Tag Archives: extraction

February 10, 2020

Judge A Book By Its Cover: Why Understanding Information Economics is Critical to Gain Consumer Trust and Build a Sustainable Brand

By Nathan Libbey

Information economics has existed for decades and drives much of how products, including cannabis, are marketed and purchased. One of the essential frameworks that guides information economics are the search, experience, and credence properties of a product (Patterson, 2017). Understanding these different product attributes is key to setting up a sustaining cannabis product, corporation, and industry.

Search

The search attribute of a product is largely what we see prior to the purchase of a product. Images, claims, and packaging may all contribute to the search attribute of a product. You’ve got a good-looking, flower, pre-roll or edible, and it shows well on your insta page. Information is seemingly symmetrical between agency and consumer, what you see is what you get. In the developing cannabis industry, firms are investing a tremendous amount of resources into search attributes.

Experience

What is the effect of the product? There are two aspects of the experience attribute in information economics. Testimonials may be also considered experience attributes, as they give a user knowledge of how a product tastes, how long it takes to kick in, how long it lasts and descriptions of how others perceived the product’s deliverables. Despite testimonial power, experience is largely personal and occurs only after the product is consumed. Information is seemingly symmetrical; you get the experience that the agency planned and you anticipated. Advances in genetics, homogeneous production methods and potency testing demonstrate that the cannabis industry is investing in experience attributes.

A level playing field where transparency is at the forefront of all transactions will help solidify trust and drive sustainable growth. So, your product looks good, tastes good, and has very positive reviews. Customers can’t get enough; they are voting with their wallets for your product. But there is a third part of information economics you may be missing.

Credence

Credence attributes rely on information asymmetry. Think of used cars as a textbook example: sellers of used cars rely on asymmetry to motivate purchases. Highway miles, adult driven, oil changes every 3,000 miles, etc. are claims that can only be verified by the seller, the buyer has no way of knowing if these are true or not. Credence attributes can’t be verified by the seller due to lack of knowledge or expertise (Ford et al, 1988). The same goes for a consumable good like cannabis, only the grower or manufacturer knows what occurred in the “back of the house.” Product safety, therefore, is a credence attribute of cannabis products.

Investing in credence attributes in a young market may seem cost prohibitive. Many in the cannabis industry simply want to follow whatever the state they operate in dictates as the minimum allowable. In hemp we see states that require QR codes on each product that link to a COA, but many do not. Does the cost to produce the COA and QR code make a product more eye-catching or enhance the experiences? No, but those producing it may pay a hefty price if and when the product makes someone sick.

If a firm relies on fragmented, disparate regulatory bodies to dictate their investments in product safety, they will eventually face credence issues. Is smokable flower grown in Texas safer than that grown in Maine? We don’t have data to support either regulation’s effectiveness, so a firm or industry must dictate what the standard is and stick to it.

We need only look at the leafy green industry to see an example of a product that did not break any regulatory guidelines yet continued to sell a good with very negative credence attributes. How long were folks getting sick from leafy greens prior to them identifying the source? No one knows and that is what makes credence attributes so hard to pin down and develop an ROI formula for. Inputs that yield not-sick people aren’t known until someone gets sick. For leafy greens, they had an advantage – years of studies showing that they were good for you. Cannabis, unfortunately, doesn’t have that leg to stand on and faces an uphill battle gaining public trust.

As soccer moms (and dads) across the nation start to work cannabis into their play date wine sessions, the industry must ensure that they are investing in all avenues of information economics. A level playing field where transparency is at the forefront of all transactions will help solidify trust and drive sustainable growth.

References

Patterson, M. (2017). The economics of information. In Antitrust Law in the New Economy (pp. 39-60). Cambridge, Massachusetts; London, England: Harvard University Press. Retrieved February 7, 2020, from www.jstor.org/stable/j.ctvc2rkm6.6

Ford, G., Smith, D., and Swasy, J. (1988), An Empirical Test of the Search, Experience and Credence Attributes Framework, in NA – Advances in Consumer Research Volume 15, eds. Micheal J. Houston, Provo, UT : Association for Consumer Research, Pages: 239-244.

February 6, 2020

Metrc Takes Contract for Maine’s Tracking Software

By Aaron G. Biros

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Maine’s Office of Marijuana Policy (OMP), the government agency in charge of regulating their cannabis industry, announced today a six-year contract for traceability software with Metrc LLC. According to the press release, the software will be used for the newly formed adult use market, which is just a few months away from going live with legal sales.

Maine’s OMP was previously under contract with BioTrackTHC as their software provider before switching to Metrc with this new contract. The software is cloud-based and uses radio-frequency identification (RFID) tags on plants and products to track cultivation and distribution of cannabis products throughout the state. The software is commonly used across the country in states that have legal cannabis markets. It essentially prevents diversion to the black market, allows for a transparent supply chain with clear chain of custody tracking and it increases recall readiness.

Erik Gundersen, Director of Maine’s OMP, says Metrc is helping to make a smooth launch of the adult use market. “We are excited to partner with Metrc,” says Gundersen. “Metrc is an industry leader, and their team is committed to delivering a product that will allow us to proceed with the launch of our adult use program later this spring.”

Over the next few months, Metrc and OMP plan on helping the industry familiarize themselves with the new software. The two organizations will go on the road in March, giving licensees training and answering questions. Metrc will then offer online training and evaluations followed by credentialing licensees showing they are proficient with the software.

Jeff Wells, CEO of Metrc, says they are excited to get to work. “We’re excited to partner with the OMP to help launch the state’s adult-use marijuana market,” says Wells. “2020 is another significant year for cannabis industry growth, and we look forward to serving the OMP, local cannabis businesses, and the people of Maine.”

The agreement is a six-year contract with a value of roughly $540,000. License holders pay a $40 monthly fee to access the system, which helps support training and technical support, according to the press release.

January 29, 2020

Is 2020 the Year of New CBD Markets?

By Marguerite Arnold

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If you were at Davos this year, you heard alot about CBD. The cannabinoid will again be a headliner in business analysis and bottom line reports this year. But as the market matures, globally, what is the real temperature of the industry? And how fast will regional hiccups resolve?

Regulatory Issues Are In The Room

From the US state markets to the EU, hemp is coming into its own, even though almost everyone also refers to it as CBD (cannabidiol).

In the United States, things are even more murky because of a lack of federal reform and the individual rules and regs of existing state markets. To an extent, the market is being “federalized” on the testing front (see ISO for example) and GMP (at the federal pharmaceutical level), producers are beginning to be able to get certified on a global scale. However, the vast majority of the U.S. market is not anywhere close to the regulatory muster now required of even the most-humble commercial hemp farmer anywhere in the EU.

In Europe, the entire cannabis discussion is already far more defined, and as a result, very much likely to set the rulebook globally, especially as so many people want to import here. And this is going to be a bugbear for the next two years. The rules on EU Bio for starters, are still in flux. And where this ties into GMP downstream, those who brave such waters are in for choppy seas for the time being.

Tie this into Novel Food, and this is an area right now that should only be charted by the most experienced navigators, and not just using the stars.

The Battle Is On – Both On The High Seas And The High Streets

For all the desire to bring “whole plant” into the room, (in other words recreational cannabis and medical cannabis with the THC still attached), CBD fever at least has spread in Europe faster than any pending flu epidemic from China.

There are positives and negatives that come with this discussion. Namely, the ever pounding need to commercialize the legal industry and remove all Drug War stigma and barriers from the discussion.

CBD-only legalization is also a powerful answer to those who claim that if CBD is legit, then the police will not chance busting people, no matter how much THC is or is not in the offending substance in question.

These are also the same people frequently who also have a stake in some level of the industry as it legalizes. And this is also where some of the fiercest battles for regulatory control and definition have also begun to happen.

Where they have come to a head (see Italy), it appears that governments are indeed reconsidering the whole “insurance” if not “home grow” discussion. Not to mention, as a result, recreational after that. The conversation in Italy, of all places, right now, is a good indication of this trend. It is a conservative country in every way, yet it is the first to not only cancel a government controlled monopoly license, but also the largest country in Europe to again tinker with limited home grow of cannabis plants.

Ironically this is also the place where the most dedicated “CBD revolutionaries” have also hit. In places like the UK right now, the lack of appetite for EU regulatory control generally (see Brexit) has resonated, particularly with a pro cannabis crowd sick and tired of more delay on a topic whose day in the sun has finally come. If not more government wobbles on discussion on the medical side (see the recent NHS decision to ignore cannabinoids and chronic pain).

In other places like Europe however, and this certainly showed up at Davos, CBD is a hardy foot soldier if not cannaguerilla from the hills that is beginning to chalk up discussions if not yet wide-ranging sovereign victories.

This is absolutely clear to see in places like the African market (and Lesotho is about to become a hot ticket globally if not within the African continent). Indeed, the first seeds were sown several years ago).

Yes, it is ridiculous that CBD is being banned. And it is also obvious that governments are unwilling to be bankrupted over medical cannabis of any kind or THC concentration, and know they must also seek other ways to deal with the issue.

CBD, in other words, is a kind of Che Guevara that is going to take down a few of the established orders in this revolution that is now global. And for that very reason, taking on a character if not place at the table all of its own.

January 27, 2020

Top 5 Trends for Cannabis in 2020

By Melissa Kuipers Blake

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To ask this author to identify the top five trends in 2020 for cannabis is akin to asking her to name only five of her favorite Coldplay songs. With so much energy for both topics, a selection of the absolute most favored components of either passion presents quite a challenge. But like the cannabis industry has done for 20 years under its state-legal regime and entirely illegal federal one, this author will endure under the confines of such limitations.

Consolidation

In any new industry this is bound to happen. Particularly one with such massive government oversight and equally massive consumer demand. Original license holders are cashing out. And they should. They were the risk-takers. The originals. They raced to government buildings across the country with boxes of background checks accompanied by teams of forensic accountants, lawyers and lobbyists to walk down a path only recently paved with legalization to seek a license to directly violate federal law. They drew a line in the sand and said, “I’m in.” And the stars have aligned for them to move on in many states due to changes in ownership structures, particularly ones that now provide for out-of-state interests. They deserve to sell that to the next highest bidder for all of the pressure, investment, stress and risk that permeates the foundation of this industry. With state law changes have come multistate operators, many of whom do not necessarily understand cannabis and have probably never used it, but they know an opportunity when they see it. These companies are buying up licenses across the country and creating brand awareness among consumers with an eye toward changes in federal law that would allow for the transportation of cannabis across state lines. Once that happens, the cannabis industry will be treated like every other American producer with massive distribution centers across the country that will mimic the likes of alcohol and tobacco overnight.

Infused Products

The report further found that the edibles category could be worth more than $4.1 billion in Canada and the United States by 2022.No one wants to go to work and smell like cannabis, unless, of course, you work in a grow facility. And even then, maybe you don’t. And employers aren’t exactly excited when employees are present with the distinct aroma when it’s time to clock in. So, what’s a cannabis consumer to do? Eat or drink the product instead. In a world full of energy drinks, dietary supplements, bubbly water infused with fruit (which still doesn’t taste like anything, let’s be honest), it should surprise no one that cannabis is making its debut in a myriad of consumption applications. While most states prevent the mixing of cannabis-infused beverages and alcohol for sale by retailers (consumers can—and do—mix the products on their own), there are no limits on other targets for cannabis products. Most popular: food and drinks.

ArcView Research and BDS Analytics recently identified that consumer spending on cannabis-based food and drink reached an estimated $1 billion in 2017 in the United States and Canada, representing about 11.4% of the total $9.1 billion in consumer spending on consumable cannabis in those two markets. The report further found that the edibles category could be worth more than $4.1 billion in Canada and the United States by 2022.

There are countless food products and infused beverages on the market in America and anticipated this year, which dovetails perfectly with the American predilection for happy hours, brunch, and after-work drinks; minus the hangover, some might suggest. Any cannabis company owner will tell you the future is infused products, whether consumers are buying the oil themselves to infuse at home or asking a company to infuse something for them. The future of cannabis is, indeed, on a menu.

Movement in Washington, D.C.

When the SAFE Banking Act passed off the House floor with 324 yes votes, 91 of which were from Republicans, a collective cheer and wave akin to an invigorated football stadium engulfed the industry. A huge moment. One long-awaited and most needed. Momentum. Movement. Finally, a sigh of relief. One would be naïve to assume such a success in the House will be mirrored in the Senate. It will not. But that sort of statement from one chamber is a message to the other: this issue is not going away. It matters. It’s bipartisan. And employees/owners in the cannabis industry need relief from the heavy hand of the federal government when they go to work every day in full compliance with state law. With every passing day, lawmakers on both sides of the aisle are being educated by the cannabis industry about how to responsibly regulate the products and what true regulation looks like. It’s only a matter of time until these state-level practices are adopted by federal policymakers. Because let’s be honest, elections matter. And 33 states have said yes to cannabis. It’s only a matter of time until the members of Congress from those states take up the issue in a real way. And many already have.

State Legalization

In the last 10 years, 20 states legalized cannabis for medical purposes and 13 legalized it for adult use. Several national polls suggest this trend will only continue in 2020. And unlike the polling in most recent national elections, the predilections on cannabis seem to be accurate. In 2020, adult-use cannabis measures will definitely appear on the New Jersey and South Dakota ballots. Adult-use measures could also appear in Arizona, Arkansas, Missouri, Montana, New Jersey, North Dakota and Oklahoma. Idaho, Mississippi, Nebraska and South Dakota are likely to vote on medical cannabis as well.

Of note, the South Dakota measure would also legalize hemp, which has yet to get the blessing of the Mount Rushmore state. In Mississippi, voters will likely be asked their opinions on legalizing medical cannabis. This is interesting since the University of Mississippi has had the only DEA license to grow their own cannabis for research purposes since 1968, but the rest of the state has been squarely in prohibition with zero allowances for cultivation or possession.

The future is bright for the cannabis industry and its players. For a final ounce of perspective on state legalization, only three states have no legal cannabis of any kind: Idaho, Nebraska and South Dakota. And if Idaho and South Dakota’s polling is any indication, they won’t be on this short list for much longer.

Maturation

Once upon a time, drug dealers applied for legitimate cannabis licenses. They were denied. And some tried to dodge the regulated marked to continue selling on street corners and out of back doors. Some still do. But now we have a cannabis industry with true regulation and what this author likes to call “adult supervision in the room” on the cannabis conversation and those leading it. A week doesn’t go by without a Wall Street investor or Silicon Valley tycoon asking for advice on where to invest in the cannabis industry. Huge retailers are calling to ask if they can sell it. Alcohol and tobacco interests are hugely, well, interested. And the industry is being led by the likes of former baby car seat manufacturers, former food and beverage lobbyists, young entrepreneurs, and tech geniuses. Now that these individuals are invested and committed, they will continue to professionalize the industry by leading on public-facing initiatives teaching consumers how to use cannabis responsibility, how to determine a much-needed standard for impairment, and to overall improve the reputation of a product once fully illegal, and now partially legal, and soon on its way to fully legal.

The future is bright for the cannabis industry and its players. Only daylight ahead and the billows of bureaucratic smoke are parting hopefully—eventually—with regard to the incongruity between state and federal law on the issue. That’s a lot of ink to say that the next few years will be monumental for the cannabis industry. And if you’re a Coldplay fan, you just caught the reference to my favorite song from the legendary Brit ensemble.

January 23, 2020

Constellation Has A Moment Of Reflection But Not Sour Grapes Over Canopy Investment

By Marguerite Arnold

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Constellation Brands, the beer brewer behind Corona and Modelo, has finally admitted the obvious. Its four-billion-dollar bet on the Canadian cannabis company Canopy Growth in 2018 was a long-term play for market share, not immediate profitability. Indeed, Canopy has yet to turn a profit and its shares are down 30% from this time last year. So far Constellation has lost $71.1 million of its investment in the cannabis industry company leader. That is 19.25% of its total investment in 18 months. In other words, hardly insignificant.

That said, Canopy is not, by any stretch of the imagination, “down for the count.” If their overexpansion plans and statements over the last three years have been, at best, optimistic, they have not done anything broadly different than any of their other major competitors (see Aurora for example). And have still emerged, financial bloodbath although it has been so far, four years after entering the European market at least, with global presence that is not going anywhere. Even if in some markets overall sales are lower than hoped or anticipated.

At least two quarters of real reorganization and reshuffling in every office on every continent the country does business in have at least resulted in a major victory in Luxembourg at least that will bear fruit for years to come. That is a strategic victory worth a few dings along the way.

Starting, almost certainly, in 2021, when changing laws in Europe will also allow the company to bring together its background and reach in the spirits industry to a world that is finally opening to the blending of the cannabis world into the same.

This year, in other words, will almost certainly see the company continue to service its existing steady business in multiple countries – however unfancy that may be. And it is decidedly not glam here. In places like Germany the company is essentially only holding onto market share in the medical market by its purchase of the largest dronabinol maker in the country.

That said, beggars cannot be choosers. Aurora in contrast, is looking at a serious review of its cultivation licenses and practices. In the meantime, Canopy snagged a lucrative contract for a strategic, central country in the European debate – Luxembourg – that no matter how small, that will create at least a trickle of medical sales until the country changes its laws.

One of the things that the Canadian cannabis industry has in spades, and this is absolutely true of Canopy, is accurate business acumen about market entry timing and overall strategy.

No matter how much cannabis industry execs, in other words, have only been positive and upbeat before, this statement by Constellation also signals a change in the way Canopy presents itself externally.

Mistakes have been made. It is time to clean house and move on.

What other new industry in the lifetimes of those alive today, continues to admit its mistakes and pivots less than a decade after its global birth in continual pivot and expansion mode? The only other one that comes close is of course the internet. And these days, more specifically, Internet 2.0.

So, as the world says hello to 2020, Canopy seems to be sending its new year message. Trimming the sails after a wild, wild year, and setting course again, for a greener horizon.

January 20, 2020

How Cannabis Businesses Can Prepare for Tax Season

By Melissa Diaz

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A Little About 280E

The 280E statute bans businesses from deducting business expenses for gross income associated with the trafficking of Schedule I or II substances. While other businesses can deduct any number of expenses when filing their taxes — employee salaries, rent, equipment, electricity, etc. — 280E limits cannabis companies to only expensing deductions directly related to earning a profit, or the cost of goods sold (COGs).

For example, a dispensary whose square footage is split between 60% sales floor and 40% lobby may only deduct 60% of rent expenses because that’s the portion dedicated to COGs. Transactions do not occur in the lobby, so that portion of the rent is not deductible.

So long as cannabis remains a Schedule I substance, companies that produce, sell and otherwise touch the plant in their operations must comply with 280E.

Tips for Tax Success

While taxes can be complex and stressful for cannabis businesses, it is possible to limit the headaches. With tax season right around the corner, here are a handful of tips to ensure a successful filing.

Close Out Your Books. Before tax preparation can even start, cannabis businesses want to make sure to close out their financials for the previous year. It may sound like a no-brainer, but with the extra scrutiny facing companies in the industry and the nuances of 280E, it’s extremely important to have fully reconciled and closed-out books to work from when preparing taxes. Incomplete books can cause delays and add unnecessary extra stressors to the process that could result in penalties or additional liabilities.
Consult a Cannabis Tax Professional. Once books are ready to go, it’s time to consult a tax professional who has experience in the cannabis industry. A cannabis-focused tax pro will be familiar with the intricacies of 280E and and will be able to identify relevant business expenses to ensure compliance and limit liabilities. In addition to 280E issues, a competent accountant will also be able to highlight any other tax code changes that may impact a business. Every business is different — even in the cannabis industry — and since the tax code is large, complex and prone to new rules and interpretations, it’s important to have a strong accountant guiding the way.
Justify Your Numbers. After consulting with a tax professional and identifying relevant business expenses, it’s time to back up the numbers. This is where strong record-keeping comes into play. Ongoing regulatory hurdles limit cannabis firms’ ability to participate in the financial system where, generally, record creation is inherent with each transaction. But in a cash-heavy industry like cannabis, record creation and retention fall on the businesses themselves. This is because cash transactions don’t come with any built-in records. That inherent lack of documentation is yet another potential pitfall for cannabis businesses and taxes since large amounts of cash often raise eyebrows at the IRS. It is up to businesses to provide adequate proof of their tax numbers. Since the IRS will put zero effort into investigating the accuracy of your numbers, it will likely assume the worst when reviewing your filing.

Preparation is King

Taxes can be stressful. But they don’t have to be. Navigating tax season as a cannabis business is all about preparation. By putting in the work and partnering with an experienced tax professional, cannabis operators will be able to avoid penalties, limit their audit risk and stay on track with their business goals.

January 9, 2020

The Power of Prevention: Pathogen Monitoring in Cannabis Cultivation and Processing Facilities

By Nathan Libbey

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As the cannabis market matures and the value chain becomes modernized, it’s important to address product safety in a comprehensive way. In other areas of manufacturing, Hazard Analysis & Critical Control Points (HACCP) has been the standard for reducing hazards both for employees and for the products themselves. A Critical Control Point (CCP) is any spot from conception to consumption where a loss of control can potentially result in risk (Unnevehr, 1996). In the food realm, HACCP has been used to drive quality enhancements since the 1980s (Cichy, 1982).

In a nutshell, HACCP seeks to help identify where a problem may enter a product or environment and how that problem may be addressed before it escalates. In cannabis, these hazards include many of the same problems that food products have: specifically molds, yeasts, and pathogenic bacteria (Listeria, E. coli, etc.). While the current industry standard is to test products at the end stage for these contaminants, this late-stage pass/fail regimen leads to huge lots of destroyed product and a risk for consumer distrust (Yamashiro, 2019). HACCP, therefore, should be applied at every stage of the production process.

Pathogen Environmental Monitoring (PEM) is a tool that can be used to identify CCPs in a cannabis cultivation or processing facility. The main goal of a PEM program is to find a contaminant before it reaches a surface that touches the product or the product itself. PEM is conducted using a pre-moistened swab or a sponge to collect a sample from the cannabis environment. The swab can then be sent to a lab for microbial testing. Keys to an effective PEM are:

1. Start with a broad stroke – When the FDA comes to a facility suspected of producing pathogen-laced food products, they conduct what is known as a Swab-a-thon. A Swab-a-thon is a top to bottom collection of samples, usually totaling 100 or more. Similarly, preemptively swabbing should be the first step in any PEM—swab everything to see what exists as a baseline.

2. Map your scene – identify on a map of your facility the following:

Cannabis contact surfaces (CCS) (belts, clippers, tables, etc)
Non-cannabis contact surfaces (Non-CCS) (floors, lighting, drains, etc)
Flow of air and people (where do air and people enter and where do they go?

Identifying the above zones will help deepen your understanding of where contaminants may come into contact with cannabis and how they may migrate from a Non-CCS to a CCS.

3. Plan and execute:

Based on the results of mapping, and Swab-a-thon, identify where and when you will be collecting samples on a consistent and repeatable basis. Emphasis should be placed on areas that are deemed a risk based on 1) and 2). Samples should be collected at random in all zones to ensure comprehensive screening.

4. Remediate and modify:

If you get a positive result during PEM, don’t panic—pathogens are ubiquitous.
Remediate any trouble spots with deep cleaning, remediation devices or other protocols.
Re-test areas that were positive for pathogens to ensure remediation is successful.
Revisit and modify the plan at least once a year and each time a new piece of equipment is added or production flow is otherwise changed.

The steps above are a good starting point for a grower or processor to begin a PEM. Remember that this is not a one-size-fits-all approach to safety; each facility has its own unique set of hazards and control points.

Comprehensive guides for PEM can be found at the links below, many of the concepts can be applied to cannabis production.

https://affifoodsafety.org/lcp/advanced-search/

http://www.centerforproducesafety.org/amass/documents/document/263/Listeria%20Guidance%20UFPA%202013.pdf

Cichy, R. (1982). HACCP as a quality assurance tool in a commissary food-service system. International Journal of Hospitality Management, 1(2), 103-106.

Unnevehr, L., & Jensen, H. (1996). HACCP as a Regulatory Innovation to Improve Food Safety in the Meat Industry. American Journal of Agricultural Economics, 78(3), 764-769.

Yamashiro, C, & Baca, Y. (2019). Prevent high-value cannabis crop loss with innovative environmental monitoring tool.

January 9, 2020

The Ultimate Guide to Intellectual Property Protection for Cannabis Businesses

By Roger Bora

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As of this writing, one cannot register trademarks with the U.S. Patent and Trademark Office (USPTO) for cannabis products and services that “touch” the cannabis plant (i.e., cultivate, manufacture or dispense cannabis products), with the recent exception for certain hemp-based products and services, because use of trademarks must be lawful under federal law for federal trademark registration eligibility. Brand owners may, however, secure federal trademark registration protection for their brand names for certain cannabis-related products and services that are currently legal under federal law in advance of what could be the full legalization of cannabis at the state and federal levels.

Federal trademark registration provides brand owners with valuable benefits beyond common law (unregistered) and state registered trademark rights, including the preservation of national expansion rights and presumption of trademark ownership and validity. For those reasons, securing federal trademark registration protection for trademarks is a prudent business strategy.

This article summarizes certain laws and regulations for securing federal trademark registration protection for cannabis products (including cannabidiol (CBD) products) and services. It also identifies other forms of intellectual property protection for cannabis businesses.

What Are Cannabis, Marijuana, Hemp and CBD?

Cannabis is a plant of the Cannabaceae family and contains many biologically active chemical compounds, including the well-known delta-9-tetrahydrocannabinol (THC) and cannabidiol (CBD) compounds.
Parts of the Cannabis sativa plant are controlled under the Controlled Substances Act (CSA) under the drug class “marijuana.” The CSA is a federal law that regulates drug policy for the manufacture, importation, possession, use and distribution of certain substances. Marijuana is currently listed as an illegal Schedule I drug under the CSA, along with cocaine and heroin, due to its high potential for abuse, which is attributable mainly to the psychoactive effects of THC and the absence of a currently accepted medical use in the United States.
Marijuana, a term the CSA uses, is the dried leaves of the cannabis plant. It is derived from the cannabis sativa and cannabis indica species and is used primarily as a psychoactive drug.
Hemp is derived only from the cannabis sativa species and has historically been grown primarily for its strong fibers used for industrial purposes, including for making fabrics, clothing and rope.
There is a significant difference between marijuana and hemp with respect to their concentration of THC, which gives the plant its psychoactive effect. While marijuana can reach THC levels of 30%, THC levels in hemp are typically 0.3% or less.
The low level of THC in hemp is a reason why federal authorities recently removed it from the legal definition of marijuana, which means that cannabis plants and derivatives such as CBD derived from hemp that contain 0.3% or less of THC on a dry-weight basis are no longer considered controlled substances under the CSA.
Cannabidiol (CBD) is an active ingredient in the cannabis plant and is derived primarily from the hemp plant. CBD has been touted for its many health benefits, including for the treatment of insomnia, pain and anxiety, and it has become a widely used ingredient in many types of products, including foods, cosmetics, building materials, industrial oils, plastics and textiles.

Relevant Laws and Regulations

Controlled Substances Act (CSA)

Under the CSA, the drug class marijuana is defined as “all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin” (subject to certain exceptions). 21 U.S.C. §802(16).

The CSA prohibits, among other things, manufacturing, distributing, dispensing or possessing cannabis that meets the definition of marijuana, including CBD derived from marijuana.

2018 Farm Bill Removes Hemp from the Definition of Marijuana

The 2018 Farm Bill signed into law on December 20, 2018, amended the Agricultural Marketing Act of 1946 and changed certain federal laws and regulations concerning the production and marketing of “hemp,” defined as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol [THC] concentration of not more than 0.3 percent on a dry weight basis.”

Those changes included removing hemp from the CSA’s definition of marijuana, which means that hemp and its derivatives, such as CBD derived from hemp, that contain no more than 0.3% THC on a dry-weight basis, are no longer controlled substances under the CSA.
The recent change in the classification of hemp allows brand owners that legally manufacture and sell certain hemp-based products, including certain hemp-derived CBD products, to federally register their associated trademarks.
However, the 2018 Farm Bill explicitly preserved FDA’s authority to regulate certain products containing cannabis or cannabis-derived compounds, even if derived from hemp, including CBD derived from hemp. Thus, federal laws, including FDA regulations, must still be considered for product legality before introducing products into commerce.

Food and Drug Administration (FDA)

Even with the removal of hemp from the CSA’s definition of marijuana, not all hemp-derived products are lawful following passage of the 2018 Farm Bill because certain products may still violate the Federal Food, Drug, and Cosmetic Act. For example, certain hemp-derived CBD products, including human foods, beverages, dietary supplements and animal foods, still violate FDA laws absent FDA approval.

The FDA monitors and investigates the sale of products that violate FDA laws, including CBD products promoted for therapeutic uses and treating diseases. When the FDA detects such violations, it may send warning letters to the violating parties as a first step in the enforcement process.

On December 20, 2018, the then FDA Commissioner Scott Gottlieb, M.D. made the following statement on that point:

“We’ll take enforcement action needed to protect public health against companies illegally selling cannabis and cannabis-derived products that can put consumers at risk and are being marketed in violation of the FDA’s authorities. The FDA has sent warning letters in the past to companies illegally selling CBD products that claimed to prevent, diagnose, treat, or cure serious diseases, such as cancer. Some of these products were in further violation of the FD&C Act because they were marketed as dietary supplements or because they involved the addition of CBD to food.”

Furthermore, in a recent letter to a company selling CBD products, the FTC sent a joint letter with the FDA, and that letter included the following statements and warnings:

“The FTC strongly urges you to review all claims for your products and ensure that those claims are supported by competent and reliable scientific evidence. Violations of the FTC Act may result in legal action seeking a Federal District Court injunction or Administrative Cease and Desist Order. An order also may require that you pay back money to consumers.

You should take prompt action to correct the violations cited in this letter. Failure to promptly correct violations may result in legal action without further notice, including, without limitation, seizure and/or injunction.”

What about using hulled hemp seed, hemp seed protein powder and hemp seed oil in human food?

In December 2018, the FDA generally recognized as safe (GRAS) hulled hemp seed, hemp seed protein powder and hemp seed oil. Accordingly, the FDA’s current position suggests that those products may legally be marketed in human foods for the uses described in the notices, provided they comply with all other requirements. To date, the FDA has not received any GRAS notices for the use of hemp-derived ingredients in animal food.
Hemp seeds are the seeds of the Cannabis sativa plant. They do not naturally contain THC or CBD. The hemp seed-derived ingredients that are the subjects of the GRAS notices contain only trace amounts of CBD and THC. The FDA has reported that “[c]onsumption of these hemp seed-derived ingredients is not capable of making consumers ‘high.’”
Those GRAS conclusions do not affect the FDA’s position on the addition of CBD and THC to food.

U.S. Trademark Registration Eligibility

Trademarks Must Be Used for Lawful Activities

A trademark’s use must be lawful under federal law for federal trademark registration eligibility. Whether activities associated with cannabis and/or cannabis-related goods or services are lawful under federal law requires review of various federal laws, including the Federal Food, Drug, and Cosmetic Act.

Federal law controls federal trademark registration eligibility, period.

If a trademark application is filed for goods or services that violate federal laws, including for marijuana products and/or services or certain products that feature CBD, such as foods and nutritional supplements, the USPTO Examiner should refuse the application. Furthermore, filing an “intent-to-use” trademark application cannot obviate that refusal.

What does that mean? It means that filing a trademark application based on an “intent to use” the trademark “in the future” in anticipation of federal law legalizing cannabis still violates current law (the law as of the application filing date), and thus the application should be rejected because the applicant does not and cannot have a “bona fide intent” to use the applied-for mark for a legal purpose.

The USPTO Examination Guide 1-19 for examining cannabis marks states that:

“[r]egistration of marks for foods, beverages, dietary supplements, or pet treats containing CBD will still be refused as unlawful under the FDCA, even if derived from hemp, as such goods may not be introduced lawfully into interstate commerce.”

The following is an excerpt from an issued Trademark Office action refusing registration of a mark on the basis the listed cannabis goods are unlawful:

“Registration is refused because applicant does not have a bona fide intent to lawfully use the applied-for mark in commerce.

To qualify for federal trademark/service mark registration, the use of a mark in commerce must be lawful. Gray v. Daffy Dan’s Bargaintown, 823 F.2d 522, 526, 3 USPQ2d 1306, 1308 (Fed. Cir. 1987) (stating that “[a] valid application cannot be filed at all for registration of a mark without ‘lawful use in commerce’”); TMEP §907; see In re Stellar Int’l, Inc., 159 USPQ 48, 50-51 (TTAB 1968); Coahoma Chemical Co., Inc. v. Smith, 113 USPQ 413 (Com’r Pat. & Trademarks 1957) (concluding that “use of a mark in connection with unlawful shipments in interstate commerce is not use of a mark in commerce which the [Office] may recognize.”). Thus, the goods and/or services to which the mark is applied must comply with all applicable federal laws. See In re Brown, 119 USPQ2d 1350, 1351 (TTAB 2016) (citing In re Midwest Tennis & Track Co., 29 USPQ2d 1386, 1386 n.2 (TTAB 1993) (noting that “[i]t is settled that the Trademark Act’s requirement of ‘use in commerce,’ means a ‘lawful use in commerce’”)); In re Pepcom Indus., Inc., 192 USPQ 400, 401 (TTAB 1976); TMEP §907.

Here, the items or activities to which the proposed mark will be applied are unlawful under the federal Controlled Substances Act (CSA), 21 U.S.C. §§801-971.”

USPTO Guidelines for Marijuana and Hemp Products: Key Takeaways

Trademark registrations for marijuana and marijuana by-products, including CBD derived from marijuana, are still unavailable.
Trademark registrations for certain hemp products are available. If an applicant’s goods are derived from hemp, as defined in the 2018 Farm Bill, the identification of goods must specify that they are derived from hemp and that the products contain less than 0.3% THC. Thus, the scope of the resulting registration will be limited to goods compliant with federal law.
Trademark applications covering certain CBD infused products, including foods, beverages, dietary supplements and pet foods, are still refused, even if derived from hemp, because such goods may not be introduced lawfully into commerce without FDA approval.
The USPTO is currently approving trademarks for skin care preparations and cosmetics that feature hemp ingredients, including CBD derived from hemp, as long as the application complies with the 2018 Farm Bill and USPTO filing requirements.
If a pending application’s filing date is prior to December 20, 2018 (the effective date of the 2018 Farm Bill), the applicant must amend the filing date to a date later than December 20, 2018 before the application may proceed. Once the date has been amended, a new search is conducted for any prior pending confusingly similar marks.
Trademark applications for hemp cultivation and production, if allowed, will require proof of authorization and licensure in accordance with a plan approved by the U.S. Department of Agriculture.

Federal Trademark Registration Considerations and Options

Although marijuana products and services (i.e., products and services that “touch the plant”) and certain hemp-based products are currently illegal under federal law, making their associated marks ineligible for federal trademark registration protection, there are still certain cannabis-related activities that are legal and thus eligible for federal trademark registration.

Examples of legal activities include:

Providing informational services related to cannabis or marijuana-related goods and services.
Clothing, including t-shirts and hats, featuring a cannabis-related trademark.
Educational programs in the fields of cannabis and CBD, including for health benefits and therapeutic uses of medical cannabis and CBD.
Providing an internet news portal featuring links to current events, information, commentary, non-downloadable publications in the nature of brochures, articles, and non-downloadable multimedia files containing video, audio or text in the fields of cannabis or cannabis news.
Online journals, namely blogs featuring information about cannabis.
Entertainment services, namely, providing podcasts featuring medical and industry experts in the field of cannabis and medical marijuana.

If a brand owner secures federal trademark registration protection for marks for legal activities, including those listed above, those trademark registrations and rights may arguably preserve future product and service expansion under the same registered mark for “related” goods and/or services that are unlawful as of the trademark application filing date, but later become lawful, including CBD infused foods and nutritional supplements and marijuana itself.

Why? Because trademark law protects consumers from “source confusion.”

For example, if a brand owner adopts the trademark N-DuraRun for running shoes, another party may not adopt the same or confusingly similar mark for running pants because consumers would likely be confused as to the source of running shoes and running pants if offered under the same trademark by different parties.
- It is not confusion as to what a consumer is buying (“I thought I was buying running shoes… instead I mistakenly purchased running pants…”). Rather, it is confusion as to the source of the products (“I purchased EnDuraRun brand running pants because I thought they were made by the same company that makes N-DuraRun brand running shoes!”).
- A question to ask is “Would the average consumer reasonably believe that the parties’ respective goods are of the type that would originate from the same source?”
  - If the answer is “yes” and if the parties’ respective marks are confusingly similar, there may be a likelihood of consumer confusion as to the source of the parties’ respective goods.

For example, if a company provides informational services in the field of cannabis and cannabis derivatives, including CBD infused foods, and/or provides foods and nutritional supplements featuring hemp seed protein powder and hemp seed oil, and it secures federal trademark registration protection for its trademark for those goods and/or services, that existing federal trademark registration and rights may arguably preserve the brand owner’s right to use and register the same mark for “related” goods and services, which could include CBD-infused foods and nutritional supplements if/when those goods become legal. That is so because the average consumer would arguably believe that informational services about CBD infused foods and CBD infused foods themselves would originate from the same source and also believe that foods and nutritional supplements featuring hemp seed protein powder and hemp seed oil and foods and nutritional supplements featuring hemp-derived CBD would originate from the same source.

Source confusion is the crux of trademark law.

Therefore, securing federal trademark registration protection now for goods and services that are lawful can preserve future trademark rights for cannabis-related products and services that are currently unlawful and may avoid losing valuable trademark rights to third parties.

As companies prepare for the potential federal legalization of all forms of cannabis, securing federal trademark registration now for brand names for goods and services that are currently legal is vital for protecting valuable company assets, current and future business opportunities, and future growth, and it is possible as long as brand owners understand the current status of the regulatory landscape and the intricacies of trademark law.

Other Forms of Intellectual Property Protection

In addition to trademark and federal trademark registration protection, there are other intellectual property protections available for marijuana, hemp and cannabis businesses, including:

State trademark filings. In states that have legalized cannabis, state trademark registrations may be available.
Common law trademark rights. In states that have legalized cannabis, common law trademark rights may be available.
Patent protection. Patent protection may be secured for various inventions, including plants, such as new strains of the cannabis plant, and methods of cannabis hydration and lighting.
Trade secrets. Trade secrets can protect certain aspects of a business, including formulas, processes or methods, that are not generally known or reasonably ascertainable by others and that can help a business obtain an economic advantage over competitors or customers. To be eligible as trade secrets, however, a business owner must take the necessary steps to legally protect them or they will be lost.
Copyrights. Copyright protection may be secured for certain company creative works, including trademark logos (artwork), written materials, photographs and software.

As the laws governing the cannabis industry continue to evolve, including trademark, FDA and banking laws and regulations, all interested parties, including cannabis business owners, law firms and investors, must stay abreast of the rapidly changing legal landscape to maximize business growth opportunities, ensure proper legal and regulatory compliance, and avoid having their businesses go up in smoke.

Notice: This article is for educational purposes only, is not legal advice and should not be substituted for retaining an attorney.

January 8, 2020

Canadian Cannabis 2.0: Going Beyond GPP

By Lindsay Glass

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One year after Canadian recreational cannabis’s historic date of October 17th, 2018, in comes Cannabis 2.0, which will see edibles containing cannabis and cannabis concentrates enter the legal recreational market. As of October 17th, 2019, there are seven classes of legal cannabis products in the marketplace, making Canada an innovative leader in this evolving industry.

The launch of cannabis edibles and concentrates into the legal market has also led to changes in the regulatory framework and the introduction of new best practices in terms of Good Production Practices (GPP). This should not come as a surprise, as these products are introducing the inclusion of cannabis and food products.

Since Oct 17th, 2019, we have seen a significant amendment to the Cannabis Regulations through the addition of sections 88.93 and 88.94, stating that holders of a license to process cannabis edibles or extracts must identify and analyze all potential hazards and have control measures in place to prevent, eliminate or reduce these hazards from occurring. Any license holder that conducts activities related to cannabis edibles, extracts or produces an ingredient used in an edible or extract must also prepare, retain, maintain and implement a preventive control plan (PCP). To indicate that cannabis edibles and extracts regulations resemble other regulated food commodities, would not be an understatement.

By having license holders establish food safety practices similar to the ones being used by federally regulated food commodities, it is allowing cannabis producers to implement a preventive approach by focusing on safety and reducing hazards in their operation.

According to the Cannabis Regulations a license holder’s PCP must include the following:

Identify all of the biological, chemical and physical hazards that could contaminate or could be at risk of contaminating any cannabis product or anything that could be used as an ingredient in producing a cannabis product. Once all of the hazards have been identified, you need to determine the likelihood of that hazard occurring
The measures to be taken to control each identified hazard. Each control measure must then describe the task involved, how the monitoring task is carried out, who will be performing the monitoring task and how often the monitoring task is carried out
A description of the critical control points, which are the steps in the process where a control measure is applied and is essential to eliminating a hazard. Next are the measures to be taken to monitor a critical control point
A description of each cannabis product produced or ingredient that will be used in a cannabis product, including extract contents, permitted & prohibited ingredients, exceptions, naturally occurring substances and uniform distribution
A description of corrective action procedures for every critical control point
A description of verification procedures

What else comes with the collaboration of these two commodities in a regulatory environment? The need for industry to adapt and move beyond the basic GPP and pharmaceutical requirements and start thinking in terms of preventative controls and food safety. By encompassing the GPP requirements, traceability, employee training and now a complete hazard analysis and preventive control plan, you have the makings of a full food safety plan. However, food safety plans can be comprehensive and difficult to manage by utilizing a manual system.

Companies that are serious about the integration of cannabis edibles and extracts into their operations, will need to implement compliance and traceability technology that will facilitate an automated system. In return, you will streamline all monitoring processes throughout the production, packaging and storage stages of the system. This is crucial to a preventive control plan. An automated solution will also help with record keeping, document management and corrective actions, as license holders deal with failures in real time to avoid negative impacts on their products.

There are many compliance software platforms available in the industry and choosing the right one for your operation is a task in itself, as not all software platforms for the cannabis industry are created equally. Although many seed-to-sale platforms handle regulatory requirements and some document management, these platforms do not see cannabis as food products, and therefore, are leaving companies with a void in this aspect of their operation. When looking for a software platform that will encompass all of your regulatory needs, pay particular attention to systems that are designed for the food industry but have adapted to cannabis. These systems will be the most dynamic when it comes to implementing preventive control plans, handling in-depth traceability with recall plans and the ability to become completely digital.

For more information on how to automate your food safety plan for cannabis edibles and extracts, please contact Iron Apple QMS to learn about our online Cannabis QMS.

December 30, 2019

How to Grow Cannabis Plants for Concentrate Production

By Andrew Myers

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While flower is still the most popular way to consume cannabis, the concentrates market is booming. Some predict concentrates will be nearly as popular as flower by 2022, with an estimated $8.5 billion in retail sales. That’s a lot of concentrates and, chances are, cannabis producers are already feeling the pressure to keep up.

Concentrates refer to products made from processing cannabis – often resulting in much higher THC or CBD percentages. The category includes oils, wax, dabs, shatter, live resin and hash. Consumers are increasingly drawn to these cannabis products for their near-immediate and intense effects. They’re often consumed through vaporization, dabbing or sublingual absorption and are sometimes favored by those who want to avoid smoking. Cannabis growers who have traditionally focused on flower yields may decide to prioritize quality and potency levels in order to tap into these changing consumer tastes.

What Growers Should Focus on to Produce High Quality Concentrates
We’ll let you in on a little secret: making good concentrates starts with good flower. If you’re starting with low-quality flower, it’s impossible to create a high-quality concentrate. Whatever qualities inherent to the flower you’re starting with will be amplified post-processing. So, really, the concentrate-making process starts at the seedling level, requiring the right care and attention to coax out the results you’re looking for.

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

But what makes good flower? While this can be a subjective question, those producing concentrates generally look for flowers with big, abundant trichomes. Trichomes are the small, dewy structures found across the cannabis plant on buds, leaves and even the stem. They’re responsible for producing the plant’s cannabinoids and terpenes – the chemical compounds that give a strain its unique benefits, aroma and taste. Evolutionarily, trichomes attract pollinators, deter hungry herbivores and provide some defense against wind, cold and UV radiation.

Generally, trichomes indicate how potent the flower is. Plus, what we’re most often looking for when making concentrates is higher cannabinoid and terpene profiles, while also ensuring absolute safety.

What measures can growers take to produce crops that are ideal for concentrate production? Start with the following:

Avoiding Contaminants
Just like you would wash your fruits and vegetables before consumption, consumers want to be sure there’s no dangerous residuals in the concentrate they are ingesting. Growers can avoid any post-process residuals by taking a few key steps, including:

Photo: Michelle Tribe, Flickr

Cutting out the pesticides. Any pesticides that are on your flowers before they go through processing will show up in your concentrates, often even more – you guessed it – concentrated. This is a serious health concern for consumers who might be sensitive to certain chemicals or have compromised immune systems. It’s dangerous to healthy consumers, too. Rather than spraying hazardous chemicals, growers could consider integrated pest management techniques, such as releasing predatory insects.
Limiting foliar spraying. Some growers will use foliar spraying to address nutrient deficiency or pest-related issues through delivering nutrients straight to the leaves. However, this can also result in contaminated concentrates. If you really need to spray, do it during the vegetative stage or investigate organic options.
Taking the time to flush the crop. This is a critical step in reducing potential contaminants in your concentrate, especially if you’re using a non-organic nutrient solution or fertilizer. Flushing simply means only giving your plants water during the final two weeks of flowering before harvest, resulting in a cleaner, non-contaminated flower and therefore a cleaner concentrate.

Perfecting the Indoor Environment
When cultivating cannabis indoors, growers are given ultimate control over their crop. They control how much light the plants receive, the lighting schedule, temperature and humidity levels. Creating the ideal environment for your cannabis crop is the number one way to ensure healthy plants and quality concentrates. There are many factors to consider when maintaining an indoor grow:

Temperature regulation. Trichomes are sensitive to temperature changes and start to degrade if they’re too hot or too cold. To maintain the best trichome structure, you’ll want to maintain an ideal temperature – for most strains, this falls between an idyllic 68 and 77 degrees.
Adequate light. For plants to perform photosynthesis indoors, they’ll need an appropriate light source – preferably one that is full-spectrum. Full-spectrum LEDs are able to closely replicate the sun and provide ample, uniform light to your crop. Another selling point for LEDs is their low heat output, making it much easier for growers to regulate ambient heat.
Rows of cannabis plants drying and curing following harvest
CO2. Another necessary ingredient for photosynthesis is CO2. Providing your indoor crops with CO2 can boost plant size and yields and, therefore, provides more surface area for trichomes to develop and thrive.
Cold snap prior to harvest. Some growers rely on this age-old tactic for one last push before harvest – lowering their temperature for a few days right at the end of the flower cycle. They believe this puts the plants into a defense mode and will produce more trichomes in order to protect themselves.

Following Best Practices Post-Harvest
You made it to harvest – you’re almost done!

When harvesting and storing your plants, handle them with care to reduce damage to trichomes. If you’re planning on immediately making concentrates, you can move forward to the drying and curing process. If you’re going to wait a few weeks before processing, freeze your plants. This will preserve the cannabinoid and terpene profiles at their peak.

As the cannabis industry continues to expand, more consumers are likely to reach for concentrates at their local dispensaries. It makes sense that businesses want to diversify their offerings to satisfy customers looking for the most effective way to consume cannabis. As with any cannabis-derived product, producers will want to prioritize quality and safety – especially in the concentrate market.