Tag Archives: dispensary

The Rise of a New Market… And a New Consumer

By Christiane Campbell
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The adult beverage industry, like any other category of consumer branded products, is driven by trends. If you’re old enough to remember Bartles & Jaymes wine coolers, you probably also remember Zima and Smirnoff Ice, and more recently “healthy” options like Skinny Girl and Michelob Ultra. The sensation that was craft beer saw many brands being acquired by Big Alcohol so that while the brands remain, ownership and production have changed significantly. Gin, tequila and vodka have had their moments in the sun and the current market is undeniably saturated with what is probably the largest current trend – hard seltzers. However, with the seltzer craze waning, many are wondering what’s next. And with the growing sober/California sober trends, some are betting it is cannabis-infused beverages.

Cannabis-infused beverages offer both an alternative method of consumption of cannabis and are also an attractive alternative to alcohol. Infused beverages are more appealing to the new demographic of casually curious cannabis consumers. i.e., consumers that may not be interested in smoking a joint or vaping, but are comfortable micro-dosing from a can or bottle, as they would a seltzer or beer. The same type of consumer may be moving away from alcohol consumption to eliminate hangovers or other negative health effects.

The emerging market and curious consumer group present an enormous opportunity right now for cannabis-infused beverage brands. Of course, with opportunity and growth come challenges. And while cannabis-infused beverages face a host of legal and regulatory challenges relative to sourcing, manufacturing, packaging, labeling, shipping, marketing, distribution and sale, one of the most critically important business assets to address at inception is the brand.

Lines are Blurring, Gaps are Being Bridged

The U.S. cannabis market is currently a geographic hamburger. Hear me out: Geographically, you have a relatively mature market out west and a relatively new and growing market along the east coast. These are the buns. You have a mixed bag in between, with some states coming online and allowing medical or adult use cannabis use and others that have not yet embraced any form of legalization. The landscape has lent itself to the development of regional brands, such that brands that are so similar they might otherwise confuse consumers, have been able to co-exist in different regions without issue, or because there is little to no trade channel or market overlap. Similarly, adult beverages and cannabis have historically been separate verticals, with an arguably low likelihood that a consumer would assume a particular cannabis product and adult beverage product emanate from the same source.

A drink additive, made by Splash Nano, that uses nano emulsion technology

However, lines are blurring and gaps are being bridged. Walls are breaking down. The increasing number of states coming online with legalized cannabis, and the proliferation of multi-state operators (MSOs), means that cannabis brands can grow to be more than siloed regional brands. This will inevitably lead to brands that previously co-existed bumping into one another and there’s bound to be some pushing and shoving. The advent of infused beverages likewise bridges the gap between cannabis products and alcoholic beverages. While the respective industries were not historically per se related, competing, or overlapping, now you’ve got infused beverages that bridge the gap between the two, and traditional alcohol brands (e.g., Boston Beer Company, Molson Coors, Lagunitas, Pabst.) entering the market (albeit under different brands). This makes a strong argument that cannabis and alcohol (or, more generally, adult beverages) are within each other’s logical zones of expansion, for purposes of a likelihood of confusion analysis.

The growing pains infused beverage brands will experience are analogous to those craft beers saw in the 2000 – 2010s. Many craft brewers had catchy, cheeky names and brands that contributed to their ability to engage consumers and develop a following, but failure to clear and protect the brands prior to launch detracted from the brands’ market values. Localized use prior to expansion also led to many brands bumping into one another and stepping on each other’s trademark toes. This was significant as the brands sought investment dollars or an exit strategy, making clear that the brand itself contributed heavily to valuation.

Mitigating Risks and Overcoming Challenges: Search and Protect 

The risks and challenges can be significantly mitigated and/or overcome with proper preliminary clearance searching and assessments, and by seeking and obtaining state or federal protection for the brand or brands, to the extent possible.

Quatreau CBD infused sparkling water

Of course, clearance searches and assessments come with their own challenges, as does federal protection. With respect to clearance searches, these typically look at U.S. federal and state trademark databases. These resources are not sufficient for purposes of clearing a proposed cannabis brand. Many brands are not recorded at the federal or state level and indeed may not even show up in a basic search engine. An appropriate search looks at social media resources like Instagram, Twitter, Facebook and known cannabis resources like Leafly and Weedmaps. Additionally, the scope of the search should exceed cannabis products and services and at least look at alcohol and merchandise. Adoption and use of a brand for a cannabis-infused beverage is high risk if that brand is similar to a prior existing alcohol brand. A current example is Cointreau’s taking aim at Canopy’s adoption and use of QUATREAU for an infused beverage.

A U.S. federal trademark registration presents its own unique challenges, but is incredibly valuable and beneficial to a brand since it provides the owner with a nationwide presumption of ownership and validity in a trademark, and can also secure priority for the owner with a constructive first use in commerce date that is years before actual use of a mark begins. The U.S. Trademark Office categorically denies protection of brands that violate its “lawful use” rule, and will treat as per se unlawful any applied for mark that covers marijuana, or that covers foods, beverages or pharmaceuticals that contain CBD. With respect to brands that cover products containing THC, since it is federally scheduled, use of the brand would violate the Controlled Substances Act (CSA). With respect to brands that cover CBD or products containing CBD, these may be lawful pursuant to the Farm Bill and the U.S. Trademark Office’s subsequent allowance of marks that claim CBD “solely derived from hemp with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent on a dry weight basis,” however under the Food Drug Cosmetics Act (FDCA) it is currently federally unlawful to introduce CBD – even if it fits the definition above – into foods or beverages.

Even if cannabis is not specifically claimed in a trademark application, cannabis brands have a natural gravitation toward names and logos that can do some of their marketing for them, and announce to the world they cover cannabis. This increases the chances that a trademark application for the brand will get push-back from the U.S. Trademark Office, and if not at the initial review stage, then at the point in time when the brand must submit to the U.S. Trademark Office a sample of (lawful) use of the applied-for mark. While this all sounds like bad news for cannabis-infused beverages, all is not lost.

There are typically ancillary and federally lawful products and services cannabis companies offer under their brands that can be covered in a U.S. federal trademark application, and arguments to be made that registered protection of a brand for the ancillary items should be sufficient to enforce against third parties using the same or confusingly similar brands in their space. Some cannabis brands’ lawful ancillary products are actually product lines (e.g., beverages) offered under the same brand that contain no cannabis. Others may be more causally related, like online forums and blogs. The former is closer to the actual product, and the latter would be more beneficial to a brand that is inherently stronger and more distinctive. One note of caution: A trademark application and eventual registration that expressly disclaim cannabis (THC or CBD) may be difficult to enforce against a third party using the same or a similar mark on and in connection with cannabis. So, while there is a natural inclination to follow a U.S. Trademark Office request to disclaim coverage of cannabis, there may be enforcement consequences down the road.

The cannabis-infused beverage market is poised for explosive growth. The brands that survive – and succeed – will be those that position themselves for growth by clearing and buttoning up their brands as early as possible. The market leaders will be those that select strong and distinctive brands, with geographic and market space around them for growth and expansion; and those that protect and enforce their brands, to the extent possible, at the federal and/or state levels.

New Jersey Launches Adult Use Sales

By Cannabis Industry Journal Staff
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On Thursday, April 21, a handful of dispensaries in New Jersey begin selling cannabis to adults over the age of 21. The state has so far issued licenses for adult use sales to seven alternative treatment centers (ATCs), otherwise known as medical cannabis businesses already established in the state. In total, thirteen dispensaries in the state can sell cannabis to adults over 21.

The Capitol in Trenton, New Jersey

The reason why adult use sales could not start on April 20 is because of “unmanageable logistical challenges for patients and other buyers, surrounding communities, and for municipalities,” Toni-Anne Blake, communications director for the New Jersey (CRC) told The Philadelphia Inquirer. “Regulators and industry representatives agreed it was not feasible.”

The seven ATCs awarded adult use licenses are Ascend, Curaleaf, GTI, Acreage, Verano, Columbia Care and TerrAscend. The state’s roll out created a lot of controversy over allowing already established, larger medical cannabis businesses and multi state operators to begin adult use sales before smaller businesses and social equity applicants get licensed.

According to The New York Times, the CRC gave condition approval to 102 companies for cultivation and manufacturing, but they need local approval and real estate before commencing operations. Another 320 organizations have applied for licenses for the New Jersey adult use cannabis market, but could wait up to a year or more before they begin operating.

Regulators in New Jersey say the seven companies commencing sales will need to follow social equity rules, including providing technical knowledge to social equity applicants. “We remain committed to social equity,” says CRC Chair Dianna Houenou. “We promised to build this market on the pillars of social equity and safety. Ultimately, we hope to see businesses and a workforce that reflect the diversity of the state, and local communities that are positively impacted by this new and growing industry.”

Jeff Brown, executive director of the CRC, says they anticipate long lines and crowds. “We expect 13 locations for the entire state will make for extremely busy stores,” said Jeff Brown, executive director of the New Jersey Cannabis Regulatory Commission. “The dispensaries have assured us that they are ready to meet the demand without disrupting patient access, and with minimal impact on the surrounding communities, but patience will be key to a good opening day.”

Adults in New Jersey can purchase up to one ounce of flower, up to five grams of concentrates or up to ten 100mg packages of edibles. Click here for a list of the locations opening their doors for business.

Biros' Blog

Happy 4/20, Blaze On!

By Aaron G. Biros
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Happy 4/20! The cannabis holiday with unclear origins is today and with it comes hundreds and hundreds of marketing and story pitches landing in every journalist’s inbox. Some of those pitches are impactful, some lack substance, some celebrate anniversaries, most offer discounts and sales and some are truly bizarre.

Every year, April 20th marks the cannabis holiday that people around the world celebrate with copious amounts of cannabis, concerts, festivals, deals, sales and marketing gimmicks. This year, here are some noteworthy (and weird) happenings going on as we celebrate the wonderful plant that brings us all together:

Leafly rings in the holiday on the NASDAQ: Leafly CEO Yoko Miyashita, surrounded by her colleagues, rang the opening bell for the NASDAQ Stock Exchange. The company began publicly trading on the NASDAQ as ‘LFLY’ back in February.

Smoke em if ya got em: Leafly CEO Yoko Miyashita, surrounded by her colleagues, rang the opening bell for the NASDAQ Stock Exchange

Americans for Safe Access (ASA) turned twenty on April 19: The policy, action and advocacy organization has been influential in passing medical cannabis laws throughout the country for twenty years now. The organization has trained thousands of public defenders, worked with thousands of incarcerated medical cannabis prisoners, organized protests all over the country, worked with regulators in dozens of states to pass safety rules, published reports, launched their Patient Focused Certification program and much more. Happy birthday ASA!

Emerald Cup and SC Labs celebrate thirteenth anniversary: The couple has been together now for thirteen years, with the Emerald Cup heading into their eighteenth annual competition next month. For the past thirteen years, Santa Cruz-based SC labs has worked with the Emerald Cup as their official testing partner, verifying COAs for potency and purity, gathering data on terpenes and classifying products and strains. Happy anniversary you two!

Smoking’ sandwiches: The cannabis-inspired, Arizona-based sandwich shop chain Cheba Hut celebrates the holiday with $4.20 “nugs” (pretzel nuggets) served on a frisbee and two PBRs for $4.20.

NORML stays busy: Executive Director Erik Altieri called for reforms in a press release: “While we have undoubtedly made immense progress in recent years, hundreds of thousands of our fellow citizens are still arrested each year for simple possession of a plant. That is why we are calling on all Americans to take time out of their day on 4/20 to help us finish the fight, both at the federal level and in those states that still are living under the dark ages of prohibition. We have an overwhelming mandate from the people and we intend to make sure that elected officials abide by it.”

New Jersey, a day late and a dollar short: The Garden State will begin adult use sales on April 21st at thirteen dispensaries. The delays, licensing process and regulatory hurdles have created confusion and frustration for the industry, but the state is moving forward with their plan and dispensaries will serve adults over 21 tomorrow, a day after the holiday.

Cannabis-infused Mac and cheese, a dangerously cheesy combination.

Sluggish Senate: The SAFE Banking Act has passed the House six (six!) times so far, most recently in February of this year. Sen. Cory Booker has long said he opposes the cannabis banking bill without wider legalization legislation (say that six times fast). Sen. Chuck Schumer also announced last week that his cannabis bill introduction is delayed. The CAOA won’t come until August now he says.

Cannabis Cuisine: Celebrity chef Todd English curates a “cannabis-curious cuisine” with infused Mac & Cheese via LastLeaf.

Erotic infusions: This CBD company offers 20% off their infused lubes, massage oils and products with code oOYes20. OoYes! CBD Lube is a female-founded formulations company focusing on the sex positive, “cannagasmic” hemp-derived CBD products space.

Backwards down the number line: Phish plays their first night back at Madison Square Garden in New York for a four-night run. Correctly guess the opener for tonight in the comments below and win a free beer and a burger with me at this year’s Cannabis Quality Conference & Expo.

That’s all folks! Thanks for reading and blaze on!

Blast from the past: Here’s a little treat if you’ve made it this far. This is me ten years ago today (back in college), smoking a joint on April 20, 2012. Time flies.

How to Navigate Section 280E: Lessons Businesses Can Learn from Recent Court Outcomes

By Jay Jerose
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The cannabis business landscape is complex and is under constant review and control. Further, rules and regulations from both federal and state governments can pose additional challenges and barriers to business owners. For those unfamiliar, there is a section of Internal Revenue Code, Section 280E, that prohibits taxpayers who are engaged in the business of buying and selling certain controlled substances from deducting many typical business expenses that other businesses are able to freely deduct.

What is Section 280E and What Challenges Does it Pose?

A dispensary could deduct the cost of the product it sells, but due to Section 280E it would be unable to deduct necessary and ordinary business expenses such as building rent, insurance or employee wages. This can create a significant tax burden, as taxable income is calculated at the gross profit level instead of starting with net income. As a result, Section 280E has become increasingly relevant for cannabis businesses, which have grown substantially in recent years due to more states opting to legalize marijuana. But despite this trend towards legalization at the state level, cannabis with more than 0.3% THC remains illegal under federal law, which raises questions surrounding Section 280E.

In this article, we take a closer look at recent court cases that highlight challenges with Section 280E, the related outcomes and what it means for businesses in the cannabis space.

Challenging its Constitutionality

Patients Mutual Assistance Collective Corp. v. Commissioner, also known as the Harborside Case, partially involved legal arguments against the constitutionality of Section 280E under the 16th amendment. Harborside argued that income must be present for the IRS to levy an income tax, however Section 280E can frequently cause taxpayers to experience real losses along with taxable income. They argued that they were forced to pay taxes while losing money.

Two circuit courts before this case upheld that Section 280E did not violate either the 8th or 16th amendments to the constitution, leading to the court declining to even address the constitutionality claim. The court addressing a constitutionality issue could lead to unintended consequences for unrelated code provisions, leading this strategy to likely fail due to the mess it could unravel.

Attracting Customers with Freebies

Olive v. Commissioner involved a medical cannabis dispensary that also operated a consumption lounge. While the consumption lounge revenue entirely consisted of sales of medical cannabis, the business also provided services such as health counseling, movies, yoga, massage therapy and beverages at no additional cost. The business attempted to deduct the expenses of these free services as well as the cost of the cannabis itself.

The IRS denied the deductions for the additional services due to the sole source of revenue coming from cannabis sales. The court held that the expenses related to free services were designed to benefit and promote the sales of cannabis and induce further business from its customers.

The court did acknowledge that expenses can be allocated between two separate trades or businesses while still complying with 280E. However, distinct revenue streams need to be established to show the clear separability of the activities and care must be taken to document and support the expense allocations.

Co-mingling Cannabis and Non-Cannabis Enterprises

In the case of Alternative Healthcare Advocates v. Commissioner, the owner of a retail dispensary established a separate management corporation to provide management functions to the dispensary business. The two businesses shared identical ownership, and the management company solely provided services to the joint owner’s dispensary. The management company hired employees, advertised, and handled rent and other regular business expenses on behalf of the dispensary.

Despite the argument from the taxpayer that the businesses were separate entities, and that the management company did not own or “touch” cannabis in any way, the Tax Court ruled that both companies were in the business of trafficking illegal substances. This disallowed expenses on both entities. The IRS argued successfully that the operations of both companies were intertwined. The fact that the management company broke even on expenses and provided no services to any other unrelated entities meant that while legally separate, they were considered part and parcel to each other.

The Solution: Clear Documentation, Allocation and Separation

Californians Helping to Alleviate Med. Problems, Inc. v. Commissioner (CHAMP) involved a public benefit corporation that provided caregiving services along with cannabis to customers suffering from diseases. In this case, the taxpayer argued that they had two separate and distinct lines of service, being the sale of cannabis, and the sale of caregiving services.

While the IRS disagreed with this position and attempted to apply Section 280E to the entire entity, the Tax Court disagreed. It held that the taxpayer was operating with a dual purpose, the primary being the caregiving services, and the secondary being the sale of medical cannabis. The taxpayer’s customers were required to pay a membership fee and received extensive caregiving services, including support groups, one-on-one counseling, addiction counseling services, hygiene supplies and even food for low-income members. While the membership fee did include a set amount of medical cannabis, it was not unlimited. The Court held that the taxpayer’s extensive records and documentation clearly demonstrated two separate and distinct lines of business, with the caregiving being a primary service and the medical cannabis being secondary.

From these court cases and outcomes, it is clear that Section 280E can be confusing. The cannabis industry is a high-risk area, and the IRS has successful court cases to stand behind to back their legislation and agenda. These cases demonstrate two very simple concepts: first, businesses have attempted many creative ways of sidestepping Section 280E and failed; and second, clear documentation and detailed financial records are key, and will be paramount to support any tax positions related to Section 280E.

With the risks associated with conducting business in the cannabis industry, there is a strong likelihood that it will be high on the IRS’ radar over the next few years. Cannabis businesses should carefully consider their interpretation and application of Section 280E as it relates to the costs within their business. It will be important for businesses to utilize and consult with experienced attorneys and cannabis accountants to ensure they not only maintain compliance with federal laws, but also keep up with the changing regulations and court test opinions.

Disclaimer: The summary information presented in this article should not be considered legal advice or counsel and does not create an attorney-client relationship between the author and the reader. If the reader of this has legal questions, it is recommended they consult with their attorney.

Milan Patel, PathogenDx
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The Need for More Stringent Testing in Cannabis

By Milan Patel
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Milan Patel, PathogenDx

As the demand for legal cannabis continues to rise and more states come online, it is imperative to enact more rigorous and comprehensive testing solutions to protect the health of consumers. People use cannabis products for wellness and to find relief; they should not be susceptible to consuming pathogens and falling ill. Especially for immunocompromised consumers, the consequences of consuming contaminated cannabis or hemp are dire. Of course, there should be federal standards for pathogen testing requirements like we have for the food industry. But right now, as cannabis is not yet federally legal, testing regulations vary between states and in many states, testing requirements are too loose and enforcement is minimal. It is up to state legislators, regulators and cannabis operators to protect the health of consumers through implementing more stringent testing.

From the outset, the environmental elements needed to grow cannabis – heat, light, humidity, soil – make cannabis ripe for pathogens to proliferate. Even when growers follow strict sanitation procedures through the supply chain from seed to sale, contaminations can still occur. Cannabis companies need to be hypervigilant and proactive about testing, not just reactive. The lack of regulations in some states is alarming, and as the cannabis industry is highly competitive and so many companies have emerged in a short time, there are unfortunately unscrupulous actors that have skated by in a loose regulatory landscape, just in the game to make a quick buck, even at the expense of consumer health. And there are notable instances where states do not have enforcement in place to deter harmful manufacturing practices. For instance, there are some states that don’t mandate moisture control and there have been incidents of companies watering down flower so it has more weight and thus can be sold at a higher cost – all the while that added moisture leads to mold, harming the consumer. This vicious circle driven by selfish human behavior needs to be broken by stricter regulations and enforcement.

While in the short term, looser testing regulations may save companies some money, in the long run these regulatory environments carry significant economic repercussions and damage the industry at large, most importantly injury or death to customers and patients. Recalls can tarnish a company’s brand and reputation and cause sales and stock prices to tank, and since cannabis legalization is such a hotly contested issue, the media gloms onto these recalls, which opponents to legalization then leverage to justify their stance. In order to win the hearts and minds of opponents and bring about federal legalization sooner, we need safer products so cannabis won’t be cast in such a dangerous, risky light.

Certainly, there’s a bit of irony at play here – the lack of federal regulations heightens the risk of contaminated cannabis reaching consumers, and on the flip side recalls are used by opponents to justify stigmatizing the plant and keeping it illegal. Nevertheless, someday in the not-too-distant future, cannabis will be legalized at the federal level. And when that day happens, federal agents will aggressively test and regulate cannabis; they’ll swab every area in facilities and demand thorough records of testing up and down the supply chain; current good manufacturing practices (cGMP) will be mandated. No longer will violations result just in a slap on the wrist – businesses will be shut down. To avoid a massive shock to the system, it makes sense for cannabis companies to pivot and adopt rigorous and wide-sweeping testing procedures today. Wait for federal legalization, and you’ll sink.

Frankly, the current landscape of cannabis regulation is scary and the consequences are largely yet to be seen. Just a few months ago, a Michigan state judge reversed part of a recall issued by the state’s Marijuana Regulatory Agency (MRA) on cannabis that exceeded legal limits of yeast, mold and aspergillus, bringing contaminated cannabis back to shelves without even slapping a warning label on the packaging to inform consumers of the potential contamination. This is a classic case of the power of the dollar prevailing over consumer safety and health. Even in well-established markets, the lack of regulations is jarring. For example, before this year in Colorado, testing for aspergillus wasn’t even required. (Aspergillus inhalation, which can cause Aspergillosis, can be deadly, especially for people who are immunocompromised). Many states still allow trace amounts of aspergillus and other pathogens to be present in cannabis samples. While traces may seem inconsequential in the short term, what will happen to frequent consumers who have been pinging their lungs with traces of pathogens for 30 years? Consistently inhaling trace amounts of pathogens can lead to lung issues and pulmonary disease down the road. Look what happened to people with breathing and lung issues during the last two years with COVID. What’s going to happen to these people when the next pandemic hits?

We need state regulators and MSOs to step up and implement more aggressive testing procedures. These regulators and companies can create a sea of change in the industry to better protect the health and well-being of consumers. Just complying with loose regulations isn’t good enough. We need to bring shortcomings around testing into the limelight and demand better and more efficient regulatory frameworks. And we should adopt the same standards for medical and adult use markets. Right now, several states follow cGMP for medical but not adult use – that’s ridiculous. Potentially harming consumers goes against what activists seeking legalization have been fighting for. Cannabis, untainted, provides therapeutic and clinical value not just to medical patients but to all consumers; cannabis companies should promote consumer health through their products, not jeopardize it.

For best practices, companies should conduct tests at every step in the supply chain, not just test end products. And testing solutions should be comprehensive. Most of the common tests used today are based on petri dishes, an archaic and inefficient technology dating back over a century, which require a separate dish to test for each pathogen of interest. If you’re waiting three to five days to see testing results against fifteen pathogens and a pathogen happens to be present, by the time you see results, the pathogen could have spread and destroyed half of your crops. So, not only do petri dishes overburden state-run labs, but due to their inherent inefficiencies, relying on these tests can significantly eat into cannabis companies’ revenues. At PathogenDx, we’ve created multiplexing solutions that can identify and detect up to 50 pathogens in a single test and yield accurate results in six hours. To save cannabis companies money in the long run and to make sure pathogens don’t slip through the cracks, more multiplexing tests like the ones we’ve created should be implemented in state labs.

Right now, while the regulatory landscape is falling short in terms of protecting consumer health, better solutions already exist. I urge state regulators and cannabis companies to take testing very seriously, be proactive and invest in creating better testing infrastructure today. Together, we can protect the health of consumers and create a stronger, more trustworthy and prosperous cannabis industry.

Sports Sponsorships in Cannabis: The Long Legal Road Ahead

By Airina Rodrigues
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If legal cannabis isn’t already a key facet of American culture, it is well on its way. The multibillion-dollar industry is already ubiquitous in politics, and consumers are increasingly seeing various types of marketing from cannabis brands, from billboards to magazine ads to organic content on social media. It may not be long before sports fans see more of their favorite athletes talking up CBD products for pain management or even see a dispensary chain claim naming rights for a stadium.

The next big marketing frontier for cannabis brands is professional sports sponsorships. And in some respects, it makes sense that athletes might be natural brand ambassadors for an industry focused on pain management and mental health relief. But there are obstacles unique to the highly regulated cannabis market that, paired with the already legality-heavy proposition of sponsorship deals, mean a long road ahead. Here are some key considerations for cannabis and CBD brands looking to a future of sports sponsorships.

The Current Climate

Many leagues have already embraced sponsorship deals with CBD brands, from NASCAR to the United Soccer League. The four pillar sports in the U.S.—the National Football League, the National Basketball Association, the National Hockey League and Major League Baseball—have already relaxed their rules and testing protocols related to athletes and cannabis. In 2019, the NFL reached an agreement with the players’ union to study the pain management benefits of cannabis and in 2020, the NFL announced players will no longer be suspended for positive tests and increased the threshold of allowable THC for positive tests. And stars like powerhouse tight-end Rob Gronkowski and former Denver Nuggets Al Harrington in retirement have attached their names to cannabis and CBD brands.

After dismal profits through the COVID-19 pandemic, the “Big Four” sports leagues may want to consider opening an entirely new sponsorship category via cannabis and CBD. Additional pressure might come from athletes themselves, who want alternative treatments for pain and anxiety. As the public looked in from the outside as the MLB negotiated a new collective bargaining agreement and as leagues renegotiate CBAs generally, player pressure could continue to move the needle on league acceptance of cannabis products.

If sports leagues are expecting to allow cannabis sponsorships in the future, they are likely waiting for federal approval for cannabis

As much as this means less stigma for cannabis, it also illustrates the constant fragmentation that makes it difficult for cannabis businesses to operate like other companies. While the NFL, NBA, NHL and MLB have all eased up on players’ use of the substance, they haven’t embraced CBD sponsorships the same way other leagues have and currently won’t allow their athletes to seek CBD or cannabis sponsorship deals as individuals. Piecemeal state legalization, strict advertising rules, enduring federal prohibitions and a lack of FDA approval are the biggest barriers specific to the cannabis industry. And, while the “Big Four” leagues are not signatories to the World Anti-Doping Agency (WADA) Code, applying their own anti-doping policies, don’t look for cannabis sponsorships or endorsements of Olympic sports or athletes any time soon—WADA prohibits in-competition use of cannabis, although it is conducting a scientific review of the status of cannabis in 2022, indicating a softening may be forthcoming.

Paired with the issues typical to sport sponsorships generally, cannabis companies have much more to consider when seeking sponsorship deals.

Threshold Sports Sponsorships Considerations Relating to Cannabis and CBD 

As a threshold matter, if sports leagues are expecting to allow cannabis sponsorships in the future, they are likely waiting for federal approval for cannabis and specifically, FDA approval for CBD products. The agency decided not to allow companies to market full-spectrum CBD as a dietary supplement in August, and formal guidelines may be years away as medical and scientific data materialize either supporting or negating the health claims. In the meantime, companies and their spokespeople cannot claim certain health benefits in advertising without FDA approval.

Cannabis itself is also still a schedule 1 drug under the federal Controlled Substances Act and has historically been listed among most leagues’ anti-doping bans, although as discussed above, it appears attitudes might be beginning to shift. Even in states where adult use and medical cannabis are legal, taxes are high and advertising rules are incredibly strict. They also vary from market to market. When Connecticut legalized cannabis in 2021, state Attorney General William Tong moved to have all billboards advertising Massachusetts dispensaries removed for violating the state’s cannabis marketing restrictions. With a web of intersecting, and at times conflicting, state regulations at play, national marketing campaigns are highly challenging. The crisscrossing markets on game days and the national exposure of most athletes in the Big Four leagues will likely implicate multiple jurisdictions, and multiple sets of advertising regulations that don’t always mesh. And, even if a policy decision were made to allow some territory-restricted sponsorship deals in the cannabis space, it’s unclear if and how cannabis sponsors could exercise even local broadcasting rights—a key value driver for any sponsorship deal.

Specific Sponsorship Considerations Relating to Cannabis and CBD

In addition to the above, the host of legal and business issues generally applicable to sports sponsorships deals will likely take on a different flavor with respect to cannabis and CBD.

From a commercial perspective, one of the key issues in any sponsorship deal is whether a sponsor will receive exclusive rights in a category. It’s important that sponsors take a critical eye to how a league may have “sliced and diced” that category. For example, a would-be cannabis sponsor may not be expecting a competitor to take up rights in the CBD space. But without close attention to how the sponsorship category is defined, any oversight here could lead to sharing branding space with unwelcome neighbors.

One of the key issues in any sponsorship deal is whether a sponsor will receive exclusive rights in a category.

In highly regulated industry categories such as gambling/casino and sports betting, league policies mandate strict compliance obligations on the part of the sponsor. We should expect to see a similar approach if leagues approve cannabis sponsorships. For example, in gaming and sports betting, league requirements often demand that sponsors notify the team or league of any compliance issues—no matter how nonmaterial, and no matter if they affect any rights or activities in the sponsorship territory. If there are compliance violations, leagues and teams typically demand immediate termination rights. The compliance and disclosure obligations for a highly regulated sponsor can be onerous, and sponsors risk losing their sponsorship investment even for trivial issues that do not bear on the sponsorship. For example, should a minor casino compliance violation in Las Vegas result in termination of a sponsorship deal in New York? Similarly, if a dispensary in Seattle operating under an interstate brand receives a de minimus fine for an inadvertent sale to a minor, should that result in termination of that brand’s sponsorship deal in Colorado? While these types of compliance and termination provisions are typically negotiable to something approximating fairness, look for leagues to take a hard-line stance on compliance issues, and expect that some teams may mandate deal terms that are take it or leave it.

Similarly, leagues and teams often demand strict morals provisions allowing them to terminate if they determine, in their sole discretion, that the sponsor or its activities might cause reputational harm to the team. Although cannabis is rapidly destigmatizing, one might argue that the industry is at least historically aligned with illegality and perhaps inherently aligned with other “sin” industries like gambling, alcohol and tobacco. Teams and leagues know what they are getting into when they accept sponsorship money from these industries, and cannabis sponsors should demand that any such “morals” provisions be exercised by teams only reasonably, in good faith, and with an opportunity for the sponsor to cure any alleged issues.

Further, just like gaming and sports betting operators, cannabis businesses are restricted from marketing to minors. While state laws are a hodge-podge, sales to individuals under the age of 21 are generally prohibited, and cannabis businesses are also generally restricted from marketing to individuals under the age of 21, or even from publishing marketing materials that appeal to children—a subjective standard. These rules, of course, are likely to restrict the type of signage and activation that can occur in stadia. It also poses issues from a digital marketing and data-sharing perspective. Sponsors and teams often negotiate specific activations via social media, websites and email marketing lists. But the parties must keep in mind compliance issues regarding these activations, including taking care to scrub relevant marketing databases of users under the age of 21 and, possibly, “self-excluded” individuals. The gaming industry is familiar with self-exclusion sign-ups, which permit individuals to opt out of relevant marketing and be disallowed from entering gaming establishments. The cannabis industry may not be far behind. In 2020, the Illinois General Assembly introduced HB4134, which if passed would have permitted self-exclusion from targeting mailings, advertising and promotions and from entry into dispensaries. While this bill died, it’s conceivable that we will see efforts to pass similar bills.

Finally, in 2020-21, sponsors, teams and leagues collectively, and regardless of industry, combed through the thorny issues of the COVID-19 pandemic. We can expect to observe a continuing trend of extra scrutiny paid to force majeure and so-called “make good” provisions for missed games or unavailable benefits.

New York Launches Conditional Licensing Program

By Kristin Kowalski, CPA
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Progress and history are being made in New York for adult use cannabis. Recently, Governor Hochul signed an amendment to New York State Cannabis Law which permits the Office of Cannabis Management (OCM) to award conditional licenses to certain adult use cultivators and processors, allowing hemp farmers in New York to grow cannabis in the 2022 growing season. And now, the application period to obtain a conditional license is officially open and available for qualified candidates. New York is moving full speed ahead in the hopes of creating one of the most inclusive adult-use cannabis industries in the nation.

What Does a Conditional License Mean?

With this legislation, New York State is creating a new conditional adult use cannabis cultivator license, allowing hemp farmers to grow cannabis in the 2022 growing season – helping to fast-track the state’s adult-use cannabis program. Under the law, conditionally licensed cannabis farmers must meet certain requirements, including safe, sustainable and environmentally friendly cultivation practices.

Highlights of the Bill & Legislation

Industrial Hemp First

To qualify for an adult use cannabis conditional cultivator license, only companies and individuals currently licensed with the state for cultivation or processing of industrial hemp can apply for the conditional licenses. Applicants must have been an authorized industrial hemp research partner for the Department of Agriculture and Markets, and industrial hemp cultivators must have grown and harvested the crop during at least two of the past four years.

Growing Locations

Licensed cultivators will be authorized to grow indoors, outdoors, or a combination of both, subject to space and lighting limitations in the law. With a conditional adult use cannabis cultivation license, farmers can grow outdoors or in a greenhouse for up to two years from the issuance of the license. It also allows them to manufacture and distribute cannabis flower products without holding an adult use processor or distributor license, until June 1, 2023.

Expanding Abilities with License

Conditional licensees will have temporary authority to conduct additional activities not included in their license. Cultivators are allowed to both minimally process and distribute flower, and processors can distribute their products.

Requirements of Conditional License

Hemp farmers in New York could be licensed to grow cannabis for the 2022 growing season.

As listed in the bill, conditional licensees must abide by all regulations, including those issued after receipt of the license. Applicants must also participate in a soon to-be-developed mentoring program for individuals interested in joining the industry through the social equity component of the Marijuana Regulation & Taxation Act, as well as actively participate in an environmental sustainability program. And lastly, applicants must begin operations within six months of receiving their license, and grant OCM employees’ access to the premises for inspections to ensure all rules are being followed.

Future Outlook on Cannabis Industry in New York

With the opening of the application portal for conditional licenses, this advances the Governor’s first-in-the-nation Seeding Opportunity Initiative, which positions individuals with prior cannabis-related criminal offenses to make the first adult use cannabis sales with products grown by New York hemp farmers. While this news is a positive step, there remain many unknowns about how the conditional licensing process will unfold. Applications can be filed with the OCM for Conditional Cultivator Licenses through June 30, 2022, with a $2,000 non-refundable application and licensing fee. For hopeful applicants, gathering a team of professional advisors to plan for the application process and operating an adult-use business is essential. Consulting with an accounting team or financial advisors from a tax standpoint, will be critical to establish systems and controls to maintain separate accounting records for your industrial hemp and adult use activities.

Cresco Labs To Acquire Columbia Care

By Cannabis Industry Journal Staff
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According to a press release published last week, Cresco Labs has come to an agreement with Columbia Care Inc. to acquire the company. The $2 billion deal, expected to close in the fourth quarter of 2022, will create the largest multi-state operator (MSO) in the country by pro-forma revenue.

Cresco Labs is already one of the country’s largest MSOs with roots in Illinois. With a footprint covering a lot of the United States, their brands include Cresco, High Supply, Mindy’s Edibles, Good News, Remedi, Wonder Wellness Co. and FloraCal Farms.

Columbia Care is also one of the largest cannabis companies in the US, with licenses in 18 jurisdictions and the EU. They currently operate 99 dispensaries and 32 cultivation and manufacturing facilities. Their brands include Seed & Strain, Triple Seven, gLeaf, Classix, Press, Amber and Platinum Label CBD.

Under the agreement, shareholders with Columbia Care will receive 0.5579 of subordinate voting share in Cresco for each common share they hold. Columbia Care shareholders will hold approximately 35% of the pro forma Cresco Labs Shares once the deal goes into effect.

Coming out of the deal, Cresco’s total revenue will hit $1.4 billion, making it the largest MSO in the country. Their footprint will reach 130 retail dispensaries across 18 different markets. The companies already have the largest market share in Illinois, Pennsylvania, Colorado and Virginia and are of the top three market shares in New York, New Jersey and Florida, which gives them unique opportunities to capitalize on emerging adult use markets.

Charles Bachtell, CEO of Cresco Labs, says the deal is very complementary and they are excited about long-term growth and diversification. “This acquisition brings together two of the leading operators in the industry, pairing a leading footprint with proven operational, brand and competitive excellence,” says Bachtell. “The combination of Cresco Labs and Columbia Care accelerates our journey to become the leader in cannabis in a way no other potential transaction could. We look forward to welcoming the incredible Columbia Care team to the Cresco Labs family. I couldn’t be more excited about this enhanced platform and how it furthers the Cresco Labs Vision – to be the most important and impactful company in cannabis.”

How to Make Sure Your Cannabis Delivery Service Is Compliant

By Claudia Post
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On-demand cannabis delivery services are a rapidly growing part of the industry. Having a delivery option available for your dispensary’s patient population is a critical component of your service offering. This is especially true when considering medical cannabis patients who might have conditions that hinder their mobility or patients who just prefer the anonymity or convenience of delivery rather than visiting a dispensary.

So I ask you – why don’t you have a delivery service option available for your dispensary?

While there are several models for cannabis delivery, depending on the state you live in, the biggest challenge dispensary owners face is ensuring that their delivery service continues to meet all compliance standards.

Beware, one misstep in your delivery process could mean serious implications for your dispensary and you – including being shut down.

Keep reading to learn how you can provide your customers and patients with a delivery service while remaining compliant with your state’s rules and regulations.

How to Keep Your Cannabis Delivery Service Compliant

Part of keeping your cannabis delivery service compliant is understanding how to start a delivery service from the ground up. Keep in mind that the costs will vary depending on how you structure your company. Things to think about – insurance, technology, merchant processing, driver recruiting and whether or not your drivers will be independent contractors or employees.

Some states require a retailer’s license while others require a specific deliver license

Additionally, you will have to consider the regulations that are standard in your state.

For instance, if you don’t do your research, you won’t know whether or not you need two drivers in the car, whether or not you need a lockbox, or if you’re required to have handhelds for payment. Other requirements will depend on the state in which you live.

Here are the most important things you’ll need to do to get started:

Do Your Homework 

The first thing you need to do to ensure that your service is compliant is research your state’s delivery protocol. That means obtaining the proper licensing or certifications necessary to move cannabis products from one place to another.

It should be noted that in some states, like Washington, cannabis delivery providers must also obtain a retailer’s license. You’ll also need to determine whether your state allows delivery for only medical cannabis or both medical and recreational.

Please keep in mind the following – cannabis is not federally recognized as legal. Therefore, the only deliveries you can make are intrastate deliveries.

In some states you’re required to have handhelds for payment.

Lastly, you’ll need to pay close attention to how you can advertise your cannabis delivery service. The guidelines vary from state to state, and they typically include regulations for content, imaging and location.

Is Owning a Delivery Service Right for You?

Delivery, in general, is not easy. The delivery business is difficult to integrate into the highly regulated cannabis market; it becomes extraordinarily difficult to manage.

It’s great to have a delivery service, but are you a good salesperson? Do you understand marketing, positioning and messaging? Have you ever written SOPs or standard operating procedures? There are so many questions to ask yourself when you want to own a business.

Consider Working With Logistics Experts

While it may be tempting to create an in-house delivery service all on your own, think twice.

It’s best to partner with a third-party logistics partner, like Scarlet Express. These partners are experts in cannabis delivery services and will arm you with everything you need to be successful.

Most cannabis logistics companies can also scale right along with your business, so you don’t have to worry about “outgrowing” their services.

As a new or small dispensary owner, taking on the challenges of cannabis delivery can be incredibly difficult but not impossible when you work with a company that has tried and true systems in place. Lots of things to consider, seek out experts – like Scarlet Express.

Registration Open for 2022 Cannabis Quality Conference & Expo

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EDGARTOWN, MA, March 23, 2022 – Registration for the Cannabis Quality Conference & Expo, taking place October 17-19 at the Hilton Parsippany in New Jersey, is now open.

The agenda features breakout sessions, keynotes and panel discussions that will help attendees better understand the cannabis markets in the region and provide insights on best practices and business strategies. The conference will begin with a keynote presentation, then a panel on The Future of East Coast Cannabis: Social Equity, Justice & Legalization. Following that will be a panel on The Standardization State of the Union: Science-Based Resources for Driving Cannabis Safety with an overview of the New Jersey cannabis marketplace to end the first day.

The second day will kick off with a Keynote titled Centering Equity in Cannabis Policy, Quality & Business with Toi Hutchinson, President & CEO at Marijuana Policy Project. Other agenda highlights include:

  • The State of the State: An Update on New Jersey Legalization by Steven M. Schain, Esquire, Attorney at Smart-Counsel, LLC
  • Tri-State Cannabis: Pro Tips for Winning Applications by Sumer Thomas, Director of Regulatory Affairs and Russ Hudson, Project Manager at Canna Advisors
  • Navigating Cannabis Testing Regulations for Multi-State Operations by Michael Kahn, President & Founder of MCR Labs
  • Keynote by Edmund DeVeaux, President of the New Jersey Cannabusiness Association
  • A Guide to Infusion Technology | Design Experiences that Inspire and Innovate with Cannabis Ingredients by Austin Stevenson, Chief Innovation Officer at Vertosa
  • Valuable Analysis Ahead of Asset Acquisition by Matthew Anderson, CEO of Vanguard Scientific

Registration options are available for in-person, virtual and hybrid attendance.

Event Hours

  • Monday, October 17: 12 pm – 6:30 pm (ET)
  • Tuesday, October 18: 8 am – 5:45 pm (ET)
  • Wednesday, October 19: 8 am – 12 pm (ET)

Tabletop exhibits and custom sponsorship packages are available. For sponsorship and exhibit inquiries, contact RJ Palermo, Director of Sales, and Chelsea Patterson, Account Executive.

Cannabis industry professionals also interested in the food industry can attend the Food Safety Consortium, which begins on Wednesday, October 19 – Friday, October 21. The program features panel discussions and breakout sessions that encourage dialogue among mid-to-senior-level food safety professionals. The Food Safety Consortium kicks off with an FDA Keynote and Town Hall, followed by a panel on the State of the Food Safety Industry and where it is going, led by Darin Detwiler of Northeastern University.

About Cannabis Industry Journal 

Cannabis Industry Journal is a digital media community for cannabis industry professionals. We inform, educate and connect cannabis growers, extractors, processors, infused products manufacturers, dispensaries, laboratories, suppliers, vendors and regulators with original, in-depth features and reports, curated industry news and user-contributed content, and live and virtual events that offer knowledge, perspectives, strategies and resources to facilitate an informed, legalized and safe cannabis marketplace.

About the Cannabis Quality Conference & Expo

The Cannabis Quality Conference & Expo is an educational and networking event for the cannabis industry that has cannabis safety, quality and regulatory compliance as the foundation of the educational content of the program. With a unique focus on science, technology, safety and compliance, the “CQC” enables attendees to engage in conversations that are critical for advancing careers and organizations alike. Delegates visit with exhibitors to learn about cutting-edge solutions, explore three high-level educational tracks for learning valuable industry trends, and network with industry executives to find solutions to improve quality, efficiency and cost effectiveness in the evolving cannabis industry.