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Flower-Side Chats Part 5: A Q&A with Bob Fireman, CEO of MariMed, Inc.

By Aaron Green
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In this “Flower-Side Chats” series of articles, Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses integrate innovative practices in order to navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

Multi-state operators (MSOs) are on the rise in the United States, navigating complex regulatory frameworks to drive profitability through economies of scale and scope. As an MSO and an early mover in the space, a significant part of MariMed’s current strategy is to complete the acquisition and consolidation of the licensed state cannabis businesses it has developed. It takes seasoned leadership to make that happen, and MariMed’s is led by one of the most experienced and successful MSO management teams in the industry. Over the last eight years, Bob Fireman and his colleagues have won 17 licenses in 6 states, and designed and developed over 300,000 square feet of cannabis cultivation, production and dispensing facilities.

MariMed has also developed a portfolio of award-winning cannabis brands and infused products which are licensed, manufactured and distributed in Delaware, Illinois, Maine, Maryland, Nevada, Rhode Island and Puerto Rico. A recently announced $46 million financing for a facility with Hadron Healthcare Fund will help repay all MariMed debt other than mortgage-backed bank loans and one convertible note, as well as help upgrade and expand the company’s owned and managed cannabis facilities.

We spoke with Bob Fireman, CEO of MariMed. Bob started the foundations of MariMed in 2008 after getting into large-scale hydroponics for urban sustainable agriculture. Prior to MariMed, Bob served as a startup lawyer focused on tech and emerging industries.

Aaron Green: Bob, tell me about how you got started in the cannabis industry.

Bob Fireman: I practiced law for decades. Part of my practice was to help startups in all sorts of industries, particularly technology and new emerging markets. At one point, I was introduced to a fascinating sustainable food business opportunity – to build hydroponic farms on rooftops in cities across the country.

Bob Fireman, CEO of MariMed, Inc.

When one of our projects in San Francisco hit some roadblocks, our team there pivoted to what was becoming the Wild West of California cannabis. My friend and current MariMed CFO, Jon Levine, and I began investing and managing a cultivation site there. That’s where we built our early foundation of industry knowledge.

Fast forward a few years, and I was afforded the opportunity to be involved in the drafting of the proposed Massachusetts medical cannabis legislation.

Through that work, we met a team that had won one of three cannabis licenses in Rhode Island. We formed a real estate LLC and raised the capital to develop a seed to sale cannabis facility in Providence, which was later leased to the Slater Center, a not-for-profit medical cannabis licensed business. Today, the Slater Center is a nationally acclaimed operation that services over 10,000 medical patients.

From there, we took our know-how and formed a new entity that was the formal beginning of the company we now know as MariMed. Initially, we helped win licenses for clients in Massachusetts, Delaware, Maryland, Illinois and Nevada. We also provided management services, working capital and other necessities. Under our management, we organically built these businesses from the ground up, advancing best practices and somewhat quietly creating a network of best-in-class operations throughout the industry.

That led to the consolidation of those businesses that we’re focused on today as a core strategic pillar.

I’m incredibly proud of our team, the core of which has been at this for 10 years. We’ve watched other MSOs try different models of success, with varying degrees of success. For us, focusing on growth markets, building at a reasonable and scalable clip, attracting incredible talent at all levels of the company, and developing fantastic brands that customers love, are the ingredients that have translated to where we are now – strong performance and an exceptionally bright future. “Slow and steady wins the race” has become a mantra.

Green: What trends are you looking at right now? What’s on your radar?

Fireman: My radar has a singular focus, and that’s to create shareholder value. That’s why completing the consolidation of the cannabis licensed businesses we’ve developed and manage into our public company is so critical. Back in the day, the initial available licenses were in medical-only state programs where applicants were required to be not-for-profit state companies. Accordingly, we raised the capital in the real estate entity which leased facilities to the licensees. Our revenue was from rents, management services and licensing fees.

Panacea Wellness in Middleborough, MA is one of MariMed’s adult use cannabis dispensaries

In 2019, we implemented a new strategic plan to consolidate these businesses. While that translates to our being structured similarly to other MSOs in that we are a vertically integrated seed to sale company, we are distinct in our operational excellence, quality product portfolio, and strong balance sheet. Other MSOs have raised large amounts of capital to pay large sums to acquire licensed state cannabis businesses and have found themselves over-leveraged and challenged to assimilate other companies’ methodologies and cultures. By consolidating the businesses and talented people we developed and managed from day one and utilizing our best practices and processes system-wide, we realize enormous capital efficiencies.

Our strategy is paying off. Our core cannabis revenue in 2020 increased 207% to $50.9 million, and our 10k reported EBITDA of $16.3 million. And now we’re on track to double our revenue in 2021.

The last piece of the puzzle is to let the world know what we’ve been doing. Slow and steady has worked for us but gone are the days of doing so quietly. We’re proud of what we’ve accomplished and exceedingly bullish on what’s to come.

Green: What do you look for in an M&A target?

Fireman: When M&A makes sense for us, we first look for single operators and entrepreneurs in states where we are not active and look to partner with business leaders that had the vision and the courage to get into this industry and build solid cannabis businesses from the ground up. I’m looking for businesses that could benefit from being part of a larger, more experienced and well-capitalized company like MariMed. Obviously, as an MSO with a solid platform, MariMed is approached regularly by other MSOs and banks suggesting candidates for M&A opportunities. Lining up with a company that has complementary cannabis licenses in other states and who shares our vision and ethics could be a win-win situation. They must embrace our commitment to diversity, the environment and proper corporate governance. We have been somewhat reticent to do this until we see some increase in our share price and market capitalization.

Green: Are there any new products, or product trends that you’re looking at?

Fireman: Marimed looks to be the most trusted source of high-quality cannabis products that consistently delivers innovative health and wellness solutions to our patients and customers. Our lab scientists are constantly creating and testing new and innovative formulations of cannabinoid compounds including CBD, THCa, CBG, CBN and others that will improve the health and wellness of our customers.

Our brand portfolio is ever-expanding with new and better product offerings. Our award-winning Betty’s Eddies Fruit Chews brand is adding new SKUs of varieties and flavors for both medical and adult use programs. Our Nature’s Heritage flower and concentrates brand is adding a line of solventless concentrates, live rosin, as well as new formulations for RSO, an oil popular with medical patients. Kalm Fusion is expanding its successful line of powdered drink mixes as we see more movement in the cannabis beverage category.

Microdosing is hugely popular right now, and we’re rolling out products in the 2-5mg dosage range. Health and dietary concerns are top of mind as well, and we offer products that are vegan, sugar-free and gluten-free. Ultimately, we want to be sure that we have something on the shelves for every single consumer. The financial hardship created by the pandemic has made consumers more attracted to value added products such as popcorn buds.

Green: You recently announced an equity financing from Hadron. I’m curious to learn more about it from a nuts-and-bolts perspective if you can share any of that information.

Fireman: Over the last year, access to the capital markets for equity raises in cannabis public companies was difficult. The cost of debt was and is still high, and we were looking for a long-term financial partner that understood the industry and could assist us. Hadron Capital has been successful for several years investing in some of the most successful MSOs and they saw the value and potential in MariMed’s experienced management and great assets.

Hadron invested $46 million in equity in MariMed this March. Approximately $16 million was utilized to retire all our short- and long-term debt but for bank secured debt and one convertible note. $7 million is committed to funding our capex and expanding the capabilities of our facilities, enabling us to grow more flower and automate production. The balance of funding will support our consolidation strategy to fund two more roll ups of state licensed cannabis businesses into the public company.

Going forward, it is comforting to have a capital partner to assist us in future acquisitions and M&A opportunities.

Green: I’d love to learn more about your Nature’s Heritage brand, particularly as it relates to the cultivation and the flower products.

Fireman: Our COO Tim Shaw has assembled a cultivation and production team with expertise in all aspects of genetics, growing methodologies, extraction techniques, and packaging innovation. That’s provided us a rich collection of quality genetics that make up Nature’s Heritage, our top-selling flower, oil and concentrate brand in Massachusetts and Maryland. We’ve recently expanded the line to include Rick Simpson Oil (RSO) and solventless concentrates (including live rosin) and have been receiving stellar feedback.

Green: What are you interested in learning more about?

Fireman: Over the last decade, the MariMed core team has seen the emergence and amazing growth of the cannabis industry. The initial medical programs in California and Colorado have now led to some form of legal medical or adult use cannabis programs in over 33 states and districts.

We are most interested in learning and following the federal, state, and international laws and regulations. It is vital to know how these laws will affect our company and the industry as a whole. When might full federal legalization become a reality? What might different versions of the law be? Will state legal programs be protected as well as the companies that took the risk in investing in the industry at its nascent state and how? What will FDA requirements and regulations look like? What medical claims will companies be allowed to make, and what kind of research or trials will be required to put a product on the shelf? What are the ramifications of the MORE Act or the SAFE Banking Act?

Responsible MSOs need to be prepared to rise to or above the standards of care of other industries. A lot of this was impossible in the past because of federal prohibition laws. Soon, if not already, labs and manufacturing processes will need to be GMP certified and more. Consumer data will need to be HIPAA compliant. Cannabis companies have to be good corporate citizens: diversity and equal opportunity should be embedded in business decisions, and commitment to ESG and sound environmental and social policies with good corporate governance need to be in planning and implemented.

Following the laws and holding ourselves to the highest possible safety and business standards will allow the cannabis industry to finally become “mainstream.”

Green: Alright, great. Thank you, Bob. That concludes the interview!

Defining Hemp: Classifications, Policies & Markets, Part 1

By Darwin Millard
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What is “hemp”?

The word “hemp” has many meanings. Historically the term has been used as the common name for the Cannabis sativa L. plant. Just like other plants, the cannabis plant has two names, a common name, hemp, and a scientific name, Cannabis sativa L. After the ratification of the UN Single Conventions on Narcotic Drugs and Psychotropic Substances, in 1961 and 1972 respectively, the term started to be used to distinguish between resin producing varieties of the cannabis plant and non-resin producing varieties of the cannabis plant. Nowadays the term is generally used to refer to cannabis plants with a delta-9-tetrahydrocannabinol (d9-THC), a controlled substance, content equal to or less than the maximum allowable limit defined by each marketplace.

Tetrahydrocannabinol (THC), just one of hundreds of cannabinoids found in cannabis.

In the United States and Canada, the limit is defined as 0.3% on a dry weight bases, and until November 2020, in the European Union, the limit was defined as 0.2%. After years of effort the “hemp” industry in Europe was successfully able to get the limit raised to 0.3% to be in line with the United States and Canada – creating the largest global trade region for hemp products. But there exist several marketplaces around the world where, either through the consequences of geographic location or more progressive regulations, the d9-THC content in the plant can be substantially higher than 0.3% and still considered “hemp” by the local authority.

To address these variances, ASTM International’s Technical Committee D37 on Cannabis has been working on a harmonized definition of hemp, or industrial hemp, depending on the authority having jurisdiction, through the efforts of its Subcommittee D37.07 on Industrial Hemp. The following is a proposed working definition:

hemp, n—a Cannabis sativa L. plant, or any part of that plant, in which the concentration of total delta-9 THC in the fruiting tops is equal to or less than the regulated maximum level as established by an authority having jurisdiction.

Discussion: The term “Industrial Hemp” is synonymous with “Hemp”.

Note: Total delta-9 THC is calculated as Δ⁹-tetrahydrocannabinol (delta-9 THC) + (0.877 x Δ⁹-tetrahydrocannabinolic acid).

This definition goes a long way to harmonize the various definitions of hemp from around the world, but it also defines “hemp” as a thing rather than as a classification for a type of cannabis plant or cannabis product. This is a concept rooted in the regulatory consequences of the UN Single Conventions, and one I strongly disagree with.

The definition also leaves the total d9-THC limit open-ended rather than establishing a specified limit. An issue I will address further in this series.

Can “hemp products” only come from “hemp plants”?

If you are an invested stakeholder in the traditional “hemp” marketplace, you would say, yes.

But are there such things as “hemp plants” or are there only cannabis plants that can be classified as “hemp”? (The definition for hemp clearly states that it is a cannabis plant…)

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

There is no distinction between the cannabinoids, seeds, and fibers derived from a cannabis plant that can be classified as “hemp” and those derived from a cannabis plant that cannot. The only difference is the word: “cannabis,” and the slew of negative connotations that come along with it. (Negative connotations that continue to be propagated subconsciously, or consciously, whenever someone says the “hemp plant” has 50,000+ uses, and counting, and will save the world because it’s so green and awesome, but not the “cannabis plant”, no that’s evil and bad, stay away! #NewReeferMadness)

The declaration that “hemp products” only come from “hemp plants” has some major implications. “Hemp seeds” can only come from “hemp plants”. “Hemp seed oils” can only come from “hemp seeds”. “Hemp fibers” can only come from “hemp plants”. Etc.

What does that really mean? What are the real-world impacts of this line of thinking?

Flat out it means that if you are growing a cannabis plant with a d9-THC content above the limit for that plant or its parts to be classified as “hemp”, then the entire crop is subjected to the same rules as d9-THC itself and considered a controlled substance. This means that literal tons of usable material with no resin content whatsoever are destroyed annually rather than being utilized in a commercial application simply because a part or parts of the plant they came from did not meet the d9-THC limit.

Some of the many products on the market today derived from hemp

It is well known that d9-THC content is concentrated in the glandular trichomes (resin glands) which are themselves concentrated to the fruiting tops of the plant. Once the leaves, seeds, stalks, stems, roots, etc. have been separated from the fruiting tops and/or the resin glands, then as long as these materials meet the authority having jurisdiction’s specifications for “hemp” there should be no reason why these materials could not be marketed and sold as “hemp”.

There are several reasons why a classification approach to “hemp plants” and “hemp products” makes more long-term sense than a bifurcation of the “cannabis” and “hemp” marketplaces, namely from a sustainability aspect, but also to aid in eliminating the frankly unwarranted stigma associated with the cannabis plant. #NewReeferMadness

That said, say you are a producer making shives from the stalks of cannabis plants that can be classified as “hemp” and then all of a sudden, the market opens up and tons of material from cannabis plants that cannot be classified as “hemp,” that was being sent to the landfill, become available for making shives. Would you be happy about this development? Or would you fight tooth and nail to prevent it from happening?

In this segment, we looked at the history of the term “hemp” and some of the consequences from drawing a line in the sand between “cannabis” and “hemp”. I dive deeper into this topic and provide some commonsense definitions for several traditional hemp products in Part 2 of Defining Hemp: Classifications, Policies & Markets.

How to Build a Brand that Lasts After Federal Decriminalization

By Frank Knuettel II
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Despite President Biden’s reticence in tackling cannabis reform, Senate Democrats led by Chuck Schumer of New York have insisted that they intend to move forward with descheduling and decriminalizing cannabis with or without the President. This begs the question, what could brands across the legal cannabis industry look like as the federal regulatory environment evolves? As part of this, will interstate restrictions come down and allow for efficient regional and even national brands or will the structure continue to require a state-by-state strategy and rollout?

Currently, state borders set boundaries that dictate supply, distribution and sale, setting strict regulations on cannabis industry operations. As of today, many companies throughout the U.S. cannabis industry are structured as multi-state operators (MSOs), in which the companies own products or dispensary brands that are available in multiple legal state markets but operate in virtual silos from one another. This poses an interesting challenge that may need to evolve with federal legislative changes that could determine redrawing of these supply chains both on a regional and national level.

Brands like Korova, a popular edibles and flower brand based in California, with operations in Oregon and licensees in Oklahoma and Arizona, must keep its operations entirely separate, even if it operates under the same name in different states. Moreover, cannabis flower and extract sourced from California cannot legally be shipped to Oregon or other states. Thus, the MSO often creates vertical operations in each state in which it operates. It creates an entirely distinct process from cultivation to extraction to retail facilities. This difference in operation, even slight, can affect brand quality and consistency across markets if not managed carefully. 

When federal cannabis legislation changes, these types of decisions will most likely be left to the states. I view it as similar to how the alcohol industry operates. In this case, states want to work to protect tax revenue and jobs. Whatever new federal legislation materializes, it is likely that states will retain considerable control over their borders and will have little to no immediate change in terms of vertical operations or the supply chain. The industry is still very nascent, and today’s companies have already developed competitive moats.

On the other hand, if federal barriers are abruptly lifted, we head into a massive free for all. In this scenario, massive consolidation and disruption will occur across the industry, and companies with larger footprints, either in large, important states or across states, will likely be merged together or acquired outright, by either larger MSOs or consumer packaged goods companies that enter the cannabis industry. Along the way, smaller, private companies would go out of business. This would have a massive impact on the industry, with considerable local or state-level disruption to tax revenues and employment. No politician wants to be responsible for something like this, especially during this time of economic turmoil.

If the federal government goes all in on legalization and offers interstate commerce and travel across state lines, companies will no longer have to operate within their own states, nor will MSOs need to create separate vertical operations in different states with hopes that brands maintain consistency. If this occurs, it will ease major strains that presently exist for corporations throughout the industry. Large operators will certainly have an advantage if movement is freed for brands. However, challenges will most likely persist for smaller operators looking to make a splash in the market and the likelihood of this happening for the reasons stated above is low.

Interstate cannabis commerce will be the game changer. While it remains unlikely, in my view, that there will be interstate commerce allowed in any legislation we see out of this Congress, it will happen eventually, just as interstate alcohol laws have also evolved overtime. Having ownership of good assets and brands in important markets and building a strong revenue base is key to both short and long-term success as the industry continues it consolidation, a measure which will only be accelerated with more federal legislation. For Terra Tech, which is acquiring Korova and other brands, it is a fundamental part of our strategy.

So how does a company identify the strongest brands and best operations to work with in our incredibly fragmented industry with no national brands? While there are companies trying to move in that direction, none of them have national brand stature at this point, providing an opening. The brands most likely to succeed are the ones that are more likely to resonate with consumers across various markets. These brands tend to have higher quality and potency at a good perceived value, and which have history in the community of delivering consistent products.

When it comes to choosing markets to get involved in, some choose to do it regionally and others seek out available markets regardless of geography or marketing segments. Unlike many leaders of multi-state operations, I don’t prefer to buy smaller operations in a bunch of states. In my experience, organizing our operations by region increases our efficiency and profitability.  I’m very firmly in support of creating one larger brand than smaller regional brands. It’s easier to develop with marketing and advertising.

First in the South – Virginia’s Legalization Focuses on Public Safety, Health and Social Justice

By Gregory S. Kaufman, Jessica R. Rodgers
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With the signing of the Cannabis Control Act (the Act) on April 21, 2021, Virginia became the first southern state to legalize adult use cannabis and just the fourth state to do so through the legislature. Legalizing adult use cannabis through the legislature, as opposed to through the ballot box, is not the typical route states have followed up to now. Eleven of the sixteen states and the District of Columbia have legalized adult use cannabis through the use of ballot measures. Virginia joins Vermont, Illinois, New York and New Mexico (which legalized after Virginia) as one of the few states that have gone the legislative route. Under Governor Northam’s administration, the path to legalization was swift, taking less than four months from introduction to passage.

Governor Northam added amendments to the already passed Senate Bill 1406 and the General Assembly voted to approve those amendments, with the Lieutenant Governor breaking the tie in the Senate’s vote. Upon signing, Governor Northam called the law a step towards “building a more equitable and just Virginia and reforming our criminal justice system to make it more fair.” This message and the opportunities to promote social equity through a legal cannabis industry have been consistent points of advocacy made by supporters as the bill advanced to becoming law.

Prior to the Governor’s amendments, the Act under consideration set July 1, 2024 as the date on which both legal possession and adult use sales would begin. The Governor decided to accelerate the date for legal possession to July 1 of this year, a decision believed to have been influenced by data showing that Black Virginians were more than three times as likely to be cited for possession, even after simple possession was decriminalized in the state a year prior. The regulated adult use market is still set to begin making sales on July 1, 2024; however, it remains possible that this date could be advanced through the legislature in the meantime. Nevertheless, Virginia is on track to becoming the first southern state with an operating regulated commercial cannabis market.

Creating an Administrative Structure for the Adult Use Program

Virginia became the first state in the South to legalize adult use cannabis

This sweeping fifty-page law creates the Cannabis Control Authority to regulate the cultivation, manufacture, wholesale and retail sale of cannabis and cannabis product. The Act further lays the groundwork for licensing market participants and regulating appropriate use of cannabis; defining local control; testing, labeling, packaging and advertising of cannabis and cannabis products; and taxation. The Act also contains changes to the criminal laws of the Commonwealth. Companion to the Act are new laws addressing the testing, labeling and packaging of smokable hemp products and manufacturing of edible cannabis products. Additionally, the Cannabis Equity Reinvestment Board was created to address the impact of economic divestment, violence and criminal justice responses to community and individual needs through scholarships and grants.

While persons 21 years or older may possess up to one ounce of cannabis and cultivate up to four plants for personal use per household beginning on July 1, 2021, there are a host of regulations to be written in order to regulate the adult use market. These regulations will be the devil in the details of how the regulated market will work. Regardless, the Cannabis Control Act does establish the framework for adult use cannabis that is unique to Virginia and designed to promote and encourage participation from people and communities disproportionately impacted by cannabis prohibition and enforcement.

The Cannabis Control Authority (CCA) will consist of a Board of Directors, the Cannabis Public Health Advisory Council, the Chief Executive Officer and employees. The Board will have five members appointed by the Governor and confirmed by the legislature, each with the possibility of serving two consecutive five-year terms. The Board is tasked with creating and enforcing regulations under which retail cannabis and cannabis products are possessed, sold, transported, distributed, and delivered. It is expected that the Board will begin discussing regulations next year and that applications for licenses for cannabis cultivation facilities, manufacturing facilities, cannabis testing facilities, wholesalers, and retail stores will begin to be accepted in 2023. Importantly, a Business Equity and Diversity Support Team, led by a Social Equity Liaison, and the Equity Reinvestment Board, led by the Director of Diversity, Equity and Inclusion, are to contribute to a plan to promote and encourage participation in the industry by people from disproportionately impacted communities.

Regulating Participation in the Market

The Act empowers the Board to establish a robust and diverse marketplace with many entry opportunities for market participants. Up to 450 cultivation licenses, 60 manufacturing licenses for the production of retail cannabis products, 25 wholesaler licenses and 400 licenses for retail stores can be granted. These numbers do not include the four permits granted to pharmaceutical processors (entities that cultivate and dispense medical cannabis) under the Commonwealth’s medical program.

Virginia Governor Ralph Northam
Image: Craig, Flickr

In addition to the sheer number of licenses that can be granted, the Act devises a unique approach to addressing concerns of a concentration of licenses in too few hands and a market dominated by large multi-state operators. At the same time, it sets up a mechanism to capitalize two cannabis equity funds intended to benefit persons, families and communities historically and disproportionately targeted and affected by drug enforcement through grants, scholarships and loans. Over-concentration and market dominance concerns are addressed by limiting a person to holding an equity interest in no more than one cultivation, manufacturing, wholesaler, retail or testing facility license. This eliminates the ability of companies to be vertically integrated from cultivation through retail sales operations. However, there are two exceptions to the impediment to vertical integration. First, the Board is authorized to develop regulations that permit small businesses to be vertically integrated and ensure that all licensees have an equal and meaningful opportunity to participate in the market. These regulations will be closely scrutinized by those looking to enter Virginia’s regulated market once they are proposed. Qualifying small businesses could benefit substantially from the economic advantages commensurate with being vertically integrated, assuming they have the access to the capital needed to achieve integration and operate successfully. The second exception allows permitted pharmaceutical processors and registered industrial hemp processors to hold multiple licenses if they pay $1 million to the Board (to be allocated to job training, the equity loan fund or equity reinvestment fund) and submit a diversity, equity and inclusion plan for approval and implementation. Consequently, Virginia is attempting to fund, in part, its ambitious social equity programs by monetizing the opportunity for these processors to participate vertically in the adult use market.

Those devilish details of how this market will function, and how onerous compliance obligations will be, will emanate from those yet to be proposed regulations covering many areas and subject matters including:

  • Outdoor cultivation by cultivation facilities;
  • Security requirements;
  • Sanitary standards;
  • A testing program;
  • An application process;
  • Packaging and labeling requirements;
  • Maximum THC level for retail products (not to exceed 5 mg per serving or 50 mg per package for edible products);
  • Record retention requirements;
  • Criteria for evaluating social equity license applications based on certain ownership standards;
  • Licensing preferences for qualified social equity applicants;
  • Low interest loan program standards;
  • Personal cultivation guidelines; and
  • Outdoor advertising restrictions.

Needless to say, the CCA Board has a lot work ahead in order to issue reasonable regulations that will carry out the dictates in the Act and encourage the development of a well-functioning marketplace delivering meaningful social equity opportunities.

Much work needs to be done before July 1, 2024 to prepare for its debutThe application process for the five categories of licenses will be developed by the Board, along with application fee and annual license fee amounts. It is not clear how substantial these fees will be and what effect they will have on the ability of less-well-capitalized companies and individuals to compete in the market. The Act dictates that licenses are deemed nontransferable from person to person or location to location. However, it is not entirely clear that changes in ownership will be prohibited. The Act contemplates that changes in ownership will be permitted, at least as to retail store licensees, through a reapplication process. Perhaps the forthcoming regulations will add clarity to the transferability of licenses and address the use of management services agreements as a potential workaround to the limitations in license ownership.

Certain requirements particular to certain license-types are worthy of highlighting. For example, there are two classes of cultivation licenses. Class A cultivation licenses authorize cultivation of a certain number of plants within a certain number of square feet to be determined by the Board. Interestingly, Class B licenses are for cultivation of low total THC (no more than 1%) cannabis. Several requirements specific to retail stores are noteworthy. Stores cannot exceed 1,500 square feet, or make sales through drive-through windows, internet-based sales platforms or delivery services. Prohibitive local ordinances are not allowed; however, localities can petition for a referendum on the question of whether retail stores should be prohibited in their locality. Retail stores are allowed to sell immature plants and seek to support the home growers, an allowance that is fairly unique among the existing legal adult-use states.

Taxing Cannabis Sales

Given the perception that regulated cannabis markets add to state coffers, it is little surprise that Virginia’s retail market will be subject to significant taxes. The taxing system is straightforward and not complicated by a taxing regime related to product weight or THC content, for example. There is a 21% tax on retail sales by stores, in addition to the current sales tax rates. In addition, localities may, by ordinance, impose a 3% tax on retail sales. These taxes could result in a retail tax of approximately 30%.

Changes to Criminal Laws

Changes to the criminality of cannabis will have long lasting effects for many Virginians. These changes include:

  • Fines of no more than $25 and participation in substance abuse or education programs for illegal purchases by juveniles or persons 18 years or older;
  • Prohibition of warrantless searches based solely on the odor of cannabis;
  • Automatic expungement of records for certain former cannabis offenses;
  • Prohibition of “gifting” cannabis in exchange for nominal purchases of some other product;
  • Prohibition of consuming cannabis or cannabis products in public; and
  • Prohibition of consumption by drivers or passengers in a motor vehicle being driven, with consumption being presumed if cannabis in the passenger compartment is not in the original sealed manufacturer’s container.

These changes, and others, represent a balancing of public safety with lessons learned from the effects of the war on drugs.

Potpourri

The Act contains myriad other noteworthy provisions. For example, the Board must develop, implement and maintain a seed-to-sale tracking system for the industry. Plants being grown at home must be tagged with the grower’s name and driver’s license or state ID number. Licenses may be stripped from businesses that do not remain neutral while workers attempt to unionize. However, this provision will not become effective unless approved again by the legislature next year. Banks and credit unions are protected under state law for providing financial services to licensed businesses or for investing any income derived from the providing of such services. This provision is intended to address the lack of access to banking for cannabis businesses due to the federal illegality of cannabis by removing any perceived state law barriers for banks and credit unions to do business with licensed cannabis companies.

The adult use cannabis industry is coming to Virginia. Much work needs to be done before July 1, 2024 to prepare for its debut. However, the criminal justice reforms and commitment to repairing harms related to past prohibition of cannabis are soon to be a present-day reality. Virginia is the first Southern state to take the path towards legal adult use cannabis. It is unlikely to be the last.

Clean Green Farming is Good for Cannabis

By Khalid Al-Naser
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At Raw Garden, we have a ‘Farming First’ philosophy because we understand that the process of farming is the process of managing the plant’s life and the management of the land those plants grow on – this is when the plantgets its chance to thrive but requires that it is properly nurtured in order to provide resources such as high-quality terpenes and cannabinoids.

Our cannabis plants are sun-grown in Santa Barbara county soil just like other California crops. From the seed to the shelf, we are vertically integrated and maintain quality control at every step in the process. We grow our own seeds, farm and harvest our own plants, and process our own products while employing sustainable and regenerative farming practices – only organic and natural fertilizers, soil amendments and pest control methods are used on thefarm.

As farmers we have a responsibility to care for the land and the soil to ensure it is fertile and healthy well into the future. We take care of the soil and it takes care of our plants. The result is premium quality products that our customers love and trust. Our success and commitment to quality is proof that the economics of clean, sustainable operations are achievable. We’re farmers and scientists on a mission to make clean, high quality cannabis that is affordable and accessible.

A few of the sustainable agriculture practices we employ at Raw Garden include:

The Clean Green Certified logo

Clean Green Certification – Since our inception, we have been certified and licensed members of Clean Green, the #1 globally-recognized organic and sustainable cannabis certification program. The program was created in 2004 as a way to standardize legal cannabis products and the result was a program to help farms and brands obtain organic-like certification based on the USDA National Organic program. Clean Green-certified growers and processors regularly win awards for their high-quality products, including our award-winning extracts.

Water Conservation – Our farm team waters at the right time of day to reduce evaporative water loss; we also use drip irrigation and mulch to reduce water waste and runoff. Last year, we used about 8,000 gallons of water per acre on average, which is significantly less than standard outdoor grown crops.

Natural Fertilizer and Pest Control – We apply only organic fertilizers and foliar feeds and we spray only organic pathogen-free inoculants to keep our plants healthy and disease-free, which consistently results in high yields. To naturally deter pests, we recruit beneficial predatory insects like ladybugs and parasitic wasps, in addition to botanical oils and diatomaceous earth.

Precision Agriculture (PA) and Site-Specific Crop Management (SSCM) – We utilize technology to manage crops and increase farm efficiency, such as machine learning for fertilizer optimization and digital sensors in the field to monitor crops.

Author Khalid Al-Naser next at Raw Garden’s farm.
Image by Brian Walker

Soil Health and Terroir – Like grapes for wine, cannabis plants grown in the soil have terroir that affects the flower’s qualities, characteristics, terpene profile, aroma and taste, based on temperature, climate, soil composition and topography, as well as other environmental influences. Micro-climates matter – the same strain of cannabis grown along the coast likely has a different taste and potency than one grown inland. We grow in Santa Barbara wine country for the combination of fertile soil, hot sun, and cool nights which yield an incredibly diverse, potent and flavorful crop of cannabis flowers. Between growing seasons, we employ regenerative agriculture by planting cover crops including oat, beans, peas and buckwheat to add nitrogen and organic matter naturally back in the soil. This method of cover crops also helps reduce pests and soil-borne diseases in preparation for the next growing season. We know that an ideal environment in combination with healthy soil and good land management results in healthier, more vigorous plants, which translates to higher-quality products.

As farmers, it is our responsibility to care of the land with good management decisions today so that we grow the best quality products while better preserving the land for the future. It takes careful planning, knowledge of the land, a commitment to sustainable practices and a desire to put farming first.

Leaders in Cannabis Formulations: Part 2

By Aaron Green
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Editor’s Note: In Part 1 of this series, green sat down with Drew Hathaway, senior food scientist at Stillwater Brands. Click here to see Part 1.

Natural cannabinoid distillates and isolates are hydrophobic oils and solids, meaning that they do not mix well with water and are poorly absorbed in the human body after consumption. By formulating these ingredients using a patented delivery system technology, trademarked VESIsorb®, Geocann has overcome common obstacles associated with fat-soluble active ingredients, including poor stability, bioavailability, absorption, and solubility. In addition, Geocann has peer-reviewed, published evidence of the dramatic improvements in Cmax, AUC, and Tmax (“time to peak absorption” directly related to “fast-acting” benefits).

Geocann is a cannabis formulation company with its headquarters in Fort Collins, Colorado, and additional offices in Chicago, Illinois and Zurich, Switzerland. The company is led by an impressive leadership team of scientists, pharmacists, researchers and natural product industry leaders. Geocann’s technology platform has been successfully applied to a wide range of cannabis product applications, including soft gel and hard-shell capsules, functional foods (e.g. gummies) and beverages, powder systems, tinctures, sublingual sprays and topically applied formulations. Brand partners in the U.S. utilizing Geocann’s technology for hemp applications include Nestlé Health Science, Cannaray and Onnit, and brand partners for medical and adult-use cannabis applications include Curaleaf, Sunderstorm and CannaCraft, among others.

We spoke with Jesse Lopez, CEO and Founder of Geocann, about their product formulation technology in cannabis and how they work with brand partners in the U.S and internationally. Lopez started Geocann in 2018 alongside the success he’s experienced at SourceOne Global Partners (founded in 2003 by Lopez), a leading formulation company in the nutraceuticals space with a reputation for pioneering innovative products that combine science-backed ingredients with patented drug delivery system technologies to address the most pressing consumer health concerns, such as heart health, cognitive function, inflammatory response, metabolic syndrome and type II diabetes, among others.

Aaron Green: Jesse, first off, how did you get involved in the cannabis industry?

Jesse Lopez: Our focus at SourceOne Global Partners has been on natural products for nearly two decades. Some of the folks involved with our natural products business decided that they would get involved in the cannabis business and they asked for my support at the Advisory Board level. I agreed to serve and figured I better learn about the cannabis industry! We realized that there was a tremendous opportunity for utilizing our drug delivery system technology to enhance the value of these cannabis-based products. Due to the regulatory environment, strategic legal counsel and new investments necessary to take an immediate leadership position in the cannabis industry we launched Geocann in 2018 with an office in a fully legal state at the time, Colorado.

Green: How do you select the natural products you work with at SourceOne?

Jesse Lopez, CEO and Founder of Geocann

Lopez: We really focus on science-backed natural product ingredients that may require high doses to reach therapeutic blood levels. By combining these science-backed ingredients with patented technologies – which we own the global rights to – these products offer desirable differentiation for leading brands, such as dramatically improved absorption and bioavailability, patent protection and trademarked “intel inside” branding.

Green: What are some of the other natural products you have experience with?

Lopez: We work with a range of some of the most popular nutraceuticals such as coenzyme Q10 and omega-3 fish oil to the more innovative natural products like resveratrol. We also work with vitamin D, and other immunity-based ingredients that can be enhanced using our delivery system technology to deliver greater benefits to the people that are taking those products.

Green: What is the technology and how does it work?

Lopez: I think it’s important to recognize our technology partner, Vesifact, in Zurich, Switzerland, who is the inventor of the VESIsorb® technology platform and serves as the scientific research, technical support, production, and product development arm of SourceOne and Geocann. We are very proud of this symbiotic relationship where our role at Geocann and SourceOne is to provide the commercial development, sales, marketing and strategic distribution infrastructure. We promote our partnership openly on our website and in our marketing materials because of their unrivaled leadership position in the global marketplace.

They have consistently been recognized as a top 10 global organization for health-related nanotechnology patent activity, ahead of many of the most well-known pharmaceutical companies in the world. It is an intellectual property portfolio that has been used to provide solutions to the most difficult product formulation challenges over the years in pharmaceuticals, medical devices, nutraceuticals, cosmetics, and now cannabis applications. Together, our focus has been on delivering novel solutions in these diverse fields of use and product applications based upon VESIsorb® formulation technology.

Each active compound identified with its own set of formulation, absorption and bioavailability challenges requires a customized solution that allows the full potential health benefits to be realized from success in the lab to commercial scale up. This is the process and we have successfully delivered unmatched solutions for close to twenty years from coenzyme Q10 to now both psychoactive and non-psychoactive cannabinoid product formulations in a wide range of product applications.

We saw the exploding interest in CBD with our nutraceutical partners and demanding consumers worldwide but chose to start Geocann to keep the markets served separate. We were confident that the VESIsorb® technology would provide much needed solutions for CBD as a wellness product, but also adult-use and medical cannabis products regarding “fast acting” and “product stability” needs.

Green: What’s the problem in cannabinoid bioavailability that Geocann’s technology helps to solve?

Lopez: It is well-recognized in the scientific literature that CBD, THC and other cannabinoids, in general, show limited bioavailability due to their lipophilicity, poor aqueous solubility and extensive first-pass metabolism.

Our VESIsorb® technology was designed to address the poor bioavailability of drugs and natural bioactives like cannabinoids exhibiting poor water solubility but high membrane permeability (Biopharmaceutical Classification System: Class II compounds). The VESIsorb® technology is a lipid-based formulation that self-assembles on contact with an aqueous phase into a colloidal delivery system. This colloidal solubilization improves the transport of the cannabinoids through the aqueous phase of the GI-lumen to the absorptive epithelium, dramatically improving bioavailability.

VESIsorb® is typically characterized as a SEDDS (self-emulsifying drug delivery system). What’s unique about our VESIsorb® SEDDS is the long history of safe and effective use worldwide and the large number of products that, over the years, we’ve successfully developed. With decades of experience delivering novel formulation solutions, there is significant and valuable “know how” that we bring to each formulation challenge.  This “know how” allows us, for example, to develop cannabinoid formulations that provide lymphatic absorption pathway advantages in addition to standard gastrointestinal absorption, therefore optimizing therapeutic blood levels for maximum benefits.

Needless to say, there are various methods that attempt to address the poor cannabinoid bioavailability. Unfortunately, too often, companies make claims that they have water soluble cannabinoids but offer little evidence to validate their claims. The popular misconception is that some degree of water solubility will consistently translate to improved bioavailability. This is clearly not accurate. We know scientifically that pharmacokinetic performance is highly variable. A review paper I read recently comparing water soluble delivery system formulation types illustrated this fact. There was greater than an eight-fold difference in bioavailability amongst the various water-soluble formulations.

Green: Can you tell me some details about your global license with Vesifact?

Lopez: Our technology exclusivity is based upon given categories. So, when we say we have global exclusivity for nutraceuticals, that can be as I’ve already mentioned, omega-3, coenzyme Q10, or resveratrol as examples, and this business is managed by SourceOne. With regards to our global exclusivity for cannabinoids and terpenes– whether we formulate these ingredients to create a functional drink, or we’re creating a gummy, or creating a softgel capsule or powder-filled hard-shell capsule, or sublingual, or topical – all of those product applications are covered by ourexclusivity for the technology and is managed by Geocann.

The beauty of our technology is that we’ve already achieved success with all of those product applications. That’s one of the big advantages of our technology versus some other approaches trying to address the challenges of cannabinoid bioavailability.

Green: What kind of validation and clinical studies have you done so far in the cannabinoid space?

Lopez: We were the first to have stability data with creating our formulation in a soft gel capsule with CBD. We recently submitted to the European market for novel food application. We invested hundreds of thousands of dollars in proprietary safety studies that are required to achieve novel food status in Europe and FDA GRAS in the U.S. We have proprietary stability data as well as proprietary toxicology data from multiple, self-funded clinical studies. Many companies that submit for the EU novel food application are only referencing the existing scientific literature about the pharmacokinetics of cannabinoids, whereas we have our own peer-reviewed, published study. In our study, we compared our VESIsorb®-CBD formulation to the industry standard MCT Oil-CBD formulation in a crossover design where we were able to demonstrate how we could dramatically improve the bioavailability of CBD.

Green: Can you talk about the benefits of your technology with regards to bioavailability and onset time?

Lopez: When you start talking about onset time we move into a broader discussion relative to cannabinoids. We’ve been very successful with marijuana, especially as it relates to THC, because of the dramatic improvement in time to Tmax, and how much faster we reach Tmax than a standard THC formula. Our formulation is generally four times faster compared to standard formulations.

When it comes to area under the curve and Cmax, we show improvements of four to six times a standard THC or CBD product. Further, when we start looking at the differences between other studies that have been published, we show an even greater improvement based upon study comparisons to what other people have done, even compared to products like GW Pharmaceuticals’ Sativex Oromucosal Spray.

Green: Can you address the SEDDS formulation and liver metabolism?

Lopez: We’ve dramatically overcome challenges with the first-pass effect. We have also formulated our products to address lymphatic absorption. So, we’re coming at it from a number of different angles.

We disagree with people who talk about water solubility as an end-all be-all solution. When you look at the range of published studies, whether it’s nanoparticles or liposomal systems or micro-emulsions, they all are water soluble systems, but yet the data shows there’s dramatic differences in the real efficacy of those approaches, and what the actual improvement in blood levels are. Ultimately, those blood levels represent the efficacious nature of the products whether we’re talking about CBD, or talking about THC.

Green: As a Colorado-based company you work with cannabis partners across the US. Can you tell me about your relationship with marijuana product formulators and brands and how you structure your licensing agreements across state boundaries?

Lopez: In a recent article about the leading fast acting gummies, the two companies they focused on were Sunderstorm with the Kanha Nano gummies and Curaleaf with their Select Fast Acting Nano gummies. Both of those companies use our VESIsorb® technology. We’re very proud of our relationship and the success they’re having as leaders in most dominant states with that particular product application.

Onset time has always been a challenge with gummies. And we’ve dramatically improved onset. Actually, we’ve shown statistically significant improvements for all measured pharmacokinetic parameters in a recent peer-reviewed published study.  We demonstrated much higher total absorption in maximum plasma concentration (Cmax), total exposure [area under the curve (AUC)]) and the time to reach the peak concentration (Tmax).

We say powered by VESIsorb® technology the product is faster, stronger, longer.

Green: How does the experience differ from a standard oil- or isolate-based formulation?

Lopez: The only way that I can answer that question is we’ve had 100% success with the companies we work with in their initial trials. When someone tells me that a group of employees are going to try the product and they’re heavy users of cannabis and they are smokers, I think, “wow, you know, gummies have to be really successfully formulated for someone like that to be pleased with the high.” Then they come back and say, “that’s the best that I’ve had in four years!” and they’re totally blown away. That’s completely different than a peer reviewed published study, but for sure, that’s the kind of feedback and anecdotal evidence that we get. I think that’s why that application is growing so much faster now because we’ve overcome this onset issue.

Green: Do you give exclusive rights on a state-by-state basis?

Lopez: We’re very selective about who we work with. Exclusivity is always part of the discussion. But at the same time, it’s really more about protecting the investment in the people that we partner with and not cannibalizing a given market. So, there are some exclusive relationships in the U.S. and internationally, like Heritage Cannabis and Pathway Health Corp in Canada, but for the most part, I would say simply, we were very selective about who we do business with and open to new partnerships.

Green: What kind of support do you provide to your licensing partners?

Lopez: We provide 100% formulation and technical support. We provide the SEDDS and then they use their own legal, licensed cannabis and their own equipment. Our system requires no special equipment or investment in changes to their process. So, not only do we provide formulation expertise, but our system is really easy to use both in a lab environment as well as producing large scale commercial productions.

Green: What geographies are you in currently with the cannabinoid formulations?

Lopez: We are global in scope. We’ve been very fortunate to have success not only in the US and Canada, but Europe, Brazil and Australia as well. Our level of participation will vary whether we’re talking about medical marijuana, adult-use or hemp extract and CBD.

Green: If somebody is interested in learning more about your product or potentially becoming a license partner, how would they how would they reach out to you to set that up?

Lopez: If they went to our website, www.geocann.com, it’s pretty easy to reach us and I am grateful that so many companies are doing that.

Green: Great, thanks Jesse that concludes the interview!

Five Things Every Cannabis Business Needs Before They Open

By Tim Allen
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When it comes to small business opportunities these days, few phrases give people the old dollar-sign-eyes more than “legal cannabis”.

From states like Michigan where it’s been approved for both medicinal and adult use, to places like South Carolina where legalization has been a popular topic for ballots and voters, cannabis is slowly turning into one of America’s biggest businesses.

You don’t need us to tell you that – Investopedia reports that (as of Nov. 2020) over 340,000 American jobs were devoted to the handling of plants at various stages along the retail cycle, and the industry was estimated at over $13 billion as of 2019.

Not bad for a plant that’s still technically illegal under federal law, huh?

If you’ve read this far, it probably means you’re hoping to be among the lucky ones who can strike it rich with their own cannabis business. A noble undertaking, but are you really prepared to make your mark? In a field as competitive – and occasionally complicated – as cannabis can be, you really need to lead with your best foot forward, and make sure you’re as well prepared for the various challenges of a fairly new industry as possible.

With that in mind, below is a list of the five things you’ll need to double-check and make sure you actually have access to before embarking on your new business venture.

The right shelving & equipment

You see this a lot with smaller businesses as well as, er, ‘independent growers’. A lot of people assume that they can just buy some greenhouse shelves, line the walls of their business with it, and call it a day, right?

Offering rare or unique cannabis strains is a great way to differentiate

This approach leads to problems more often than not. Even above and beyond the inherent concerns of helping your plants grow safely (and productively!), the sort of equipment you use should reflect the sort of business you’re trying to run. A cannabis retail outlet, for example, is going to need different sorts of shelves and tables than a dispensary or growing facility, as the work being done is completely different.

It will take a little research, but it helps that a lot of businesses these days are starting to offer shelving specifically designed for various cannabis operations. Check to see if any of the big warehouse suppliers near you have gotten into the cannabis game yet – Shelving Inc, Metro, and Rack & Shelf are a few of the bigger shelving names with cannabis offerings as of this writing.

Strong branding

Long gone are the days when all you needed to be successful in cannabis was a booth at the shady flea market, a pun name and a big sign that said “Head Shop” to throw off the authorities.

Far too many cannabis businesses launch themselves headlong into a business plan without stopping to think of a good name, or just settling for the first one they think of. With as crowded as the playing field is quickly becoming, it might honestly be worth it to pay someone to help you come up with a decent logo and branding – it’ll go a long way towards helping you stand out against everyone else using a green font. Places online like HIGHOPES specifically offer these services for cannabis businesses, so you know they’ll be able to figure out what you’re about more quickly.

An understanding of your consumer base

The exact sort of work your cannabis business performs is going to affect what your potential customer base can be – and vice versa.

Brands are embracing contemporary design more and more

Early on in the planning stages, make sure to figure out exactly who you’re going to sell your products to, as this will inform nearly every other decision your business makes. Do you want to sell directly to the customer, or to work as a distributor for CBD/cannabis retail outlets? Are you prepared to manage and run your own storefront, or are you just going to rent warehousing space to sell your plants to other retailers? If so, do you know who the businesses are in your area that you could work with? Or, if you are planning on entering the retail space, do you know how many other cannabis businesses could be operating in your desired geographical area? Finding an audience may be the hardest part of opening any business, but it’s important work.

Banking that understands your industry

Maybe the biggest drawback to being involved in an industry as comparatively new as cannabis, is that a lot of the old methods of doing business aren’t quite available to you. Many financial institutions of various sizes are limited in the ways they can help finance cannabis businesses, from not understanding the regulations and needs of your industry, all the way to being unable to assist cannabis businesses with banking in the first place.

Finding the right banking services can be challenging

It might be advantageous to look into banks, credit unions or financing companies in your area that specifically offer banking services (like business accounts and the like). A few examples include Aery Group from New Mexico, or Seed to Sale in Michigan. (It’s important to note that many of these companies, such as Aery Group, can only service the state they’re located in due to different state-by-state regulations – check ahead to make sure you find a place that can help you!)

Knowledge of the needed licensing and regulatory requirements

Getting a license to open any business is a tricky prospect on a good day, but for an industry as wide-ranging and varied as cannabis, getting licensed can require a lot of homework.

Even if you’re lucky enough to be setting up shop in a state that allows for the sale of cannabis, the licensing process can vary widely from state-to-state. In New Mexico, for example, it can take months to acquire a license simply due to the amount of paperwork, research and submissions required to cement your business. Before going too far down the rabbit hole of opening your business, make sure to take the time you need to completely research and understand the various local and state regulations you’ll need to adhere to for your business to get off the ground.

Obviously, there’s going to be a lot of other hurdles and requirements that come with starting a business – but by remembering these five things, you’ll be off to a much better start than many others.

A Q&A with Matt Hawkins, Co-Founder & Managing Partner at Entourage Effect Capital

By Aaron Green
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The cannabis industry saw close to $15.5B in deals across VC, private equity, M&A and IPOs in 2020 according to PitchBook data. Early and growth stage capital has been a key enabler in deal activity as companies seek to innovate and scale, taking advantage of trends towards national legalization and consolidation. Entourage Effect Capital is one of the largest VC firms in cannabis with over $150MM deployed since its inception in 2014. Some of their notable investments include GTI, CANN, Harborside (CNQ: HBOR), Acreage Holdings, Ebbu, TerrAscend and Sunderstorm.

We spoke with Matt Hawkins, co-founder and managing partner at Entourage Effect Capital. Matt started Entourage in 2014 after exiting his previous company. He has 20+ years of private equity experience and serves on the Boards of numerous cannabis companies. Matt’s thought leadership has been on Fox Business in the past and he has also recently featured on CNBC, Bloomberg, Yahoo! Finance, Cheddar and more.

Aaron Green: How did you get involved in the cannabis industry?

Matt Hawkins: We’ve been making investments in the cannabis industry since 2014. We’ve made 65 investments to date. We have a full team of investment professionals, and we invest up and down the value chain of the industry.

I had been in private equity for 25 years and I kind of just fell into the industry after I’d had an exit. I started lending to warehouse owners in Denver that were looking to refinance their mortgages out of commercial debt into private debt, which would then give them the ability to lease their facilities to growers. I realized there would be a significant opportunity to place capital in the private equity side of the cannabis business. So, I just started raising money for that project and I haven’t looked back. It’s been a great run and we’ve built a fantastic portfolio. We look forward to continuing to deploy capital up to and through legalization.

Green: Do you consider Entourage Effect Capital a VC fund or private equity firm? How do you talk about yourself?

Hawkins: In the early stages of the industry, we were more purely venture capital because there was hardly any revenue. We’re probably still considered a venture capital firm, by definition, just because of the risk factors. As the industry has matured, the investments we make are going to be larger. The reality is that the checks we write now will go to companies that have a track record of not only 12 months of revenue, but EBITDA as well. We can calculate a multiple on those, and that makes it more like lower/middle-market private equity investing.

Green: What’s your investment mandate?

Matt Hawkins, Co-Founder and Managing Partner at Entourage Effect Capital

Hawkins: From here forward our mandate is to build scale in as many verticals as we can ahead of legalization. In the early days, we were focused on giving high net worth individuals and family offices access to the industry using a very diversified approach, meaning we invested up and down the value chain. We’ll continue to do that, but now we’re going to be really laser focused on combining companies and building scale within companies to where they’re going to be more attractive for exit partners upon legalization.

Green: Are there any particular segments of the industry that you focus on whether it’s cultivation, extraction or MSOs?

Hawkins: We tend to focus on everything above cultivation. We feel like cultivation by itself is a commodity, but when vertically integrated, for example with a single-state operator or multi-state operator, that makes it intrinsically more valuable. When you look at the value chain, right after cultivation is where we start to get involved.

Green: Are you also doing investments in tech and e-commerce?

Hawkins: We’ve made some investments in supply chain, management software, ERP solutions, things like that. We’re not really focused on e-commerce with the exception of the only CBD company we are invested in.

Green: How does Entourage’s investment philosophy differ from other VC and private equity firms in cannabis?

Hawkins: We really don’t pay attention to other people’s philosophies. We have co-invested with others in the past and will continue to do so. There’s not a lot of us in the industry, so it’s good that we all work together. Until legalization occurs, or institutional capital comes into play, we’re really the only game in town. So, it behooves us all to have good working relationships.

Green: Across the states, there’s a variety of markets in various stages of development. Do you tend to prefer investing in more sophisticated markets? Say California or Colorado where they’ve been legalized for longer, or are you looking more at new growth opportunities like New York and New Jersey?

Hawkins: Historically, we’ve focused on the most populous states. California is obviously where we’ve placed a lot of bets going forward. We’ll continue to build out our portfolio in California, but we will also exploit the other large population states like New Jersey, New York, Arizona, Massachusetts, Michigan, Ohio and Illinois. All of those are big targets for us. 

Green: Do you think legalization will happen this Congress?

Hawkins: My personal opinion is that it will not happen this year. It could be the latter part of next year or the year after. I think there’s just too much wood to chop. I was encouraged to see the SAFE Banking Act reappear. I think that will hopefully encourage institutional capital to take another look at the game, especially with the NASDAQ and the New York Stock Exchange open up. So that’s a positive.

I think with the election of President Biden and with the Senate runoffs in Georgia going Democrat, the timeline to legalization has sped up, but I don’t think it’s an overnight situation. I certainly don’t think it’ll be easy to start crossing state lines immediately, either.

Green: Can you explain more about your thoughts on interstate commerce?

Hawkins: I think it’s pretty simple. The states don’t want to give up all the tax revenue that they get from their cultivation companies that are in the state. For example, if you allow Mexico and Colombia to start importing product, we can’t compete with that cost structure. States that are neighbors to California, but need to grow indoors which is more expensive, are not going to want to lose their tax revenues either. So, I just think there’s going to be a lot of butting heads at the state level.

The federal government is going to have to outline what the tax implications will be, because at the end of the day the industry is currently taxed as high as it ever will be or should be. Anything North of current tax levels will prohibit businesses from thriving further, effectively meaning not being able to tamp down the illicit market. One of the biggest goals of legalization in my opinion should be reducing the tax burden on the companies and thereby allowing them to be able to compete more directly with the illicit market, which obviously has all the benefits of reduced crime, etc.

Green: Do you foresee 280E changes coming in the future?

Hawkins: For sure. If the federal illegality veil is removed – which means there’ll be some type of rescheduling – cannabis would be removed from the 280E category. I think 280E by definition is about just illegal drugs and manufacturing and selling of that. As long as cannabis isn’t part of that, then it won’t be subject to it.

Green: What have been some of the winners in your portfolio in terms of successful exits?

Hawkins: When the CSC started allowing companies in Canada to own U.S. assets, the whole landscape changed. We were fortunate to be early investors in Acreage and companies that sold to Curaleaf and GTI before they were public. We are big investors in TerrAscend. We were early investors in Ebbu which sold to Canopy Growth. Those were huge wins for us in Fund I. We also have some interesting plays in Fund II that are on the precipice of having similar-type exits.

You read about the big ones, but at the end of the day, the ones that kind of fall under the radar – the private deals – actually have even greater multiples than what we see on some of the public M&A activity.

Green: Governor Cuomo has been hinting recently at being “very close” on a deal for opening up the cannabis market in New York. What do you think are the biggest opportunities in New York right now?

Hawkins: If it can get done, that’s great. I’m just concerned that distractions in the state house right now in New York may get in the way of progress there. But if it doesn’t, and it is able to come to fruition, then there isn’t a sector that doesn’t have a chance to thrive and thrive extremely well in the state of New York.

Green: Looking at other markets, Curaleaf recently announced a big investment in Europe. How do you look at Europe in general as an investment opportunity?

Hawkins: We have a pretty interesting play in Europe right now through a company called Relief Europe. It’s poised to be one of the first entrants to Germany. We think it could be a big win for us. But let’s face it, Europe is still a little behind, in fact, a lot behind the United States in terms of where they are as an industry. Most of the capital that we’re going to be deploying is going to be done domestically in advance of legalization.

Green: What industry trends are you seeing in the year ahead?“We’re constantly learning from other industries that are steps ahead of us to figure out how to use those lessons as we continue to invest in cannabis.”

Hawkins: Well, I think you’ll see a lot of consolidation and a lot of ramping up in advance of legalization. I think that’s going to apply in all sectors. I just don’t see a scenario wherein mom and pops or smaller players are going to be successful exit partners with some of the new capital that’s coming in. They’re going to have to get to a point where they’re either selling to somebody bigger than them right now or joining forces with companies around the same size as them and creating mass. That’s the only way you’re going to compete with companies coming in with billions of dollars to deploy.

Green: How do you see this shaking out?

Hawkins: That’s where you start to look into the crystal ball. It’s really difficult to say because I think until we get to where we truly have a national footprint of brands, which would require crossing state lines, it’s going be really difficult to tell where things go. I do know that liquor, tobacco, beer, the distribution companies, they all are standing in line. Big Pharma, big CPG, nutraceuticals, they all want access to this, too.

In some form or fashion, these bigger players will dictate how they want to go about attacking the market on their own. So, that part remains to be seen. We’ll just have to wait and see where this goes and how quickly it goes there.

Green: Are you looking at other geographies to deploy capital such as APAC or Latin America regions?

Hawkins: Not at this point. It’s not a focus at all. What recently transpired here in the elections just really makes us want to focus here and generate positive returns for investors.

Green: As cannabis goes more and more mainstream, federal legalization is maybe more likely. How do you think the institutional investor scene is evolving around that? And is it a good thing to bring in new capital to the cannabis market?

Hawkins: I don’t see a downside to it. Some people are saying that it could damage the collegial and cottage-like nature of the industry. At the end of the day, if you’ve got tens of billions of dollars that are waiting to pour into companies listed on the CSC and up-listing to the NASDAQ or New York Stock Exchange, that’s only going to increase their market caps and give them more cash to acquire other companies. The trickle-down effect of that will be so great to the industry that I just don’t know how you can look the other way and say we don’t want it. 

Green: Last question: What’s got your attention these days? What’s the thing you’re most interested in learning about?

Hawkins: We’re constantly learning about just where this industry is headed. We’re constantly learning from other industries that are steps ahead of us to figure out how to use those lessons as we continue to invest in cannabis. We all saw the correlation between cannabis and alcohol prohibition. The reality is that the industry is mature enough now where you can see similarities to industries that have gone from infancy to their adolescent years. That’s kind of where we are now and so we spend a lot of time studying industries that have been down this path before and see what lessons we can apply here.

Green: Okay, great. So that concludes the interview!

Hawkins: Thanks, Aaron.

Flower-Side Chats Part 3: A Q&A with Harvey Craig, CEO Harvey’s All Naturals and Co-Founder of Boot Ranch Farms

By Aaron Green
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In this “Flower-Side Chats” series of articles, Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses integrate innovative practices in order to navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.

Large-scale agricultural practices can take a toll on soil health leading to inefficiencies over the long term. Harvey’s All Naturals is a Colorado-based company specializing in premium farm-to-table full spectrum CBD products. Harvey’s gets all of its hemp from Boot Ranch Farms, an off-grid sustainable hemp farm in Southern Colorado supplied by an artesian well.

We spoke with Harvey Craig, CEO Harvey’s All Naturals and co-founder of Boot Ranch Farms, to learn more about the benefits of regenerative agriculture, how he thinks about soil health, and how they produce their CBD products. Harvey started Boot Ranch Farms in 2014 after the passing of the Farm Bill and Harvey’s All Naturals followed shortly thereafter.

Aaron Green: How did you get involved in the cannabis and hemp industry?

Harvey Craig: I got involved at a very young age, as the youngest of eight kids, seven of which are boys, I was introduced to cannabis on the marijuana side first. As an engineer through the years, I’ve always been involved in creating very efficient growing systems for cannabis.

Harvey Craig, CEO Harvey’s All Naturals and co-founder of Boot Ranch Farms

In the early 2000s, I learned about CBD a little bit through experimenting with marijuana strains to help a friend who had Parkinson’s and also through the research performed by Raphael Mechoulem, an organic chemist and professor at the Hebrew University of Jerusalem in Israel. In 2014, when the Farm Bill made hemp legal, I dropped everything and went into it because I felt “this is what I need to be doing.”

Green: What is sustainable farming mean to you?

Craig: Sustainable farming to me means putting soil health and responsible natural growing practices at the forefront of all agriculture – regenerative processes for soil, in a nutshell. To me, soil health is one of the biggest problems in the United States right now. By regenerating and making our soils living, healthy and with a rich nutrient base we create an ecosystem that is good for human health and health all around.

Green: What do you mean specifically when you say, “soil health?”

Craig: Soil is living. A good natural soil has a living microbiotic structure inside it. There’s a living habitat that forms inside our soil over the years. Large scale agriculture in many cases has depleted or killed this living structure through readily accessible fertilizers and tilling practices.

Farmers understand the soil. There are practices we can undertake that are helping our living soils and helping the microbiotic habitat to thrive. Practices such as no-till technologies, rotating crops, using cover crops, not being a monocrop, responsible water use, healthy fertilizer and pesticide technologies, minimal processing, the list goes on and on…

When we talk about this thing called sustainability, I think it’s very important that we understand there are two sides of cannabis. There’s the marijuana and then there’s the hemp. We can’t put those two together – they’re governed very differently. Hemp became legal through the Farm Bill and is governed by the Department of Agriculture. Hemp is just like any other crop out there really. That means we can mix hemp in with other crops. It’s very much like corn and other crops in how it’s grown on a large scale, industrial basis.

Marijuana on the other hand is governed by each state’s regulatory commission. Those regulations make it very hard to mix in with general agriculture. So, when it comes to the marijuana side, unfortunately, it must be a monocrop. Most marijuana is grown in pots and pots are fine. However, if you are just growing in a pot and then throwing your soil away, that is not very sustainable. As it sits right now, in the marijuana industry there is really no sustainability, unfortunately. The energy use for the lights in indoor grows, for example, creates a huge carbon footprint and load on the electrical grid. I’m not trying to put indoor growing down, but that’s the way it is. The only way I foresee sustainability in the marijuana side of cannabis is to let loose a little bit on regulation and allow it to become a part of normal agricultural processes.

Green: What is it about tilling that degrades the soil quality?

Craig: When we till our soil, we’re turning the organisms in the soil up and we’re allowing the sun to dry them out. If it’s not done properly, you kill that soil structure.

Now, these little microorganisms in our soil create a healthy soil, but it doesn’t happen instantly, this takes years to create. Nobody has the time anymore, everybody’s “go go go” and “make it happen instantly”. So that gets destroyed. Now we have all these dead soils that everybody’s growing in and growers turn to factory-produced fertilizers with readily available nutrients.

When we are talking about cannabis, we can’t just look at monocropping. If you grow one crop in the same soil over and over, the soil is going to get depleted. One of the main things that we deplete is nitrogen and growing other crops, such as clover, can replenish that nitrogen. Growing cover crops protects the soil from the sun, creates nitrogen for the soil, and holds the water within the soil.

Instead of tilling, you can rotate with crops like root vegetables, radishes and other things that have deep root structures. Instead of tearing them up, just let them degrade organically and go back into the soil. Those deep root structures will also help aerate the soil.

Green: What is a farmer’s first approach?

Craig: Farmers want their land to be healthy. True farmers have a oneness with the earth and understand the earth. The farmer’s first approach keeps the farmer involved in creating new technologies for agriculture.

Green: Let’s say you’re a farmer that has land or recently acquired land that’s been industrially grown upon. How would you take that land and start fresh with a regenerative process?

Craig: The first thing you have to do is take soil samples and send them to a lab. That’ll tell you what you’re working with. Also, knowing a little history about the land helps as well. Was it used for grazing? Was it used for growing corn? What was it used for? Were organic practices used?

Then, there are many things you can do to start to regenerate your soil, but it takes time. In many situations, people don’t want to take that time. But what we’re learning is, the people and the farmers that do take that time often take a hit monetarily for the first two or three years. After that, once that structure is maintained, the natural health of the soil can be replenished. Crops will grow better, and they won’t spend as much money on fertilizers and pesticides in the long run because the microbiotic structure in the soil is creating a healthy ecosystem. When we destroy that ecosystem, it doesn’t come back easily or quickly. If there’s a little bit there, it can be regenerated with the right practices.

Green: I understand that the Boot Ranch is an off-the-grid farm. What was your motivation for either going off-grid or remaining off-grid?

Craig: I have a background in alternative energies and engineering, and when creating Boot Ranch Farms there was a lot that went into the sustainability side of it. The farm is extremely far away from the power grid for starters. So, an investment in solar for electricity was money well spent. My thought process was, why would I invest in bringing the wires in when I could actually save money and resources by creating a very efficient solar system and not be tied to the grid? Our farm is self-sustaining without being connected to any grid, which is one of the main reasons for remaining off-grid.

Green: I understand the farm is supplied by an artesian well. How do you monitor your water quality?

Craig: Well, we’re very fortunate. Existing natural water quality is one of the main reasons we decided to grow in the San Luis Valley. When you’re starting something new, you have to look at your financial side of things. Investing in a hemp farm is very different than the marijuana side because you won’t make as much money per pound of product sold. So, you have to watch your budget and not spend too much, or you’re never going to make a profit.

The self-sustaining artisanal well and water rights were existing on the property. There’s no pumping required for it and the water goes into a 10,000-gallon holding tank, where we can monitor and test for water quality. In order to water our plants, we use a pump/drip water system that supplies water to each individual plant. It’s very efficient compared to most watering systems out there, such as flood irrigation or pivots, and really doesn’t use a heck of a lot of water.

Green: Are you growing in open air or greenhouses?

Craig: We grow in two 3,000 square feet industrial-grade greenhouses at Boot Ranch Farms. Greenhouse One has all the bells and whistles including heating, cooling, light deprivation, supplemental lighting, automated controls and more. That greenhouse allows us to mimic Mother Nature a little bit. We can get up to six harvests throughout the course of the year in that greenhouse. However, in reality, we get about four.

In addition, we have a second greenhouse that is set about 100 feet away and set up to keep plants growing on mother nature’s cycle. We can move groups of mature plants to Greenhouse One after each harvest for multiple flowering cycles. Lastly, between greenhouses, we have a 10,000 square foot courtyard that’s protected with shade cloth and other things to help protect those plants from the elements. In late October, all remaining plants in both greenhouses and the courtyard become mature and ready to harvest due to shorter days created by mother nature.

Green: Do you insure your crops?

Craig: We have not. Hemp is a new industry and we have not found good crop insurance.

Green: Do you cultivate your own genetics?

Craig: We work with some other companies here in Colorado to provide genetics. Consistent genetics are extremely important on the hemp side because we need to trust that they are going to keep the THC levels down. On the marijuana side, that part doesn’t matter so much

There are different strains that have been created that I absolutely love, and I’ve tried to stick with them and stay with that seed stock. One of them is called The Wife and the other Cherry Wine. Most of the best hemp I have found is based upon the Cherry strain. People are always looking for high CBD. I’d rather have a lower CBD level in the 8% to 12% range. Something higher in the 14% to 20% range has a higher chance of producing a product with more than the legal amount of THC.

Green: Is Harvey’s All Naturals fully supplied by Boot Ranch Farms?

Craig: Yes, it is. There are a lot of things that go into a quality product and we focus on that at Boot Ranch. We’re small, not trying to compete with the large-scale market. Unfortunately, a high percentage of the products out on the market come from large-scale industrial hemp grows. We focus on long-term medicinal value and grow very high-quality hemp and we try not to degrade it in any way, shape or form throughout processing.

Green: How many square feet or acres is the Boot Ranch Farm?

Craig: Boot Ranch farm is about 260 acres. We only grow on less than three of it.

Green: What’s your extraction process?

Craig: We use cold alcohol extraction. We do not distill to separate our alcohol from the hemp oil. We use what’s called a roto vape. That cold processing preserves our terpenes, it preserves our full-spectrum cannabis oil profile and doesn’t fully decarboxylate our CBDa. We want a large CBDa percentage because there are many things that CBDa is good for when it comes to long term medicinal reasons.

Green: Are you processing your own hemp?

Craig: No, we sub that part of it out. What I’ve learned in this industry is three main parts: 1- the farming; 2- the extraction, and; 3- the product line. Those are three very separate processes and require specialized expertise within themselves. Each is a large investment and it’s very hard to do it all. I decided to work with other people on the extraction part of it. They have the expertise, and we pay them well to do what they do.

Green: Okay, great. And then any final words for Ag Day?

Craig: Support your small farmer in nutrient-rich agricultural products.

Green: Great. That concludes the interview, Harvey!

Craig: Thank you very much!

How to Develop Quality Cannabis Products with Advanced Analytical Testing

By Vanessa Clarke, Melody Lin
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A thorough cannabis product development process goes far beyond extracting and packaging. Performing advanced analytical testing at each and every stage allows producers to know the quantity, quality and behaviour of compounds in samples. Here are the four key stages from flower to consumption.

Stage 1: Flower

Developing a quality cannabis product begins with knowing the composition of compounds in your starting material. The best analytical tests utilize a metabolomics approach. Metabolomics is a suite of techniques that include a variety of instruments to run samples through in order to receive compositional data. In this stage, LC-qTOF and GC-MS are the best instruments to track all the compounds in the starting plant material. Essentially, metabolomics establishes a fingerprint of the compounds in a plant sample. This is beneficial because producers have to understand how their chosen cannabis plant differs from other cultivars and how it would potentially behave in their desired end product formulations.

Stage 2: Concentrate

After the plant material has gone through an extraction process, producers want to know precisely what is in the extract. Are there compounds that should not be there and are all the desired compounds present? The best way to test the quality of cannabis oils is again to use metabolomics (e.g. via LC-qTOF). This test reveals all the compounds in the sample in order to help the producer determine the purity and consistency of molecules beyond just THC and CBD.

When testing cannabis isolates, it is best to use NMR spectroscopy and X-ray diffraction. NMR characterizes and assesses the purity of single compounds or mixtures in solution or solid state. X-ray diffraction provides information about the crystal structure, chemical composition and the physical properties of the cannabis sample to help the producer prove the identification of desired compounds. Establishing that the concentrates are pure and aligned with what the producer intended to extract is key in this stage of product development.

Stage 3: Formulation

Designing an appropriate drug delivery formula is a universal challenge producers face at this stage of product development. Where nanoemulsion or other carrier approaches are being used, formulation characterization allows producers to understand how their active compounds behave in simulated physiological environments as well as how stable their products are over time. Specifically, nanoparticle sizing and assessing size changes over time can help a formulation scientist ensure the highest quality product is being mixed, and that the desired effect will be imparted on the consumer/patient.

Stage 4: Smoke/Vapor

Many producers might not consider this final stage, but it is critical for all inhalable cannabis products and devices. Using a smoke analyzer and metabolomics testing can identify and quantify compounds present within the formed smoke or vapor from pre-roll joints to vape devices. This is not only important for preventing the production of toxic by-products, but it can help producers create an optimal smoking experience for consumers.

One area that is often an afterthought is quality compliance testing. Despite a number of groups using the required tests well during development, many forget to continue the same robust testing on end products. In the current cannabis product development landscape, there is little guidance on how compliance testing should be conducted on every product “batch.” With these advanced analytical tests, producers can confidently develop compliant, stable and quality cannabis products.