The Boston Beer Company, Inc., known for brands like Sam Adams, Truly, Twisted Tea and Dogfish Head, has announced their entry into the cannabis market. According to the press release, the craft beer company is launching TeaPot, a new brand of cannabis infused-iced teas. Your cousin from Boston is getting into the cannabis game.
The line of canned, THC-infused beverages will hit stores in Canada this July. The cannabis beverages will be produced at Peak Processing Solutions in Windsor, Ontario and distributed by Entourage Health based in Toronto, Ontario.
The Good Day Iced Tea beverage
The first product of the brand is called Good Day Iced Tea and is strain-specific. It will be formulated with lemon black tea and infused with “Pedro’s Sweet Sativa,” a strain grown by Entourage Health in Ontario. More products will be announced in the next few months, the company says.
The press release emphasizes the size and growth of the cannabis beverage market, citing Headset retail data showing the Canadian beverage market is about double the size of its American counterpart and growing at an astounding 850% in the past two years. It’s no secret that the cannabis beverage sector is a rapidly growing market for cannabis brands. Canopy Growth has been targeting this portion of the market for years and Molson Coors launched a joint venture last year. A lot of other companies have been slowly getting more and more involved as of late.
The U.S. cannabis beverage market is certainly lagging behind our neighbors to the North, mostly stymied by slow state-by-state legalization, patchwork regulations and restrictive federal policies. Of the beverage giants and companies that have entered the space, most are doing so cautiously.
Dave Burwick, CEO of the Boston Beer Company, hinted at their desire to enter the U.S. market, but says they’ll focus on Canada in the meantime. “As we await further progress on U.S. regulations, we’ll continue to develop an exciting product pipeline in the federally regulated market of Canada,” says Burwick. “While beer is our middle name, we’ve also introduced successful hard teas, hard ciders, hard seltzers, and canned cocktails. We’re encouraged by the continued growth of the cannabis beverage category and we believe it’s one of the next innovation frontiers.”
Canopy Growth Corporation, one of the largest cannabis companies in the world, announced the acquisition of Jetty Extracts this week for $69 million. Jetty Extracts was founded in 2013 and is now a leading cannabis brand in California and a top 5 brand in the vape category. The two companies plan to expand Jetty’s offerings in California, Colorado, New York and across the broder to Canada, according to a press release.
Canadian-based Canopy Growth is a massive international company that has been expanding its presence well beyond Canadian borders. For years now. Their medical arm, Spectrum Therapeutics, is a leading brand in Canada and Germany.
Some of the Jetty Extracts product offerings
Back in 2018, Canopy solidified a partnership and took considerable investment from Constellation Brands on a long-term play to enter the cannabis beverage market. Then in 2019, they began their aggressive expansion into the U.S. through the multi-billion-dollar deal with Acreage Holdings who, at the time, was the largest U.S. cannabis company. In April of last year, they inked a deal with Southern Glazer’s Wine & Spirits following the launch of their first CBD-infused beverage line sold in the United States, Quatreau.
Late last year Canopy Growth announced a deal to acquire Wana Brands, the number one cannabis edibles brand based on market share in North America. The latest acquisition of Jetty Extracts this week follows the same pattern of increasing their North American footprint in the cannabis market considerably.
David Klein, CEO of Canopy Growth, says the cross-border potential excites them. “”Canopy Growth is building a house of premium cannabis brands with a focus on the core growth categories that will power the market’s path forward, now including Jetty – a pioneer of solventless vapes,” says Klein. “There are significant opportunities for Jetty to scale at the state-level across the U.S. by leveraging Canopy’s U.S. ecosystem, and we’re actively working on plans to bring the brand to the Canadian recreational market.”
Last week, the U.S. Food & Drug Administration (FDA) published a consumer warning regarding food products containing THC and the risk of children accidentally eating them. Between January of last year through April 24, 2022, the FDA says they have received more than 100 adverse event reports involving people (both adults and children) accidentally consuming THC-containing products.
According to the published advisory, the main concern seems to be copycat products that are packaged and labeled to resemble popular junk foods. The copycat, THC-containing products are mimicking Cap’n Crunch, Cocoa Pebbles, Cocoa Puffs, Froot Loops, Fruity Pebbles, Nerds Ropes, Starbursts, Sour Patch Kids, Trix and others.
Examples of the THC products the FDA included in its warning.
In years past, usually around Halloween, local police, municipalities and state officials would often issue similar warnings over the same issue. Folks in the cannabis industry are usually quick to dismiss those warnings as dramatized and misleading, citing extremely low numbers of actual instances where edibles were given to children during Halloween. However, these warnings might be more warranted now, given the number of copycat products on the market today and the increased number of adverse events the FDA has reported.
Historically, most of the companies producing these copycat products that contain THC, like Sour Patch Kids or Nerds Rope candies, come from the illicit market. Most licensed edibles producers know not to steal branding and packaging from a large food company. Still though, it is worth taking a good, hard look at cannabis edibles packaging and making sure they wouldn’t be mistaken for a food product that doesn’t contain THC.
The hiring process is evolving: major U.S. employers are reconsidering the significance of higher learning. An employer’s undue emphasis on university education while hiring is called “degree inflation.” As the hiring manager for NisonCo, a cannabis public relations, marketing and SEO agency, I have learned a college degree is not the best predictor of employee success.
NisonCo was established during the dawning of the modern cannabis legalization movement. At the time, our small staff included individuals with and without college degrees. I evaluated both groups of employees and learned they gave equal contributions to the team. Limiting our pool of potential candidates to university graduates would have hindered the growth of our company.
Accordingly, at NisonCo a college degree is not required to work. We believe degree inflation impedes hiring, increases payroll, encourages turnover and perpetuates social injustice. For these reasons, NisonCo encourages your cannabis company to emphasize a candidate’s skills and drive during the hiring process rather than their education.
Degree Inflation Increased in the Aftermath of The Great Recession
The Great Recession in 2008 caused a massive downturn in the U.S. economy. By 2010, the workforce had lost nearly 9 million jobs. The unemployed entered a tight labor market, and employers had the luxury of limiting potential candidates to college graduates. After the economic downturn, the number of employers requiring a college degree increased by 10%.
Employers added degree requirements to positions previously staffed by high school graduates. In 2015, 67% of job postings for production supervisors required a degree, while only 16% of current production supervisors possessed degrees. The Great Recession pushed Americans without a college degree out of the labor market.
Technological Advancements and Social Movements Confront Degree Inflation
The importance of technical skills began declining when automation entered the workforce in the 1980s. Employers suddenly required soft skills like relationship management to serve customers and resolve conflicts with partners successfully. A technologically advanced economy requires problem-solving and people skills. These skills are not usually acquired while attaining a college degree.
Most employers confirmed degree inflation prevents them from hiring equipped employees.
During the Covid-19 pandemic, companies laid off millions of employees. Many unemployed people reconsidered their relationship with work and decided to leave unfulfilling jobs. Employers are now in dire need of staff, and they no longer have the privilege of requiring a college degree during the hiring process. This degree inflation prevents recovery from the economic downturn caused by the pandemic.
The Black Lives Matter movement highlighted the need to deliver social justice to historically marginalized communities. Americans are learning these communities need economic opportunities to achieve social justice. For this reason, employers are reexamining hiring practices and identifying barriers to equity. Employers like NisonCo have recognized since company inception that degree requirements impede social justice.
Degree Inflation is Bad for your Cannabis Business
The Harvard Business School polled business leaders on their perception of the performance of employees with and without degrees. The polling revealed the hidden costs of degree inflation: pending positions, payroll premiums, poor productivity and high turnover. Undoubtedly, degree inflation is not suitable for your cannabis business.
Most employers confirmed degree inflation prevents them from hiring equipped employees. They admit that candidates without degrees may possess the skills needed to thrive in most positions. Often, degree inflation prevents the discovery of competent candidates without degrees.
Most respondents revealed that degree inflation places a premium on wages for college graduates. Many respondents also confirmed those with and without degrees provide equal contributions to their teams. Degree inflation adds unnecessary payroll and training costs to a company’s budget.
Many employers believe staff members with university degrees demand higher salaries and benefits than staff without degrees. Additionally, most respondents admitted employees with degrees demonstrate low productivity and experience high job dissatisfaction. As a result, employers witness increased turnover among college graduates. In my experience, degree inflation can prevent employers from finding productive, satisfied, and loyal employees.
5 Ways Your Cannabis Company Can Oppose Degree Inflation
Review Your Company’s Job Descriptions and Assess Contributions to Degree Inflation
I recommend reviewing your company’s positions and determining if they are prone to degree inflation. Evaluate job descriptions written by leaders in the cannabis industry to understand if your degree requirements contribute to degree inflation and consider dropping degree requirements for positions that are common contributors to degree inflation.
Identify the Technical and Soft Skills Needed for Positions in Your Company
I advocate for analyzing the technical and soft skills needed for positions in your cannabis company. Review your job descriptions to determine if they require soft skills a candidate without a degree could possess. Delete degree requirements from job descriptions that do not need technical education provided by universities. Additionally, review the vetting process for candidates and remove onerous education requirements for positions requiring additional soft skills.
Analyze the Costs of Your Company’s Contribution to Degree Inflation
Understanding your cannabis company’s contribution to degree inflation lowers the costs of sustaining it. Developing metrics for evaluating contributions to degree inflation helps assess the charges to your company. Realizing your company’s potential cost savings helps maintain a commitment to combating degree inflation.
Develop Your Company’s Pipeline of Non-Degree Employees
Your cannabis company should develop alternative talent pipelines to attract non-degree employees. Investments in training create talent pipelines that give your company access to new pools of competent and productive candidates. Investments in training attract employees without college degrees and confront degree inflation.
Expand Your Company’s Territory for Recruiting New Employees
I recommend expanding your company’s geographic footprint while recruiting. Establishing relationships with partners in new territories provides access to new pools of non-degree talent. Expansion of your recruiting territory withstands degree inflation.
The Cannabis Industry Should Commit to Combatting Degree Inflation
Legalizing cannabis began as a social justice movement to benefit historically marginalized communities, and the maturation of our industry can deliver social justice to these communities. The cannabis industry has a prime opportunity to be an excellent example for other sectors confronting degree inflation. Our industry must demonstrate how different sectors can resist the urge to support it.
Aurora Cannabis announced today that they will be launching a new product line for patients in the United Kingdom. The Berlin-based company says they are debuting new cannabis extracts for the United Kingdom that meet EU GMP standards and are developed using, “a new extraction process has been developed to ensure the terpene profile of its products consistently remains at a high level,” according to the press release.
The new product line comes from Aurora Nordic, their facility located in Odense, Denmark. While the press release does not disclose exactly what kind of extraction technology and post-processing methods are involved, they claim their processes result in consistent concentrations of cannabinoids and rich terpene profiles.
Back in 2019, the UK loosened their rules around medical cannabis and allowed a handful of cannabis-derived drugs to be prescribed. Shortly after the British government began loosening restrictions around hemp-derived CBD and medical cannabis, Aurora made its first foray into the UK market. Still, only a small number of patients actually get medical cannabis prescriptions and accessibility is still a hot button issue in the country.
Trisha Cassidy, managing director for Aurora Cannabis in the UK & Ireland, says they are still trying to get into the market further, working on accessibility, advocacy and reimbursement issues through the NHS. “We are dedicated to helping improve access to medical education for healthcare professionals and are happy to share our medicinal cannabis knowledge and expertise,” says Cassidy. “The effectiveness and tolerability of medical cannabis has already been shown in several clinical studies and even more data from 20,000 UK patients will become available once the first patient registry for medical cannabis in Europe is completed. The UK market is still young and much work needs to be done to dismantle the obstacles that continue to prevent patients from receiving the treatment they need. Aurora is committed to these patients and will continue its dedicated work in the UK.”
By Tamara L. Kolb, Amy Bean, Caitlin Strelioff No Comments
As the legal cannabis market expands, banks and nonbank financial institutions (NBFIs) across the United States continue to explore how to safely provide banking and other financial services to cannabis-related businesses (CRBs) and other CRB ecosystem players. At the same time, these organizations are taking into account changes they might need to consider relative to their Bank Secrecy Act ( BSA), anti-money laundering (AML) and related compliance programs.
Regulatory conundrum
The Controlled Substances Act (CSA) identifies the cannabis plant and all its derivatives as a Schedule 1 controlled substance. Schedule 1 controlled substances have a “high abuse potential with no accepted medical use,” and they cannot be “prescribed, dispensed, or administered.” Because cannabis remains classified as a Schedule 1 controlled substance, the CSA “imposes strict controls on possession, manufacturing, distribution, and dispensing” of cannabis.
Under the Money Laundering Control Act of 1986 (MLCA) and the BSA as amended, covered banks and NBFIs are prohibited from providing financial services to businesses that are engaged in illicit activities. Because federal law prohibits the distribution and sale of cannabis, financial transactions involving CRBs are therefore deemed to be transactions that involve funds derived from illegal activities.
As of Feb. 3, 2022, 18 states, two territories, and the District of Columbia have enacted legislation to regulate cannabis for adult use. Thirty-seven states, the District of Columbia and four territories have approved comprehensive, publicly available medical and cannabis programs. Eleven states allow for the use of low-THC, high-CBD substances for medical reasons in limited situations or as a legal defense.
The growing divide between federal prohibition and state legalization of the cannabis industry creates a precarious position for federally regulated banks and NBFIs with the main concern involving exposure to legal, operational and regulatory risk. The situation begs the question: How might the federal government and regulators pursue and prosecute players in the legal cannabis industry?
The current economic trajectory predicts that retail sales of legal cannabis products in the U.S. will surpass an estimated $41.5 billion annually by 2025, and many banks and NBFIs are eagerly awaiting the federal green light to do business with CRBs without fear of prosecution or legal ramifications.
From 2018 forward, Congress has made several attempts to pass legislation that would protect CRBs when cultivating, distributing, marketing, and selling cannabis products in their state-legalized form. These efforts to declassify cannabis-related activity as a specified unlawful activity have thus far been unsuccessful.
The House passing the MORE Act back in 2020
Passage of the Secure and Fair Enforcement Banking Act of 2021 (SAFE Banking Act) and the Marijuana Opportunity Reinvestment and Expungement Act of 2021 (MORE Act) would enable banks and NBFIs to provide financial services to CRBs. The SAFE Banking Act would provide a safe harbor for banks and NBFIs that provide financial services to CRBs. The MORE Act would deschedule cannabis from the CSA entirely.
Questions to ask
Banks and NBFIs interested in providing financial services to CRBs should ask these questions:
Do we adequately understand our risk, and what are the implications for our organization? How should we augment our risk assessment process and our controls?
To what extent are we willing to accept the risk of banking CRBs? Do we have the ability to identify CRB customers, and if so, do we have any?
How should we advise the board of directors about setting risk appetite?
What customer due diligence (CDD) and enhanced due diligence (EDD) will we need to safely continue with existing customers and onboard new ones?
How will we monitor for unusual and suspicious activity? What will be the alerting and judgmental criteria?
How will our resource needs change so that we stay abreast of new processes and controls?
Risk appetite considerations
In order to determine whether to accept or prohibit CRBs, banks and NBFIs should identify the level of acceptable risk they are willing to take on. Several key components need to be considered, such as:
The board of directors’ stance on legal cannabis, given that good governance recommends and regulators expect that the board sets risk appetite
Cannabis laws in states within the customer footprint and the impact on customers’ communities
Risk profile, customer base, geographic location, products, and services
Relationship with regulators and any recent deficiencies or weaknesses in the BSA and associated compliance programs
Ability to implement appropriate controls and staffing
Developing a strategic road map
If the decision is made to bank CRBs, banks and NBFIs should perform an assessment of compliance maturity for existing BSA/AML program processes and controls to identify potential gaps and develop a strategic road map that helps the organization achieve its vision for future state compliance and sustainable operations.
A well-developed and well-articulated strategic road map visualizes what actions or key outcomes are needed to help organizations achieve their long-term goals. When creating the road map, banks and NBFIs need to demonstrate a keen understanding of their desired strategy, outcomes, markets, and products for onboarding and banking CRB customers. Specifically, banks and NBFIs need to define and explain how desired outcomes and business strategies create risk and exposure.
In addition to a road map, banks and NBFIs should develop and document a detailed risk-based approach that is aligned to the organization’s risk tolerance to determine necessary compliance steps when banking CRB customers.
Specifically, the following activities should be considered when developing a CRB banking program that meets regulatory expectations:
Identifying BSA/AML control gaps related to CRB risk identification and mitigation and formulating a plan to address them
Updating a board-approved policy framework
Updating detailed operating policies and procedures
Planning for capacity, developing job descriptions, and onboarding new personnel
Training for all three lines of defense, senior management, and the board
Developing and documenting a phased or full approach to acceptance of CRB customers
Developing and documenting a CRB program oversight policy
This framework is intended to help banks and NBFIs differentiate types of CRBs and their corresponding risks, and it separates CRBs into three tiers and details risks for each tier. The following exhibit summarizes the approach:
Risk framework by tier
Level
Risk
Tier 1
Direct
Tier 2
Indirect with substantial revenue from Tier 1
Tier 3
Indirect with incidental revenue from Tier 1
Source: CRB Monitor
Even the most conservative of risk appetites equivalent to outright prohibition is not devoid of significant risk considerations. Residual risk frequently encompasses a large number of indirect connections in the total CRB ecosystem. Common examples are printers, lawyers, accountants, landlords, and even utilities and taxing authorities, and all of these are subject to regulatory scrutiny and, importantly, visibility to law enforcement. Also, policies to prohibit or restrict will be audited and examined for compliance, and exceptions will require explanations.
This panorama necessitates expertise and prudence in identifying and evaluating risks within the many layers of CRBs. For example, consider a bank or NBFI that banks a CRB’s employee or vendor. If a bank fails to properly implement controls that would allow it to identify and mitigate risk associated with banking CRBs, it will be susceptible to severe violations of the BSA, including civil money penalties, criminal penalties, and regulatory enforcement actions.
Implementing necessary precautions
A well-developed road map should consider and implement the following activities:
Understanding the most current state and federal cannabis laws and regulations to ensure the bank or NBFI’s compliance
Understanding the local, state, or tribal program to ensure CRB customers are compliant with the program
Implementing a CRB risk assessment
Implementing executive approval practices for direct CRBs
Developing adequate risk ratings (possibly through a risk-based, tiered approach) and corresponding monitoring for CRB customers that includes:
Integrating various customer onboarding and AML solutions at both onboarding and periodic levels
Scheduling regular reviews to include recurring enhanced due diligence, site visits, and transaction monitoring
Monitoring for suspicious activity, including red flags, via open sources for adverse information about the CRB customers and related parties such as beneficial owners
Performing adequate CDD and EDD that will validate that the CRB-offered products, services, and programs are compliant with most current state laws and regulations by:
Collecting appropriate documentation as evidence of compliance, perhaps including a comprehensive onboarding questionnaire, beneficial ownership information, and contracts for the growing, harvesting, transporting and processing of the product
Reviewing applications and supporting documentation used to obtain a legal cannabis state license
Understanding the normal and expected activity of the organization’s CRB customers and their product usage
Developing adequate training programs and governance and oversight programs to address this customer type by:
Updating existing policies and procedures to review inherent risk presented by banking CRB customers
Updating annual training for employees
Auditing initial program design and periodic operational effectiveness
Moving forward cautiously
The ins, outs, and unknowns of cannabis banking are complex, and they require banks and NBFIs to be extremely vigilant with current policy and aware of new developments. Overall, the idea of creating a cannabis program might seem like a daunting task, but with appropriate guidance and care, organizations can provide services in compliance with laws and regulations.
Crowe disclaimer: Qualified organizations only. Independence and regulatory restrictions may apply. Some firm services may not be available to all clients. Given the continued evolution and inconsistency of various state and federal cannabis-related laws, any company should seek competent legal advice relating to its involvement in the cannabis industry, including when considering a potential public offering as a cannabis-related company.
In an unprecedented move, the U.S. Food & Drug Administration (FDA) has issued warning letters today to companies selling products containing delta-8 THC. In total, the FDA sent out five warning letters to companies for violating the Federal Food, Drug, and Cosmetic Act (FD&C Act).
Image from the FDA’s consumer update on Delta-8 THC
The violations include illegal marketing of unapproved delta-8 THC products as treatment for medical conditions, misbranding and adding delta-8 THC to food products. Back in September of last year, the FDA published a consumer update on their website, seeking to educate the public and offer a public health warning on delta-8 tetrahydrocannabinol, otherwise known as delta-8 THC.
Delta-8 THC is a cannabinoid that can be synthesized from cannabidiol (CBD) derived from hemp. It is an isomer of delta-9 THC, the more commonly known psychoactive cannabinoid found in cannabis. Delta-8 THC does produce psychoactive effects, though not quite as much as its better-known cousin, delta-9 THC. Many regulators and industry stakeholders are increasingly concerned about the rise in popularity of delta-8 products, namely because of the processing involved to produce it. Delta-8 THC is often synthesized using potentially harmful chemicals.
The FDA has a history of sending a lot of warning letters to companies marketing CBD products inaccurately and making drug claims. Earlier this year, they sent a number of letters to companies claiming that CBD can cure or prevent Covid-19.
According to Janet Woodcock, M.D., principal deputy commissioner at the FDA, they are getting more and more concerned about the popularity of delta-8 THC products sold online. “These products often include claims that they treat or alleviate the side effects related to a wide variety of diseases or medical disorders, such as cancer, multiple sclerosis, chronic pain, nausea and anxiety,” says Woodcock. “It is extremely troubling that some of the food products are packaged and labeled in ways that may appeal to children. We will continue to safeguard Americans’ health and safety by monitoring the marketplace and taking action when companies illegally sell products that pose a risk to public health.”
The FDA sent warning letters to the following companies selling delta-8 THC products:
The adult beverage industry, like any other category of consumer branded products, is driven by trends. If you’re old enough to remember Bartles & Jaymes wine coolers, you probably also remember Zima and Smirnoff Ice, and more recently “healthy” options like Skinny Girl and Michelob Ultra. The sensation that was craft beer saw many brands being acquired by Big Alcohol so that while the brands remain, ownership and production have changed significantly. Gin, tequila and vodka have had their moments in the sun and the current market is undeniably saturated with what is probably the largest current trend – hard seltzers. However, with the seltzer craze waning, many are wondering what’s next. And with the growing sober/California sober trends, some are betting it is cannabis-infused beverages.
Cannabis-infused beverages offer both an alternative method of consumption of cannabis and are also an attractive alternative to alcohol. Infused beverages are more appealing to the new demographic of casually curious cannabis consumers. i.e., consumers that may not be interested in smoking a joint or vaping, but are comfortable micro-dosing from a can or bottle, as they would a seltzer or beer. The same type of consumer may be moving away from alcohol consumption to eliminate hangovers or other negative health effects.
The emerging market and curious consumer group present an enormous opportunity right now for cannabis-infused beverage brands. Of course, with opportunity and growth come challenges. And while cannabis-infused beverages face a host of legal and regulatory challenges relative to sourcing, manufacturing, packaging, labeling, shipping, marketing, distribution and sale, one of the most critically important business assets to address at inception is the brand.
Lines are Blurring, Gaps are Being Bridged
The U.S. cannabis market is currently a geographic hamburger. Hear me out: Geographically, you have a relatively mature market out west and a relatively new and growing market along the east coast. These are the buns. You have a mixed bag in between, with some states coming online and allowing medical or adult use cannabis use and others that have not yet embraced any form of legalization. The landscape has lent itself to the development of regional brands, such that brands that are so similar they might otherwise confuse consumers, have been able to co-exist in different regions without issue, or because there is little to no trade channel or market overlap. Similarly, adult beverages and cannabis have historically been separate verticals, with an arguably low likelihood that a consumer would assume a particular cannabis product and adult beverage product emanate from the same source.
A drink additive, made by Splash Nano, that uses nano emulsion technology
However, lines are blurring and gaps are being bridged. Walls are breaking down. The increasing number of states coming online with legalized cannabis, and the proliferation of multi-state operators (MSOs), means that cannabis brands can grow to be more than siloed regional brands. This will inevitably lead to brands that previously co-existed bumping into one another and there’s bound to be some pushing and shoving. The advent of infused beverages likewise bridges the gap between cannabis products and alcoholic beverages. While the respective industries were not historically per se related, competing, or overlapping, now you’ve got infused beverages that bridge the gap between the two, and traditional alcohol brands (e.g., Boston Beer Company, Molson Coors, Lagunitas, Pabst.) entering the market (albeit under different brands). This makes a strong argument that cannabis and alcohol (or, more generally, adult beverages) are within each other’s logical zones of expansion, for purposes of a likelihood of confusion analysis.
The growing pains infused beverage brands will experience are analogous to those craft beers saw in the 2000 – 2010s. Many craft brewers had catchy, cheeky names and brands that contributed to their ability to engage consumers and develop a following, but failure to clear and protect the brands prior to launch detracted from the brands’ market values. Localized use prior to expansion also led to many brands bumping into one another and stepping on each other’s trademark toes. This was significant as the brands sought investment dollars or an exit strategy, making clear that the brand itself contributed heavily to valuation.
Mitigating Risks and Overcoming Challenges: Search and Protect
The risks and challenges can be significantly mitigated and/or overcome with proper preliminary clearance searching and assessments, and by seeking and obtaining state or federal protection for the brand or brands, to the extent possible.
Quatreau CBD infused sparkling water
Of course, clearance searches and assessments come with their own challenges, as does federal protection. With respect to clearance searches, these typically look at U.S. federal and state trademark databases. These resources are not sufficient for purposes of clearing a proposed cannabis brand. Many brands are not recorded at the federal or state level and indeed may not even show up in a basic search engine. An appropriate search looks at social media resources like Instagram, Twitter, Facebook and known cannabis resources like Leafly and Weedmaps. Additionally, the scope of the search should exceed cannabis products and services and at least look at alcohol and merchandise. Adoption and use of a brand for a cannabis-infused beverage is high risk if that brand is similar to a prior existing alcohol brand. A current example is Cointreau’s taking aim at Canopy’s adoption and use of QUATREAU for an infused beverage.
A U.S. federal trademark registration presents its own unique challenges, but is incredibly valuable and beneficial to a brand since it provides the owner with a nationwide presumption of ownership and validity in a trademark, and can also secure priority for the owner with a constructive first use in commerce date that is years before actual use of a mark begins. The U.S. Trademark Office categorically denies protection of brands that violate its “lawful use” rule, and will treat as per se unlawful any applied for mark that covers marijuana, or that covers foods, beverages or pharmaceuticals that contain CBD. With respect to brands that cover products containing THC, since it is federally scheduled, use of the brand would violate the Controlled Substances Act (CSA). With respect to brands that cover CBD or products containing CBD, these may be lawful pursuant to the Farm Bill and the U.S. Trademark Office’s subsequent allowance of marks that claim CBD “solely derived from hemp with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent on a dry weight basis,” however under the Food Drug Cosmetics Act (FDCA) it is currently federally unlawful to introduce CBD – even if it fits the definition above – into foods or beverages.
Even if cannabis is not specifically claimed in a trademark application, cannabis brands have a natural gravitation toward names and logos that can do some of their marketing for them, and announce to the world they cover cannabis. This increases the chances that a trademark application for the brand will get push-back from the U.S. Trademark Office, and if not at the initial review stage, then at the point in time when the brand must submit to the U.S. Trademark Office a sample of (lawful) use of the applied-for mark. While this all sounds like bad news for cannabis-infused beverages, all is not lost.
There are typically ancillary and federally lawful products and services cannabis companies offer under their brands that can be covered in a U.S. federal trademark application, and arguments to be made that registered protection of a brand for the ancillary items should be sufficient to enforce against third parties using the same or confusingly similar brands in their space. Some cannabis brands’ lawful ancillary products are actually product lines (e.g., beverages) offered under the same brand that contain no cannabis. Others may be more causally related, like online forums and blogs. The former is closer to the actual product, and the latter would be more beneficial to a brand that is inherently stronger and more distinctive. One note of caution: A trademark application and eventual registration that expressly disclaim cannabis (THC or CBD) may be difficult to enforce against a third party using the same or a similar mark on and in connection with cannabis. So, while there is a natural inclination to follow a U.S. Trademark Office request to disclaim coverage of cannabis, there may be enforcement consequences down the road.
The cannabis-infused beverage market is poised for explosive growth. The brands that survive – and succeed – will be those that position themselves for growth by clearing and buttoning up their brands as early as possible. The market leaders will be those that select strong and distinctive brands, with geographic and market space around them for growth and expansion; and those that protect and enforce their brands, to the extent possible, at the federal and/or state levels.
Federal regulations have made compliant credit processing in the cannabis industry difficult to achieve. As a result, most cannabis retailers operate a cash-only model, limiting their ability to upsell customers and placing a burden on customers who might rather use credit. While some dispensaries offer debit, credit or cashless ATM transactions, regulators and traditional payment processors have been cracking down on these offerings as they are often non-compliant with regulations and policies.
Two companies, KindTap Technologies and Aeropay, are addressing the cannabis industry’s payment processing challenges with innovative digital solutions geared towards retailers and consumers.
We interviewed both Cathy Corby Iannuzzelli, president at KindTap Technologies and Daniel Muller, CEO at Aeropay. Cathy co-founded KindTap in 2019 after a career in the banking and payments industries where she launched multiple financial and credit products. Daniel founded AeroPay in 2017 after a career in digital product innovation, most recently at GPShopper (acquired by Financial), where he oversaw the design and development of over 300 web and mobile applications for large scale Fortune 500 companies.
Green: What is the biggest challenge your customers are facing?
Cathy Corby Iannuzzelli, co-founder and president at KindTap Technologies
Iannuzzelli: Our customers include both cannabis retailers and their end consumers. As long as cannabis is illegal at the federal level, normal payment solutions such as debit and credit cards cannot be accepted for cannabis purchases. This has resulted in heavy cash-based sales and unstable, transient work-around ATM payment solutions that can be ripped out with little notice, disrupting the entire business. The lack of a mature payment network to support retail payments for cannabis purchases is a huge challenge for all stakeholders. Cannabis retailers bear the high cost and safety issues of operating a heavily cash-based retail business. Consumers encounter several friction points that require them to change their behavior when purchasing cannabis relative to how they purchase everything else.
Muller: Our cannabis business customers have faced a constantly changing and, frankly, exhausting financial services environment. From the need to move and manage large amounts of cash, to card workarounds, added to the disappointment from legislation around the SAFE Banking Act, these inconsistencies have acted as a roadblock to their potential growth and profitability. Aeropay is in the position to be a stable, long-term, reliable payments partner ready to help them scale their businesses. We believe these opportunities are limitless.
Green: What geographies have got your attention and why?
Daniel Muller, CEO and founder of Aeropay
Iannuzzelli: KindTap’s focus is on the U.S. market where federal policy has created the need for alternatives to traditional payment networks. KindTap is available in every U.S. state where cannabis is legally sold. In terms of our distribution channels, KindTap’s digital payment solution was brought to market during the COVID-19 pandemic when curbside pick-up and delivery became critically important. These channels are where the exchange of cash at pick-up posed the greatest security risk to employees and customers. Our early integrations were with e-commerce platforms focused on delivery and pick-up orders, and our integration partners have strong customer bases in California and the northeast. So, while KindTap can provide its “Pay Later” lines of credit and “Pay Now” bank account solutions anywhere, we have heavier penetration in those regions.
Muller: California, for its established tech culture and how it plays into the cannabis industry – your product simply has to live up to their tech standards to be heard. Also, Chicago, our headquarters, with its newly emerged commitment to financing the cannabis industry and bringing with it a more traditional business approach. In Chicago, you have to have elevated standards of professional practices in any industry you enter. And of course, we love to watch emerging markets like New York and Florida as they head towards adult-use and what shape cannabis and payments will take.
Green: What are the broader industry trends you are following?
Iannuzzelli: We continue to see a strong transition from cash and ATM transactions over to digital payments. Since KindTap has a fully-integrated payment “button” on e-commerce checkout screens, the adoption rate of end consumers to that one-click experience is quite strong. We are also seeing trends of more “express lines” in the retail environment – for those KindTap users who paid online/ahead – and faster/safer delivery experiences to people’s homes since there is no longer the need to collect any payment upon delivery. We are firm believers in the delivery/digital payments combination and a strong increase of that trend as more states allow for delivery.
Muller: The cannabis industry is starting to normalize payments and mirror traditional online and brick-and-mortar. With bank-to-bank (ACH) payments, cannabis businesses can now offer modern customer shopping experiences including pre-payment for delivery orders without the need for a cash exchange at the door, offering the option to buy online pickup in-store and contactless in-store QR scan-to-pay customer experiences. With these familiar and customer-driven options now available, we are seeing widespread adoption, as well as meaningful increases in spend and returning customers.
Green: Thank you both. That concludes the interview!
About KindTap: KindTap Technologies, LLC operates a financial technology platform that offers credit and loyalty-enabled payment solutions for highly-regulated industries typically driven by cash and ATM-based transactions. KindTap offers payment processing and related consumer applications for e-commerce and brick-and-mortar retailers. Founded in 2019, the company is backed by KreditForce LLC plus several strategic investors, with debt capital provided by U.S.-based institutions. Learn more at kindtaptech.com.
About AeroPay: AeroPay is a financial technology company reimagining the way money is moved in exchange for goods and services. Frustrated with the current, antiquated payments landscape, we believe there is a better way to pay and a better way to get paid. AeroPay set out to build a payments platform that works for all- businesses, consumers, and their communities. Learn more at aeropay.com.
Happy 4/20! The cannabis holiday with unclear origins is today and with it comes hundreds and hundreds of marketing and story pitches landing in every journalist’s inbox. Some of those pitches are impactful, some lack substance, some celebrate anniversaries, most offer discounts and sales and some are truly bizarre.
Every year, April 20th marks the cannabis holiday that people around the world celebrate with copious amounts of cannabis, concerts, festivals, deals, sales and marketing gimmicks. This year, here are some noteworthy (and weird) happenings going on as we celebrate the wonderful plant that brings us all together:
Leafly rings in the holiday on the NASDAQ: Leafly CEO Yoko Miyashita, surrounded by her colleagues, rang the opening bell for the NASDAQ Stock Exchange. The company began publicly trading on the NASDAQ as ‘LFLY’ back in February.
Smoke em if ya got em: Leafly CEO Yoko Miyashita, surrounded by her colleagues, rang the opening bell for the NASDAQ Stock Exchange
Americans for Safe Access (ASA) turned twenty on April 19: The policy, action and advocacy organization has been influential in passing medical cannabis laws throughout the country for twenty years now. The organization has trained thousands of public defenders, worked with thousands of incarcerated medical cannabis prisoners, organized protests all over the country, worked with regulators in dozens of states to pass safety rules, published reports, launched their Patient Focused Certification program and much more. Happy birthday ASA!
Emerald Cup and SC Labs celebrate thirteenth anniversary: The couple has been together now for thirteen years, with the Emerald Cup heading into their eighteenth annual competition next month. For the past thirteen years, Santa Cruz-based SC labs has worked with the Emerald Cup as their official testing partner, verifying COAs for potency and purity, gathering data on terpenes and classifying products and strains. Happy anniversary you two!
Smoking’ sandwiches: The cannabis-inspired, Arizona-based sandwich shop chain Cheba Hut celebrates the holiday with $4.20 “nugs” (pretzel nuggets) served on a frisbee and two PBRs for $4.20.
NORML stays busy: Executive Director Erik Altieri called for reforms in a press release: “While we have undoubtedly made immense progress in recent years, hundreds of thousands of our fellow citizens are still arrested each year for simple possession of a plant. That is why we are calling on all Americans to take time out of their day on 4/20 to help us finish the fight, both at the federal level and in those states that still are living under the dark ages of prohibition. We have an overwhelming mandate from the people and we intend to make sure that elected officials abide by it.”
New Jersey, a day late and a dollar short: The Garden State will begin adult use sales on April 21st at thirteen dispensaries. The delays, licensing process and regulatory hurdles have created confusion and frustration for the industry, but the state is moving forward with their plan and dispensaries will serve adults over 21 tomorrow, a day after the holiday.
Cannabis-infused Mac and cheese, a dangerously cheesy combination.
Sluggish Senate: The SAFE Banking Act has passed the House six (six!) times so far, most recently in February of this year. Sen. Cory Booker has long said he opposes the cannabis banking bill without wider legalization legislation (say that six times fast). Sen. Chuck Schumer also announced last week that his cannabis bill introduction is delayed. The CAOA won’t come until August now he says.
Cannabis Cuisine: Celebrity chef Todd English curates a “cannabis-curious cuisine” with infused Mac & Cheese via LastLeaf.
Erotic infusions: This CBD company offers 20% off their infused lubes, massage oils and products with code oOYes20. OoYes! CBD Lube is a female-founded formulations company focusing on the sex positive, “cannagasmic” hemp-derived CBD products space.
Backwards down the number line: Phish plays their first night back at Madison Square Garden in New York for a four-night run. Correctly guess the opener for tonight in the comments below and win a free beer and a burger with me at this year’s Cannabis Quality Conference & Expo.
That’s all folks! Thanks for reading and blaze on!
Blast from the past: Here’s a little treat if you’ve made it this far. This is me ten years ago today (back in college), smoking a joint on April 20, 2012. Time flies.
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