According to a press release, Drug Plastics & Glass, a packaging company that specializes in cannabis bottles and closures, announced new tools for their customers to calculate their carbon footprint. The company launched six new sustainability calculators with the goal to help their customers get more informed about their carbon footprint.
According to Jeff Johnson, director of marketing and business development for Drug Plastics, they want to show how small, incremental changes can have a lasting impact on a company’s environmental sustainability.“From switching to more eco-friendly resin and eliminating flame treatment, to calculating the savings gained from choosing PET plastic over glass, or eliminating collateral packaging, these calculators show how making simple changes can have a big impact on the environment,” says Johnson.
Here are some of their sustainability calculators they recently launched:
PCR PET Resin Sustainability Calculator: Reduce greenhouse gases by making new products from PCR PET removes plastic from the environment by converting PET plastic discarded by the consumer back into resin that can be used again.
Flaming Elimination Calculator: Conserve fossil fuels by opting out of the flame treatment process traditionally used to ensure water-based adhesive labels and silk screening would adhere properly to HDPE, LDPE, and PP bottles. Today, this is not always necessary.*
Bag Reduction Calculator: Determine the individual savings when you move to single bagging instead of double bagging bottles and closures inside the carton.
Concentrate Elimination Calculator: Switch from white pigmented bottles to those made with resin in its natural color state and eliminate CO2
Glass to PET Conversion Calculator: PET requires less energy to produce and saves on transportation costs.
Glass to HDPE Conversion Calculator: See the sustainable improvements in weight, transportation costs, and durability when you use HDPE instead of glass.
By Seth A. Goldberg, Justin M. L. Stern No Comments
Over the past year, more and more consumer class actions have been filed against manufacturers and distributors of CBD-infused products. These actions typically assert claims based on how the product is marketed, such as whether it (i) contained the advertised amount of CBD, (ii) contained more THC than it should have or (iii) has the ability to provide the therapeutic benefits touted. The marketing of these products is subject to regulation by FDA, which has yet to issue pertinent regulations that have been expected since passage of the 2018 Farm Bill legalizing hemp and CBD products derived therefrom. Thus, in recent months, a number of federal courts have stopped these class actions in their tracks pending further guidance from FDA as to how CBD-infused products should be regulated. This growing body of precedent should be welcome news for the CBD supply chain, as it may provide a disincentive to the plaintiffs’ bar to expend their resources on similar actions until the regulatory framework is clear.
Just some of the many CBD products on the market today.
The first case that was put on hold until the “FDA completes its rulemaking regarding the marketing, including labeling, of hemp-derived ingestible products” was Snyder v. Green Roads of Florida, a case about the content of CBD in Green Roads’ products pendingin the U.S. District Court for the Southern District of Florida. Then, in May, a judge in the U.S. District Court for the Central District of California took the same approach, deciding to stay the case of Colette v. CV Sciences, Inc., also on account of the lack of FDA regulations. Less than one month later, a judge in the U.S. District Court for the Eastern District of California, relying on the rulings in Snyder and Colette, stayed Glass v. Global Widget, LLC, also under the primary jurisdiction—a doctrine implicated where the claims involve a federal agency’s expertise concerning a regulated product.
On August 11, 2020, two federal judges became the most recent to stay putative class actions involving the sale of CBD products under the primary jurisdiction doctrine: Pfister v. Charlotte’s Web Holdings, Inc., in the U.S. District Court for the Northern District of Illinois, and Ahumada v. Global Widget LLC, in the U.S. District Court for the District of Massachusetts. Both were stayed on account of a lack of regulatory direction from FDA.
A trend appears to be developing, but not all courts faced with the option to stay the proceedings pursuant to the primary jurisdiction doctrine have chosen to put their respective cases on hold. In March, the judge overseeing Potter v. Diamond CBD (pending in the U.S. District Court for the Southern District of Florida) declined to stay the proceedings despite the absence of FDA regulations concerning ingestible CBD products. Despite the defendant’s objection, the court declined to stay the proceedings, finding that to the extent FDA regulations were forthcoming, they would be unlikely to change the food labeling requirements which were at issue in that case.
The stays of federal court cases involving CBD products highlight the need for FDA to issue regulations that cover the marketing of them. They also may provide the CBD product supply chain with a break in the number of consumer class actions filed until such regulations are issued.
Cannabis extraction and manufacturing is big business in California with companies expanding brands into additional states as they grow. This is the third article in a series where we interview leaders in the California extraction and manufacturing industry from some of the biggest and most well-known brands.
In this week’s article we talk with Joaquin Rodriguez, chief operations officer at GenX Biotech. Joaquin was introduced into the cannabis industry through a close personal relationship and has spent seven years researching and navigating the cannabis market before jumping into his career with GenX Biotech. The interview with Joaquin was conducted on August 4, 2020.
Next week, we’ll interview Michael Schimelpfenig, head of R&D and BHO extraction manager at Bear Extraction House. Stay tuned for more!
Aaron Green: Hi Joaquin! I appreciate you taking the time to chat today. I’m glad we were able to connect!
Joaquin Rodriguez: Absolutely! I’m looking forward to it.
Aaron: Me too! So, I like to start off the interview with a background question so people get a chance to know about you better. How did you get involved with GenX Biotech?
Joaquin Rodriguez, chief operations officer at GenX Biotech
Joaquin: I went to school at Cal Poly for mechanical engineering and spent some time in the oil industry. In 2011 I was introduced to who would be the future founder of GenX Biotech, Shea Alderete. I spent 7 years diving into cannabis industry to better understand the landscape and Prop 215 (California’s Compassionate Use Act of 1996) and then Prop 64. In late 2017, I joined GenX Biotech to spearhead the acquisition of licensing and scale up distillate manufacturing.
Aaron: Awesome. My next questions are focused on product development. What is your decision process for starting a new product at GenX Biotech?
Joaquin: Our founder, Shea Alderete, is an innovator in product development. He specializes in formulations and new formulas for vape products. We are big on gathering empirical data. In any new product we will run a small batch and test first with heavy cannabis users to gauge their reaction to the product. We will then test with light cannabis users and finally new cannabis users so we get the full spectrum of user experiences. Throughout the process, we are gathering empirical data on things like taste and perceived therapeutic effects.
Aaron: Are you personally involved in manufacturing? Tell me about your process.
Joaquin: I am, yes. We specialize in large scale distillate manufacturing to make THC oil and we formulate batches using cannabis-derived terpenes. This what we call Sauce, a full spectrum high-terpene extract obtained from a butane hash oil (BHO) process. This is a separate extraction method from our alcohol extraction process.
Aaron: Very insightful! What is your process for developing new products?
Joaquin:GenX Biotech’s core mission is to bridge the gap between cannabis culture and the science behind cannabis. We focus more on therapeutic effects as well as recreational. We keep a pulse on the industry as a whole to see what people are doing and saying as well as new extraction methods. When we capture that data we evolve and adapt and create new formulations based on that preference and test it out. It’s a constant game of “does this look good? taste good? make you feel good? how is the potency?” It’s really a big collaboration with our end users.
We will also collaborate with other brands and manufacturers to stay ahead of the curve, share information that can make us a better company, more power in numbers is what we say. As an example, Wonderbrett is known for their high-quality flower. They have a high-end product and high-end brand recognition. We would, for example, strategize and collaborate together to utilize a unique cannabinoid and terpene profile and test that with our vape products in the market. It’s more of a collaboration than a white label relationship. In this way, Wonderbrett can expand into the extracts space via their brand. We do this with other brands as well where we’ll use their raw material and joint market the brands on the final product.
Aaron: Fantastic. Are you developing new products internally?
Joaquin: We develop all our products 100% internally.
Aaron: Do you ever bring in external product development consultants?
Joaquin: Not for products, however there are certain situations, like hardware development, where we will work with outside groups that specialize in equipment manufacturing to create something specific and one off for us. We are currently working on bringing to the market an FDA-approved inhaler technology device that is a non-combustible metered delivery device that we are really excited about. In addition, we have an incubator program with our LA partners to introduce new brands to the market which is a great asset for consulting brands looking for a home and multistate resources.
Aaron: Very cool, that’s the first I have head of inhalers in the market. For my next question feel free to answer however you like. What does being stuck look like for you?
Joaquin: Getting stuck can happen in a few different areas. With respect to manufacturing, the main bottleneck issues are consistent quality of the raw biomass materials. Mother nature does not duplicate the same results exactly every time and fluctuations can affect the cost and quality of raw goods. Other things like wear and tear on manufacturing equipment are not normally an issue as everything is stainless steel and pretty stable. But things like valves, gaskets and grommets tend to wear down with consistent use. When those fail, a whole operation can be shut down. We keep a stockpile of those on hand to make sure we stay in production.
“I support the leaders that help increase the overall knowledge for consumer and patents to know the difference between a quality product and a boof product.”Aaron: If you get stuck is it usually the same place? Or is it different each time?
Joaquin: Like I said, if we get stuck its usually in the sourcing of raw materials. Cultivators can have a bad crop or weather might affect their crop. It almost always comes down to the relationship with your cultivators. They fuel the industry and are the back bone of the whole supply chain. If they have any issues it affects everyone down line.
Aaron: Do you ever hire outside consultants when you get stuck?
Joaquin: Not really. We rely on our experience and years of operating and going through our own failures to navigate any issues with manufacturing. Collectively we work together to pivot and adapt to the ever-changing legal cannabis landscape. We do on occasion outsource to a 3rd party to help acquire raw goods. On the other hand, we separately consult for other people and groups looking to build out labs!
Aaron: That’s an excellent position to be in! For the next question imagine there’s a magic wand. What does your magic helper look like?
Joaquin: Someone that can come in and help with taxation. Triple taxation is tough. There’s the cultivation tax, manufacturing tax, state tax and local taxes. Long Beach recently lowered their local tax from six to one percent, so that is encouraging, but there needs to be a fair taxation for this industry to really thrive.
Aaron: What’s the most frustrating thing you are going through with the business?“I’m really excited for the continued education and deregulation of cannabis and its medical applications.”
Joaquin: I think that would be sales downline. With Prop 215 and the transition to prop 64, legal outlets have been heavily truncated. There are now approximately 600 legal retail outlets down from a high of about 4500 prior to prop 64. The competition landscape is really high and it’s hard to get product on the shelves without proper capital to keep the brand going. It is advantageous to partner with an established distro in order to get involved with their downline and run lean and mean.
Aaron: Now for our final question. What are you following in the market and what do you want to learn about?
Joaquin: I’m really excited for the continued education and deregulation of cannabis and its medical applications. It never should have been illegal to begin with, but with government corruption and greed it was targeted and use for multiple agendas. I support the leaders that help increase the overall knowledge for consumer and patents to know the difference between a quality product and a boof product. You have seen the results of the vape scare and there’s a good reason for it. Most people don’t want to pay the high ticket for legally compliant product so they turn to the illegal side where no regulation or testing is conducted to ensure they are getting safe, quality products.
In addition, the demand is so strong that illegal producers are able to put whatever they want in their products and sell them as if they are legit, provided they have the knock-off packaging, and those operators further harm those people because the state they are selling in hasn’t adapted to the times and has prohibited the availability of legal cannabis. Their inaction and support of the continued “war on cannabis” makes them just as guilty in the results of those people who have fallen ill or been hospitalized.
There have been lots of new studies published that are slowly making their way into social media and reaching consumers so that is encouraging. Another important element is the education of bud tenders because they are the face of the brand when the customer or patient is at a legal dispensary so they need to be educated on what makes for a quality product and how it can help or achieve a desired result for a customer or patient.
Aaron: Well, that concludes the interview Joaquin. Thanks for taking the time today to talk. This is all awesome feedback for the industry. Thanks so much for these helpful insights into product development in the cannabis industry.
The onset of the COVID-19 pandemic sent shockwaves around the world, and they’re still rippling today. Businesses had to quickly pivot from in-person transactions and services to virtual operations, or close down until stay at home orders and other restrictions eased or lifted. While it varies from state to state, due to statutory and rule based operating requirements, requiring facilities to be open a certain amount of hours per week, many were deemed essential. These circumstances create a huge set of complex challenges for anyone in business to navigate, from workers and their families to management and owners, let alone vendors and ancillary businesses.
The bright side is being in an industry where plot twists are not uncommon. Cannabis is legal and highly regulated state by state, illegal on a federal level, so it’s always full of strategic problems to solve. With so many people, businesses, ever-shifting regulations, and financial interests at stake, the need for strategic legal services are the constant. From a purely business and regulatory standpoint, the pandemic has provided some in the cannabis industry with quantum leaps forward in operations and service, and many of them may likely become the new norm.
For people with anxiety (#everydemographic2020) and other debilitating medical conditions, perception is shifting towards the importance and benefits of cannabis as a medicine and alternative therapeutic treatment option, on pace with a larger global trend towards personal and shared wellness. There’s more freedom for consumers to participate recreationally in states with adult use programs too. Extended families and friends in other states may not have the same access to cannabis. We live in a socially driven world, and the awareness of the medicinal properties of cannabis has rapidly grown nationwide across broad demographics. The gateway drug stereotype and stigma is slowly but surely fading away.
Momentum and shift in consumer behavior, need and the shifting perspective of healthcare providers is affecting more state regulators. They’ve worked with the cannabis industry to modify and adjust operational rules as needed to ensure medicinal access during the ever-changing COVID climate. Although current rules and regulations haven’t been lifted in any way, this is a step in the right direction. However, recreational states are less likely to consider that portion of the cannabis market essential and look for ways to prioritize medical dispensaries over recreational.
Medical Cannabis Businesses Deemed Essential
The most immediate problems to solve in many states were social distancing and waiting areas – where to keep patients/customers? There are state guidelines and regulations for operations during COVID, plus CDC general safety and sanitation considerations for workers and consumers alike. Lawyers and regulators are working to make sure that these stores are open and operating safely, have established safety protocols, number of customers allowed inside the store, minimum hours of operation, and to allow for special elderly hours and accommodating patients with compromised immune systems.
One of the biggest operational changes has been an increase in the facilitation of online ordering and curbside pickup to help keep patients safe. Employees are wearing gloves and PPE as an added precaution. This puts the health of the patients and employees first, while still allowing businesses to operate.
More and more patients are not all that enthusiastic about making in-person appointments that may put them at risk. In every state, people waver between venturing out for necessities so they’re buying larger quantities and stocking up when they can, and cannabis is no different. Cash-paying customers must still pay in-person. As federal regulations continue to hinder additional payment options and protections, demand for change grows on both sides.
Staffing in a Pandemic
Like all employers, it’s easier for larger cannabis companies to accommodate employees who are sick or may have been exposed. It’s often more difficult for smaller operations. For many employees, the decision to go into work sick means rent and food, because the employer can’t offer additional sick pay.
In most states, employees have to have some type of state card to work in a store. It’s hard to find replacements and pay for sick leave. There’s no call for a temp agency solution due to clearance needed by cannabis employees. If the business has to shut down, it might not be able to bounce back. So in some states, cannabis businesses have suffered setbacks, but not to the extent as other industries such as hospitality, food and beverage, and tourism.
Crunching the Numbers
The cannabis industry is also excluded from PPP loans and other federal aid. True plant-touching cannabis companies can’t access those funds, adding extra financial stress to operations. The irony is for the majority of cannabis operations nationwide, the biggest change was not the increased regulatory requirements for social distancing, sanitation and safety, it was handling the incredible increase in product demand under circumstances that include financial and staffing stress.
One Arizona-based dispensary was averaging around $300K a month before COVID-19. Today, business has more than tripled to nearly $1 million a month. In mature legal state Colorado, a record $155 million in recreational product sales for June reflects a six percent increase over the previous month’s sales. The Colorado Department of Revenue collected $33.6 million from the industry in June. Colorado’s medical dispensary sales record was set in May, just shy of $43 million, dropping down to about $40.8 million in June. Both are still setting records for business volume. For 2020, revenue already exceeds $203.3 million, in contrast to roughly $302.5 million in cannabis-related revenue in 2019.
Heightened Supply, Demand & Opportunities
Heightened demand and the search for new market ventures means investors are taking notice. People sheltering or working from home are spending more time online, too. Many are searching for healthcare; others for promising investment opportunities. Legalization has been a long journey, state by state. Everyone inside the cannabis and hemp industries has learned to roll with the punches – expect ongoing legal needs, and to do strategic short- and long-term planning. How to anticipate change and pivot on a dime. It’s a must.
With the healthcare system struggling or strained in many areas of the country, non-essential primary care has shifted to telemedicine. Federally, the DEA granted permission to do so that extends for the duration of the COVID-19 public health emergency. The problem? State-level regulations may prohibit the prescription of Schedule III drugs via telemedicine, or limit the amount and refills. For essential healthcare, limited appointments or emergency-only availability remains a concern. Innovative new cannabis products help fill that gap.
There will be more challenges as elections approach and beyond. For those in cannabis, we’re used to being ready for anything. Stay tuned.
By David J. Apfel, Nilda M. Isidro, Brendan Radke, Emily Notini, Zoe Bellars No Comments
Consumer demand for products containing cannabidiol (CBD) is on the rise across the country, with industry experts estimating that the market for CBD products will reach $20 billion by 2024. This boom in consumer demand has outpaced the regulatory framework surrounding these products. While the 2018 Farm Bill decriminalized hemp, it left much up to individual states and preserved the FDA’s jurisdiction over dietary supplements, foods and cosmetics. The FDA has not yet issued any specific rulemaking for CBD products.
The structure of cannabidiol (CBD), one of 400 active compounds found in cannabis.
Against this background, it is not surprising that consumer class actions regarding hemp-derived CBD products are flourishing. Over the past year alone, the plaintiffs’ bar has filed approximately twenty putative class action lawsuits against manufacturers of hemp-derived CBD products. The cases are primarily in federal court in California and Florida, with additional cases in Illinois and Massachusetts. Plaintiffs challenge the marketing and advertising of a variety of CBD products, including oils, gummies, capsules, creams, pet products and more.
The cases so far follow a familiar pattern seen in prior consumer class actions, especially in the food and beverage industry. Read on to learn what plaintiffs have claimed in the CBD lawsuits, how companies are defending their products, and how best to position your hemp-derived CBD products in light of lessons learned from past litigation.
What These Lawsuits Are Claiming, and How Companies Are Defending Their Products
In most of the recent CBD lawsuits, plaintiffs claim either that: 1) product labels over- or understate the amount of CBD in the products; and/or 2) the sale of CBD products is inherently misleading to consumers because the products are purportedly illegal under federal law. Regardless of which theory underlies the claims, plaintiffs typically frame their claims as consumer fraud, false advertising, breach of warranty, unjust enrichment, and/or deceptive trade practices.
Just some of the many CBD products on the market today.
In most cases, defendants have filed motions to dismiss seeking to have the cases thrown out. In these motions, defendants argue that plaintiffs’ claims are “preempted” by the Federal Food Drug and Cosmetic Act (FDCA), and that only the federal government can enforce the FDCA. Some defendants have additionally argued that if the court is not prepared to dismiss the claims as preempted, the doctrine of “primary jurisdiction” applies. This means that the issues raised regarding CBD are for the FDA to decide, and the cases should be stayed until the FDA finalizes and issues rules on products containing hemp-derived CBD. Many defendants have also advanced dismissal arguments for lack of standing, claiming that the individuals bringing the lawsuits are trying to sue for conduct that never harmed them personally (e.g., because they never purchased a particular product), or will not harm them in the future (e.g., because plaintiffs have stated they will not buy the product again). The standing arguments often apply to particular claims or products within the lawsuit, rather than to the lawsuit as a whole.
Current Status of the Cases
Of the approximately twenty consumer class actions filed over the last year, about half remain pending:
Five have been stayed pursuant to motions filed by defendants;
Two have motions to dismiss pending;
One has a pending motion to vacate a default judgment against defendants;
One was filed earlier this month, and defendant’s deadline to respond has not yet elapsed.
To date, none of the cases (currently pending or otherwise) has proceeded to discovery, and no class has yet been certified. That means that no court has yet determined that these cases are appropriate to bring as class action lawsuits, rather than as separate claims on behalf of each individual member of the putative class. This is significant, because plaintiffs’ ability to achieve class certification will likely influence whether these CBD lawsuits will continue to be filed. Consumer fraud cases like these typically do not claim any physical injury, and the monetary damages per individual plaintiff are relatively low. As such, the cases often are not worth pursuing if they cannot proceed as class actions.
Of the cases that are no longer pending, all but two were voluntarily dismissed by plaintiffs. While the motivation behind these dismissals is not always announced, approximately half of the voluntary dismissals came after defendants filed a motion to dismiss, but before the court had ruled on it. One Florida case was mediated and settled after the court denied defendant’s motion to dismiss.1 A California court spontaneously dismissed one matter (without the defendant having filed any motion) due to a procedural defect in the complaint, which plaintiffs failed to correct by the court-imposed deadline.2
Early Outcomes on Motions to Dismiss
Of the thirteen motions to dismiss filed to date, only five have been decided. So far:
No court has dismissed a case based on federal preemption grounds. Courts have either deferred ruling on preemption, or denied it without prejudice to re-raising it at a later time.
Four courts have stayed cases based on primary jurisdiction.3
Only one court has denied the primary jurisdiction argument.4
Standing arguments have been successful in three cases,5 and deferred or denied without prejudice to later re-raising in the other two cases.6 However, the standing arguments applied only to certain products/claims, and were not dispositive of all claims in any case.
These rulings show a clear trend towards staying the cases pursuant to primary jurisdiction. In granting these stays, courts have noted that regulatory oversight of CBD ingestible products, including labeling, is currently the subject of FDA rulemaking, and that FDA is “under considerable pressure from Congress” to expedite the publication of regulations and guidance.7
Any label claims need to meet FDCA regulations and applicable FDA guidance.
Plaintiffs may be recognizing the trend towards primary jurisdiction as well, since there is now at least one case where plaintiffs agreed to a stay after defendant filed a motion to dismiss asserting, among other things, primary jurisdiction.8 But some plaintiffs are still resisting. For example, in the first case to have been stayed plaintiffs have since filed a motion to lift the stay. The motion—which was filed after the case was reassigned to a different judge—argues that primary jurisdiction does not apply, and that the FDA’s recent report to Congress suggests no CBD-specific rulemaking is forthcoming.9 The motion is pending.
Lessons Learned From Food Industry Consumer Class Actions
The motions to dismiss that have been filed to date in CBD-related class actions follow a tried and true playbook that has been developed by defense counsel in other food and beverage industry class actions. For example, the primary jurisdiction arguments that have been gaining traction in the CBD consumer class actions are very similar to primary jurisdiction arguments that were successful years earlier in cases involving the term “natural” and other food labeling matters.10
Similarly, the standing arguments that have succeeded in the early motions to dismiss CBD consumer class actions followed similar standing arguments made years earlier in food and beverage class actions.11
Work with reputable labs to ensure the potency stated on the label is accurate
The preemption arguments that have largely been deferred in CBD consumer class actions to date could become a powerful argument if and when the FDA completes its CBD rulemaking. The preemption defense has been particularly effective when the preemption arguments focus on state law claims that require defendants to omit or add language to their federally approved or mandated product labeling, or where plaintiffs otherwise seek to require something different from what federal standards mandate.12 These arguments could be particularly compelling once the FDA issues its long-anticipated rulemaking with respect to CBD products.
Until then, primary jurisdiction will likely continue to gain traction. The FDA’s comprehensive regulatory scheme over food, dietary supplement, drug, and cosmetic products, combined with the FDA’s frequently-expressed intention to issue rulemaking with respect to CBD-products, and a need for national uniformity in how such rulemaking will interface with state requirements, converge to make primary jurisdiction especially appropriate for CBD-related class actions.13
How to Best Position Your Products
Until the FDA issues its long-awaited rulemaking regarding CBD products, companies can take the following steps to best position their products to avoid litigation and/or succeed in the event litigation arises:
Work with reputable labs to ensure the amount of CBD stated on product labeling and advertising is accurate;
Ensure that the product is manufactured according to appropriate current Good Manufacturing Processes (cGMPs);
Ensure that any claims made on product labeling and/or in advertising are consistent with FDCA requirements and applicable FDA guidance to date – for example, if the product is a dietary supplement, avoid making express or implied claims that it can cure or prevent disease;
Maintain a file with appropriate substantiation to support any claims stated in product labeling and advertising;
Work with legal counsel to stay abreast of developments in federal and state laws applicable to hemp-derived CBD products, and how any changes might impact potential class action defenses; and
If a lawsuit arises, work with legal counsel to develop a strategy that not only resolves the current litigation as efficiently as possible, but also positions the company strategically for any future consumer claims that may arise.
References
Final Mediation Report, Potter v. Potnetwork Holdings, Inc., 1:19-cv-24017-RNS, (S.D. Fla. July 30, 2020).
Court Order, Davis v. Redwood Wellness, LLC, 2:20-cv-03273-PA-JEM (C.D. Cal. Apr. 10, 2020).
Electronic Order, Ahumada v. Global Widget LLC, 1:19-cv-12005-ADB (D. Mass. Aug, 11, 2020); Memorandum and Order, Glass v. Global Widget, LLC, 2:19-cv-01906-MCE-KJN (E.D. Cal. June 15, 2020); Order Granting in Part Defendant’s Motion to Dismiss and Staying Remaining Causes of Action, Colette et al. v. CV Sciences Inc., 2:19-cv-10227-VAP-JEM (C.D. Cal. May 22, 2020); Order on Motion to Dismiss, Snyder v. Green Roads of Florida LLC, 0:19-cv-62342-AHS (S.D. Fla. Jan. 3, 2020).
Order on Motion to Dismiss, Potter v. Potnetwork Holdings, Inc., 1:19-cv-24017-RNS, (S.D. Fla. Mar. 30, 2020).
Order Granting in Part Defendant’s Motion to Dismiss and Staying Remaining Causes of Action, Colette et al. v. CV Sciences Inc., 2:19-cv-10227-VAP-JEM (C.D. Cal. May 22, 2020); Order on Motion to Dismiss, Potter v. Potnetwork Holdings, Inc., 1:19-cv-24017-RNS, (S.D. Fla. Mar. 30, 2020); Order on Motion to Dismiss, Snyder v. Green Roads of Florida LLC, 0:19-cv-62342-AHS (S.D. Fla. Jan. 3, 2020).
Electronic Order, Ahumada v. Global Widget LLC, 1:19-cv-12005-ADB (D. Mass. Aug, 11, 2020); Memorandum and Order, Glass v. Global Widget, LLC, 2:19-cv-01906-MCE-KJN (E.D. Cal. June 15, 2020).
Order on Motion to Dismiss at 12, Snyder v. Green Roads of Florida LLC, 0:19-cv-62342-AHS (S.D. Fla. Jan. 3, 2020).
Minute Entry, Pfister v. Charlotte’s Web Holdings, Inc., 1:20-cv-00418 (N.D. Ill. Aug. 11, 2020).
Plaintiff’s Motion to Lift Stay, Snyder v. Green Roads of Florida LLC, 0:19-cv-62342-AHS (S.D. Fla. July 13, 2020).
See, e.g., Astiana v. Hain Celestial Grp., Inc., 905 F. Supp. 2d 1013 (N.D. Cal. 2012), rev’d on other grounds, 783 F.3d 753 (9th Cir. 2015); Taradejna v. Gen. Mills, Inc., 909 F. Supp. 2d 1128 (D. Minn. 2012).
See Miller v. Ghirardelli, 912 F. Supp. 2d 861, 869 (N.D. Cal. 2012) (holding that the named plaintiff lacked standing where the products purchased by the putative class members were not “substantially similar” enough to those purchased by the named plaintiff); Colucci v. ZonePerfect Nutrition Co., No. 12-2907-SC, 2012 WL 6737800 (N.D. Cal. Dec. 28, 2012) (finding one of two named plaintiffs lacked standing because, even though the other named plaintiff (his fiancée) purchased the nutrition bars for him, he himself did not purchase any of the bars); Veal v. Citrus World, Inc., No. 2:12-CV-801-IPJ, 2013 WL 120761 (N.D. Ala. Jan. 8, 2013); Robinson v. Hornell Brewing Co., No. 11-2183 (JBS-JS), 2012 WL 6213777 (D.N.J. Dec. 13, 2012) (holding that there was no Article III standing because the named plaintiff had testified and stated in written discovery that he would not purchase the product in the future).
See, e.g., Turek v. Gen. Mills, Inc., 662 F.3d 423 (7th Cir. 2011); Lam v. Gen. Mills, Inc., 859 F. Supp. 2d 1097 (N.D. Cal. 2012); Veal v. Citrus World, Inc., No. 2:12-CV-801-IPJ, 2013 WL 120761, at *9-10 (N.D. Ala. Jan. 8, 2013).
See, e.g., Astiana v. Hain Celestial Grp., Inc., 905 F. Supp. 2d 1013 (N.D. Cal. 2012), rev’d on other grounds, 783 F.3d 753 (9th Cir. 2015); Taradejna v. Gen. Mills, Inc., 909 F. Supp. 2d 1128 (D. Minn. 2012).
Cannabis extraction and manufacturing is big business in California with companies expanding brands into additional states as they grow. This is the second article in a series where we interview leaders in the California extraction and manufacturing industry from some of the biggest and most well-known brands. Click here to see Part 1.
In this week’s article we talk with Matthew Elmes, director of product development at Cannacraft. After cutting his teeth in academic and industry research, Matthew was approached by Cannacraft leadership to bring a new perspective to their product development efforts. The interview with Matthew was conducted on July 22, 2020.
Next week, we’ll interview Joaquin Rodriguez, chief operating officer at GenX BioTech. Stay tuned for more!
Aaron Green: Hi Matthew, and thank you for taking the time to chat today, I understand you have a busy schedule!
Matthew Elmes: Thanks – yeah, last week was pretty insane!
Aaron: Well, I’m happy we found a chance to put this together. Let’s start from the beginning. How did you get involved at Cannacraft?
Matthew Elmes, director of product development at Cannacraft
Matthew: I did my Ph.D in biochemistry at Stony Brook University on cannabinoid intracellular transport and metabolism. I then did a post-doc with Artelo Biosciences in endocannabinoid system modulation. While I was doing my post-doctoral research, Dennis Hunter, co-founder of Cannacraft, had learned about my work and reached out to offer me a position.
Aaron: Awesome, that’s a great feeling when people are reaching out to you! The next questions here will be focused on product development and manufacturing. What is your decision process for launching a new product?
Matthew: We do our best to anticipate what the market will want. A lot of our new product development comes from improving our current products. Things like improving stability, shelf-life and reducing bitterness. For brand-new products and technologies, we first get a lot of feedback from the marketing and sales teams and will then go into a planning session to decide what is feasible and what is not prior to moving forward.
Aaron: Do you personally get involved in manufacturing? Tell me about your process there.
Matthew: I do get involved in manufacturing. My main inputs are figuring out how much cannabis oil to use to hit a target potency around the size of a batch. This is the type of thing I do for all our beverage products like HiFi Hops, our Satori line of infused edibles, and the various gummy products sold under our brands Absolute Xtracts and Care By Design.
Aaron: Are you developing new products internally?
Matthew: For the most part we develop everything internally. We are very vertically integrated here at Cannacraft and we extract all of our oil in house. I don’t do the oil extractions myself. Most of our stuff is supercritical carbon dioxide extraction, but we have hydrocarbon and cryoethanol extraction facilities opening soon. For our gummies, we use distillate oils for the best flavor and for our droppers/vapes we use full-spectrum oils for a more sophisticated array of effects.
Aaron: In product development, what does getting stuck look like for you?
Matthew: Getting stuck happens a lot! You know, strict regulations make it challenging to source ingredients. Foods we’d like to source for a product are often too high in pesticides or heavy metals for the cannabis regulations. What’s good enough for the grocery store is very often not good enough to be compliant in the California cannabis industry. Fruits that are totally free from pesticides are hard to find. Our edibles brand Satori Chocolates actually might be the only player in the entire California cannabis industry that uses real whole fruit in our products rather than something artificial or a processed fruit paste. We actually had to source our strawberries from Italy to find ones that were both compliant in metals/pesticides and tasted good enough to meet our high standards! The same sort of challenges apply to sourcing biomass for oils.
Aaron: If you get stuck is it usually the same place? Or is it different each time?
Matthew: We’re so diversified. We have lots of different products. The process for each one can have its own issues. The problems you encounter with cannabis beverages are not the same ones that you’ll encounter with vapes, edibles, topicals or sublinguals, etc. We are one of the oldest players in the California cannabis industry (CannaCraft was founded in 2014, well before regulated recreational cannabis was a thing) so we have the advantage of working on all these issues for years longer than most of our competitors and we have largely figured out all the major ‘kinks’ already. A big part of it is also that we have assembled a great team of food scientists, chemical engineers, chemists, legal and regulatory experts, all with diverse specialties that allows us to quickly address any new ‘stucks’ and be fully confident in all of our products.
Aaron: Feel free to answer the next question however you like. What does your magic helper look like?
Matthew: I would love a magic helper! What would a magic helper look like to me? I think my magic helper is a recent undergrad with lab experience. I would have them take care of a lot of the quality and lab day to day activities. My responsibilities often make me too stuck to the computer screen where I don’t have time to get to all the experiments that I’d like to do…a trained magic helper could physically perform those experiments for me!
Aaron: OK, and now for our final question! What are you following in the market and what do you want to learn about?
Matthew: I am personally really interested in yeast grows and cannabinoid synthesis from biological organisms. We stick to only natural plant-derived cannabinoids for all our products, but it’s a new field that’s just fascinating to me. I also think that minor cannabinoids will have a bigger place in coming years. In particular I have my eye on THCV, ∆8-THC, CBG and THCP. THCP is a phytocannabinoid that was just discovered a year ago and exhibited very potent effects in preclinical models, but no one has been able to produce and purify it in appreciable amounts yet. We already manufacture and sell a ∆8-THC vape cart under our ABX brand, but for the others keep an eye out for new product announcements from us that are on the horizon.
Aaron: Well, that brings us to the end of the interview Matthew, this is all awesome feedback for the industry. Thanks so much for your time and insights into product development in the cannabis industry.
The hemp industry is rapidly growing, but it’s no secret that it suffers from a major legitimacy problem. When manufacturers choose to certify their products and processes under a third-party agency, such as the USDA, it is a way for those companies to gain credibility with new customers.
The USDA’s organic certification program is a great way to increase transparency and trust with both ingredients and processes used within the hemp industry. Organic certification is a rigorous audit program to review both manufacturing facility design and production process plans with the ultimate goal of increasing supply chain sustainability.
Investing in organic certification is a smart business decision – especially in today’s competitive CBD market. A recent Bloomberg report has shown that COVID-19 has actually accelerated organic food sales in the US due to increased demand for health-conscious foods and drinks. “Sales of organic food and drinks surged 25% during the 17-week period ended June 27,” according to Nielsen Data.
Organic certification is one way to differentiate between the thousands of seemingly identical CBD products being sold in the marketplace today. From a consumer perspective, organic certification provides both supply chain transparency and increases confidence with brands and products they already love. It also provides a form of quality assurance to skeptical consumers, especially those who avidly read product labels prior to making a purchasing decision. Members of this “label reader” demographic will consistently choose organic products for the quality and transparency it provides with pure and natural ingredients.
Not only does certification support ethical practices, it’s also good for business. According to the USDA, “Food labeling can be confusing and misleading, which is why certified organic is an important choice for consumers. Consumers are willing to pay a premium for food that carries the USDA organic seal, or that contains organic ingredients.”
Organic farming and production processes significantly contribute to increasing sustainability within the CBD industry. In general, organic farming is a growing practice for farmers across the US. According to the Pew Research Center, “There were more than 14,000 certified organic farms in the United States in 2016, according to the latest available data from the U.S. Department of Agriculture’s National Agricultural Statistics Service. This represents a 56% increase from 2011, the earliest comparable year.” The USDA has found that organic production practices can improve water quality, conserve energy, increase biodiversity and contribute to soil health. In terms of organic farming, soil ecology and water quality are both protected by farmers committing to working within regulated guidelines.
Organic certification ensures transparency and trust with a consumer-friendly approach to ingredient products. This comes on the heels of research showing that the CBD market lacks credibility. Organic CBD should be the next step all brands should take to ensure they’re adapting to changing consumer preferences.
The cannabis industry, like many others, felt the effects of the stay-at-home orders issued in March in response to the COVID-19 healthcare crisis. While medical cannabis companies were considered “essential” in most states, many recreational dispensaries had to close their doors, or pivot to a curbside pickup operations model. According to the State of the Cannabis Industry 2020 report, following a two-week spike in mid-March, as consumers stockpiled product ahead of stay-at-home mandates, sales took a temporary downturn.
The industry rebounded in a big way, however. The report notes that, since April 20, cannabis sales have steadily increased, and are, in fact, up approximately 40% from 2019. But while medical and recreational dispensaries are now open to the public and thriving, it’s far from business as usual.
Like any other retail store, cannabusinesses must follow local- and state-issued health and safety mandates designed to prevent the spread of COVID-19. Complying with these new requirements can be difficult for business owners and management teams on a normal business day – never mind in today’s climate, where demand for cannabis products continues to soar.
Turning to Technology
With more health regulations to follow than ever before and stores experiencing a consistent increase in daily foot traffic, it’s no longer realistic to expect managers to manually monitor every employee and customer to make sure guidelines are met. For example, it’s difficult to manage social distancing within the store – but there are commonly lines outside of cannabusinesses, where social distancing and mask-wearing precautions also need to be followed. Wouldn’t you rather have managers spend their time on customer service and initiatives that will deliver business value, rather than spending time making sure people are following safety protocols?
Technology can help mitigate these new health compliance challenges – and you may even already have the solution deployed: Internet Protocol (IP) security cameras. Often implemented by businesses as a security tool, IP cameras are now also an effective way to ensure employees and customers are following health and safety protocols.
Most IP cameras are equipped with artificial intelligence (AI) that can analyze information in real-time and make split-second response decisions. In the context of health compliance, they can be trained over time to recognize when requirements are not being followed and immediately alert the appropriate managers. This means managers only need to address violations, rather than observing everyone all the time, and they can resolve compliance gaps as they’re happening. In other words, AI takes on the compliance burden for you. And, as an added bonus, many AI-enabled surveillance systems give managers the ability to pull up live video feeds from their smartphone, so they can conduct compliance checks remotely, at any time. This is especially helpful to managers covering multiple stores (suddenly, they can be in more than one place at a time!).
Here are three specific ways IP security cameras can help dispensaries and other cannabusinesses ensure compliance with COVID-19-prompted health guidelines:
Social distance monitoring
Six-feet social distancing rules are now the norm across the U.S., and IP security cameras are able to measure the space around employees and customers to detect when the six-foot rule is violated. For example, some systems place a ring around each person, and the ring’s color changes when people come within six feet of each other. This capability can be helpful when trying to do things such as supervise the line to get into your store, manage your checkout queue, or monitor the distance between customers browsing in store aisles.You can use IP security cameras to create a healthier and safer work environment
Occupancy management
In many states, organizations must follow orders that restrict occupancy to 50% capacity. Rather than having an employee at your front door tallying the number of people going into and out of your store, IP security cameras can do the counting for you. With this capability, you can control foot traffic and keep the number of shoppers within defined occupancy requirements – without having to allocate personnel to do the task manually.
Face mask detection
AI-enabled IP security cameras can also help businesses comply with mandatory face mask orders. The technology can be trained to detect employees and customers who aren’t wearing face masks or other required personal protective equipment, and then alert appropriate management personnel.
A Dual Purpose – Security and Compliance
IP security cameras now have a dual purpose. Beyond simply helping organizations protect their premises from crime, they now also empower them to ensure compliance with health and safety requirements. You can leverage the technology to remediate compliance issues in real-time and demonstrate to public officials that your business remains in compliance with all health mandates. Most importantly, you can use IP security cameras to create a healthier and safer work environment – and, in these uncertain times, this is a certainty you can count on.
Cannabis extraction and manufacturing is big business in California with companies expanding brands into additional states as they grow. This is the first article in a series where we interview leaders in the California extraction and manufacturing industry from some of the biggest and most well-known brands.
In this week’s article we talk with George Sadler, President and Co-founder of House of Platinum. George and his son Cody started their cannabis journey in 2010 when they sold their dirt bikes and set up a 10×10 garage. They have since built the business into a $70 million dollar cannabis empire across California, Michigan and now Oklahoma. The interview with George was conducted on July 31, 2020.
George Sadler, President and Co-founder of House of Platinum
Next week, we’ll interview Matthew Elmes, Director of Product Development at Cannacraft. Stay tuned for more!
Aaron Green: First off, George, congratulations on your recent announcement on the LOI from Red White & Bloom!
George Sadler: Thanks! The deal isn’t done yet but we’re looking at a sixty-five-million-dollar deal. Cody and I will be staying on as officers to oversee growth as we expand into new markets.
Aaron: That’s great news! I hope it all works out well for you and best of luck closing the deal. Now on to the interview questions we had planned. So first off, how did you get involved at House of Platinum?
George: My son Cody and I wanted to do extraction and have a vape company. Five or six years ago we climbed on a plane to China to speak with manufacturers. We started off with extraction equipment in a small room with a table top machine. After a time, we took year and a half off to get our licensing and do our buildout. We opened up again two years ago in June. At the time, China was the main resource for packaging, and everything really. We got hardware from another company and had our Chinese partners rework the hardware to address some of the issues we had. Cody and I spent a week in Shenzhen where we met with our Chinese partners. They first did cartridges, packaging and batteries.
Aaron: Thanks for that, George. The next questions will focus on product development and manufacturing. What is your decision process for starting a new product?
George: In the beginning, Cody and I would both be a part of new product development from beginning to end. Cody has taken lead now on the beginning phases so our new product development really starts with him. We collectively come up with the concept. Cody does the market research. The concept then goes to our design team for visuals and to do the artwork- this usually takes some time. After we are satisfied with the branding, we start the manufacturing process. We do everything start to finish and can go from design to package in less than two weeks. The only thing we still manufacture in China is hardware these days, so cartridges and batteries.
Aaron: Are you personally involved in manufacturing? Tell me about your process
George: Cody and I are both involved in manufacturing. In California, we have about a hundred employees at our facility. In Michigan we have another hundred, and Oklahoma has about thirty. In Michigan, we do carts only right now and are getting ready to launch chocolates and gummies. Oklahoma is also getting ready to do edibles and gummies.
Aaron: What is your process for developing new products? George: In manufacturing, when we start a new line of edibles, we’ll first do a full test batch of products before committing to full-scale manufacturing. We start small at first then scale into larger batches. If everything looks good, we’ll decide whether or not to invest in larger equipment.
Aaron: Are you developing new products internally?
George: Our California and Michigan production is done 100% in-house. In Oklahoma we have a licensing deal with a manufacturing partner.
Aaron: Do you ever bring in external product development consultants?
George: No. We do all of our product development internally.
Aaron: In product development or manufacturing, what does being stuck look like for you?
George: That depends on what phase of the process we’re talking about. One challenge is getting the recipe dialed and then figuring out how to move into large scale. Take chocolate for example: going from a one spout pour on chocolate to a three-spout pour. That process can take a while to figure out. Any time you are trying to move forward in your manufacturing process, if there isn’t existing equipment available you may need to purchase it. There isn’t a lot of information out there to gauge on the cannabis side what is relevant.
Aaron: How about source materials for your products?
George: We pride ourselves on doing a deep dive on all of our suppliers. That includes packaging, chocolate, sugar, and flower. The advantage of longevity in this industry, we have keen radar on those doing premium work.
Aaron: What’s the most frustrating thing you are going through with the business?
George: I think a majority of people would agree that there’s lack of understanding of what’s happening with licensing. Legacy market products and unlicensed stores are frustrating. Inconsistency on testing is also frustrating. The states aren’t really doing anything to correct inconsistent testing. But banking is the number one industry pain point. We have a handle on the rest. Banking we don’t have any help.
Aaron: Feel free to answer the next question however you like. Imagine you could have someone come in and wave a magic wand to solve your problems. What does your magic helper look like?
George: Hah! Not sure what a magic helper would look like. Distribution is our biggest headache. Distribution is a different animal that is outside cannabis product development. We do all of our distribution in-house and it can be a pain.
Aaron: Now for my final question: What are you following in the market and what do you want to learn about?
George: We’re semi-new in the CBD space. Anything up and coming is something we are looking at. We’re focused on going big and multi-state. Arizona is the next state we are looking at. Nevada is after that. The partnership with Red White and Bloom is going to grow the brand into other states with them. Growth continues in that direction. Recently we’ve been going back to cultivation and doing cultivation deals. We started as cultivators and a lot has changed in the past several years. We are trying to pick up new knowledge.
Aaron: Well, thanks for that George, this is all awesome feedback for the industry. That concludes the interview! Thanks so much for your time and congrats again on your recent announcement with Red White & Bloom.
For cannabis companies, property coverage can cost as much as seven to 10 times what traditional manufacturing and retail outlets pay. That is, of course, because of the inherent hazards involved in manufacturing and selling cannabis, in a difficult insurance market.
For landlords and building owners, taking in a cannabis tenant can be tricky as well. Because of the higher theft and manufacturing risks, many underwriters are unwilling to offer coverage. And, failure by a landlord to disclose a cannabis tenant is likely to result in a denied claim. Keeping property coverage in check by implementing risk management best practices and working to expand coverage and reduce premium costs can propel a cannabis business even further.
Moreover, some landlords and building owners will require businesses to maintain occurrence-based liability coverage, which is harder to secure when running a cannabis operation. An occurrence-based liability policy is one that covers the renter for an accident occurring during the policy period, regardless of when a claim is made.
Instead, some insurance companies will only cover cannabis business’ high risks with a claims-made policy, or one in which claims must be made during the policy period only. Landlords will often stipulate their requirement for an occurrence-based policy in their lease. That means that cannabis businesses with a claims-made policy could unknowingly be in violation of their lease.
These issues and others have allowed landlords to command premium rent from cannabis business owners who find obtaining the right property coverage difficult.
To calm the rising tide of rent and property coverage costs, cannabis business owners and operators can engage in the following risk management considerations.
Risk Management Considerations for Facilities with a Cannabis Operation
Carriers are more likely to provide a policy to cannabis businesses that are doing what they can to minimize their risk. Here are six ways cannabis businesses can reduce their costs, minimize exclusions and obtain broader property coverage.
If you are a retailer, have a plan to prevent or respond in the event of a robbery.
Install and know how to use vaults and safes properly.
Install central station alarms, cameras and other safeguards. Have them tied to your phone for easy access.
Depending on the nature of the operations, install and regularly test fire sprinklers on site to make sure they are in working order.
Consider hiring a third party, properly-insured, armed guard to safeguard your storefront on a regular basis.
Institute industry-known best practices for high-risk manufacturing processes, like oil extraction.
Insurance Considerations for Facilities with a Cannabis Operation
Risk management is critical to controlling risk, and insurance considerations can help your cannabis business obtain broader coverage and reduce premium costs.
Communicate with your insurance broker.If you’re a landlord and you want to rent to a cannabis tenant, have a conversation with your insurance carrier at least 30 days before the lease begins. Even if you do, there’s a good chance that your carrier will issue a notice of cancellation (NOC) because they don’t want to engage with cannabis risk. On the other hand, if you don’t disclose the new tenant risk, should a claim be filed, it will could be denied, and the non-disclosure could cost you your policy.
Engage a broker/carrier that specializes in cannabis.In such a volatile market, it is important to work with a broker and carrier that specialize in cannabis. This will enable hidden exclusions to be removed and help you procure the best policy and pricing possible for your organization.
Tell your insurance “story.”Let the carrier understand your business and its risks by telling them your “story.” Tell them what your business does well, including current risk management practices and how you’ve been able to reduce claims. This will go a long way toward potentially minimizing premium costs and exclusions and obtaining broader coverage.
Get another set of eyes. Most carriers will require a lengthy application from cannabis businesses in which the carrier may require the business to comply with certain requirements like having an approved safe or vault room. Your business will be held to the requirements stipulated in the application should you sign and submit it. Ask your broker or a reliable attorney to review the contract for anything you may have missed. Some carriers will incorporate the submitted application into the policy. Any changes between policy inception and a claim could cause coverage issues.
The fast-growing nature of the cannabis industry has ushered in a new set of challenges for business owners and operators. Keeping property coverage in check by implementing risk management best practices and working to expand coverage and reduce premium costs can propel a cannabis business even further.
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According to Jeff Johnson, director of marketing and business development for Drug Plastics, they want to show how small, incremental changes can have a lasting impact on a company’s environmental sustainability.“From switching to more eco-friendly resin and eliminating flame treatment, to calculating the savings gained from choosing PET plastic over glass, or eliminating collateral packaging, these calculators show how making simple changes can have a big impact on the environment,” says Johnson.
