Editor’s Note: While CIJ and Pioneer Intelligence do not have any financial relationship to disclose, it is important to note that we feature Pioneer Intelligence’s data in The Brand Marketing Byte, a column that showcases highlights from Pioneer Intelligence’s Cannabis Brand Marketing Snapshots, featuring data-led case studies covering marketing and business development activities of U.S. licensed cannabis companies.
Pioneer Intelligence, a marketing analytics company, is known for their marketing performance benchmarks of consumer-facing cannabis brands in the United States. They use data to analyze business activity across three areas: social media, earned media and web-related activities.
Today, Pioneer Intelligence announced they released a list of their data partners on their website. The group of partners includes well-known companies like Ahrefs, Instagram, SEMRush, Meltwater and SimilarWeb.
Ben Walters, Founder of Pioneer Intelligence
At present, Pioneer takes in over 80,000 data points each week. The company’s team of marketers and data scientists share findings through weekly generated Performance Scorecard reports as well as Brand Marketing Snapshots. Pioneer Intelligence offers reports on more than 500 U.S. cannabis brands. Ben Walters, founder of Pioneer Intelligence, says their mission is “to help cannabis industry stakeholders better understand how marketing strategies & tactics resonate with audiences.”
According to Walters, their goal was to partner with best-in-class companies. “So, alongside the fact that these names are trusted by marketing professionals worldwide, our team of marketers and data scientists researched, tested and validated a sizable number of sources before eventually selecting this group of partners,” says Walters. “We feel we’re well positioned to support the industry with valuable, data-led insights.”
Along with the release of their partner organizations, Pioneer Intelligence also announced they have expanded the total input data set to 80,000 relevant data points per week. That’s up from 26,000 data points at the beginning of this year.
According to Walters, the company is actively growing their product offering and looking for new ways to engage with cannabis industry stakeholders. “The feedback received on the first version of our Brand Marketing Performance Scorecard has been super encouraging,” says Walters. “That said, as customers told us they’re looking for more actionable data, we’re building an expanded suite of reports that include, amongst other things, more granular metrics.”
The cannabis industry is not immune from global setbacks. Discussions about how resistant the vertical is to this (next) setback have been widely disseminated, from mainstream news to the blogosphere.
Yes, the UN punted global reform down the pike another 9 months – affecting the international industry. And so far, the entire vertical has been left out of the relief bill in the United States (although there are lobbying efforts everywhere to correct the oversight on subsequent bills now almost inevitably in the legislative hopper).
However, there are signs that the industry is actually gaining credibility if not forging new victories during a time likely to go down as this century’s “Great Depression.”
Here is a look at some of the trends afoot that are already bearing fruit and bringing relief.
Cannabis Business Is Essential Business
Some important battles have been won in many states in the U.S. as well as several other countries (including but not limited to Canada). This starts with the designation of the industry as “essential,” at least on the medical side. The issue of delivery and cashless payments have been on the front burner just about everywhere. And this time, there are few if any objections with a national lobby to voice said concerns.
In Europe of course the conversation is also different depending on where you are, but there are still signs that things are clearly changing.
In the UK, authorities have made it easier for cannabis importing. In Germany, pharmacies are on the front line in a way unseen just about anywhere else.
And in Spain, with most patients reliant on cannabis clubs, the lockdown and subsequent hardship for the most vulnerable has led to widespread calls to make deliveries a possibility. Even if the clubs are not functioning as “lounges,” their operators might not get fined for opening their doors, much less “importing” product from the outskirts of town to a central distribution point.
Pivoting To Respond In Times Of Crisis
It is impossible to forget that the emergent industry has been on the forefront of the medical industry and certified production for a long time, even if that, at least up to this point, has received little respect.
Health Canada has asked testing labs to repurpose their activities for Covid-19 testing.
Canadian and American producers are also on the front lines of providing PPE (personal protective equipment) that can be multi-purposed. Masks, gowns and gloves have all been donated from multiple companies. Others are literally repurposing ethanol used for extraction to make hand sanitizer for vulnerable populations. More than a few, including in Europe, have directly been involved in helping to fundraise for foodbanks.
GMP Licensing and Other Developments Still Cooking
While some companies waiting for certification have been stymied because of a lack of foreign travel (EU-GMP requires German inspectors to travel to Canada for example), there are other indications that global companies are finding the way through anyway.
New deals are being inked all over the planet, including international provision deals from unlikely places. This is in part because new export and sales channels are being forged – literally out of desperation. See the story of Little Green Pharma and Astral Health, an Australian company now exporting to the UK (a first). Or the New Mexico company Ultra Health, which just started to export to Israel. Not to mention the source of Israel’s other international purchase of cannabis this month – from Uganda of all places.
Down under, things are certainly developing in an interesting way during the crisis. Indeed, New Zealand decided to proceed with its own cannabis cultivation, with signs that more reform is on the agenda for later in the year.
Back in the Northern Hemisphere, North Macedonia, home of one of the most developed cannabis economies adjacent to Europe, is literally one amendment away from entering the European and global business with flower as well as extracts (which is on the table this month as the government begins to reconvene.)
In summary, while times are tough, everywhere, the entrepreneurs who have forged their way through laws of man to create reform, are also showing up to battle against this century’s so far most emergent threat.
In our previous post, we touched on the fact that state-legal medical and recreational cannabis businesses (including indirect cannabis businesses) could not receive federal financial assistance due to the continued Schedule I status of cannabis under the Controlled Substances Act (CSA). While state-legal medical and recreational cannabis businesses have been adversely affected due to government imposed shelter-in-place restrictions across the United States, they are unable to take advantage of the multi-trillion dollar stimulus packages that are designed to help small businesses because they are engaged in “federally illegal” activities. As described below, applicants applying for federal loans must certify, under penalty of perjury, that they are not engaged in “illegal” activity.
While it is our view that state-legal medical and recreational cannabis businesses should be entitled to assistance as they are hurting like every other business, we explain why such businesses cannot receive financial assistance under the Paycheck Protection Program and the SBA’s Economic Injury Disaster Loan Program due to the facts that these businesses do not comply with federal law.
CARES Act
As previously discussed, Section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the “Act”) directed $349 billion to the Small Business Administration (SBA) to administer to small businesses harmed by COVID-19. As a result, businesses can apply for Paycheck Protection Program (PPP) loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), traditional 7(a) loans, 504 loans, and microloans, and can also receive investment capital from the Small Business Investment Company program.
Paycheck Protection Program (PPP)
Generally, the following businesses are eligible to receive loans under the PPP:
Any business, 501(c)(3) nonprofit organization, 501(c)(19) veterans organization or Tribal business with not more than 500 employees whose principal place of residence is in the United States;
Any business that meets the SBA employee-basedsize standards for the industry in which it operates (if applicable);
Any business that is a “small business concern” as defined in Section 3 of the Small Business Act, 15 U.S.C. 632, and meets the SBA employee-based or revenue-basedsize standards corresponding to its primary industry; or
Any business that is a “small business concern” under the SBA’s “alternative size standard” as of March 27, 2020, which standard is met if the business has not more than:
(i) maximum tangible net worth of $15 million, and
(ii) an average net income of $5 million (after Federal income taxes, excluding any carry-over losses) for 2 full fiscal years before the date of application.
Importantly, to apply for PPP, an applicant must make a good faith certification that the applicant is eligible to receive a PPP loan. An applicant must certify, under penalty of perjury, that it “is not engaged in any activity that is illegal under federal, state or local law.” (Borrower Application Form, page 2).
Consequently, because state-legal marijuana businesses (including indirect marijuana businesses) are operating in violation of federal law, applicants cannot make such certification, they remain ineligible to participate in the PPP.
Economic Injury Disaster Loans (EIDLs)
The CARES Act also provided a slew of changes to the SBA’s pre-existing EIDL program, which provides small businesses with working capital loans of up to $2 million to assist to help overcome the temporary loss of revenue as the result of a declared disaster.
The Act set out new rules making it easier for small businesses harmed by COVID-19 to receive loans quickly and efficiently; the Act added $30 billion to the EIDL loan fund, with an additional $10 billion added for the EIDL Grants connected to the EIDL loans.
The CARES Act also expanded eligibility to include businesses with no more than 500 employees, any individual operating as a sole proprietor or an independent contractor, and tribal businesses, cooperatives and ESOPs with no more than 500 employees. Small business concerns and small agricultural cooperatives who meet the SBA’s applicable size standards are also eligible, as well as most nonprofits.
However, to receive an EIDL loan, applicants must make a good faith certification that the applicant is eligible to receive an EIDL. An applicant must certify, under penalty of perjury, that it “is not engaged in any illegal activity (as defined by Federal guidelines).” (COVID-19 Economic Injury Disaster Loan Application).
The SBA has clarified that the limitation on applicants “engaged in any illegal activity” (13 CFR § 120.110 (h)) refers to all applicants engaged in “illegal activity under federal, state, or local law.”
In a Statement of Position issued on April 1, 2019 (the SOP), the SBA clarified that “illegal activity” includes “[a]pplicants that make, sell, service, or distribute products or services used in connection with illegal activity, unless such use can be shown to be completely outside of the Applicant’s intended market.” (SOP 50 10 5(K))
The SOP indicated that both (i) Direct Marijuana Businesses1 and (ii) Indirect Marijuana Businesses2 cannot receive SBA assistance due to the limitation on applicants “engaged in any illegal activity.”
It is the SBA’s position that, “because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity.”
Consequently, because state-legal cannabis businesses (including indirect marijuana businesses) are operating in violation of federal law, applicants cannot certify that they are “not engaged in any illegal activity,” they are not eligible to receive EIDLs.
“Direct Marijuana Business” mean “a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to recreational use and medical use even if the business is legal under local or state law where the applicant business is or will be located.”
“Indirect Marijuana Business” means “a business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to aid in the use, growth, enhancement or other development of marijuana. Examples of Indirect Marijuana Businesses include businesses that provide testing services, or sell or install grow lights, hydroponic or other specialized equipment, to one or more Direct Marijuana Businesses; and businesses that advise or counsel Direct Marijuana Businesses on the specific legal, financial/ accounting, policy, regulatory or other issues associated with establishing, promoting, or operating a Direct Marijuana Business. However … [the] SBA does not consider a plumber who fixes a sink for a Direct Marijuana Business or a tech support company that repairs a laptop for such a business to be aiding in the use, growth, enhancement or other development of marijuana. Indirect Marijuana Businesses also include businesses that sell smoking devices, pipes, bongs, inhalants, or other products if the products are primarily intended or designed for marijuana use or if the business markets the products for such use.”
By Joanne Molinaro, Geoffrey S. Goodman, Ronald Eppen No Comments
The legalized cannabis industry remains a budding market in the United States. As the legislative dominoes started to cascade from state-to-state across the country, entrants of all categories—operators, investors, lenders, and retailers—were willing to stand in line for their tickets. However, signs of fatigue, caused largely by the continuing murkiness of regulatory guidance and investors’ waning appetite for reading the legislative crystal ball, were already surfacing towards the end of 2018 and continued its slide downward into 2019. From March 2019, market capitalization for the 33 biggest cannabis stocks was down 45% by the end of 2019, falling from $54 billion to $30 billion and projected revenues dropped a whopping 17% as well.
Has COVID Made Things Worse?
Against this backdrop, COVID-19 arrived on the scene. Surprisingly (or perhaps not), cannabis seemed to be somewhat insulated from unprecedented disruptions to supply chains and artificial nose dives in demand. Many operators noted a sharp uptick in sales as states implemented shelter-in-place orders. Ironically, the supply chain hurdles created by the lack of federal legalization rendered operators—even multistate operators (MSOs)—uniquely equipped to handle the supply chain woes that others were struggling to contain. Meanwhile, as more and more states slapped the essential label onto both medical and adult use cannabis, operators were permitted to run business as usual (under the circumstances) and legalized cannabis started to look a little more “normal” in the most abnormal of times.
Thus, for a moment, cannabis looked like it might be a counter indicator (or recession-resilient)—while others were going down, cannabis was going up. But, after this brief surge, sales settled down and states began reporting decreases from this time last year and the outlook for the cannabis industry remains unclear.
Is This An Opportunity?
Declining demand, coupled with the issues described above, spells cash-flow problems for cannabis companies – many of which are still relative “infants” compared to their consumer goods counterparts and thus may have yet to create a “rainy day fund.” However, liquidity issues can create opportunities for those who still have cash to inject. In the last year, 13 special-purpose acquisition companies (SPACs) have listed on exchanges with an eye towards “cheap cannabis assets.”Cheap cannabis assets (or distressed cannabis assets) can offer a lowered barrier to entry into what many still believe to be a bull market. However, investors should proceed with caution. While the assets themselves may bear bargain basement price tags as the world grapples with the current recession, the cost of entry is more onerous than many realize. It is thus critical for potential investors to do their pre-due diligence on the who, what, when, where and how of acquiring distressed cannabis assets.
Where Do Distressed Cannabis Companies Go?
Ordinarily, distressed companies requiring capital restructuring look towards the US Bankruptcy Code. Deploying the broad injunctive relief afforded by the automatic stay as both a sword and shield, ailing companies can focus on lining up debtor-in-possession financing while they prospect feasible long-term exit strategies (through a reorganization, asset sale, or some combination of the two). The other major advantage of a chapter 11 is, of course, the “free and clear” order—the veritable clean slate provided by a federal court to good faith purchasers of the distressed assets that allow buyers to proceed with very few strings attached.
These federal benefits are not available to adult use and medical cannabis companies (hemp companies can file for chapter 11). Indeed, some bankruptcy courts have shut the door on not just the operators themselves, but companies that have even tangential dealings with cannabis companies. With federal legalization, that will likely change; however in the meantime, distressed cannabis companies must look to pseudo-bankruptcy proceedings that offer some of the benefits that a federal bankruptcy can.
Is A State Receivership A Good Restructuring Vehicle For Distressed Cannabis Companies?
The number one option for many distressed cannabis companies will be state receivership. Much like a chapter 11 bankruptcy, the receivership provides for a stay against actions against the company’s assets, i.e., the breathing space it needs to hatch a plan for rehabilitation or exit the game as painlessly as possible. The receiver will be empowered to run the business while ironing out its operational/cash issues or conduct an orderly sale of the assets, usually through an auction process, during which the secured lender will be afforded the right to credit bid. The costs associated with that sale may be charged to the sale proceeds. Thus, in many ways, the state receivership acts like a federal bankruptcy.
How Is A State Receivership Different From A Federal Bankruptcy?
There are two main differences that investors should be aware of between a federal bankruptcy and a state receivership.
As with anything else that’s up for sale, where there’s a will, there’s a way.First, the court appointed receiver (often handpicked by the company’s primary secured lender) will be calling most of the shots from an operational, transactional, and financial perspective. That receiver may not have the kind of operational know-how of running a cannabis company that a typical debtor-in-possession might, making any major transaction more challenging. Even if the receiver has some background in the cannabis industry, he or she will still have a steep learning curve when it comes to the company’s specific business.
Second, the laws vary from state to state on whether a receiver can sell assets free and clear of any and all liens, claims, and encumbrances without the consent or satisfaction of those claims. Accordingly, buyers of distressed cannabis assets will want to take a close look at potential successor liability risks on a state-by-state basis.
Can Anyone Buy Or Invest In Distressed Cannabis Assets?
While many industries offer pay to play options for investors and lenders, the cannabis industry may not be as welcoming. Many lenders eyeing potentially lucrative refinancing possibilities that include an “equity kicker” (e.g., warrants) should be aware that states and municipalities often require investors aiming to own or control a substantial portion of the company’s business to satisfy most, if not all, of the regulatory requirements for holding the various licenses for operating in the cannabis space. For those interested in MSOs, a deep dive into each applicable state or city’s licensing requirements will be necessary. Similarly, many states have onerous disclosure requirements for owners or financial interest holders of cannabis companies. Failures to disclose can lead to license suspensions or even forfeitures.
These are just some of the hurdles potential investors and lenders may need to scale. But as with anything else that’s up for sale, where there’s a will, there’s a way.
The Brand Marketing Byte showcases highlights from Pioneer Intelligence’s Cannabis Brand Marketing Snapshots, featuring data-led case studies covering marketing and business development activities of U.S. licensed cannabis companies.
Here is a data-led, shallow dive on the California brand, PlugPlay:
PlugPlay – Executing on Social Media
This company is about three years old and based in Los Angeles. PlugPlay distributes proprietary vaporizers and cartridges to more than 150 dispensaries throughout California.
The company’s brand identity is a bit different from the traditional California cannabis company image. They trade the typical beach, yoga and plant imagery for a more modern, contemporary and sleek theme. Furthermore, the brand ambassadors featured throughout PlugPlay’s social media and communications reflect the diversity of its market.
The demographic they target in social media is increasingly tech-savvy and on the younger side. PlugPlay uses a few very smart tactics to engage with this demographic: They experiment with bold and creative content formats, some being a bit more refined than others. They engage in the comments section with their followers in an unabashed, genuine manner. Lastly, they share information with their followers on current events effectively, whether it be the vaping crisis back in 2019 or the current coronavirus pandemic.
All of these marketing tactics have worked tremendously in their favor. In March, PlugPlay’s social media earned them the #1 spot on the Pioneer Index, up from #10 in February.
As legalization of cannabis products from hemp to medical cannabis takes root across the U.S., there’s a growing need to understand and build good security practices. While many think of security as safeguarding assets like facilities and product, effective security does much more. It protects a business’ workers, providing them secure workplaces and incomes. Ideally, it reaches from supply chain to customers by ensuring consistently safe products.
To truly understand the value of this for a brand or for the industry as a whole, consider the opposite: the destructive effect – on a brand and on the industry at large – of unsafe or tampered product reaching customers, or of crimes occurring, just as the industry seeks to demonstrate its validity and benefits. Security is vital not only to individual farmers, processors or customers but to all who value what the industry brings to those who rely on CBD or medical cannabis products for their wellbeing.
Know the Threats.
Part of the learning process involves understanding the value of the product.Security is all about anticipating and reducing risks. These can include physical threats from natural sources – think flood, fire, tornado or crop fail – or from human threats. Human threats can arise from organized criminals, hackers, amateur thieves, vandals – or insiders.
As regulated industries, hemp and cannabis businesses also face risk of losses, which can be significant, from penalties ranging from fines to being shut down for non-compliance. While rules vary from state to state and continue to change, a disciplined approach to security is foundational to reducing risk at many levels. Rigorous operational processes must incorporate security that addresses risks at multiple points of access, transport and sale of products.
Learn the Rules.
In a rapidly evolving industry, one of the most important things producers can do is to learn. Security requirements vary by region and providers need to be aware of what is available. Get to know your state, local and federal resources for your operating area. California law, for example, specifies use of high-resolution video surveillance in dispensaries, while others do not.
Joshua Wall, Chief Operating Officer at Harvest Connect LLC
Part of the learning process involves understanding the value of the product. With medicinal cannabis, it’s helpful to grasp both its commodity value and the street value that could make it attractive to thieves. In “Why Marijuana Plant Value is So Important for Adjusters,” Canadian Underwriter Magazine gave examples that indicate the size of losses that may occur in growing and processing operations:
“In the medical marijuana space, ClaimsPro has already seen losses primarily between $150,000 and $750,000. These losses, mostly on Vancouver Island, were for fire and water damage, as well as boiler machinery issues, physical damage to buildings and specialized greenhouse equipment, as well as extra expense and business interruption.”
The same article notes a claim over $20 million at another single flower greenhouse. Security needs to reflect what’s present on our premises.
Educating the community can reduce risk as well. Producers of industrial hemp may need to inform would-be thieves that what they are looking at is not street-valued product. To protect the crops, which are generally grown outdoors and do not require a full security detail, a best practice is simply posting signs on the property that say explicitly “No THC.”
Begin with a Risk Assessment.
Security begins with a professional evaluation of site vulnerabilities, examining key weaknesses that could be exploited by attackers. These include:
Monitoring access to the site is a foundational principle of security.
Design limited access points into the facility as well as prepare for possible facility breaches with perimeter access control, technological redundancies and ballistic glass for defensive architecture measures.
Look at route vulnerabilities as well.
Hedge site risk by not limiting your operation to a single site where one incident could wipe out an entire year’s crop.
The nature of threats is always changing. A 2018 Newsweek article described the struggles of legal cannabis farmers against illegal and potentially cartel-backed and violent operations in California. While a 2020 Business Insider report described indications that legalization was prompting some cartels to leave cannabis alone and move on to fentanyl and meth. “While Mexican drug cartels made their money predominantly from marijuana in past decades, the market has somewhat dissipated with the state-level legalization of cannabis in dozens of states across the US.”
Define Levels of Risk and Access.
The best security matches spending to risk in a commonsense way. Are you more at risk from the occasional smash and grab incident or is there reason to anticipate an organized assault? As in many industries, the greatest risk often comes from employee fraud or theft. Hiring carefully, paying fairly and training staff well are important to long term security.
Iron Protection Group in a training session Image credit: Tampa Bay Times
How will the product be moved around within the facility and beyond it – and what staff are responsible for each part of the journey? Who can enter the cultivation areas and what protocols must they follow? On site staff should be trained on what to look for if they observe a security breach. Consider biometrics such as retinal scans, fingerprint scans or similar.
In cases where valuable product or cash is present, guards can play an important role. Harvest Connect uses only high-level former military or police officers in these roles, an approach recognized by many. Hunter Garth of Iron Protection Group notes they have “the ability to de-escalate a potentially harmful situation and the fortitude to see a mission through to completion, no matter what external circumstances may arise.”
Inventory and Transaction Controls
Inside threats from sloppy processes can be just as insidious as attacks. Poor tracking of inventory by Oregon’s legal cannabis producers made headlines in 2018 as The Oregonian reported, “U.S. Attorney Billy Williams told a large gathering that included Gov. Kate Brown, law enforcement officials and representatives of the cannabis industry that Oregon has an ‘identifiable and formidable overproduction and diversion problem.’’ Discipline, applied by state pressure but carried out by producers themselves, has begun to reduce the diversion of untracked product into the black market a year later.
Cannabis businesses need a professional approach to monitoring all product and money that moves through its systems. These operational processes can include time, date and attendance stamps on all inventory. Similarly, accounting systems and software must follow the highest professional standards. Lastly, when breaches occur, it is essential that fraud and theft are caught, eliminated and prosecuted as appropriate.
Nurturing an Emerging Industry
Security resources are an integral part of maintaining the integrity of a business’ supply chain. As the product moves from the fields to processing centers to consumers, purity assurance becomes an operational objective. Ultimately, protecting the product through secure and professional practices is the optimal way to serve customers, build a brand, and sustain the industry.
For those looking for relief from bad news in general, whether it is about the pandemic, the economic meltdown or the impact of both on the cannabis industry, there is a glimmer of hope from the Kiwis this month.
On April 1, New Zealand’s Medical Cannabis Agency opened its application process for cultivation and manufacturing. Beyond sounding the starting gun for the race to local production and imports, the new rules also create a licensing framework that is aligned with international GMP (pharmaceutical grade) quality standards now becoming the norm globally for medicinally bound product.
It is good news for the industry, but it is good for a lot of other people too.
Doctors will be able to prescribe the drug more normally and for more conditions. And patents will have more access.
That said, this will also be a strictly “pharmacized” market for now with an emphasis on dose-controlled products like pills, oils and creams. Edibles are forbidden. And while dried flower will be allowed, smoking is strictly banned.
The license fees for cannabis start-ups are ridiculously low for those used to North American and even European pricing (all in for $7,409). But, even here, it is not a business for those without deep pockets and the right connections. The GMP certification required before such approvals are issued does not come cheap.
What Is Behind the Change?
This is not an overnight edict, obviously. And the wheels have been turning here since late 2018 when palliative patients were given limited access (basically a defence against criminal prosecution for possession). The medical cannabis scheme became law in December last year, allowing doctors to prescribe in limited situations.It remains to be seen if recreational will follow just six months later here.
In opening the licensing process, New Zealand’s health agency is keeping its word about rolling out the program on time. But unlike other jurisdictions, this first step in April is also part of a rolling agenda that will probably see more cannabis reform coming to Kiwis before the end of the year. This would be a lightning quick transition indeed for a country that as of November 2018, became the last country in the world to make hemp seed fully legal for human consumption.
Cannabis was completely outlawed in 1965. That said, it is estimated that about half a million New Zealanders still use the drug either medically or recreationally every year.
But reform is in the air. Lawmakers and policy makers have been looking at other recreational models for at least the last 12 months, including sending observers to Portugal last year to observe how this famously “open” European country has dealt with the issue.
Greater Reform A Possibility In September
This is not going to be all she wrote in New Zealand this year for cannabis reform. Legalizing the personal use of cannabis is being floated as a referendum on the same day as the 2020 General Election (September 19). The referendum may not pass, although support for the measure seems to be steadily rising. Currently about 59% of New Zealanders support medical use reform. A new poll seems to also show (as of March 31), that 54% of Kiwis might support personal recreational use.
No matter what happens, however, New Zealanders are just the next nation-state to admit that prohibition has roundly failed. 83% of New Zealanders believe that illicit cannabis is widely available anyway.
Regardless of the success of recreational reform, at least this fall, the medical market is likely to expand and the topic of greater reform is clearly in the air.
As always, no matter the geography, medical use comes first. It remains to be seen if recreational will follow just six months later here. Unless of course the general election itself is delayed because of the trailing end of the pandemic.
If you missed the Cannabis Industry Journal’s 3rd Annual Infused Products Virtual Conference last week, one of the speakers, Ellice Ogle, founder and CEO of Tandem Food presented on Food Safety Culture in the Cannabis Industry. An overview of the information in the presentation can be found here, Concentrate On a Food Safety Culture In Your Workplace. Below are answers to some of the post-presentation questions we received, but were unable to answer during the Q&A session. To get your additional questions answered or for a complimentary consultation for your company, specially provided to readers of Cannabis Industry Journal, contact Ellice Ogle at Ellice@tndmfood.com.
Question: What are some recommended digital programs for internal auditing?
Ellice Ogle, founder and CEO of Tandem Food
Ellice Ogle: Before looking at the tools for conducting an internal audit, understand the goal of the internal audit. One key aspect of internal auditing is knowing which standard(s) to audit against. For example, regulatory audits for cGMP certification are different than optional third-party certifications such as any GFSI scheme (SQF, BRC, PrimusGFS, etc). While the standards ultimately have the same goal of food safety with varying focuses, it is important to have an experienced food safety specialist conduct the audit as realistically as possible. The experienced specialist will then be able to recommend an appropriate tool for internal auditing moving forward, whether it is software such as FoodLogiQ, SafetyChain, Safefood 360°, among many others, or simply providing a template of the audit checklist. Overall, the risk of foodborne illnesses can be minimal, but it takes persistence and commitment to achieve a successful food safety culture. Metrics can assist in assessing the commitment to food safety and, as a result of these efforts, you will minimize the risk of compromising the health and safety of your guests, employees, foods and business. If you want a specific example, I’d like to direct you to a case study in partnership with Heylo LLC in Washington state, posted on the Tandem Food website.
Q: What are examples of ways to share environmental monitoring results to enhance a good edible safety culture?
Ellice: In the Control of Listeria monocytogenes in Ready-To-Eat Foods: Guidance for Industry Draft Guidance (2017), the FDA states that “a well-designed environmental monitoring program promotes knowledge and awareness of the environmental conditions that could result in product contamination and is a more effective program than product testing alone.” In other words, environmental monitoring programs and results can identify environmental conditions within a facility that could cause potential contamination. Publishing these findings, for example in the form of a case study or sharing the details of the practice, can enhance the food safety culture in the specific niche industry. For example, to borrow from the meat industry, Tyson Foods, Inc developed and shared environmental monitoring programs that are used by their peers, promoting a unified food safety culture, rather than competitive, guarded secrecy.
Q: Are the food safety requirements the same for retail and manufacturing?
Ellice: The food safety requirements are not exactly the same for retailers and manufacturers. The difference is inherent that retailers are working with finished product while manufacturers are working with raw ingredients and the manufacturing process to develop the finished product. Let’s take a closer look at cannabis regulation in Washington state. Chapter 314-55-104(12) states “Processors creating marijuana extracts must develop standard operating procedures (SOPs), good manufacturing practices (GMPs), and a training plan prior to producing extracts for the marketplace.” Compare this to the requirements for retailers, 314-55-105(11) which states “A marijuana producer, processor or retailer licensed by the WSLCB must conduct the production, processing, storage, and sale of marijuana-infused products using sanitary practices.” While SOPs and GMPs are not explicitly mentioned for retailers as they are for manufacturers, sanitary practices could be documented as Sanitation Standard Operating Procedures (SSOPs). Proper storage practices can also be an overlapping food safety concern with respect to temperature control or pest management systems. Overall, food safety should remain a top priority in maintaining the integrity of the products throughout the supply chain.
Q: To your knowledge, has there been a food safety outbreak associated with a cannabis-based product?
Ellice: One possible cannabis-related death investigated in 2017 uncovered deadly pathogens in medical cannabis. However, to my knowledge, I have not seen a food safety outbreak associated with a cannabis-based product. There might be any number of reasons that this is so, for example, possibly because a food safety outbreak associated with a cannabis-based product might not have had a large impact to make headlines. Although, with the cannabis industry already misunderstood and a stigma so prevalent to even promote fake news, it is better to prevent an outbreak from ever occurring. One thing to note is that ultimately cannabis is just another ingredient in existing products, of course with special properties. So, the common food safety offenders are present: listeria, Salmonella, E. Coli, among others. On the plant, cannabis food product manufacturers must minimize the risk of mycotoxins produced by molds, pest contamination, and pesticide contamination. For products that contain cannabis infusions or extractions as an ingredient, there is the possibility of the growth of Botulism toxin. Many of these pathogens can be minimized by appropriate heat treatment or maintenance of refrigeration, testing, and by practicing preventive measures. Arguably, the largest potential for pathogenic contamination is due to improper employee handling. To refer to what we discussed earlier, employee training is key, as well as proper enforcement. Having a strong food safety culture ensures that people have the knowledge of food safety risks and the knowledge of preventing outbreaks.
Q: Do any of the panelists know of any efforts to develop a food safety-oriented standard for the cannabis industry?
Ellice: Yes, Tandem Food LLC is positioned to consult on cGMP certification for manufacturing facilities in the cannabis industry. First, a gap assessment can be conducted to obtain useful actionable data for you, rather than be an intimidating experience. Working from the identified baseline, Tandem Food will work with you to create and implement all related documentation and programs, providing training as necessary. Overall, with the right commitment, cGMP certification can take 6-12 months.
Even though it’s valued at more than $15 billion, the burgeoning global cannabis industry has experienced recent layoffs. By the end of 2019, more than 600 cannabis employees got pink slips. Industry experts expect more of the same in 2020 as investigations, lawsuits and slumping valuations plague the industry.
Unfortunately for employers, layoffs are where the issues begin – not end. Especially for those without established policies and procedures. Without rules and regulations governing employment practices, business owners and operators are at considerable risk.
The 11 states where cannabis is legal for recreational use and the 33 where it’s medically legal tend to have more onerous employment practices liability (EPL) laws, where liability is often assumed by the employer for mistakes like poorly handled layoffs. This is further compounded by the fact that HR departments at fledgling cannabis companies tend to be small or non-existent and often ill prepared to deal with the legalities that come with termination.
Ensuring the right practices are in place prior to any layoffs is critical. Is your company facing employee terminations? Are you knowledgeable of how to handle it? Consider the following best practices:
Document problematic employees. Create a folder for each employee and document the details when problematic situations escalate to the point they need to be addressed. Should employees of a protected class engage in an EEOC, class action or personal lawsuit after they’re terminated, you’ll need this documentation to support your actions.
Create a formal termination procedure. Make sure the procedure includes well-thought-out details of your review process, including how employee performance is evaluated and what happens when those standards aren’t met. Spell out which behaviors are grounds for dismissal. When talking to the employee about a termination, have another employee or manager in the room to avoid claims of mishandling later on, typically their direct manager, someone from HR or your in-house attorney. Determine how the distribution of final compensation such as medical insurance or PTO will be handled so you’re prepared to answer those questions. These procedures should be spelled out in an employee handbook given to all at onboarding so there are no surprises.
Retain a qualified EPL attorney. Create a relationship with a qualified EPL attorney (not your cousin who does divorce law) to help you set policies and procedures initially and to consult with when a unique or particularly difficult situation arises.
Get the right EPL coverage. An EPL policy will defend a business from claims of breach of employment contraction, negligent evaluation, failure to employ or promote, wrongful termination, deprivation of career opportunity and mismanagement of employee benefits plans. Your EPL coverage will be determined by your location, clientele, employee profile and what you see as your biggest risks. When discussing the policy with your broker, weigh the following considerations to EPL coverage:
Reimbursement coverage versus pay on behalf. Should the policy pay your defense costs directly, or will you lay out the money and they’ll reimburse?
The definition of a claim and wrongful act will be different for each EPL policy.
EPL policy’s limit structure. Do you want defense limits to be outside or inside the coverage?
Having to lay off employees is never an easy choice for an employer. Make sure you and your business do everything right before and during the process so that the aftermath isn’t even more difficult, filled with lawsuits and liability claims.
The spectacular rise and crash of the Canadian cannabis stock market has been painful to watch, let alone to experience as an industry insider. The hype around the market has vanished and many investors are left disappointed. Large sustainable gains simply haven’t materialized as promised. The producers are clearly suffering. They have consistently been shedding value as they’ve been posting losses every quarter. Stock prices have plummeted along with consumer confidence. Attempts to reduce the cash bleeds through mergers, acquisitions, layoffs, restructures, fund raises, among others, have not resulted in any significant recovery. In short, the current model of a cannabis industry has failed.
Dr. Markus Roggen, Founder of Complex Biotech Discovery Ventures (CBDV)
How could it have been different? What should the industry have done differently? What makes the difference between failure and success? A recent article published in Nature (Volume 575) by Yin et al. titled “Quantifying the Dynamics of Failure Across Science, Startups and Security” analyzes the underlying principles of success. The article studies success rates of many groups after numerous attempts across three domains. One of the domains being analyzed are startup companies and their success in raising funds through many attempts at investment acquisition. The authors point out that the most important factor that determines success is not relentless trying but is actually learning after each attempt. Learning allows successful groups to accelerate their failures, making minute adjustments to their strategy with every attempt. Learning behavior is also seen early in the journey. This means that groups will show higher chances of success early on, if they learn from their mistakes.
If you want to succeed, you need to analyze the current state, test the future state, evaluate performance difference and implement the improved state.
This also needs to happen in the cannabis industry. Producers have been utilizing inefficient legacy systems for production. They have shackled themselves to these inefficient methods by becoming GMP-certified too early. Such certifications prevent them from experimenting with different designs that would enhance their process efficiency and product development. This inflexibility prevents them from improving. This means they are setting themselves up for ultimate failure. GMP is not generally wrong, as it ensures product safety and consistency. Although, at this early stage in the cannabis industry, we just don’t yet have the right processes to enshrine.
How can cannabis producers implement the above-mentioned research findings and learn from their current situation? In an ever-changing business environment, it is companies that are nimble, innovative and fast enough to continually refine themselves that end up succeeding. This agility allows them to match their products with the needs of their consumers and market dynamics. booking.com, a travel metasearch engine, is the prime example of this ethos because they carry out thousands of experiments per year. They have embraced failure through rapid experimentation of different offerings to gauge user feedback. Experimentation has allowed booking.com to learn faster than the competition and build a stronger business.
Soheil Nasseri, Business Associate at Complex Biotech Discovery Ventures (CBDV)
At CBDV, we put the need for iterative experimentation, failure and improvements to achieve breakthroughs at the core of our company. We pursue data to guide our decisions, not letting fear of momentary failure detract us from ultimate success. We continuously explore multiple facets of complex problems to come up with creative solutions.
A good example of how failure and rapid innovation guided us to success is our work on decarboxylation. We were confronted by the problem that the decarboxylation step of cannabis oil was inconsistent and unpredictable. Trying different reaction conditions did not yield a clear picture. We realized that the most important obstacle for improvements was the slow analysis by the HPLC. Therefore, we turned our attention to developing a fast analysis platform for decarboxylation. We found this in a desktop mid-IR instrument. With this instrument and our algorithm, we now could instantaneously track decarboxylation. We now hit another roadblock, a significant rate difference in decarboxylation between THCA and CBDA. We needed to understand the theoretical foundation of this effect to effectively optimize this reaction. So, we moved to tackle the problem from a different angle and employed computational chemistry to identify the origin of the rate difference. Understanding the steric effect on rate helped us focus on rapid, iterative experimentation. Now, with everything in place, we can control the decarboxylation at unrivaled speeds and to the highest precision.
If producers want to regain the trust of the market, they must embrace their failures and begin to learn. They should decrease their reliance on inefficient legacy production methods and experiment with new ones to find what is right for them. Experimentation brings new ways of production, innovative products and happier customers, which will result in higher profits. Producers should strive to implement experimentation into their corporate cultures. This can be done in collaboration with research companies like CBDV or through development of inhouse ‘centers of excellence.’
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