, you have no way of knowing if it was a single occurrence. Remember when you were surprised that your filling team did not have enough bottles? Those broken bottles add up. Without documenting the incident, you will never know if it was truly a one-time mistake or the sign of a deeper issue. The reality is, it could be sloppy handling on the production line, issues with the shipper or even a sign of poor quality coming from the supplier.

Have you ever compared the number of fills vs the number of bottles ordered? How much money have you already lost due to those broken bottles adding up? Do you have the ability to answer this question?

You perform an investigation

Let’s say a customer returns a leaky vape pen. You perform an investigation by asking the production workers what they think went wrong. They say that it’s very difficult to get the seal for the cartridge into place. Their supervisor tells them to try harder, refunds the customer and moves on. But, why is it difficult to get the seal into place? Is it a design flaw? Should a special tool be used to assemble the cartridge properly? Without getting to the root cause of why the seals are leading to leaking cartridges, you are doomed to have repeat issues. Numerous studies have found that less than one in twenty dissatisfied customers will complain, and that approximately one in ten will simply leave for another brand or provider. How much is this unresolved issue truly costing your business?

Asking for a retest and if it passes, releasing the product and moving on.

labsphoto
In Colorado, 15% of the final tested cannabis flower products continue to fail.

Suppose a major producer of cereal received test results for its most popular cereal that were positive for levels of heavy metals that research has shown to be linked to cancer or developmental issues in children. Now, suppose the company stated that it was an isolated incident and a retest showed that the product met acceptable limits. Further investigation showed no paperwork, save for a couple of emails and a phone call between the lab and the producer. Would that give you peace of mind? This is known as “testing into compliance” and was the subject of a landmark lawsuit in 1993 that Barr Laboratories lost.

For many the answer would be a hard NO. But this happens every day. In Colorado, 12.5% of cannabis batches failed final product testing in 2018 and 2019. That’s one in eight batches! What happened to those products? Good question.

Enter: CAPA (Corrective Action and Preventive Action) programs! For people with a background in quality and GMPs (Good Manufacturing Practices), CAPA is a household name. And, it’s quickly becoming a requirement that cannabis regulatory bodies are looking at. Colorado was the first state to explicitly require CAPA programs for all license holders effective January of this year and has provided a free resource for them. But, for the large majority of people, including those in the cannabis industry, it’s just another acronym.

What does a CAPA program do?

The benefits are numerous but two major ones are:

An effective tool for investigating the true root cause

First of all, a CAPA program provides the framework for a tool for investigation – as Murphy’s Law posits – things go wrong all of the time. Whether you have a manual, labor-intensive process or a highly automated operation, the equipment is programmed, maintained and monitored by humans. The logical sequence of problem solving within a CAPA program allows you to thoroughly investigate and determine the root cause of the issue. With a complete understanding of root cause, you are then able to eliminate it and prevent future occurrences – not just in the one area investigated, but in all similar situations throughout the company.

System for continuous improvement

Gathering info from a customer complaint like batch or product IDs can be crucial in a CAPA system

Anyone who is in the market for a new car lately can appreciate the technological advances. In the 1980s, it was air bags and ABS brakes (those of you that drive in snowy climates and remember having to pump your brakes can appreciate technological advancements). Bluetooth technology for hands-free communication and radio control is another example of continuous improvement in cars.

This is one of the biggest predictors and differentiators between profitable and successful companies with satisfied clients and one that is barely scraping by. The cost of poor quality adds up!

Key inputs in a CAPA system 

If the output is an improved system and lower cost of quality, we need to make sure we’re considering the potential inputs. 

Information that feeds into your CAPA system:

Customer complaints

Every complaint must be recorded. Gather as much information as possible, but at a minimum: the product type/SKU, the customer name and date of purchase. If possible, the batch or product ID.

This is not necessarily to identify products for a recall, but to prevent…

Laboratory test results

This should not be restricted to final product testing, but include any in-process inspections. Say you have a product repeatedly failing final testing, what if it’s actually been consistently failing or very close to failing at the very first in-process inspection? It’s also important to work with your laboratory to understand their method validation process, including the accuracy, precision, robustness, etc.

Infrastructure & environmental controls/monitoring

Most people consider “environmental controls” to be things like temperature and humidity control. While that is true, it can also include pest and contamination control. Poorly designed infrastructure layouts are major contributors to product cross contamination as well.

Supplier information

Undetected supply chain issues (remember the broken bottles?) can add up fast! CAPAs for suppliers cannot just include supplier monitoring, but improvement in how you communicate your needs to your suppliers. It’s easy to overlook non-cannabis raw materials as sources of microbiological and chemical contamination. Conduct a risk assessment based on the type of contact with your product and the types of contamination possible and adjust your supplier qualification program accordingly.

Are you ready to recognize the benefits of a CAPA program?

One more major benefit of CAPA programs to mention before we go is … Preventive via predictive analytics.

In Colorado, 15% of the final tested cannabis flower products continue to fail, mostly due to mold and mildew. A quality system, with effective data capture that is funneled into a CAPA program can easily reduce this by 75%. For even a small business doing $2M per year in revenue, that equates to a revenue increase of nearly $200,000 with no additional expenses.

Whether you are operating in the State of Colorado or elsewhere, a CAPA and Recall program will provide immense value. In the best case, it will uncover systemic issues; worst case, it forces you to fix mild errors. What are you waiting for?

cannabis close up
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Too Many Cannabis Firms Put Sustainability in Last Place

By Mitesh Makwana
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cannabis close up

Cannabis has long been considered a green industry by the masses.

As a standalone item, the cannabis plant is very environmentally friendly. This is particularly true when it comes to hemp, a variety of the cannabis plant with a huge range of environmental benefits. An extremely versatile and robust crop, hemp uses far less land and water than other common crops and even captures carbon dioxide and regenerates soil. Approximately 20,000 products can be made from its seed, fiber and flower, from biodegradable plastics to food supplements, meaning all in all – it is an environmentally and economically sustainable crop

Yet as with most things, when cultivated in mass, the cannabis plant isn’t quite so green anymore. With its high demand for water, land and artificial lighting, cannabis cultivation can actually leave a large environmental footprint (this does however, pale in comparison to the food industry).

What’s more, many firms do not properly understand how to correctly treat and apply chemical fertilizers and pesticides, and use a machine gun approach to growing their crops. This can result in unnecessary bleed waste, which in turn can kill micro-organisms and contaminate soil, water and other vegetation. Packaging has also been cited as particularly environmentally unfriendly in the cannabis industry, with several organizations using single use plastic for their products, due to the strict guidelines attached to packaging products of a medical or pharmaceutical nature.

A field of hemp plants, (Cannabis sativa L.)

So as the CBD, medical and even adult use cannabis industries become increasingly commercialized across the globe, there is risk cannabis might start moving in the wrong direction when it comes to sustainability.

Still relatively new, the cannabis sector is nascent and exciting, with the global cannabis market size valued at $10.60 billion in 2018 and projected to reach $97.35 billion by the end of 2026. Yet as the industry grows, so too will its footprint.

I’ve seen it first-hand. The industry being hugely competitive, so for companies vying for precious investment and fighting for a spot on the stock market, often, sustainability is the last thing on their minds. In my opinion, this is wrong. Not only morally – we all play a part in looking after our planet – but it’s also a poorly calculated business decision.

It’s no secret sustainability and ESG have become a hot topic when it comes to investing. Just yesterday, Credit Suisse told CNBC that the pandemic has accelerated the trend towards sustainable investments. The bank has even introduced an exclusion strategy whereby those investing can actively exclude controversial sectors.

So with the environment firmly on investors’ minds, cannabis firms need to realize that actually, if they want to secure the support of forward-thinking shareholders, they need to consider more than just the bottom line and truly take the sustainability of their operations into account.

photo of outdoor grow operation
Outdoor growing can require less energy inputs

Luckily, there are practices which cannabis cultivators can take on board to reduce their environmental footprint. To start with – growing outdoors. This enables cannabis farmers to harness the sun’s natural power, saving them money on electricity bills and increasing energy efficiency. With cannabis being a rather thirsty plant, water use is also a major concern – although this is nothing compared to the amount of water used by cotton plants. However, it is in fact possible to design indoor operations which recycle close to 100% of the water use, including capturing the perspiration from plants – at AltoVerde this is something we are looking to implement in our upcoming Macedonian sites.

Firms keen to improve on sustainability should also cultivate in a way in which soil is fully replenished and repaired after use – this is called regenerative farming, and it’s extremely effective for maintaining and improving soil quality, biodiversity and crop yields. Another interesting concept is the use of hemp. Some farmers have started using hempcrete – a concrete-like material made from harvested cannabis plants. As if the recycling aspect wasn’t good enough, hempcrete is actually carbon negative, meaning the production of hemp for hempcrete removes more carbon from the atmosphere than it produces.

It’s been incredibly exciting to be a part of the cannabis industry and I am excited to watch its growth in the years to come. It’s taken hard work for the sector to improve its traditionally poor image and to be accepted across the globe, so now, cultivators must lead by example and stop industry from being branded as one which pollutes. By transitioning to more environmentally sustainable practices, firms will be doing their bit for the planet, attracting the investors of tomorrow and ensuring their own success for years to come.

Flower-Side Chats Part 7: A Q&A with Max Goldstein, CEO of Union Electric and Founding Partner at OpenNest Labs

By Aaron Green
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In this “Flower-Side Chats” series of articles, 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 integrate innovative practices in order to navigate a rapidly changing landscape of regulations, supply chain and consumer demand.

The California legal flower market is the largest in North America. According to recent BDSA data, monthly cannabis sales in January 2021 were $243.5 million. Flower sales represented 35.6% of overall sales, or about $87 million, representing a $1 billion yearly run rate for 2021 flower sales in California.

Union Electric was founded in California in 2020 as one of OpenNest Labs’ first incubator brands. Its model is uniquely asset-light, and focused on filling an area of opportunity with a consumer-first approach, aimed at an underserved market: the working-class customer. The name Union Electric was inspired by the punching-in and punching-out aspect of working a union job — more specifically, the average cannabis user’s job. The name also represents the brand’s union of stakeholders: Customers, cultivators and retailers alike, working together to provide affordable, quality products.

Max Goldstein is the CEO of Union Electric and Founding Partner at OpenNest Labs. Max incubated Union Electric at OpenNest Labs, a cannabis venture studio he helped co-found, and launched the brand in 2020 the day after COVID lockdowns began in California. Prior to Union Electric, Max worked at Google managing a 90 person, 12-market partnerships team.

Aaron Green: How did you get into the cannabis industry?

Max Goldstein: I’ve had a fun entrepreneurial and professional journey.  I started my career in my 20s with Google working in the marketing department sitting at the intersection of new product development and customers. During that time, I really learned the ins and outs of bringing products to market and building brands. I had to understand how to value and champion the customer, or the user. At Google, I was sitting at the intersection of people building products that are affecting billions of people’s lives and users and customers that potentially have really cool insights and feedback. It was an incredible learning experience. I was able to focus on what I’m good at, which is that early stage of businesses and most importantly, listening to the consumer and developing products and services that they ultimately really want.

Max Goldstein, CEO of Union Electric and Founding Partner at OpenNest Labs

Near the end of 2018, I co-founded OpenNest Labs, a cannabis venture studio. We came together as a four-person partnership to form OpenNest, as an assortment of skill sets, with all of us contributing an area of focus that we could really combine our experiences to take focused and concerted efforts at building brands that resonate with different consumers across various form factors in cannabis and health. My partner Tyler Wakstein has been in the cannabis industry for several years and helped launch the brand, hmbldt (which is now Dosist) and a number of other projects in the cannabis space.

Green: Was Union Electric an incubation project out of OpenNest?

Goldstein: Yes. Union Electric is the first project we incubated out of OpenNest. We launched the day after the pandemic. So, it was interesting timing.

At Union Electric we’re focused on the core, everyday consumer of cannabis. I think a lot of folks, particularly the new money that have come into the industry, have often focused on new form factors or things that they think the new cannabis consumer is going to enjoy or appreciate. Because quite frankly, that’s their level of familiarity with the industry. For us at Union Electric, we want to hit the end of the market with exactly what they want and that is high-potency, affordable flower with a brand that really stands for something and has values.

Union Electric is positioned as an advocate for the legal cannabis industry as a whole. We look at the stakeholders and the work that needs to be done across the board. The idea of just being one member of the value chain and not trying to ultimately uplift and elevate everyone in that value chain, it’s just not going to work in cannabis. We’ve seen a lot of people trying to go at this alone and I think the pandemic, if anything, showed that you’re only as good as your partners. We truly believe that the investment in our partners, in the local communities and everyone that’s really touching this industry is critical to ultimately building success for one company because a rising tide raises all ships.

Green: How did you settle on the name Union Electric?

Goldstein: One of the things that we wanted to do was focus the brand on who we see as the core consumer, which is somebody that is working hard, like a shift worker punching in and punching out and putting in the long hours on a daily basis and using cannabis as a critical part of their personal wellness and relief. There are elements of that which we certainly want to tap into. The “Union” represents our stakeholder approach, which is, all of us are in this together and our tagline “roll together” represents that. The “Electric” part is what we’ve seen cannabis sort of representing culturally, and for people more broadly. This is an exciting product that’s going to change a lot of people’s lives and, and I just don’t think there’s anything else in our lifetimes that we’re necessarily going to be able to work on from a consumer-packaged goods perspective, that’s going to change as many people’s lives. It’s electric. That’s how we came up with the name.

The coloring and a lot of the brand elements that we focused on were about providing transparency and simplicity to the marketplace: big font and bold colors. There are little nuances with our packaging, like providing a window just so people can see the flower on our bags. We look at the details and made sure that we’re ultimately out of the way of the consumer and what they want, but providing that vehicle that they’re really comfortable with.

Green: You have an asset-light business model, focusing on brand and partnerships. How did you come to that model?

Goldstein: I think everyone who’s operating and working in cannabis right now is looking at strategy and what the model is that’s going to work for them. We’re ultimately going to find out what works, which is why this industry is so fun and exciting. Our specific approach is really under the assumption that vertical integration in a market that’s maturing as quickly as California is going to be hard, if not impossible – it’s just too competitive. There are too many things going on in order to be successful in California. You have to be really good at cultivation, really good at manufacturing, really good at distribution, and then ultimately, you have to be able to tell a story of that process to ensure sell-through and that you really resonate with the consumer.

I think the big, missed opportunities that we’re seeing are that a lot of great cultivators are not marketers or storytellers. They really do need people that are there to help amplify and provide transparency to their stories. There are amazing stories out there of sacrifice and what cultivators have done to create a new strain. We all enjoy Gelato. What’s the process to make that happen or to create any other new strain? It’s fascinating. It’s too hard for a lot of these cultivators to go out and tell that story themselves. So, we act as a sales and marketing layer on top of the supply chain to provide visibility, transparency and trust with the consumer so that they know who grew their product, how it was grown, when it was cultivated and that they can build a real strong relationship with that cultivator as well.

It’s also hard to be a brand that’s using 19 different suppliers, selling the same genetics and expecting the same results. As an example, we’ve gotten Fatso from one of our partners, Natura. We’ve also gotten Fatso from Kind Op Corp (fka POSIBL). We renamed one of the strains – by adding a number on the end – just so that the consumer knew that we’re not saying that this is the same product, because it’s not. It’s from a different farmer and there’s going to be differences. While it does create a little bit more complexity for the consumer, we ultimately believe that every consumer has a right and will expect to know that type of information in the future.

Green: You launched Union Electric one day after the COVID lockdowns began in California. How did you navigate that landscape?

OpenNest Labs Logo

Goldstein: A lot of praying to the cannabis gods! It was really an incredibly challenging and difficult time. We were all concerned about the impacts of the virus. There were moments where we didn’t even know if dispensaries would be open, particularly in states that just legalized. You went from something being completely illegal to an essential business in 12 months. As a team, we were just trying to hold on to our hats and focus on product and partnerships.

Fortunately, with a brand like ours and the price point that we’re operating at, we just needed to consistently be on the shelves and available, and to be present with the bud tenders. So, we focused on that and shoring up our supply chain and just trying to wait it out. COVID forced a lot of cannabis companies to make a lot of decisions quickly and I think in some ways, because we have not been in the market for 24 months under one paradigm, we were pretty quick to be able to adjust and keep the team super lean to fit the emerging and rapidly changing environment. We learned a lot. We focused on partnerships and we leaned into the model that we set out to build which is being asset-light and focusing on the sell-through.

Green: I understand you have a 2% giveback program. Tell me about that.

Goldstein: The 2% giveback program was something that we wanted to put on the bag from day one. It’s on every bag that we made and put out into the market. We’ve seen a lot of cannabis companies come in and invest tens and hundreds of millions of dollars in infrastructure. Then, month 24 they realize “oh, crap, I gotta figure out what I’m going to do to get back and actually tap into the issues that are most important to cannabis consumers.” These are issues like social equity, equitable development of the industry, and ensuring that cannabis companies and its owners are active, responsible members of society.

What we’re going to focus on with our giveback program is working with our supply chain partners. We highlight the local communities, because when you look at the landscape in California, two thirds of its municipalities still don’t allow cannabis operations. We’re in a heart and minds battle still, even here in California, just proving that the operators here are not criminals and that they’re not going to bring negativity to local communities.

As we scale in California and scale to other states, the giveback program for us is a platform and a medium to work with our supply chain partners to make sure that we’re giving back and investing every step of the way. As founders and operators, it’s how we show that we are being mindful of the importance of equitable development of the industry. Ultimately, prosperity is going to come if everyone is getting a piece of the pie.

Green: What are you most interested in learning about?

Goldstein: I’m a student of history (I was a history major) and I was very fortunate to be part of a big evolution of technology development starting in 2011 working at Google and other tech companies. In some ways, this is the second generational industry that I’ve been a part of, and I have a lot of regrets about how the first one developed – not that I necessarily was the chief decision maker. The idea that large tech companies would always act responsibly (i.e. “Don’t be evil”) didn’t really pan out. I think it was an ignorant thought process as a person in my young 20s.

What I’m most interested in learning is: Can the cannabis industry develop consciously? Can you keep the greed and the things that bring industries down at bay? How can I, as an operator, be the best facilitator of that future? I’m always thinking how I can continue to bring in the people around us and around me as the CEO of Union Electric to ensure that we’re always focused on that.

Green: Great, that concludes the interview. Thank you, Max.

Goldstein: Thanks Aaron. 

From Union Electric: Union Electric Cannabis will be offering their first Regulation CF crowdfund raise in an effort to give everyday consumers a stake in one of California’s fast growing cannabis brands. Due to the ever-evolving legal status of cannabis in the US, there have been very few opportunities for individuals to invest early on in American cannabis brands. This decision to give everyday cannabis smokers access to investing in their favorite cannabis brand (for as little as $100) is a natural manifestation of Union Electric’s mission: Collective power and championing accessibility for the plant. You can learn more about their raise by visiting https://republic.co/union-electric

A Q&A with George Mancheril, Founder & CEO of Bespoke Financial

By Cannabis Industry Journal Staff
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Bespoke Financial was the first licensed FinTech lender focused on the legal cannabis industry. Founded in June of 2018, Bespoke offers four types of lending products: Invoice financing, inventory financing, purchase money financing and a general line of credit. With just over two years of originating loans to clients, they have benefitted from being a first mover in the cannabis lending space.

George Mancheril is the founder and CEO of Bespoke Financial. He has over fourteen years of experience in finance, with a special focus on asset-based lending, off balance sheet financing of commercial assets and structured credit. Following a stint with Goldman Sachs, he worked at Guggenheim Partners Investment Management’s Structured Credit Group in Los Angeles where he worked on structuring esoteric asset financing for a variety of commercial assets including airplanes, container leases and receivables.

Since 2018, Mancheril and his team at Bespoke Financial have deployed over $120 million in principal advances without any defaults and across eleven states. We sat down with Mancheril and asked him about the history of his business, how it’s been received so far and how the past few years of financial activity in the cannabis sector might shape the future.

Cannabis Industry Journal: What is Bespoke Financial in a nutshell?

George Mancheril: Bespoke Financial is the first licensed FinTech lender focused on the legal cannabis industry. Bespoke offers legal cannabis businesses revolving lines of credit that address the top problem in the industry – lack of access to non-dilutive, scalable financing to capitalize on growth opportunities and improve profitability. Due to the federal illegality of cannabis, traditional banking institutions cannot work with our clients even though these operators are working within the legal regulatory framework of their state. Bespoke solves this problem for businesses across the cannabis supply chain along with ancillary companies affected by the lack of access to traditional capital markets.

CIJ: How does your company help cannabis businesses?

George Mancheril, Founder & CEO of Bespoke Financial

Mancheril: Bespoke Financial offers 4 lending products – all are structured as a revolving line of credit but each allows our clients to access capital in a unique way based on their specific needs. Our Invoice Financing product, allows businesses to borrow capital against their Accounts Receivables in order to manage general business expenses, particularly if the borrower’s business growth is slowed due to a long cashflow conversion cycle. Inventory Financing and Purchase Money Financing allow our clients to finance payments to their vendors, which helps our clients achieve economies of scale by increasing their purchasing power. Lastly our general Line of Credit allows for the most flexibility for our clients to utilize our financing by either financing payments made directly to vendors or drawing funds into the client’s bank account to manage business expenses.

CIJ: I know the company is only a few years old, but can you tell me about your company’s success so far?

Mancheril: [Clarification, Bespoke was founded in June 2018 so we’ve been around for 3 years but we now have over 2 years of originating loans to clients.] Bespoke Financial has benefitted by being a first mover in the cannabis lending space as the first licensed lender specifically addressing the financing needs of cannabis operators, starting in early 2019. Over the past 2 years we have developed and refined our proprietary underwriting model to identify over 50 active clients spanning the entire cannabis supply chain. Since inception, Bespoke has deployed over $120 million in principal advances without any defaults to date and expanded our geographic footprint across 11 states. Our growth and success highlights our company’s expertise in structuring financing solutions which address the unique capital needs of cannabis companies.

CIJ: Can you discuss how the recent M&A activity, current and recent market trends, as well as the pandemic has affected your company’s growth?

Mancheril: The cannabis industry overcame a variety of challenges presented by the COVID-19 pandemic, ending the year with record sales in both new and existing markets. The support from state and local governments, evidenced by the industry’s essential business designation and the easing of regulations, coupled with increasing consumer adoption of cannabis combined to increase the industry’s demand for capital throughout the pandemic. Bespoke was well positioned to partner with cannabis companies across the supply chain and was proud to help our clients thrive during this pivotal period.

Jeeter was able to grow sales over 1,000% within the first year of working with Bespoke

Coming into 2021, the cannabis industry and investors shared a very positive outlook for the future based on the previous year’s experience and expectations of material easing of federal regulation. While M&A activity in the industry has increased over the past 6 months, the overall consensus has been that both the frequency of exit opportunities and the corresponding valuations will continue to increase as federal decriminalization opens new sources of capital and materially changes investors’ valuation assumptions. In general, we’ve seen cannabis companies focused on both capitalizing on the increasing opportunity presented by the industry’s organic growth and maximizing the benefits of future regulation changes by utilizing the resources and capital currently available to increase revenue, expand into new markets, and work towards profitability. All of these factors have further compounded the industry’s demand for financing and we expect to see continued growth in our lending activity in line with the industry’s growth.

CIJ: Who has been your most successful client?

Mancheril: We have a handful of cases studies and client success stories here on our website. One of the most exciting growth stories we have seen has been our client DreamFields whose in-house brand, Jeeter, is now the #1 pre-roll brand in the state of California. Prior to working with Bespoke, the brand was not ranked in the top 25 but was able to grow sales over 1,000% within the first year of working with us and achieve the #1 spot in their product category.

Navigating the Complexities of Out-of-Home Cannabis Advertising Nationwide

By Matthew O’Connor
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Cannabis hit major milestones in the first half of 2021. Adult use cannabis is legal in five more states, bringing the total to 16 plus Washington D.C. In addition, two pieces of federal cannabis legislation were recently revived by Congress. Even with these developments, the cannabis industry faces an uphill climb to navigate state and local regulations levied on its sales, operations, taxes and advertising.

Advertising regulations present big hurdles for cannabis businesses to overcome. With cannabis illegal at the federal level, traditional advertising avenues like broadcast and radio are limited to the states where it is legal. Still, many networks won’t touch cannabis ads. Major tech companies like Google, YouTube and Facebook largely bar cannabis businesses from online marketing. With cannabis advertising laws that vary state to state, companies face a hodgepodge of regulations with little consistency.

So, how are brands working within this messy regulatory framework? They’re turning to out-of-home (OOH) advertising. Here’s what to know about legally advertising cannabis products and brands through outdoor media.

A state-by-state patchwork of regulations

Medicinal cannabis has been legal in California for more than two decades, and adult use cannabis is going on five years. Yet, debate rages on over how visible cannabis advertisements should be in daily life. This isn’t just happening in The Golden State. Other states like Colorado and Oregon with established legal cannabis industries continue to grapple with how to regulate cannabis advertising in print and outdoor formats. Not to mention that states just getting into the legalization arena are playing catch up to get rules and regulations in place.

With the right partner, cannabis companies can navigate the nation’s mélange of advertising regulations to share their products, services and marketplaces. The best online OOH buying platforms are even equipped with cannabis filters that seamlessly identify cannabis-compliant OOH ad inventory.

Growing and innovating with out-of-home advertising

This dispensary ad appeared on Variety.com

While it’s the oldest form of advertising, OOH is a far cry from an old-fashioned advertising avenue. It’s a hot, dynamic form of communication that is poised for big growth alongside the cannabis industry. Sure, OOH includes more traditional highway-side billboards. But it also spans eye-catching digital billboards, taxi-top advertisements, building wallscapes, and digital vehicle charging stations – all of which are accessible through OOH buying platforms.

Such platforms make it easy for cannabis brands to effectively target consumers compliantly. Brands like Cookies, Eaze, MedMen and MONOGRAM have launched laugh-inducing, Instagrammable, and thought-provoking campaigns to build brand awareness. The Northern-California brand Cookies has mastered the art of cross-product branding, building an entire clothing line around its brand. Real California Milk even got in on the fun with a dispensary-inspired pop up and an OOH media buy. With OOH, cannabis businesses have effectively connected adult consumers with their latest products, promotional offers and physical storefronts, but also sparked conversations about cannabis legalization and decriminalization.

What to consider when leveraging OOH for cannabis advertising

If you work in the cannabis industry, are an agency partner or a small-business owner managing the advertising process, here are some things to keep in mind when planning your OOH ads.

  • Know the rules of where you plan to advertise. This is a fast-moving space. New markets are coming online. Regulations are being established and challenged. It’s crucial to find industry partners who provide reliable, up-to-date information on the status of advertising rules in the markets you’re in so you stay compliant and don’t jeopardize your business license.
  • Both Ivyside and Weedmaps are featured on this page

    Get into the practicalities. What do local cannabis advertising rules mean for your brand? Are there regulations that impact more than the location of an OOH campaign? Rules on creative artwork or words that are banned? A guide to regulations is likely laid out at the state level (see the states of Illinois and Massachusetts), but will ultimately be governed by local municipalities (see the City of San Diego). There are workarounds here. Just because you can’t show people engaging in cannabis consumption, cannabis leaves or products, it doesn’t mean your creativity is limited. Look no further than Weedmaps. The company launched its Weed Facts campaign across hundreds of billboards in half a dozen or more markets to highlight the many benefits of cannabis. One read: “States that legalized marijuana had 25% fewer opioid deaths.”

  • Determine specific goals for your campaign. What do you want to achieve with an OOH campaign? Are you looking to build brand awareness? Share a new product? Drive foot traffic to a physical location or prompt customers to visit your website? Are you advocating for change? Laying out your goals will drive your creative and the locations in which you launch your campaign. Speaking of launching, with OOH – especially digital outdoor ads – your creative can be up and running in 48 hours. Outdoor ads are customizable and with location tools, verbiage and design, can be directed to a specific cross-section of the market.
  • Measure Success. Barring state and local regulations, the OOH possibilities for furthering and promoting your brand are almost endless. Once your campaign is launched, the right OOH buying platform will enable you to track goals and success. With the ability to track and isolate OOH, you’ll be able to attribute conversions, measure your return on investment, compare performance by unit and optimize your campaign.

As regulations at the local, state and federal levels change and evolve, OOH advertising will remain the tried-and-true standard for cannabis companies to get word out about their brand, market their products and drive traffic to their websites and storefronts.

Anthony Franciosi, Honest Marijuana

Essential Elements to Set Up a Green, Zero-Waste Grow Facility

By Anthony Franciosi
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Anthony Franciosi, Honest Marijuana

Clean, ecologically sound production methods are the ideal for any cultivation or farming activity. Taking from the earth only what is needed to grow the crop and leaving behind little in the way of chemicals and land/water loss is the goal; with cannabis grow facilities, it can also be a reality.

This type of production does require some capital investment into state-of-the-art equipment and facilities, with standards that are equal to or even surpass current EPA and USDA regulations. While cannabis growing does not yet have access to the organic certification, that doesn’t mean growers can’t abide by and even go beyond the rules, to grow clean, healthy and environmentally sound cannabis.

There are a few essential elements required to make this kind of operation a reality.

Ecologically advanced use of power

  • For any indoor facility, one of the key elements is lighting. Using as energy efficient a system as possible is key. The best option at the moment is LEC lighting, which provides a spectrum of light that is very close to natural. This makes checking on plant progress more realistic and, with the inclusion of UV-B in the spectrum, can improve yields as well. In addition, the LEC bulbs have a long life—up to 2 years—which means lower maintenance costs as well.
  • The demand for high-quality, organically grown cannabis continues to increase

    Another aspect of growing that tends to use a lot of power is the cooling system. A standard HVAC system will be power intensive, so alternative ones like water chilled climate control systems are just as effective and 30% more power efficient. These systems are also able to reuse wasted power by feeding it back into the system, creating an additional 10% energy reduction. In addition, when the outdoor air temperature dips below 45 degrees, a water chilled system can switch to using the outside air, creating 60—70% in energy savings.

Efficient management of water resources

  • Cultivators depend heavily on water to ensure that the plants are hydrated and able to absorb the nutrients they need to grow and thrive. The result for many however is an excessive waste of water. This is a problem when a grow facility is leveraging municipal water resources. A water meter helps to manage and track usage but to ensure that it is used as efficiently as possible, a “top feeding” method of usage ensures minimal water waste (5% or less).

Effective waste management

  • Wastewater is a byproduct of any water intensive cultivation method but there again, managing the systems to ensure that what water isn’t reused and becomes “gray water” is still as clean as possible is the ideal. A high-quality filtration system keeps sediment, chlorine and other harmful elements out of the water supply — and out of the municipal sewage system. Further, by using organic matter throughout the growing process, the wastewater that is produced will meet every federal standard for organic food production.
  • All plant waste in a grow facility—for example: stems and fan leaves—is disposed of according to state and local laws. With cannabis plants, that requires a certain level of security, including locked dumpsters that are only unlocked and placed outside when the removal trucks arrive on site.

Organic farming practices

  • Using OMRI (Organic Materials Review Institute) listed soil is an essential part of clean, environmentally friendly growing. To ensure the proper nutrients are available for each harvest, once a crop is gathered, the soil is transferred to a local landscape company to compost and reuse.
  • Pesticides need to obviously be avoided and all fertilizers need to be USDA approved as organic and all nutrients need to be certified by OMRI to ensure they don’t contain any synthetic materials.

Considering all of these aspects is essential to creating an ecologically friendly grow facility with tremendous yields that are clean and safe for the end consumer, as well as minimizing the impact to the earth.

Unnecessary Obstacles for the Canadian Edibles Market

By Steven Burton
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The edible cannabis market in Canada is still green. Delayed by a year from the legalization of dried flower, the edibles and extracts market poses significant opportunities for manufacturers. Edibles and extracts typically have higher profit margins than dried flower (“value-added” products) and consumer demand appears to be high and rising. So, what is causing trouble for cannabis companies trying to break into edibles and extracts? Below are four observations on the market potential of edibles in Canada.

Canada’s Edibles Market: The Numbers

In 2020, Canada – the largest national market in the world for cannabis products – grew more than 60%, largely as a result of the introduction of new products introduced in late 2019, often called “Cannabis 2.0,” which allowed the sale of derivative products like edibles. Deloitte estimates that the Canadian market for edibles and alternative cannabis products is worth $2.7 billion, with about half of that amount taken up by edibles and the rest distributed amongst cannabis-infused beverages, topicals, concentrates, tinctures and capsules. More recently, BDSA forecasts the size of the Canadian edibles market to triple in size by 2025 to about 8% of the total cannabis dollar sales.

Source: BDSA

In December 2020, the Government of Canada reported that edibles made up 20% of total cannabis sales; Statistics Canada data shows that 41.4% of Canadians who reported using cannabis in 2020 consumed edibles. While sales have gone up and down over the course of the COVID-19 pandemic, there are clear indications that there is a substantial demand for edibles and extract products, which can be consumed more discreetly, with greater dosage precision and with fewer adverse effects (as opposed to smoking).

While sales of regulated edibles products continue to grow, edibles, extracts and topicals sales in Canada are facing a similar problem as dried flower sales: inventory growth is outpacing sales. Unsold stock sitting in inventory is growing at a dramatic pace, showing a clear lag in demand for these products on the legal market. How do we understand this contradiction?

1) Complex Regulatory Standards are a Major Barrier

Cannabis edibles compound the already existing problems around the conceptualization of cannabis products regulation. How should it work? Edibles can be considered in any of the following categories:

  • Cannabis as a pharmaceutical with medical application. Requires strict dosage and packaging requirements;
  • CBD as a nutraceutical with health benefits claimed. Requires specific nutraceutical regulations be followed;
  • Food product to be consumed. Must comply with food safety regulations around biological, chemical, physical hazards through a risk-based preventive control program. A full supply chain and ready-to-recall based system of regulatory standards need to be followed.

Incorporating elements from each of these three regulatory regimes into a single regulatory standards body is a confusing logistical and compliance challenge for both the regulators, and the producers and retailers of the product.

In mid-2019, the Government of Canada released the Good Production Practices Guide for Cannabis. This merged cannabis-specific regulations with food safety-specific regulations. Rigorous food safety requirements were combined with equally rigorous cannabis production and processing requirements, resulting in extremely laborious, detailed and specific regulations. These span everything from building design and maintenance, to pest control, to employee sanitation, to traceability – at all levels of the process. Navigating these regulations is a challenge, especially for many smaller producers who lack the necessary resources, like automation technology, to devote to understanding and tracking compliance.

2) Low Dosage Regulations Give an Edge to the Illicit Market

When edibles were legalized, THC dosage was capped at 10mg per package. For more experienced consumers, especially those who are dealing with chronic pain and other medical needs, this limit is far too low – and the unregulated market is more than able to fill this gap. One analyst from Brightfield pointed out that the dosage restriction, in combination with other regulations, will make it harder for the edibles market to grow in Canada.

It also makes the unregulated market almost impossible to beat. Barely more than half of cannabis consumers in Canada buy exclusively from government-licensed retailers, while 20% say that they will only buy unregulated products. According to a Deloitte report, 32% of legacy cannabis consumers said that unregulated products were better quality, and 21% reported that they preferred unlicensed products because there were more options available. Almost half of respondents also reported that quality was the biggest factor that would cause them to switch to regulated sources, and 28% said that higher THC content would prompt them to switch.

3) There is a Big Price Disparity between Legal and Illicit Edibles

As a result of dosage requirements and other factors, price per gram of regulated edible product is much higher than that of flower, unregulated edibles and edibles available through regulated medical distributors.

If you take the BC Cannabis Store’s price for Peach Mango Chews as an example: a 2pc package is $5.99. Since the dosage limits at 10mg per package, that’s the equivalent of $0.60/mg or $600/gram. A quick Google search reveals that an easily available edible from a medical cannabis distributor contains 300mg of THC and sells for $19.00, a price of $63.00/gram.

That means that not only is 10mg too low a dose for many users to achieve the result they were looking for, but the dosage restriction also makes the products less attractive from both a nutrition and cost standpoint. Deloitte reportsthat higher prices is the reason that 76% of long-time cannabis consumers continued to purchase from unregulated sources. The regulated industry as a whole is missing its legal market opportunity, where consumers prefer a lower price product with a greater range of dosage availability.

4) The Range of Products Available is Too Limited for Consumers

For most of 2020, chocolate edibles were the dominant product in this category in the Canadian market, garnering 65% of all edibles sales. But is this reflective of consumer wants? Despite a demand for other kinds of edibles like the ever-popular gummies, there are still only a few edible brands that offer the range of products consumers are asking for. According to research from Headset, there are 12 manufacturers in Canada making edibles but only two of them produce gummies. In comparison, 187 brands make gummies in the United States.

While some of this delay is likely due to the long licensing process in Canada and the newness of the market, there are other factors that make it challenging to bring a variety of products to market. The province of Quebec, Canada’s second-largest province, has banned the sale of edibles that resemble candies, confections, or desserts that could be attractive to children – giving yet another edge to unregulated sellers who can also capitalize on illegal marketing that copies from existing candy brands like Maynard’s.

When companies do want to introduce new products or advertise improvements to existing product lines, they are restricted by stringent requirements for packaging and marketing, making it harder to raise brand awareness for their products in both the legal and unregulated markets. Industry players are also complaining about government restrictions on consumers taste-testing products, which further compounds challenges of getting the right products to market.

In the meantime, illicit producers have also shown themselves to be savvy in their strategies to capture consumers. It is not uncommon to find illicit products packaged in extremely convincing counterfeit packaging complete with fake excise stamps. New consumers may assume the product they are purchasing is legal. Availability of delivery options for higher dosage, lower price illicit products is also widespread. All of this adds up to significant competition, even if it were easier to meet regulatory requirements.

Conclusion: Significant Room for Growth Remains Limited by Government Regulations

These four challenges are significant, but there are a number of opportunities that present themselves alongside them. A year and a half into the legalization of edibles, cannabis companies are getting a better picture of what Canadian consumers want and low dosages are proving to be desirable for Canadian consumers in some areas.

Some of the many infused products on the market today

In particular, sales of cannabinoid-infused beverages far outpaced other edibles categories last year, likely tied to the availability of these products in stores over the summer of 2020. BDSA’s research has shown that, in contrast with American consumers, the lower THC dosage for cannabis beverages is an advantage for Canadian consumers. Major alcohol brands like Molson Coors and Constellation Brands are investing heavily in this growing product area – though there the dosage limits also apply to how many products a consumer can buy at a time.

At the same time, the large quantity of unsold cannabis flower sitting in storage also poses an opportunity. While its quality as a smokeable product may have degraded, this biomass can be repurposed into extracts and edibles. Health Canada has also shown some responsiveness to industry needs when it shifted its stance to allow for Modified Atmosphere Packaging (MAP), which will help improve shelf life of products.

While strict regulatory obstacles remain, challenges will continue to outweigh opportunities and the illicit market will remain a strong player in the edibles market. As regulations become clearer and producers become more accustomed to navigating the legal space, barriers to entry into the regulated cannabis market and specifically the extracts and edibles market, will decrease. Meanwhile, those getting into the edibles market will do well to be wary of the challenges ahead.

Connecticut Legalizes Cannabis

By Cannabis Industry Journal Staff
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Update: Governor Ned Lamont has signed S.B. 1201 into law, officially legalizing cannabis in the state of Connecticut


On June 16, 2021, the Connecticut House of Representatives voted to pass their version of S.B. 1201, a bill that legalizes adult use cannabis. Following the House’s approval of the changes, the bill made its way back to the Senate on June 17, where they approved all changes. It now heads to the Governor’s desk, where Gov. Ned Lamont is expected to sign it into law.

Connecticut Governor Ned Lamont

With Gov. Lamont’s signature, Connecticut will become the 19th state in the country to legalize adult use cannabis. The bill is slated to go into effect on July 1, just a couple of weeks away.

Come July 1, adults in Connecticut can legally possess up to 1.5 ounces of cannabis in public and up to five ounces at their home. The bill allows for adults to grow at home, just not until 2023 unless you are an existing patient registered in the medical program.

According to the Marijuana Policy Project (MPP), the bill will expunge cannabis records for low-level crimes and puts “the bulk of excise tax revenues into a Social Equity and Innovation Fund, which will be used to promote a diverse cannabis industry and reinvest in hard-hit communities.” Half of the cannabis business licenses issued will go to social equity applicants that can receive funding, workforce training and other types of assistance from the program.

Connecticut state flag

DeVaughn Ward, senior legislative counsel at MPP, says the bill includes provisions to repair harm done by the prohibition of cannabis. “The Connecticut Legislature’s commitment to legalizing cannabis through a justice-centered approach is commendable,” says Ward. “For decades, cannabis prohibition and criminalization has harmed some of the state’s most vulnerable communities. This bill not only ends this failed and unjust policy, but it also includes measures that will work to repair the harm that it has caused. This state will be a model for others to follow.”

The bill includes strong protections for employees, tenants and students by limiting discriminatory actions based on positive drug tests. It also dedicates 25% of tax revenue from cannabis to go toward mental health and substance use treatment.

Interestingly, the bill has a THC cap in it. Cannabis flower sold at dispensaries is capped at 30% THC content and concentrates (except for vape carts) are capped at 60% THC. To read more about the nuances of the legislation, the MPP has a helpful summary of the bill you can find here.

How Effective is Your Internal Auditing Program?

By David Vaillencourt
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The word “audit” evokes various emotions depending on your role in an organization and the context of the audit. While most are familiar with and loathe the IRS’s potential for a tax audit, the audits we are going to discuss today are (or should be) welcomed – proactive internal quality audits. A softer term that is also acceptable is “self-assessment.” These are independent assessments conducted to determine how effective an organization’s risk management, processes and general governance is. 

“How do you know where you’re going if you don’t know where you’ve been” – Maya Angelou

Internal quality audits are critical to ensuring the safety of products, workers, consumers and the environment. When planned and performed periodically, these audits provide credible, consistent and objective evidence to inform the organization of its risks, weaknesses and opportunities for improvement. Ask yourself the question: do your clients/vendors rely on you to produce reliable, consistent and safe products? Assuming the answer is yes, what confidence do you have, and where is the documented evidence to support it?

Compliance units within cannabis businesses are typically responsible for ensuring a business stays legally compliant with state and federal regulations. This level of minimum compliance is critical to prevent fines and ensure licenses are not revoked. However, compliance audits rarely include fundamental components that leave cannabis operators exposed to many unnecessary risks.

Internal quality audits are critical to ensuring the safety of products, workers, consumers and the environment.

As a producer of medical and adult-use products that are ingested, inhaled or consumed in other forms by our friends, family and neighbors, how can you be sure that these products are produced safely and consistently? Are you confident that the legal requirements mandated by your state cannabis control board are sufficient? Judging by the number of recalls and frustrations voiced by the industry regarding the myriad of regulations, I would bet the answer is no.

What questions do internal audits address? Some examples include:

  • Are you operating as management intends?
  • How effective is your system in meeting specified objectives? These objectives could include quality metrics of your products, on-time delivery rates and other client/customer satisfaction metrics.
  • Are there opportunities to improve?
  • Are you doing what you say you do (in your SOPs), and do you have the recorded evidence (records) to prove it?
  • Are you meeting the requirements of all applicable government regulations?

There are potential drawbacks to internal audits. For one, as impartiality is essential in internal audits, it may be challenging to identify an impartial internal auditor in a small operation. If your team always feels like it is in firefighting mode, it may feel like a luxury to take the time to pull members out of their day-to-day duties and disrupt ongoing operations for an audit. Some fear that as internal assessments are meant to be more thorough than external assessments, a laundry list of to-do items may be uncovered due to the audit. But, these self-assessments often uncover issues that have resulted in operational efficiencies in the first place. This resulting “laundry list” then affords a proactive tool to implement corrective actions in an organized manner that can prevent the recurrence of major issues, as well as prevent new issues. The benefits of internal audits outweigh the drawbacks; not to mention, conducting internal audits is required by nearly every globally-recognized program, both voluntary (e.g. ISO 9001 or ASTM Internationals’s Cannabis Certification Program) and government required programs such as 21 CFR 211 for Pharmaceuticals.

Internal Auditing is a catalyst for improving an organization’s effectiveness and efficiency by providing insight and recommendations based on analyses and assessments of data and business processes. Additional benefits of internal audits include giving your organization the means to:

  • Ensure compliance to the requirements of internal, international and industry standards as well as regulations and customer requirements
  • Determine the effectiveness of the implemented system in meeting specified objectives (quality, environmental, financial)
  • Explore opportunities for improvement
  • Meet statutory and regulatory requirements
  • Provide feedback to Top Management
  • Lower the cost of poor quality

Findings from all audits must be addressed. This is typically done in accordance with a CAPA (Corrective Action Preventive Action) program. To many unfamiliar with Quality Management Systems, this may be a new term. As of Jan 1, 2021, this is now a requirement for all cannabis licensed operators in Colorado. Many other states require a CAPA program or similar. Continuing education units (CEUs) are available through ASTM International’s CAPA training program, which was developed specifically for the cannabis industry.

Examples of common audit findings that require CAPAs include:

  • Calibration – Production and test equipment must be calibrated to ensure they provide accurate and repeatable results.
  • Document and record control – Documents and records need to be readily accessible but protected from unintended use.
  • Supplier management – Most standards have various requirements for supplier management that may include auditing suppliers, monitoring supplier performance, only using suppliers certified to specific standards, etc.
  • Internal audits – Believe it or not, since internal audits are required by many programs, it’s not uncommon to have a finding related to internal audits! Findings from an internal audit can include not conducting audits on schedule, not addressing audit findings or not having a properly qualified internal auditor. Are you looking for more guidance? Last year, members of ASTM International’s D37 Committee on Cannabis approved a Standard Guide for Cannabis and Hemp Operation Compliance Audits, ASTM D8308-21.

If you are still on the fence about the value of an internal audit, given the option of an inspector uncovering a non-conformance or your own team discovering and then correcting it, which would you prefer? With fines easily exceeding $100,000 by many cannabis enforcement units, the answer should be clear. Internal audits are a valuable tool that should not be feared.

Flower-Side Chats Part 6: A Q&A with Fabian Monaco, CEO of Gage Cannabis

By Aaron Green
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In this “Flower-Side Chats” series of articles, 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 integrate innovative practices in order to navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

The Michigan cannabis market is making pace with big time cannabis players like California (#1) and Colorado (#2). For the first quarter of 2021, combined cannabis sales in Michigan were nearly $360 million. At that pace, Michigan could see combined sales of $1.4 billion — well outpacing 2020 sales of $984 million.

Gage is the exclusive cultivator and retailer of world-leading cannabis brands including Cookies, Lemonnade, Runtz, Grandiflora, SLANG Worldwide, OG Raskal, and its own proprietary Gage brand portfolio in Michigan. The company recently secured a $50M investment in an oversubscribed round which included a $20M investment from JW Asset Management.

We spoke with Fabian Monaco, CEO of Gage Cannabis. Fabian started Gage in 2017 after meeting his operating partners in Michigan. Prior to Gage, Fabian worked as an investment banker racking up a number of firsts in cannabis industry financing and M&A transactions.

Aaron Green: Tell me how you got involved in the cannabis industry.

Fabian Monaco: My background is in investment banking – specifically 10 years of capital market experience. I was fortunate enough to be part of the initial team that brought Tweed, now Canopy Growth public. In fact, I worked on a lot of firsts in the industry: the first acquisition, the first $100 million financing, the first IPO in the space. Shortly after that, I went to XIB Financial, which co-founded Canopy Rivers with Canopy Growth. I was working on that when I encountered these two phenomenal operators. At the time, I had visited over 100 of these cultivation facilities and these were some of the best operators in the business. So that led me to start Gage in 2017.

Green: Where is Gage currently operating?

Fabian Monaco, CEO of Gage Cannabis

Monaco: In the U.S., we are purely operating in Michigan. We do have a licensing agreement with a small producer in Canada, so you will see the brand there.

Green: Tell me about your choice to settle the company in Michigan initially?

Monaco: If you look at Michigan as a historical cannabis market, it was the second largest cannabis market from a medical card holder standpoint for nearly a decade, only behind California. This was probably the case until 2019, where they went to adult use. So, for us, we knew this medical base was going to be a great platform to an outsized adult-use market. And already we see that April was $154 million in sales, adding up to over a $1.8 billion dollar run rate. That’s the third highest run rate in the country, only behind California and Colorado.

Green: What is it that makes Michigan different? You talked about medical cannabis already. Is there anything else about the demographics in Michigan or the consumer base that makes Michigan special in that sense?

Monaco: In Michigan, over 70% of the population is old enough to consume. So, when you take a look at how much of the population is 21-years-old plus, relative to other markets, the total addressable market in Michigan is just huge. Then when you take a look at their consumption habits, especially when it comes to flower, Michigan is consuming some of the highest amounts on a per capita basis. Those two stats set up a scenario where we foresaw the potential of the market. To be honest, the market has exceeded our expectations. We didn’t think it would be this strong this quickly. Right now, the state is looking to be a $3 billion market by 2024 – and it could easily surpass that.

Green: Any plans for expansion beyond Michigan?

Monaco: We’ve been to eight or so different states in the past 60 or 75 days really trying to educate ourselves on the licensing structure, the markets there and the key players in those respective markets. What are some of the costs, in terms of acquisitions? We really want to branch out the Gage brand into other states across the US. The thing is, we believe in the model that Trulieve deployed. They really focus on being the number one player in a very, very big market. For instance, Trulieve is obviously one of the top players in Florida. We’re trying to mimic that strategy.

Trulieve is a dominant market force in Florida

Once we have that deep market penetration, that market share, then we’ll start to get into other states. But for now, why would you want to go and rush out to another state when you’re already in the third largest market in the country?

Green: Are there any criteria you look for in a potential expansion state?

Monaco: We look at consumption habits. We want states with similar demographics to Michigan. Close proximity states also allows us to quickly go from one state to the other without having to take a multi-hour flight to get there. States we’re considering are Northeast and Midwest states, like Illinois, Pennsylvania, Ohio, New Jersey, Massachusetts and Maryland.

Green: What kind of consumer trends are you seeing in Michigan as it relates to products?

Monaco: Flower continues to dominate. In a market like Michigan, we have some of the top flower consumers in the country on a per capita basis. We specialize in flower and flower only, so this created a perfect scenario where we are able to ramp up our brand quite quickly, from a flower standpoint.

Now that we have that brand equity, that brand power, we are going to potentially delve into other categories, including extract-based products, such as vape carts and concentrates. You hear talk about these new beverages, but we’re not seeing that take off in this market as much as people think it would. Flower still remains at the top and that’s something we highly anticipate going after for quite some time.

Green: Can you tell me about your vertical integration strategy?

Monaco: We’re one of the larger retail portfolios in Michigan right now. We have 13 locations. Nine are operational. So, we’re really in a great spot overall in terms of how big of a platform we do have – one of the larger ones – and, frankly, in one of the larger markets in the country.

The Cookies flagship dispensary in Detroit, Michigan

We actually have a little bit of a unique scenario on the cultivation side of things. We have our own three cultivation assets that are going to be producing, on average, about 1,000 pounds of product over the next couple of months as they fully ramp up. We’ve actually contracted out a lot of our cultivation. Cultivation is time consuming, and it’s also very, very costly to build out. Luckily for us, we’re a really well-established and strong brand. We had the opportunity to contract out our growing. So, we have 10 different contract growth partners. These are phenomenal cultivators, again, some of the best in the state. They grow Gage and Cookies branded product for us. We have a great breakdown from a financial standpoint. We share the retail revenue with them on a 50/50 basis. They pay a little bit too, for packaging and testing. So, basically for $0 we’re getting product on the shelf where we’re achieving 50% plus gross margins. It’s a phenomenal setup for us on the cultivation side where we went from two cultivation assets in the latter half of last year to now eight different cultivation assets, moving to 13 by the end of the year.

On the processing side, we’re just actually finishing our processing lab. We should have extract-based products launched in Q3. We’re really excited to have our own line of extract-based products. We plan to focus on vape carts to start – a very popular category in Michigan on the retail side of things.

Green: Are those cultivations all indoor?

Monaco: Yes, we’re big proponents of indoor flower. It allows us to control the quality of our flavors and consistency in our strains when we grow indoors. From our consumers, there is a very strong demand for indoor grown high-premium, high-quality products.

Green: What sets Gage apart from other competitors in Michigan?

Monaco: I think focus. We just focused on our flower. We focus on our post-production process. We hang dry everything, we hand trim everything, and we hand package everything. That’s a little bit more time consuming. It’s a little more costly. But all that effort shows in the end product which is key.

A lot of people think you can grow great quality product, you cut it down, you dry it and put it in the pack and it’s going to be great. You really need a strong attention to detail, especially in a big consuming market like Michigan, because again, they are a refined consumer. They’re looking for the best. They’ve already been consuming some of the best quality products in the country for many years now. So for us, we put a painstaking process in place for flower production, not only from the growing standpoint, but also through the end of that post production process.

Ancillary to our cultivation process is also consistently providing new varieties of flavors on the flower side of things to the consumers. When you look at the successful brands in California, what makes them special is that they’re consistently pheno hunting, coming out with new flavors. This is similar to the wine industry where the best wineries come out with a new kind of grape or mix and consumers get excited, they rush out and buy half a dozen bottles or a dozen bottles.

It’s a very similar scenario in the cannabis industry. I hate when people say that cannabis is a commoditized industry. It’s so far from the truth. You look at brands like us or Cookies, Jungle Boyz and you can see their constant innovation, their constant drive. They are always bringing something new for the consumers to try. That’s what really sets apart the best brands.

Green: What’s got your attention in the cannabis industry? What are you interested in learning more about?

Monaco: I’m always intrigued with new ways of consuming. Across the U.S. and well-developed markets like California and Colorado, you see all these interesting new ways to consume the product. You’ve got patches, sublingual strips, etc. There are so many unique ways. I am currently seeing how they play out. Are they fads? Do people get excited about them initially, and then go back to their vape carts, pens and typically dried flower pre-rolls? I’m always trying to educate myself to see what’s on the market. What’s new? Who has a new drink? How does it hit? Are people excited about it?

Also, I am constantly learning about new brands that come out. There are so many new small brands that don’t necessarily have the scale or the capital to really expand, but are producing some of the best products in the country in a cool, unique form of packaging, etc..

Green: Alright, great. That concludes the interview!

Monaco: Thanks, Aaron.