While we’re pleased to report that 2020 is almost over, 2021 will be a mixed bag. New jurisdictions will open their doors to cannabis and consumption will continue to rise, but competition from new operators and illicit supplies will increase. As California’s cannabis industry matures and turns the page on a bizarre year, market uncertainty will linger as the pandemic drags on and overtaxation and regulation strangle profits. But let’s remember, cannabis has been cultivated for over 6,000 years and has withstood far worse—this market isn’t going anywhere and will continue to grow and become more impactful.
Access to Traditional Finance Services
The U.S. Senate will likely pass legislation providing cannabis businesses access to traditional banking and financing services. This will be a game changer for the industry. Valuations will go up. Increased liquidity will smooth transactions. Companies will look to affordable debt to expand their footprints and capacity to compete on a new scale. Full federal legalization could be a game changer if 280E tax restrictions are lifted and interstate and international cannabis trade open up, but the timing of this is hard to predict.
Continued Quarantine-Induced Consumption
Cannabis consumption will continue to increase as Californians seek to ease pandemic-related stress, temper quarantine conditions, and sample an eye-popping array of new products. Sophisticated consumers will be open to spending more on unique and niche products. But hemp-derived cannabinoids may present a new source of competition, especially if CBD remains unregulated. By the end of 2021, cannabis beverages will begin to compete with mainstream alcohol categories. Pharmaceuticals will increasingly take notice of this industry and the increasing share of consumers turning to plant-based remedies.
Ever More Cultivation Opportunities
In pursuit of revenue, agricultural counties will liberalize their policies on cannabis cultivation by permitting more acreage and streamlining permit processes. Neighborhood groups will push back, but policymaker concerns will be assuaged when they see cannabis farms operating innocuously (and sustainably) around the state. Advances in seed breeding, pest-and-disease control, outdoor growing techniques and odor abatement technology will help too.
New Retail
Cities and counties will revisit opening their borders to cannabis retail storefront and delivery as they attempt to fill budget gaps. Many cities will allow cannabis retail for the first time and/or expand the number of licenses available. These new dispensaries will provide a much-needed outlet for the influx of licensed flower and will continue to spur innovation and consumer education. But a “second wave” of retail speculators seems poised to let optimism override judgement, setting themselves up for failure or acquisition by incumbents.
Getting Social Equity Right
2021 will be a pivotal year for social equity, which will establish a foundation for a just cannabis economy. The industry will have to grapple with how to ensure that those most impacted by the criminalization of cannabis and most often excluded from traditional financing exposure are provided with equitable access to meaningful opportunities. As California’s regulated cannabis market grows, getting social equity right will be important if the industry is to firmly establish itself as an inclusive industry that addresses impacts on marginalized communities and responds to customer demands.
Formalizing Appellations
California’s new CalCannabis Appellations Program will provide cultivators and brands a way to credibly market the value of their unique growing regions and cultivation methods. These distinctions only apply to cannabis planted in the ground, excluding greenhouse and warehouse grows. The expectation is that high-end consumers, trained to recognize place-based designations and quality certifications in other products, will reward products that boast these designations. How many consumers will be willing to pay the premium and how long full implementation of the program will take, remains to be seen.
Prices May Begin to Drop
2020 was a great year for the few fully licensed cultivators in California permitted to sell to the regulated market. 2021 may be different. Numerous licensed cultivation projects will complete the permitting processes and come online next year. While growing demand may outpace supply at first, by Q3 supplies could swamp the market. Premium flower is perhaps an exception. Adding to the pricing pain, as always, is California’s illicit market, which will continue to undercut prices, as legal growers toil to comply with a labyrinth of state and local regulations. Nonetheless, cannabis will remain the most profitable crop on a per acre basis for some time.
Business Turmoil
The drop in prices coupled with continued high taxes and regulatory burdens will result in turnover of assets and businesses. Less efficient and inexperienced cultivators will struggle, many unable to ultimately withstand pricing pressure. Others will be hit by enforcement actions for failing to comply with California’s myriad regulations. Retailers, already burdened by punitive tax structures, real estate finance commitments and onerous local regulations, will need to be disciplined and have a clear strategy to address new competition.
Consolidation
Driven by business failures and renewed investor interest, California’s regulated cannabis industry may consolidate rapidly in the second half of 2021. Institutional finance will enter the space with a much more disciplined approach than prior capital sources. Traditional agricultural interests will invest in cannabis cultivation projects. Well-run retail chains will begin to outcompete, and then acquire, mom-and-pop competitors. Big brands will continue to expand their shelf space, relegating smaller competitors to niche and novelty status.
In short, the cannabis industry will continue to be highly dynamic, exciting, enticing and risky.
According to a press release published earlier in October, Metrc has won the seed-to-sale traceability software contract for West Virginia. The West Virginia Department of Health and Human Resources, Bureau for Public Health, Office of Medical Cannabis (OMC) made the announcement on October 21.
According to that press release, the main focus for the state’s traceability program is “helping OMC regulators ensure no illicit cannabis products are sold in the medical cannabis market, and also that no legal medical cannabis products are sold unlawfully.”
Regulators in West Virginia are still on schedule to open the medical cannabis market as soon as next year, according to Jason Frame, OMC director. “This is an important step to make certain medical cannabis is available only to West Virginians with serious medical conditions and to prevent diversion of products in West Virginia,” says Frame. “While the COVID-19 pandemic has put many industries across the country on hold, we’re proud to say that it has not stopped West Virginia from meeting its deadlines and laying the groundwork for a safe, regulated medical cannabis market.”
Regulators at the OMC are still working on scoring processing and retail license applications. The OMC says they will begin the process of issuing patient cards in the spring of 2021.
Private labelling, or white labelling, is a popular option for brands looking to enter the CBD space. This practice is where a product is manufactured by one company but branded, marketed and sold by another.
There are several companies that specialize in manufacturing end-to-end finished CBD products. They commonly provide third-party test results, certificates and data to verify the purity and potency of products created. Technically, all new brands need to do is place their label on the package and start selling! However with any new venture, establishing a successful private label CBD brand will inevitably mean various challenges need to be overcome.
Securing Quality Sources of CBD
Finding the right partners to work with is a must. The best way to source credible and trustworthy suppliers and manufacturers is to look for certifications and audits from third-party agencies. These include the Global Food Safety Initiative (GFSI), the Safe Quality Food (SQF), the United States Department of Agriculture’s (USDA) organic certification program and others.
The USDA organic certification program is a rigorous multi-step audit process to increase supply chain sustainability. Organic certification is a form of elective, self-regulation for manufacturers which consumers have eagerly welcomed into the marketplace. Look for the USDA organic seal to help identify which manufacturers are trustworthy and can produce a range of organic products.
From a consumer perspective, certifying your products as organic is an additional way to provide both supply chain transparency and increase confidence when trying new CBD products. It also provides a form of quality assurance to skeptical consumers, especially those who avidly read product labels prior to making a purchasing decision. Members of this “label reader” demographic will consistently choose organic products for the quality and transparency they provide with pure and natural ingredients.
Creating a Unique Product
Innovation and creativity will continue to be important differentiators due to the highly competitive nature of the CBD marketplace. New ingredient innovations such as water dispersible materials are big game-changers. From chewing gum to energy drinks, the opportunities for new and unique CBD products under your own private label are limitless.
Just some of the many hemp-derived CBD products on the market today.
There are only a handful of CBD brands who are willing, or even able, to be certified organic today. USDA certification is an opportunity for brands looking to adapt to changing consumer preferences, diversify their product offerings and invest in supply chain transparency.
In the past, product differentiators involved third-party lab testing or providing COAs — today that’s just industry standard. The USDA organic seal is becoming one of the hemp industry’s most coveted certifications because it is a product differentiator.
Building Credibility
Trustworthiness, transparency and traceability are important factors for consumers to consider when shopping for products. These factors should also be considered when producing products and while vetting vendors, partners, stakeholders and supply chain suppliers.
Credible certifications allow consumers to make informed decisions while feeling confident that they are purchasing products from reputable sources. Research has shown that today’s CBD market lacks credibility while consumers are desperately seeking comfort and are eager to purchase from trustworthy brands.
By Brett Schuman, Jennifer Fisher, Brendan Radke, Gina Faldetta 1 Comment
Since the December 20, 2018 enactment of the Agricultural Improvement Act of 2018, better known as the Farm Bill, we have seen a number of new state laws addressing both the legality of hemp and products derived therefrom, most noticeably cannabidiol, better known as CBD. This piece provides a brief overview of some of the more interesting state laws concerning hemp and CBD, as well as recent developments.
Legality of Hemp
Since the passage of the Farm Bill, the vast majority of states have legalized the cultivation and sale of hemp and hemp products. However, certain states maintain laws barring some or even most forms of hemp.
The most stringent of those states is Idaho, where hemp remains illegal. In March 2020, Senate Bill 1345 – legislation that would have allowed for the production and processing of industrial hemp – died in the House State Affairs Committee, due to concerns that legalizing hemp would be the first step toward legalizing “marijuana”; that the bill contained too much regulation and that it was otherwise unworkable. As a result, Idaho is currently the only state without a legal hemp industry. Hemp with any THC, even at or below the 0.3 percent threshold under the Farm Bill, is considered equivalent to “marijuana” in Idaho and is illegal (see below for a discussion of CBD in Idaho).
Indiana, Iowa, Louisiana, and Texas have enacted bans on smokable hemp. Indiana law prohibits hemp products “in a form that allows THC to be introduced into the human body by inhalation of smoke.” Iowa has amended its Hemp Act to ban products introduced to the body “by any method of inhalation.” Louisiana prohibits “any part of hemp for inhalation” except hemp rolling papers, and Texas law prohibits “consumable hemp products for smoking.”
Some of these bans have been challenged in court. In Indiana, a group of hemp sellers requested an injunction against the smokable hemp ban in federal court, on the grounds that the federal Farm Bill likely preempted the Indiana law. In September of 2019, the district court issued the requested injunction, but the U.S. Court of Appeals for the Seventh Circuit overturned that decision in July 2020, stating that the order “swept too broadly.” The Seventh Circuit noted that the 2018 Farm Bill “expressly provides that the states retain the authority to regulate the production of hemp” and remanded the case for further proceedings.
Similarly, in Texas, hemp producers have sued in state court over the smokable hemp ban, questioning its constitutionality and arguing that it would result in a loss of jobs and tax revenue for the state. According to those producers, smokable hemp comprises up to 50 percent of revenue from hemp products. On September 17, 2020, Travis County Judge Lora Livingston issued a temporary injunction blocking enforcement of the law until trial, which currently is set to commence on February 1, 2021. Judge Livingston had previously issued a temporary restraining order to that same effect.
State Laws Regulating CBD
State laws and regulation on hemp-derived CBD are varied, and the legality of a CBD product often comes down to its form and marketing.
As an initial matter, it must be noted that notwithstanding the Farm Bill the FDA currently prohibits hemp-derived CBD from being be sold as dietary supplements, and food (including animal food or feed) to which CBD has been added cannot be introduced into interstate commerce. As discussed below, a substantial minority of states, including California, follow the FDA’s current position on the permissibility of putting hemp-derived CBD in food or dietary supplements.
Certain states include strict limitations on CBD, none more so than (once again) Idaho. Lacking any legal hemp industry, Idaho restricts CBD products to those having no THC whatsoever, rejecting the generally accepted threshold of not more than 0.3 percent THC. Idaho law also requires that hemp CBD be derived only from “(a) mature stalks of the plant, (b) fiber produced from the stalks, (c) oil or cake made from the seeds or the achene of such plant, (d) any other compound, manufacture, salt, derivative, mixture, or preparation of the mature stalks, or (e) the sterilized seed of such plant which is incapable of germination.”
Kansas similarly prohibits CBD with any amount of THC, though the law is murkier than Idaho’s. While Senate Bill 282 allowed possession and retail sale of CBD effective May 24, 2018 by removing CBD oil from the definition of “marijuana,” this was broadly interpreted to apply to THC-free CBD only. Later legislation, Senate Substitute for HC 2167, effective July 2019, allowed the farming of hemp with THC levels aligned with the Farm Bill definition (i.e., 0.3 percent THC or lower), but expressly prohibited the use of industrial hemp in: cigars, cigarettes, chew, dip, or other smokeless forms of consumption; teas; liquids for use in vaporizing devices; or “[a] ny other hemp product intended for human or animal consumption containing any ingredient derived from industrial hemp that is prohibited pursuant to the Kansas Food, Drug and Cosmetic Act or the Kansas Commercial Feeding Stuffs Act,” though this final section provides that “[t] his does not otherwise prohibit the use of any such ingredient, including cannabidiol oil, in hemp products,” the law’s only reference to CBD. The Kansas Bureau of Investigation has reportedly made statements indicating that CBD with any level of THC remains illegal.
Just some of the many hemp-derived CBD products on the market today.
Mississippi only recently legalized the cultivation of hemp via Senate Bill 2725, the Mississippi Help Cultivation Act, which was signed into law on June 29, 2020. House Bill 1547, passed on April 16, 2019, imposed content requirements upon CBD products within Mississippi: to be legal in Mississippi, a CBD product must contain “a minimum ratio of twenty-to-one cannabidiol to tetrahydrocannabinol (20:1 cannabidiol:tetrahydrocannabinol), and diluted so as to contain at least fifty (50) milligrams of cannabidiol per milliliter, with not more than two and one-half (2.5) milligrams of tetrahydrocannabinol per milliliter.” Moreover, CBD products produced in Mississippi must be tested at the University of Mississippi’s lab. However, subject to these restrictions, Mississippi allows the sale of CBD products, including edibles, contrary to the restrictions of many of states considered friendlier to hemp.
Perhaps more surprising is Hawaii, which restricts the sale and distribution of CBD, aligning with the FDA’s guidance. In Hawaii it is illegal to add CBD to food, beverages, as well as to sell it as a dietary supplement or market it by asserting health claims. It is also illegal to add CBD to cosmetics, an uncommon restriction across the many states with CBD-specific laws and regulations. Unlike Idaho and Mississippi, which have no medical marijuana programs, Hawaii has long legalized marijuana for medical purposes and in January 2020 decriminalized recreational possession. Hawaii very recently enacted legislation allowing the production and sale of cannabis-infused consumable and topical products by medical cannabis licensees effective January 1, 2021, but this legislation did not address CBD. Given the foregoing, Hawaii’s restrictions on CBD stand out.
The structure of cannabidiol (CBD), one of 400 active compounds found in cannabis.
Beyond broad CBD restrictions, many more states prohibit the use of CBD within food, beverages, or as dietary supplements. For instance, twenty states – including California, Georgia, Illinois, Massachusetts, Michigan, New Jersey, New York, and Washington – prohibit the sale of CBD in food or beverage. In California, a bill to overhaul California’s hemp laws, Assembly Bill 2028, failed when the legislative session concluded on August 31, 2020 without a vote. AB 2028 would have allowed CBD in food, beverages, and dietary supplements (though, interestingly, it would have banned smokable hemp). As a result, California remains a relatively restrictive state when it comes to hemp-derived CBD, notwithstanding the legality of recreational marijuana.
New York allows the manufacture and sale of CBD, but requires CBD products to be labeled as “dietary supplements.” This mandate conflicts directly with the FDA’s position that CBD products are excluded from the definition of a dietary supplement. Further, despite the state’s categorization of CBD products as dietary supplements, New York prohibits the addition of CBD to food and beverages. These regulations have resulted in a confusing landscape for retailers and manufacturers in the Empire State.
Several states also have labeling requirements specific to CBD products. Batch numbers and ingredients are ubiquitous, but an increasingly common requirement is the inclusion of a scannable code that links to specific information about the product. States imposing this requirement include Florida, Indiana, Texas, and Utah. Indiana is viewed as having one of the more comprehensive labeling requirements for CBD products – or, depending upon your perspective, the most onerous.
Cannabis infused products manufacturing is quickly becoming a massive new market. With companies producing everything from gummies to lotions, there is a lot of room for growth as consumer data is showing a larger shift away from smokable products to ingestible or infused products.
This is the first article in a series where we interview leaders in the national infused products market. In this first piece, we talk with Keith Cich, co-founder of Sunderstorm, Inc. and the brand Kanha Gummies. Keith and his business partner, Cameron Clarke, started Kanha Gummies in 2015 after long careers outside of the cannabis industry. In 2015, they went all in and started the brand, which grew to be a major player and driving force in the California market.
Next week, we’ll sit down with Mike Hennesy, director of innovation at Wana Brands. Stay tuned for more!
Aaron Green: Keith, nice to meet you. Thank you for taking the time today. Tell me about how you got Sunderstorm off the ground and how you got involved in the company?
Keith Cich: Absolutely. So, my business partner, Cameron Clarke, is a lifelong friend. We met as undergraduates at Stanford University. I went on to work on Wall Street and did commercial real estate. Cameron has been a serial entrepreneur, from a much more technical side working in software. He was actually one of the first people to bring the Açai Berry to market and put it on the shelves of Whole Foods. So, he’s kind of the science and operations guy and I’m the finance and business guy. It’s been very synergistic.
Keith Cich, co-founder of Sunderstorm, Inc.
By 2015 we had both traveled extensively and were big advocates of plant medicine and cannabis as another form of plant medicine. We also have a 15-year track record of going to Burning Man together. Really, explorations in consciousness and plant medicine were what tied us together. When cannabis came up as a business opportunity, we just kind of looked at each other and said, you know, we have a lot of business experience to bring to the table. We have a love of the plant and an appreciation for how it will impact society. So, we kind of went all in in 2015 under proposition D, and set up operations in Los Angeles at that time.
Aaron: How did you decide to get into infused products from the list of choices?
Keith: Yeah, we initially set up extraction, but we felt that cultivation and extraction would ultimately be commodities. However, if you could develop popular brands you could carve out valuable shelf space and have longevity.
We acquired a small gummy company in February 2016. In the beginning of it all – I call it “Cannabis 1.0.” At that time, a lot of the packaging was really oriented around men in their 20s focused on “high consumption.” The packaging was a lot of black and skull and crossbones, and it didn’t really represent who Cameron and I were as people. You know, we were a little bit older and well-traveled. And we just felt like when adult use would come in that brands would take a different pathway. So, we hired a branding person to come in and help with packaging.
We really focused on a product that would appeal to females because it was clear they were going to be 50% of the market – and packaging that would really appeal to older people, which we thought would come on board once the stigma of cannabis was reduced. And so, we really set up Kanha gummies, at that time in early 2016, to be this adult use product that would appeal to a wide spectrum, both medical users as well as adult users in the time that would come in the not too distant future.
Aaron: Yeah, that’s interesting. You talked about how you thought about differentiating in the early days getting off the ground. How do you think about differentiating today?
Keith: The two things that really set Sunderstorm apart from the crowd is automation and innovation. We were the first gummy company to invest hundreds of thousands in European confectionery equipment, which allowed us to scale our business, but more importantly, produce an identical product every time. The reason we hear people come back to Kanha gummies is that they have the same replicable experience every time, which is really the key to CPG companies. So, it’s really stringent automation that allowed us to develop precise dosing. In fact, in 2019, we won the award from CannaSafe, which is the largest lab in California, for the most accurately formulated edible. We dialed in manufacturing and that’s what set us apart in the early years.
My partner is really geared towards science and implementing new delivery systems for cannabinoid products. We were the first company to come out with a nano edible about a year ago in 2019 and we are still the leader in offering consumers nano-molecular delivery systems. What does that mean? One of the common problems with edibles is that it takes 45 minutes to an hour for it to kick in. We all know friends who take a cookie and double up on the cookie and end up having too big of an experience. Rapid onset curbs that risk. Our nano gummy kicks in about 15 to 20 minutes, and it’s got just this really nice journey to it. We’ve separated the audience between the people that have our classic gummies, which takes longer to kick in, maybe a little bit stronger and the nano technology, which has a really fast onset, and really kind of a discrete journey. We stay ahead of the competition today, because of the nanotechnology that we’ve implemented in gummies.
As I always say, it’s not about how much vitamin C you take – it’s more about how much vitamin C gets in your blood stream. And it’s the same with cannabis, right? It’s how much THC and CBD or other molecules get in your system. So it’s about really having the highest bioavailability and the best performing products. And that’s what our customers have come to believe about Sunderstorm.
Aaron: You’ve talked about a couple new products from Kanha. At a high level, can you talk about your process for ideating and creating a new product?
Keith: Sure. I could use an example of a product that we’ve just kind of relaunched. It’s called the Tranquility gummy and it’s targeted for sleep. What we’ve discovered is there’s a whole host of medical reasons why people take cannabis – as well as the adults who take cannabis for entertainment – but sleep is a major issue for Americans of all ages. It’s surprising. It impacts 20 year olds and it impacts 60 year olds.
Part of the process of coming up with a product is trying to figure out what’s the need in the marketplace. So in this case, we really looked and said, hey, let’s target sleep and see if we can experiment and come up with a product. Our first round of Tranquility had a mix of CBD and THC in it because both of those are valuable for sleep. CBD is a chill-pill that kind of makes you calm so you can go to sleep. THC is often something that helps people stay asleep.
“We go through many iterations of a product before it actually hits the marketplace.”In that product, we also added 5-HTP, which is a serotonin booster, which once again, people take when they have anxiety or stress. So it’s kind of a stress reliever, and it helps you be calm, which again, I think a lot of the problems for people who have an issue with going to sleep, it’s having so much on their mind that they can’t stop the monkey mind to actually enter into sleep to begin with.
We also added just a small amount, one milligram, of melatonin. We know that Melatonin is a sleep aid, but you don’t want to take so much melatonin that your body stops producing melatonin because you’re taking the supplements. So at the end of the day, you want to just encourage and coax your body into healing and not overkill it with a pharmaceutical. Right?
So that was our first generation and we worked with that but my partner looks through a lot of research that’s occurring on different cannabinoid particles, and it became clear that CBN, which is kind of a new cannabinoid that’s hitting the press, actually had really strong properties for sedation and keeping people asleep. So, we added the largest dose of CBN in any gummy, and then re-launched that product a month or two ago. And we’re getting incredible feedback from shops that they’re selling out. It’s awesome, because people are actually taking the gummy and having the effect of falling asleep and staying asleep.
It’s the combination of the different factors. No one factor is so overwhelming like a pharmaceutical drug. But it’s the combination of the different factors together that make for a great product. And we fortunately have dozens of people in our company who are happy to do R&D for our new products. We also have some people outside the company that are consultants and experts as well. We go through many iterations of a product before it actually hits the marketplace. And that’s the second thing: it’s a lot of rigorous R&D testing of products before we launch it for the end consumer.
Aaron: Yeah, so if we can touch on that, can you tell me about your experience with your most recent product launch? Whether it’s the NANO5 or the Tranquility gummies? How did you think about preparing the market for the launch? Preparing your team for the launch? And then how did it go?
Keith: I’ll talk about our sublingual line called NANO5. Again, it’s a nano product where every molecule of CBD or THC is wrapped in a molecule of fatty lipids, so that when you spray it on your tongue, it tricks your body into absorbing it directly into the bloodstream and doesn’t actually go through the digestive tract and the liver. The bioavailability of these sublinguals is high and 70 to 80% of the cannabinoids actually get into your bloodstream.
We’ve done blood sampling tests versus your standard tincture. Your standard tincture is just MCT oil and cannabis, it’s pretty crude, kind of caveman-ish, quite frankly, when compared to the delivery of pharmaceuticals are today. NANO5 is a much more advanced delivery system.“We’re here to really try to educate people the best that we can.”
Now we have the product… right? This is a sophisticated product that’s challenging for bud tenders to explain when consumers come in with their medical needs. We had to create a lot of written brochures about how the product works, what the dosages are and that sort of stuff. Then our sales people go in and actually train the shops. They’ll pull bud tenders out and do training sessions and talk about NANO5, what makes it different from other tinctures, what medical conditions is it good for, etc. It’s kind of old fashioned, in-store training.
Then we finally have implemented a new piece, which is digital bud tender and consumer training. We are leveraging a platform for bud tender training, we talk with the shop, talk about the product and if the shop manager agrees we send a link out to all the bud tenders who take a quiz. The bud tenders get educated on an online platform, take a quiz, and then when they pass the quiz, they get a licensed sample of the product to try themselves so they have firsthand experience.
What we find in many shops is that the consumer is still not that educated about cannabis, particularly for medical uses, and particularly what I call the “new consumer” that hadn’t used cannabis in their lives, because it had such a high stigma to it and now with the reduction of the stigma it means a 40 or 50 year old woman might go into a store to find something to help with pain, or help with anxiety. Now, the bud tender can use the training that they’ve learned on NANO5, and understand that this could be a good product for them, and then talk about it intelligently and give some materials to the consumer before they walk away.
It can be intimidating for consumers to go into a shop, you know, it’s a new experience. It’s like going to the doctor’s office, you don’t always hear what they say, because you’re kind of nervous. So giving them the written materials, and even a test to follow up on online really allows for a form of education that is in tune with the user needing to learn at their own speed and really to just take away what’s important for them.
Aaron: Did I hear you correctly? The user – the end consumer – can also do a quiz?
Keith: Yes. Sunderstorm is about science and education. There’s a lot of assumptions in the marketplace that may not be correct. So, we’re here to really try to educate people the best that we can. And we really believe the rest of the world acts in a digital manner for education. In some ways, cannabis is a little bit behind the times because it’s difficult to advertise on Facebook and traditional venues. So we have one hand tied behind our back when we’re dealing with the digital world. But we at Sunderstorm are big believers that digital will be the way that cannabis consumers learn about brands, learn about products and learn about cannabinoids, and we want to be at the forefront of that education process.
Aaron: OK, we talked about some challenges. One of the challenges I hear a lot is about sourcing ingredients for infused products. How do you go about sourcing ingredients in your infused product lines?
Keith: Our primary ingredient that we source is distillate. And starting back in prop 215 days, we have a zero parts per billion policy on pesticides. What we discovered is before lab testing and licensure came in place is that 80 to 90% of the oil out there actually had pesticide levels that were way beyond safe. It really took licensing and the implementation of lab testing to change that regime. We now buy distillate from third party extractors and we have a handful of really big, really solid players onboard who provide that oil to us. The key is that if there’s any detectable trace of pesticides, we send it back and they replace it with a not-detect batch. So for us, that’s really the key to the whole supply chain: starting with oil that’s clean and really good quality.“Delivering the product in a compliant manner has been one of our logistical challenges, but one that I think we’ve done quite well at day in and day out.”
Fortunately, we’re one of the bigger brands in the industry so we have a little clout to make sure that the people that give us our oil are giving us their top shelf, and not their bottom shelf. We then have also made it a point to use only natural flavoring and natural coloring in our gummies. Believe it or not some of the red coloring actually is derived from beets and beet juice. We use spirulina as a source for our blue green colors. All of the gummies that we produce, not only have no pesticides, but they have no artificial flavors and no artificial coloring, which is of course standard in mainstream gummies that you buy at CVS or the local drugstore. So we really feel like we want to put out a healthy product and Cameron and I always look at each other, like, ‘we wouldn’t sell a product that we wouldn’t put into our own bodies.” And we’re very health conscious, you know, buying organic produce and not wanting pesticides to be inside us.
Aaron: Can you give me an example of a challenge you run into frequently, and this could be a business challenge, a marketing challenge, financials… something that you run into frequently?
Keith: Yeah, so we not only manufacture our products in California, but we also do self-distribution to over 500 retailers, meaning in store dispensaries and delivery services throughout California. With these 500 customers, we have two distribution points, one in LA and one in the Bay Area where I’m located. It’s an amazing challenge logistically. Not only are we running a manufacturing operation that requires precision – and it’s highly regulated – but we run a distribution company that’s highly regulated. For us the challenge is how do we efficiently deliver product to the Oregon border when we’re manufacturing in LA? We’ve had to spend a lot of time developing protocols for logistics and distribution to be able to basically meet demand throughout the state. And we’ve been growing like crazy. We add 10 new shops probably every week.
Delivering the product in a compliant manner has been one of our logistical challenges, but one that I think we’ve done quite well at day in and day out.
Aaron: What kind of trends are you looking at in the industry? And what keeps you excited?
Keith: I think COVID-19 has touched every aspect of our lives and it is impacting how we consume cannabis. Because it’s a respiratory disease, I think people have been wanting to shy away from smoking flower or vaping to keep their lungs healthy as a precaution in case they get it. So edibles have been kind of a natural choice for that. As well as the simple act of sharing something; sharing a joint raises a lot of safety risks, especially during the pandemic. It’s a lot easier to share a single gummy out of a bag safely.
Secondly, what I’ve noticed is that parents have their kids at home and yet they still want to consume cannabis as they did before. Edibles have been big because of discretion. So mom or dad can pop a gummy and have a spritzer before dinner and enjoy the night and my theory is happy parents make happy kids. So discretion has been critical.
Then I think there’s a whole round of new entrants that I mentioned before. These are people that maybe smoked weed in college or high school and haven’t touched it for 20 years and now that the stigma has been reduced, they’re coming back to the marketplace and wanting to explore. They may try a vape product, but very few of them want to smoke, as the country is generally pretty anti-smoking.
I think edibles and gummies have been a way for new cannabis consumers, particularly those who are older, to come and enjoy the positive effects, the medical effects and the social lubricant that cannabis offers, while being safe and discreet at the same time. I think COVID has definitely changed the way that that people think about consuming cannabis.
Aaron: Okay, awesome! Lastly, what would you like to learn more about? What are you interested in?
Keith: I have a degree in philosophy and religion. I’m a big fan of the evolution of consciousness. I think that is the container of the story through which we view human civilization and I honestly think we’re at a turning point for how humans in Western society view plant medicine.
I think cannabis is just the first to come along and be legalized. They’ve been doing phase II and III clinical trials on psilocybin and end of life anxiety. People, particularly war veterans, are using ecstasy or MDMA for depression.
What we’re discovering is that what we think we know about the mind is only the tip of the iceberg on how the mind works. I’m interested in exploring how these plant medicines impact individually with our psyche. Secondly, what happens to society when we reach a tipping point and a majority or at least some significant portion are taking these plants and medicines on a regular basis? It opens us up to a whole new perspective on ourselves, on society and on the universe that we live in. So I read a lot in those fields. And that’s what really excites me.
Aaron: Great. So that’s the end of the interview. Thank you for that.
The Collaborative Laboratories for Environmental Analysis and Remediation (CLEAR) at the University of Texas at Arlington (UT-Arlington) and the University of Texas at El Paso (UT-El Paso) has begun collaborating with Curtis Mathes Grow Lights (CMGL), a subsidiary of the Curtis Mathes Corporation, and the hemp genetics company ZED Therapeutics. The research will involve characterizing the phytochemical effects of phytochrome manipulation using various LED horticultural lights of differing light spectrum, and novel high-yielding varietals of hemp. All of the hemp plants will be grown by renowned geneticists Adam Jacques, Christian West, and Oriah Love of ZED Therapeutics under the CMGL Harvester LED lights at their Oregon facility. Drs. Kevin Schug and Zacariah Hildenbrand will oversee the analysis of the corresponding samples for the expression of terpenes, flavonoids, and other classes of therapeutic compounds. The expression of 15 primary cannabinoid species will be performed concurrently by Matthew Spurlock of ZED Therapeutics.
“Since its inception, CLEAR has focused almost exclusively on improving environmental stewardship in the energy sector. It is nice to now diversify into the horticultural industry to better understand how chemically-diverse plants like hemp respond to different environmental-friendly LED lights,” says Professor Kevin Schug, Shimadzu Distinguished Professor of Analytical Chemistry and co-founder and the Director of CLEAR.
Hemp has recently garnered significant attention in the mainstream media as a result of the medicinal benefits of its primary natural constituent, CBD. The collaboration amongst UT-Arlington, UT-El Paso, CMGL and ZED Therapeutics is designed to better understand how the variable of light can influence the expression of other medicinal elements.
“We are incredibly excited about our growing collaborations with UT-Arlington, UT-El Paso, and ZED Therapeutics,” says CMGL’s COO, Robert Manes, “This particular research exploring phytochrome manipulation in hemp may unlock new lighting protocols whereby the modulation of different wavelengths is associated with the expression of different phytochemical profiles.”
This research also has the potential to discover novel molecules that may be present in the ZED Therapeutic hemp varietals using high-resolution exploratory instruments that are unique to the laboratories of CLEAR, such as Liquid Chromatography Quadrupole Time-of-Flight Mass Spectrometry (LC-QTOF-MS).
“We are always searching for new ways to expand our genetic catalogue and it will be interesting to see what sort of effects light modulation have on cannabinoid, terpene, and flavonoid expression,” says Adam Jacques of ZED Therapeutics, “Phytochrome manipulation, and any resulting epigenetic effects, is a poorly understood principle of horticulture and we see a significant opportunity with this research to unearth new knowledge.”
“Hemp is a unique plant both in its light spectrum adaptation and the wide range of phytochemicals it can potentially produce,” says Christian West of ZED Therapeutics, “I’ve been waiting my whole career to be a part of this research and having the lighting knowledge of CMGL combined with the analytical power of UT-Arlington and UT-El Paso is priceless in expanding our understanding of the plant.”
The COVID-19 pandemic has certainly impacted the cannabis industry, no matter where you are. However, the impact of a global virus outbreak and subsequent economic recession has had a mixed impact overall on the industry, and further against a backdrop where the entire conversation of reform is also now an international one.
While the big international decisions were slowed down deliberately, as a result of the pandemic, there is a clear indication almost everywhere that this might also have been taken to allow countries to catch up to the inevitable.
Even in the world of cannabis there is a level of diplomacy. The good news of course is that as a result, the topic of reform is now on official agendas, and those are now moving forward with an air of authority.
As a result, here is a look at some of the most significant events that will impact the discussion long after this fall.
The WHO Vote In December Is A Massive Global Benchmark
There is little indication that the global health organization will punt on their reclassification discussion in December. This starts with the fact that Germany, ever cognizant of things like health management leadership is moving ahead with its medical program, full steam ahead.
Further, there are indications all across Europe that the individual countries where cannabis reform has clearly landed are having an impact on their neighbors, if not a more global discussion. European countries like France are quietly announcing medical trials to begin before the end of the first quarter of next year. And Italy just added hemp to its official list of medical plants. Bureaucracies do not move unless they have to, and in this case, they are clearly in transit on the cannabis conversation well beyond the interdiction only phase.
The New Zealand Recreational Vote Is Also Highly Important
Whether the Kiwis actually take this ground-breaking recreational decision across the finish line is almost immaterial at this point. The ballot measure is being decided during a national election within a week and further set against another one (the U.S.) where it is clearly not on the agenda in the immediate future.
That said, of course if the measure does pass, and there is late breaking evidence to suggest that it might, the bar, beyond whatever the UN decides, will have clearly been set.
With recreational reform, New Zealand will also join the ranks of Canada and Uruguay when it comes to this issue. If not, Luxembourg will most likely take this spot at the end of next year if plans continue to unfold as so far promised in country.
Without it, the country will join the many who are implementing plans to integrate the drug into formal medical infrastructure, which is far from a “loss,” at any level. That said it is a sign that individual countries, rather than regional or international bodies, will lead on the issue of reform and will continue to, no matter what the WHO does.
Regional Reform Is Shaping Up In Europe
Beyond this, of course, there are also signs that the issue of cannabis access, no matter what bucket it is being lumped into, is headed for a showdown in Europe on a regional level that has never been seen before.
The state of the Spanish industry now has a date with the European Court of Human Rights at Strasbourg over basic access issues. If that is decided for the plaintiffs, it will mean that not only will Spain be forced to formalize its own cannabis laws, but so will countries across Europe.
What that will mean for nascent recreational reform is also unclear, but at minimum, it spells good news for those who want to participate in the industry in a new way, and with a non-profit model so far not given much official traction across Europe so far.
Cannabis laws are changing at a rapid pace across all 50 states and around the world. Currently, Cannabis is legal in 11 states for adults over the age of 21, and legal for medical use in 33 states.
Across the nation, many states have been struggling to enact a viable medical and potential adult use cannabis system since Initiative 59 and the “Legalization of Marijuana for Medical Treatment Initiative of 1998.”
Unfortunately, the program has been continuously impacted by the federal government’s presence, first with the passage of the Barr Amendment by Congress overturning the early legalization progress and continuing to delay the onset of the first medical sale at a dispensary until 2013. The federal government continues to exert influence and control over the program expansion including adding Congressional riders on every proposed update including the latest “Safe Cannabis Sales Act of 2019.”
In Washington DC for example, 18 organizations including the National Cannabis Industry Association (NCIA), the ACLU and Law Enforcement Action Partnership petitioned the US House and Senate Financial Services Subcommittees to remove the rider given that “[the] Current law has interfered with the District’s efforts to regulate marijuana, which has impacted public safety. Without the ability to regulate marijuana sales, the grey market for marijuana flourishes despite the need and want of the District leadership and residents alike to establish a regulatory model.”
States with limited availability of medical cannabis, possession laws or with the ability to legally gift up to one ounce and the constant pressure by the federal government, the grey market has expanded with public safety and the safety of these pop-up businesses put at risk. The current state health and safety laws require a seed-to-sale tracking system and testing at independent labs for all medical cannabis, however the grey market consumers are afforded no such protection. The District of Columbia is unique in the US cannabis landscape as it grapples with the local government trying to provide clarity, safety and equity to a medical and adult use community, but it is hampered by what it can and cannot control through federal influence.
As the United States continues to recover from the effects of the COVID-19 pandemic, control and use of tax revenue will move to center stage in all these communities and the cannabis tax revenue will return to focus.
Cannabis tax revenue has shown a massive disparity between projection and reality. In 2018, California projected upwards of one billion dollars in cannabis tax revenue, but in reality was only able to recover a third of that amount. California in response continues to increase the excise tax and even proposed changes to taxes dependent on the amount of THC, creating new pressure on producers, in-part pushing some back into the grey market.
During the pandemic, Colorado enacted emergency rules to extend cannabis sales online. Allowing customers to pay for cannabis via the web and then pick up their purchases at the store. In a testament to what is considered a “critical businesses” the cannabis industry is given opportunity to expand during the pandemic, but still hampered by severely limited access to standard e-commerce options as credit card merchants still remain concerned that cannabis sales are illegal under US federal law. Alaska, Massachusetts, Michigan, Illinois and Oregon also allowed online sales and curbside pick-up, but remain limited in sales as federal banking and access to credit is limited as the Secure and Fair Enforcement (SAFE) Banking Act remains in limbo.
Overarching technologies such as DNA tracking that provide a clear indicator that the cannabis is produced and tested from legal sources, can be proven safe and protects local legal businesses’ products against out of market cannabis would provide such clarity.
As the country moves forward from the COVID-19 health crisis, all legal and safe ways to rapidly restart the economy will be needed, the cannabis economy will be no exception. We should be looking to this emerging market right now to help safely drive revenue and taxes into our states.
On October 7, 2020, the Washington State Liquor and Cannabis Board (WSLCB) issued an emergency suspension for El Rey De La Kush, based in Riverside, Washington, for allegedly distributing cannabis products across state lines. This information was found in an email sent out by the WSLCB late Wednesday night on October 7. El Rey De La Kush does not have a website, but it looks like they own this Facebook page.
This picture taken from their Facebook page, appears to show an El Rey De La Kush-branded package of cannabis
Back in September, the Wenatchee Police Department told the WSLCB that they were investigating 4.3 pounds of cannabis they found shipped from a residence in Wenatchee via UPS. When they served a search warrant, they found roughly 620 pounds of cannabis with traceability tags leading them back to El Rey De La Kush.
The suspect in the case is Brandi Clardy, who is affiliated with the company in question and listed on their license. The original licensee, Juan Penaloza, passed away in July this year and Clardy had been the chief operator following Penaloza’s death.
In an interview with the police, the WSLCB says that Clardy admitted to the crime of removing cannabis from the premises with the intent to distribute across state lines.
The WSLCB says cannabis products were actively being diverted to Texas, where adult use cannabis sales is still very illegal.
The license remains suspended for 180 days, after which point the WSLCB will “pursue permanent revocation.” This marks the first and only emergency suspension issued in 2020.
ZOSI Analytical, a third-party hemp testing lab based in Georgetown, Texas, announced last week that they have achieved ISO 17025:2017 accreditation from Perry Johnson Laboratory Accreditation (PJLA). ZOSI Analytical is actually the very first hemp lab in Texas to be DEA-registered.
A sample prepared from hemp flower, following extraction of cannabinoids at ZOSI Analytical
The 2018 Farm Bill has a stipulation for all hemp compliance testing labs to be ISO 17025:2017 accredited by October 2021. ZOSI is a bit ahead of that deadline, but ready to test products for retailers and processors looking to confirm their potency levels below the 0.3% THC federal legal threshold.
According to Amy Lummus, CEO of ZOSI Analytical, they have a turnaround time of about 48-72 hours from receipt of a hemp sample. “Although regulations continue to change at the Federal level and vary widely at State levels, one thing has remained consistent and that has been the understanding that third-party testing laboratories need to show a level of commitment and accountability to quality,” says Lummus. “Our accreditation is one more step in our commitment to helping the industry to produce and sell safe products.”
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The U.S. Senate will likely pass legislation providing cannabis businesses access to traditional banking and financing services. This will be a game changer for the industry. Valuations will go up. Increased liquidity will smooth transactions. Companies will look to affordable debt to expand their footprints and capacity to compete on a new scale. Full federal legalization could be a game changer if 280E tax restrictions are lifted and interstate and international cannabis trade open up, but the timing of this is hard to predict.
Ever More Cultivation Opportunities 
California’s new CalCannabis Appellations Program will provide cultivators and brands a way to credibly market the value of their unique growing regions and cultivation methods. These distinctions only apply to cannabis planted in the ground, excluding greenhouse and warehouse grows. The expectation is that high-end consumers, trained to recognize place-based designations and quality certifications in other products, will reward products that boast these designations. How many consumers will be willing to pay the premium and how long full implementation of the program will take, remains to be seen.
