Tag Archives: Federal

Alternatives to Bankruptcy for Cannabis Companies: Part 1

By Brent Salmons, Yuefan Wang
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The problems facing the cannabis industry arising from its ongoing status as a federally illegal enterprise are numerous and well documented: 280E tax burdens, limited access to banking, exclusion from capital markets, uneven access to federal intellectual property right protections and the inability to access the stream of interstate commerce. The recent woes faced by cannabis companies operating in mature markets reveal another key legal hurdle for cannabis companies, their investors and their creditors: the inability to access federal bankruptcy protection. However, cannabis companies may have access to a number of contractual and state law remedies to deal with insolvency and other financial woes.

Background

Bankruptcy laws in the United States are unique in the world; nowhere else is access to bankruptcy so available or forgiving for ordinary citizens and companies alike, allowing debtors a fresh start by either liquidating their assets or reorganizing their debt. Commentators have observed that such favorable bankruptcy laws encourage entrepreneurship and have been at least partially responsible for American innovation. Indeed, the ability of Congress to enact bankruptcy laws is enshrined in the United States Constitution. Like almost all laws in the U.S. at the time, bankruptcy was originally the domain of the various states; it was not until the late 18th century that Congress saw the importance of a uniform set of protections for debtors and passed the first federal bankruptcy law in 1800; since then, bankruptcy has been exclusively the purview of federal law, with current bankruptcy law governed by the United States Bankruptcy Code.

Yuefan Wang, attorney at Husch Blackwell

This exclusivity, however, poses a problem for state-regulated cannabis businesses: because cannabis is federally illegal, in the eyes of the United States Trustee Program, a division of the United States Department of Justice responsible for overseeing the administration of bankruptcy proceedings, the reorganization of any cannabis business amounts to “supervis[ing] an ongoing criminal enterprise regardless of its status under state law.” Therefore, since there is no such thing as state law bankruptcy, even cannabis companies operating in full compliance with state laws do not have access to any bankruptcy protections.1

All financing transactions, whether debt or equity, occur in the shadow of bankruptcy. The basic distinction between debt and equity is predicated on the favorable treatment of holders of the former compared to holders of the latter (within debt, the favorable treatment of secured debt over unsecured debt), and this is true, especially in bankruptcy. Even beyond distribution priorities, the Bankruptcy Code’s provisions on automatic stays, avoiding powers, and discharge fundamentally shape the relationship between debtors and creditors: a bankruptcy judge has the power to impose the Bankruptcy Code on the relationship between a debtor and its creditors, no matter their previous contractual relationships. Just as the possibility of litigation is a Sword of Damocles hanging over any legal disputes, the prospect of a bankruptcy filing affects any negotiations between a debtor and its creditors ab initio. Therefore, when financial problems arise and a cannabis company must begin the difficult task of approaching its lenders for relief, it does so without an effective incentive for creditors to come to the table available to other companies in otherwise similar situations.

Alternatives to Bankruptcy

Just as disputants often prefer the contractual certainty of a settlement agreement to the capriciousness of a jury, debtors and creditors may choose extra-judicial solutions for insolvency. The downward trend in bankruptcies over the last few decades may partially be the product of such out-of-court arrangements, and debtors and creditors are increasingly comfortable with them as an alternative to voluntary or involuntary bankruptcy filing. While the effectiveness of these solutions is, in industries other than cannabis, ultimately evaluated with bankruptcy in mind, these solutions may also be preferable for a creditor of a cannabis company that is defaulting on its obligations.

Contractual Remedies: Lender Workouts, Exchange Offers and Composition Agreements

Given that the relationship between a debtor and its creditors is essentially contractual, the parties may choose to modify their relationship in any manner to which they can mutually agree. A lender workout is an agreement for a financially distressed company to adjust its debt obligations with a creditor (or often multiple creditors given that a lender’s payment obligations to one creditor necessarily affect its obligations to its other creditors). These contractual adjustments are tailored to the particular situation and can take the form of deferrals of payments of interest or principal, extensions of maturity dates, covenant relief (e.g., adjustment of the lender’s debt-to-asset ratio or other financial covenants which would otherwise trigger an event of default), and/or debt-for-equity swaps. This last option (including its related concepts, such as grants of options or warrants) is especially prevalent in the cannabis industry, given that cannabis companies often do not have traditional bank debt (though, at the same time, such solutions may be increasingly unattractive to creditors given lower valuations and the prevalence of equity as a form of consideration in cannabis mergers and acquisitions transactions).

Brent Salmons, attorney at Husch Blackwell

Similarly, an exchange offer restructures a faltering company’s capital stack. Typically, a company facing a default will offer its equity-holders new debt or equity securities in exchange for its outstanding debt securities, which new securities have more favorable terms, such as covenants, events of defaults and maturity. Exchange offers have the same goal as lender workouts in that they seek to eliminate a class of securities with an impending maturity date, event of default or breach of a covenant.

Composition agreements are contractual arrangements between a debtor and its creditors whereby the creditors agree to accept less favorable claims in order for the debtor to reorganize its operations so that the debtor’s future inflows can meet its reduced outflows, with the alternative being a complete collapse of the debtor (in which case no one, or perhaps only the most senior secure lenders, is repaid). These agreements often provide for oversight by a committee of the creditors and will often involve contractual promises by creditors to forbear from exercising their previously existing rights until a defined triggering event.

Statutory Remedies: UCC Article 9 Sales and ABCs

If the contractual remedies described above are akin to Chapter 11 bankruptcy proceedings, whereby a company in dire (but ultimately salvageable) straits continues to operate while its debt obligations are reorganized, state law statutory remedies are analogous to Chapter 7 bankruptcy proceedings; the business is a sinking ship and must liquidate its assets to maximize payments to its creditors (in the bankruptcy context, per the rules of absolute priority). Such liquidation is governed by rules under state law which may be available to cannabis companies.

If a creditor has a security interest in the collateral of a debtor, then the most popular option is usually a sale under Article 9 of the Uniform Commercial Code (UCC). The UCC is a standardized set of laws and regulations for conducting business, including lending. The UCC itself is not law; rather it is a codex that has been adopted by most states and incorporated into their statutes as law, usually with some variations. UCC Article 9 deals with secured transactions and, in particular, provides for the sale and disposition of collateral subject to a security interest upon a default by the debtor. Similar to a §363 sale under the Bankruptcy Code, a sale under UCC Article 9 provides for a “friendly foreclosure” whereby a defaulting debtor and its lenders cooperate to facilitate a sale of the secured collateral.

Article 9 imposes certain parameters on such dispositions, including that foreclosure sales be “commercially reasonable”, which the UCC specifies as meaning that the collateral be sold in a reasonable and customary manner on a recognized market, at then-current market prices. If the sale was approved in a judicial proceeding, by a bona fide creditors’ committee, by a representative of creditors or by an assignee for the benefit of creditors, then this creates a presumption of commercial reasonability under the UCC.

A less common option is an assignment for the benefit of creditors (ABCs). Laws governing such assignments vary by state and are generally rare, with California being a notable exception where both ABCs are more common and where cannabis is legal. An ABC is initiated by the debtor, which then enters into an agreement to assign its assets to a third-party assignee, which holds such assets in trust for the benefit of the creditors and is then responsible for their liquidation, similar in principle to a trustee in bankruptcy.

ABCs, however, are generally not suitable for cannabis companies as the third-party assignee would not be able to take possession of a licensed cannabis business, or certain assets such as cannabis plants, distillates and other products, without itself being licensed by the relevant state regulatory agency. A similar problem occurs under Article 9 sales, whereby the purchaser of the collateral must be licensed in order to possess and operate cannabis product and, more importantly, the all-important state-issued licenses which provide a cannabis company with the authority to operate as such; the pool of potential purchasers is therefore limited to those purchasers already licensed or which are willing to undergo the burdensome process of becoming licensed, hence shrinking the market for such assets and reducing their value. These issues may be resolved in some states by the assignor/seller entering into a management services agreement with the assignee/purchaser, pursuant to which the assignee/purchaser effectively manages the operations of the cannabis business. These agreements, however, need to be carefully drafted so that they are not seen as constituting ownership of the business by the assignee/purchaser (until the actual transfer of the licenses occurs), as defined under applicable state law.

  1. While absolutely true for “plant-touching” companies, recent cases in the federal Ninth Circuit Court of Appeals provide some (fact-dependent) hope for cannabis-adjacent companies such as those housing the employees or intellectual property of a plant-touching operational cannabis company (this structure itself largely a solution to deal with federal illegality).

Safety & Compliance in the Absence of Regulatory Clarity & Consistency

By Joel Chappelle
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As the legal landscape surrounding cannabis continues to evolve, the creation of robust, sensible and consistent safety regulations remains stalled. A patchwork of broadly inconsistent state rules and regulations, along with years of federal inaction and policy stagnation have the potential to create significant risks for consumers. Given the industry’s explosive, multi-billion-dollar growth, consumers have access to an ever-increasing number of products produced by an increasing number of actors, pursuant to widely divergent standards and rules. Given this, the industry would be well-served to take on the responsibility of promulgating a coherent regulatory framework with robust (but sensible) safety regulations. The importance of collaboration among cannabis industry stakeholders cannot be overstated if we are to develop and adopt consistent standards that guarantee product safety at every step of the supply chain.

Joel Chappelle, along with several renowned experts, will lead the Seed to Sale Safety Workshop at the Cannabis Quality Conference this October 16 in New Jersey. Click here to learn more. Inconsistencies in safety standards and regulations open the door to a range of potential hazards, including contaminant risk, labeling accuracy, potency quantification and many others. Absent a clear understanding of seed-to-sale risks, many of which are not even mentioned in state regulations, cannabis companies face significant exposure, often without even knowing it.

To mitigate these risks, it is vitally important for the cannabis industry to collaborate in the ongoing development of safety standards. This means understanding and implementing safety measures starting with the cultivation process. Careful consideration should be given to factors such as the use of pesticides and herbicides, soil quality and irrigation methods. Standardized safety testing to ensure uniformity between products for potency, contaminants, heavy metals and microbial organisms is crucial to consumer safety. Accurate and comprehensive labeling is likewise necessary for consumers to be adequately informed.

For as long as consistent state and federal guidelines governing cannabis safety remain elusive, the need for industry self-regulation will be paramount. Cannabis companies must work together to share best practices, establish standard operating procedures and adopt stringent safety measures. By promoting transparency and collaboration, stakeholders can build credibility and consumer trust while fostering a safer and more reputable industry.

As the industry continues to grow, it is incumbent upon all stakeholders to continue prioritizing consumer safety through, among other things, a focus on education and inter-industry collaboration, if we are to continue cultivating a trustworthy and sustainable cannabis market for the future. The path forward will require stakeholders to pursue continuous education, improvement, and collaboration in the development of a holistic safety framework capable of ensuring consumer safety.

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Unpacking the New German Cannabis Reform Bill

By Michael Sassano
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Following the German cannabis reform movement is like watching a snowboard jump competition. We launch into the big jump with lofty promises, only to face the difficulty of gaining meaningful, immediate momentum at the bottom of the halfpipe. Nevertheless, we persevere through smaller political moves that set us up for more advanced regulatory jumps, all the while believing that broader cannabis legalization requires sacrifice and the skills to navigate the course properly.

The Cannabis Act is a significant step forward. Although we rarely get exactly what we want, it holds promise for the EU-GMP cannabis producers that have invested heavily in creating a global, pharmaceutical-grade market.

Reforms to Medical Cannabis in Germany

The Cannabis Act proposes reforms to how doctors prescribe cannabis, removing the narcotic designation that stigmatized prescriptions and created liabilities for doctors. If passed, doctors and telemedicine groups will be able to prescribe cannabis for almost any condition without fear of lengthy paperwork or the stigma of controlled substance liabilities.

This framework is reminiscent of early medical programs in the USA and Canada. In these countries, obtaining a prescription for cannabis became steadily easier as patient-driven demand took over. As we can see, the cannabis industries in these nations have flourished.

Home Cannabis Cultivation for German Citizens: A Small Step Forward

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Photo: Ian McWilliams, Flickr

Allowing citizens to grow three cannabis plants at home is not monumental. However, it is a strong symbolic statement about how accessible the cannabis plant should be to the broader population and is the first step toward a decriminalization bill.

This Act signals growing national acceptance from politicians and a shift toward treating the plant as a right for all Germans. Though small, this change needs applause from both institutional cannabis producers and the cannabis advocates that have fought so hard to bring it to fruition.

Cannabis Social Clubs in Germany

Social clubs are a completely unproven economic model, reminiscent of “coffee shop” models paired with small legal grows to service the club. These social clubs are a legal version of those around Barcelona and mirror proposals in Malta and Switzerland.

Though novel, the social club model is a positive shift toward a smaller-scale adoption of cannabis. It addresses a niche market for flower connoisseurs and appeals to cannabis entrepreneurs who want to explore their green thumb. The effect on the illicit market is yet to be seen, just like home grows, but progress here sets us up for the next move.

Looking Toward German Dispensaries

Cannabis institutional investors and producers are all looking towards the next step: American- and Canadian-style dispensaries that allow any adult to walk into a store and purchase a high-quality, regulated product. These establishments will likely compete directly with the illicit market and produce the capital necessary to push cannabis toward national legalization. Although not in the current text of the bill, all eyes are on the future as we celebrate our progress thus far.

The Cannabis Act Holds Promise for the Future

There is something for everyone in the latest Cannabis Act, whether you are a home enthusiast, advocate, members-only green thumb enthusiast or large-scale institutional player. This bill leaves little doubt that we are moving through the legalization course. There is much more work to come, but we are moving forward together and have hope for the future of regulated cannabis in Germany.

2023 Cannabis Supply Chain Virtual Conference

By Cannabis Industry Journal Staff
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2023 Cannabis Supply Chain Virtual Conference

Click here to watch the recording

Agenda

Cannabis Packaging Solutions: Navigating Regulations, Quality & Environmental Impact
Jack Grover, Founder & CEO, Grove Bags

In the cannabis industry, packaging regulations and quality standards play a pivotal role in ensuring consumer safety, product integrity, and environmental sustainability. Join Jack Grover, CEO of Grove Bags, as he delves into the multifaceted landscape of cannabis packaging. The presentation will explore the diverse aspects of packaging regulations, highlighting childproofing requirements and the varying standards across different states. With a focus on transparency, Jack will discuss the merits of a variety of packaging options and their impact on product quality, shelf life, and health. Additionally, he will provide valuable insights into maintaining regulatory compliance, and how all of the above impacts a cultivator’s and end-user’s experience throughout the supply chain. Through this thought-provoking presentation, attendees will gain a comprehensive understanding of the intricate relationship between packaging, regulations, product quality, and environmental impact throughout the global cannabis supply chain.

TechTalk Sponsored by BIPOCann
Ernest Toney, Founder, BIPOCann

Automation Unleashed: Revolutionizing the Cannabis Industry Value Chain
Nohtal Partansky, CEO, Sorting Robotics

Join Nohtal Partansky, CEO of Sorting Robotics, as he explores the transformative potential of automation throughout the cannabis industry value chain. In this thought-provoking session, Nohtal will delve into various use cases of automation, highlighting its significant impact on efficiency, productivity, quality, and safety. This presentation makes a compelling argument for embracing automation as a strategic advantage. Nohtal will unveil the financial benefits, demonstrating how automation reduces overhead costs and drives higher profitability for businesses. He will also address the remote argument, emphasizing how automation minimizes the risk of human error and enhances operational safety. Nohtal will go on to debunk common misconceptions surrounding automation, assuring attendees that it can augment human capabilities rather than replace jobs. The performance argument will shine a light on how automation guarantees consistent product quality, providing consumers with reliable experiences every time. In addition, Nohtal will delve into the contamination argument, showcasing how automation significantly reduces the risk of human error and contamination, thereby improving product safety. Attendees will gain insights into how automation eliminates tedious and overhead-heavy tasks, freeing up resources for more strategic initiatives.

Optimizing Your Cash Handling through Automation, Analytics & Reporting
Shawn Kruger, SVP, Product & Strategy, Avivatech

Shawn Kruger will share how developing a cash automation strategy saves time and costs, ensuring the security and visibility of cash inventory in/across dispensaries, delivery operations and/or cultivation centers. As an industry with limited access to traditional banking accounts, a cash automation strategy supports the business’ goals in ensuring all cash is secure and accounted for, provides the insights needed for all back-office operations to reduce risk and losses due to human error or theft, and verifies procedural compliance at every location. Kruger will explain how you can acquire banking relationships, prepare for taxes and audits with data exports, and maintain compliance with state regulations through automation.

Click here to watch the recording

California’s Social Equity Fee Waiver – Late Is Better Than Never

By Abraham Finberg, Rachel Wright, Simon Menkes
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In a move that Old Guard California Cannabis viewed with bittersweet appreciation, the Department of Cannabis Control on January 1, 2022 announced it would waive license fees for those cannabis companies impacted by the War on Cannabis. Many pre-2017 operators experienced persecution by law enforcement including confiscation of inventory. For those who refused to admit defeat and remained in or returned to the business of cannabis, this significant fee waiver feels something like an apology.

As we move through Year 2 of the Equity Fee Waiver, it’s important for all cannabis companies to review their history and their current operations to see if they qualify for this significant reduction in expense. Instead of arrest or conviction, a cannabis business may also qualify through its eligible owner’s income level or location of residence. Since this is a fee waiver for small businesses, a maximum yearly revenue level of $5 million is also a requirement.

For those Qualified Equity Licensees who have already received a fee waiver, it’s important to remember that this is a yearly process, and that they must continue to submit a request for equity fee relief at least 60 calendar days before the annual expiration date of their license.

Who Qualifies for the Equity Fee Waiver?

Gross Revenue: Your cannabis business must have no more than $5 Million gross revenue per year.

Equity Ownership: At least 50% of your business must be owned by people who have only ONE of these three characteristics:

  • Have experienced a cannabis conviction or arrest, or
  • Have a lower income level, or
  • Reside in a neighborhood affected by the criminalization of cannabis (as defined by the DCC)

Arrest or Conviction

The DCC requires that the equity individual have been convicted or arrested for cannabis crimes before November 8, 2016. Crimes must have been sale, possession, use, manufacture or cultivation. The equity individual may also be eligible if an immediate family member was convicted or arrested for cannabis crimes and the equity individual themselves lived in a California county with drug arrest rates that were higher than the state average drug arrest rates.

Lower Income Level

In order to qualify under income level, the equity individual must have household income no more than 60% of the area’s median income (see DCC charts showing county, number of people in household, and eligible income levels) or prove eligibility for financial aid like CalFresh or Medi-Cal or Supplemental Security Income.

Residence in a Neighborhood Affected by Criminalization of Cannabis

If an equity individual seeks to qualify by location of residence, they must have lived in the qualified location for at least 5 years between 1980 and 2016. The location must have higher than state average drug arrests and be in the top 25% nationally for unemployment and poverty. The DCC provides an interactive map to check your location for these requirements.

Worth the Trouble

Again, your business needs to be below $5 million annual gross revenue, and at least 50% of the ownership needs to have only 1 of 3 disadvantaged characteristics: cannabis arrest or conviction, or lower income level, or residence in an affected neighborhood.

While it will definitely take time to apply for the Equity Fee Waiver, the savings in zeroed-out license fees can certainly make it worthwhile. In addition, qualifying for the Equity Fee Waiver makes a business eligible for other state equity tax advantages including the California Equity Tax Credit. (See our article on the CETC here.)

The state’s application for the Equity Fee Waiver is available online, and more info is available as well.

FDA, FTC Issue Warnings to Delta 8 Copycat Cannabis Companies

By Cannabis Industry Journal Staff
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Last week, the U.S. Food and Drug Administration (FDA) and the Federal Trade Commission (FTC) sent out warning letters to six different companies for selling copycat food products that contain Delta-8 THC. In a press release published on July 5, the FDA and FTC said they sent out letters to the following companies:

  • Delta Munchies
  • Smoke LLC (also known as Dr. S LLC)
  • Exclusive Hemp Farms/Oshipt
  • Nikte’s Wholesale LLC
  • North Carolina Hemp Exchange LLC
  • The Haunted Vapor Room
The Haunted Vapor Room, Dope Rope Bites

The products in question look exactly like common name brand foods like chips, candy and other snack foods. The FDA says they are concerned they might be mistaken for traditional foods, accidentally ingested by children or taken in higher doses than intended. “The products we are warning against intentionally mimic well-known snack food brands by using similar brand names, logos, or pictures on packaging, that consumers, especially children, may confuse with traditional snack foods,” says Janet Woodcock, M.D., principal deputy commissioner at the FDA. “The FDA remains committed to taking action against any company illegally selling regulated products that could pose a risk to public health.”

The FDA has sent out dozens of other warning letters to cannabis companies over the years for illegal marketing, mostly involving misbranding/mislabeling issues. A more common reason for a warning letter is making unsubstantiated health claims. In 2022, the FDA sent out 33 warning letters to CBD companies, including some that were marketing CBD as a cure for Covid-19. In 2021, they sent out a number of warning letters to companies marketing OTC drugs with CBD in them.

FDAlogoBack in May of last year, the FDA sent out their first warning letters to companies selling Delta-8 THC products, then issued a consumer update and warning about the compound a month later. The FDA and some industry stakeholders are concerned not only about the psychoactive substance itself, but also the way it is produced that could use potentially harmful chemicals.

This is the first time since 2019 that the FTC has gotten involved, when they issued similar joint letters to companies making unsubstantiated health claims. “Marketing edible THC products that can be easily mistaken by children for regular foods is reckless and illegal,” says Samuel Levine, director of the Bureau of Consumer Protection at the FTC. “Companies must ensure that their products are marketed safely and responsibly, especially when it comes to protecting the well-being of children.”

Hop Latent Viroid (HLVd) & Pathogen Diagnostics: A Comprehensive Overview

By Tassa Saldi, Ph.D.
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Hop latent viroid (HLVd) has gained attention as the molecular cause of “dudding disease” and is causing significant economic losses in the cannabis industry.1,2 Estimates indicate that upwards of 4 billion dollars of market value are lost each year to this pathogen alone.3 The impact of HLVd on cannabis plants necessitates the development and implementation of effective pathogen diagnostics to mitigate its spread and minimize crop damage. With collaborative research efforts, we can gain valuable insights into the characteristics, spread, symptoms and preventive measures associated with HLVd in the cannabis industry.

Viroids: A Brief Overview

Figure 1: Virus vs Viroid

Viroids are unique infectious agents composed solely of genetic material, distinct from viruses. Unlike viruses, viroids lack a protective protein layer and solely rely on the host plant for replication and spread. Their stability and ability to persist in various environments make viroids a formidable threat to plant health.

Hop Latent Viroid: Origin and Global Spread

Hop latent viroid was initially identified in hop plants in 19884 and was found to be largely asymptomatic in this crop. Consequently, HLVd has spread worldwide, mostly unchecked by the hops industry. This pathogen has been identified on most continents and in some fields more than 90% of hops plants are infected.5 Hop latent viroid very likely jumped from hops into cannabis, due to similar genetics. The timing and mechanism of cross-species transmission to cannabis remains unknown, but the prevalence of HLVd suggests this viroid has been circulating within cannabis for an extended period. Data collected at TUMI Genomics indicates that HLVd is present in all states in the United States where cannabis is legal as well internationally including; Canada, the United Kingdom, France, the Netherlands, Thailand, Austria and Switzerland.

Symptoms and Impacts on Cannabis Plants 

Figure 2: HLVd Symptoms

HLVd exhibits a wide range of symptoms, which can vary from severe to subtle, affecting the growth, leaf development, flower quality and overall vitality of cannabis plants. Understanding these symptoms is crucial for timely diagnosis and appropriate disease management strategies.  However, HLVd can also present asymptomatically, especially in vegetative plants. The only way to determine if your plants are infected is by routine molecular testing.

Modes of Transmission

Mechanical Transmission: HLVd primarily spreads mechanically through contact with infected sap during activities like trimming and handling. Additionally, transmission through contaminated water and the potential role of insects, fungal pathogens and seeds in spreading HLVd have also been observed.

Seed Transmission: Although no published studies exist in cannabis describing the frequency of seed transmission, HLVd does transmit through seeds in hop plants at a rate of around 8%.7 Preliminary studies performed by TUMI Genomics in collaboration with EZ-genetics suggest cannabis seed transmission does occur at variable rates depending on strain and level of infection of the parent plants.

Water Transmission: It has also been observed that viroids are in high concentration in the roots8 and can move from the root into runoff water.9 Plants sharing a common water source with infected plants, such as recirculating water systems or flood and drain procedures, are at risk for transmission of the viroid.

Insect and Other Vector Transmission: The jury is still out as to whether or not insects can transmit HLVd. However, multiple viroids are transmitted via insects, so it is likely that HLVd insect transmission occurs. Recent studies also indicate that fungal pathogens, like Fusarium, can transmit viroid infections.6 While pathogenic fungus is a major concern for cannabis growers in its own right, limiting the prevalence and spread of fungal pathogens in your facility could help limit hop latent viroid transmission as well.

Therefore, implementing proper sanitation practices and limiting pest access can help minimize transmission risks.

Preventive Measures

Prevention plays a vital role in safeguarding cannabis crops against HLVd. The STOP program, developed by TUMI Genomics, offers a comprehensive approach that includes maintaining a Sterile environment, Testing mother plants regularly, Organizing the facility to minimize pathogen spread, and Protecting the facility’s borders from introduction of infected plant material, insects and contaminated water. More details on these preventative measures can be found here.

Pathogen Diagnostics

Protecting your plants from hop latent viroid requires accurate identification and removal of infected plants before the infection spreads to other plants. To accomplish this, several critical factors should be considered:

Type of test: HLVd and all viroids can only be detected by a molecular test (a test that detects the presence of DNA/RNA). Among common molecular tests, PCR is generally the most sensitive and accurate method. PCR can provide both a diagnosis and an approximate viroid level, allowing informed management decisions. Other types of molecular tests, such as LAMP and RPA, can formally be as sensitive as PCR, but the classic versions of these assays often suffer from false positive/negative results, reducing accuracy.

Figure 3: HLVd Levels and Distribution

Tissue type: An important consideration for HLVd detection is the plant tissue selected for testing, especially when identifying low-level or early infections when HLVd is not yet systemic. Studies completed by TUMI Genomics and others show root tissue contains the highest levels of HLVd and is the most reliable tissue for detection of viroid infection. While upper root tissue appears to contain the highest levels of viroid, roots from anywhere in the root ball are predictive of infection. Samples taken from the leaves/foliage tend to have lower levels of viroid and may produce false negative results.

Figure 4: Testing Schedule

Testing frequency: Routine pathogen testing is standard practice in general agriculture and is critical to maintain a healthy cannabis crop. Testing of mother plants every 4-6 weeks for economically critical pathogens (such as HLVd) will help ensure a successful run and a high-quality product.

Disinfection Methods

Studies have shown that viroids can remain infectious for longer than 24 hours on most common surfaces11 and 7 weeks in water.10 Making effective disinfection methods essential to limit the spread of HLVd. While common disinfectants like alcohol and hydrogen peroxide are ineffective against viroids, a 10% bleach solution has shown efficacy in destroying HLVd. Proper tool sterilization practices, such as soaking tools in bleach for 60 seconds, are crucial to prevent transmission during plant handling.

Figure 5: Bleach Dilution

Hop latent viroid poses a significant threat to the cannabis industry, leading to substantial economic losses. Timely and accurate pathogen diagnostics, along with stringent preventive measures, are essential for minimizing the impact of HLVd. Regular testing, proper disinfection protocols and adherence to pathogen prevention programs can help ensure the health and vitality of cannabis crops in the face of this global pandemic.

References

  1. Bektas, A., et al. “Occurrence of Hop Latent Viroid in Cannabis Sativa with Symptoms of Cannabis Stunting Disease in California.” APS Journals, 21 Aug. 2019, doi.org/10.1094/PDIS-03-19-0459-PDN.
  2. Warren, J.G., et al. “Occurrence of Hop Latent Viroid Causing Disease in Cannabis Sativa in California.” APS Journals, 21 Aug. 2019, doi.org/10.1094/PDIS-03-19-0530-PDN.
  3. Cooper, Benjie. “Hop Latent Viroid Causes $4 Billion Cannabis Industry Loss – Candid Chronicle.” Candid Chronicle – Truthful, Straightforward, Blunt Cannabis News, 16 Aug. 2021, candidchronicle.com/hop-latent-viroid-causes-4-billion-cannabis-industry-loss/.
  4. Puchta H, Ramm K, Sänger HL. The molecular structure of hop latent viroid (HLV), a new viroid occurring worldwide in hops. Nucleic Acids Res. 1988 May 25;16(10):4197-216. doi: 10.1093/nar/16.10.4197. PMID: 2454454; PMCID: PMC336624.
  5. Faggioli, Franceso, et al. “Geographical Distribution of Viroids in Europe.” Viroids and Satellites, 31 July 2017, www.sciencedirect.com/science/article/abs/pii/B9780128014981000449#bib47.
  6. Wei S, Bian R, Andika IB, Niu E, Liu Q, Kondo H, Yang L, Zhou H, Pang T, Lian Z, Liu X, Wu Y, Sun L. Symptomatic plant viroid infections in phytopathogenic fungi. Proc Natl Acad Sci U S A. 2019 Jun 25;116(26):13042-13050. doi: 10.1073/pnas.1900762116. Epub 2019 Jun 10. PMID: 31182602; PMCID: PMC6600922.
  7. Singh RP. The discovery and eradication of potato spindle tuber viroid in Canada. Virus disease. 2014 Dec;25(4):415-24. doi: 10.1007/s13337-014-0225-9. Epub 2014 Dec 2. PMID: 25674616; PMCID: PMC4262315.
  8. Jama, Aisha, et al. TUMI Genomics, Fort Collins, CO, 2022, Hop Latent Viroid Levels and Distribution in Cannabis Plant Tissue.
  9. Mackie AE, Coutts BA, Barbetti MJ, Rodoni BC, McKirdy SJ, Jones RAC. Potato spindle tuber viroid: Stability on Common Surfaces and Inactivation With Disinfectants. Plant Dis. 2015 Jun;99(6):770-775. doi: 10.1094/PDIS-09-14-0929-RE. Epub 2015 May 15. PMID: 30699527.
  10. Mackie AE, Coutts BA, Barbetti MJ, Rodoni BC, McKirdy SJ, Jones RAC. Potato spindle tuber viroid: Stability on Common Surfaces and Inactivation With Disinfectants. Plant Dis. 2015 Jun;99(6):770-775. doi: 10.1094/PDIS-09-14-0929-RE. Epub 2015 May 15. PMID: 30699527.
  11. Mackie AE, Coutts BA, Barbetti MJ, Rodoni BC, McKirdy SJ, Jones RAC. Potato spindle tuber viroid: Stability on Common Surfaces and Inactivation With Disinfectants. Plant Dis. 2015 Jun;99(6):770-775. doi: 10.1094/PDIS-09-14-0929-RE. Epub 2015 May 15. PMID: 30699527.

Navigating ISO/IEC 17025: Key Considerations for Cannabis Lab Software

By Montserrat Valdes
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In some states, cannabis testing facilities must undergo a third-party audit as a condition for obtaining their license. This may involve obtaining an ISO/IEC 17025 accreditation, which requires an evaluation from a qualified auditor. Alternatively, some laboratories may undergo a voluntary audit in certain regions to showcase their competency.

ISO/IEC 17025 is a widely acknowledged global benchmark for the expertise of testing and calibration laboratories. It establishes guidelines for laboratories to showcase their technical proficiency and ability to produce precise and trustworthy results.

For cannabis testing laboratories, obtaining ISO/IEC 17025 accreditation can offer a significant edge over their rivals. Such accreditation can result in several advantages, such as improved credibility, lower operational expenses, better conformity with local and state regulations and more efficient cross-border trade.

Integrating any standard into a regulated enterprise can be a complex undertaking and ISO/IEC 17025 is no exception. This standard puts a strong emphasis on quality by requiring laboratories to exhibit their impartiality, consistency and proficiency in all aspects of their work. Compliance with ISO/IEC 17025 necessitates timely and secure data retrieval, which is difficult to achieve without an information management system. Therefore, laboratories are increasingly turning to laboratory information management systems (LIMS) to modernize their practices, improve quality and meet ISO/IEC 17025 compliance standards. This article explores the critical factors that laboratory managers and staff should consider when selecting a LIMS that can help them fulfill the demands of ISO/IEC 17025. However, let’s first discuss the sections the ISO/IEC 17025 requirements are classified into.

ISO/IEC 17025 Requirements 

The ISO/IEC 17025 requirements are divided into five sections:

  1. General Requirements (Section 4): The fourth section of the ISO/IEC 17025:2017 standard details the general conditions that laboratories must follow. This section is primarily concerned with two critical aspects: impartiality and confidentiality. The impartiality requirement mandates laboratories to remain unbiased and take measures to prevent any potential bias. Similarly, the confidentiality requirement mandates that any information collected or generated during laboratory operations must be treated as private and safeguarded adequately to prevent unauthorized access. In instances where the release of confidential information is necessary by law or contract, the laboratory must communicate such release in an appropriate and timely manner.
  2. Structural Requirements (Section 5): In order to achieve the three key objectives of competence, impartiality, and consistent operations, this section addresses the fundamental organizational requirements of a laboratory. This entails being a legal entity with well-defined management responsibilities and documenting all activities, procedures and methods that fall within the standard’s scope. It highlights the importance of human resources by requiring laboratories to provide individuals with the necessary authority and resources to identify and rectify deviations from procedures, methods and the quality management system.
  3. Resource Requirements (Section 6): This section highlights the crucial role of resources in helping a laboratory achieve its objectives and maintain high standards. The section covers five areas, namely personnel, facility and working environment, equipment, metrological traceability and third-party products and services. To meet the standard’s requirements, personnel must demonstrate competence and impartiality, and lab personnel must record their current training status. Lab staff should also be provided with adequate resources to perform their duties. The facility and working environment should be suitable for generating accurate analytical results, while equipment must be properly calibrated and maintained. Metrological traceability is important to establish the connection between measurement results and a reference. Additionally, it is essential to thoroughly evaluate and approve third-party products and services to ensure their suitability. Clear communication of the requirements to third parties is also necessary in this regard.
  4. Process Requirements (Section 7): This section of the standard outlines 11 essential processes that aim to improve efficiency in laboratory operations. The processes include evaluating requests, tenders, and contracts, as well as selecting, verifying and validating methods. This section covers areas such as sampling, test item handling, and technical record-keeping. Other requirements include reporting outcomes, managing complaints and non-conforming work and controlling data and information management, which is especially important in the current digital era.
  5. Management System Requirements (Section 8): Section 8 deals with the laboratory’s management system, which must support consistent adherence to the standard’s requirements while ensuring the quality of the laboratory results. The section offers two options for the management system: Option A for new systems and Option B for existing systems driven by ISO 9001. The section consists of eight tasks which involve activities such as documenting the quality management system (QMS), identifying and addressing potential risks and opportunities, implementing measures for improvements and taking corrective actions. The final clause of the section involves conducting an internal audit of the laboratory’s management system to ensure it complies with the standard’s requirements.

Key Considerations for Selecting a Cannabis Lab Testing Software or LIMS

A cloud-based cannabis lab testing software to manage staff training with ease

Before selecting a Laboratory Information Management System (LIMS) for your cannabis testing lab, it is crucial to comprehend the informatics requirements of your laboratory. This involves understanding analysis necessities, limitations on reporting and data sharing, demands for instrument interfacing, requirements for sample barcoding and tracking, and procedures for ensuring quality assurance. Once all this is in place, a laboratory should take into account the following considerations:

Technology Considerations

When considering technology options, it’s important to consider future growth, data management and security and regulatory responsibilities. If a laboratory expects to grow in the future, it should consider investing in technologies that could enhance data management practices and security. The laboratory must also take into account how compliance with ISO/IEC 17025 will impact its future expansion and technological needs. To determine hardware and software investment, the laboratory must consider the type of work it will be performing and the associated regulatory and customer-centric responsibilities. It is also essential to identify the person or team responsible for addressing any potential technological problems, like setting up and maintaining software. If the laboratory wants to avoid procuring IT infrastructure and hiring IT personnel for maintaining LIMS, they should deploy a cloud-based LIMS that eliminates the need to have an elaborate IT infrastructure or dedicated IT staff. 

Cybersecurity Considerations

As the need for cybersecurity continues to grow in various industries, it has become apparent that cannabis testing laboratories are also vulnerable to cybersecurity threats regardless of size. Therefore, it is important to consider additional cybersecurity measures for these laboratories. Although the ISO/IEC 17025 standard does not explicitly mention cybersecurity, it does address the proper control of data in section 7.11. The standard emphasizes that LIMS, whether hosted locally or in the cloud, should be protected from unauthorized access and tampering. To comply with the ISO/IEC 17025 standard, laboratories should integrate cybersecurity considerations into their LIMS selection process. This can be achieved by creating a cybersecurity plan and including cybersecurity controls in the user requirements specification (URS) for LIMS software. Using a pre-built URS that includes cybersecurity controls can simplify the process of evaluating and selecting informatics software for laboratories. It is important to maintain the LIMS to ensure data and information integrity, recording any security breaches or non-conformance and addressing them promptly.

Regulatory Compliance Considerations

Meeting well-designed standards like ISO/IEC 17025 can enhance a laboratory’s operational culture and assure the reproducibility and accuracy of test results. If a laboratory is considering purchasing a LIMS solution and is unsure about how it can align with ISO/IEC 17025 and other regulations and standards, they can refer to resources like ASTM E1578-18 Standard Guide for Laboratory Informatics for guidance. The laboratory’s own requirements list can then be used as a checklist for vendors.

System Agility

A schematic representation of the various requirements of ISO 17025

Laboratories should consider if the LIMS under consideration can handle adding other types of testing, protocols, and workflows in the future. A flexible LIMS that allows for configuring various aspects of the system, such as sample registration screens, test protocols, labels, reports, and measurement units, is essential. When evaluating a vendor’s system, it’s important to understand what makes it user-configurable and how easy it is to make changes. Moreover, you must check if you can make changes in the system without requiring programming skills.

Cost Concerns

For a laboratory to have a clear understanding of what is included in the sales agreement, it is important to provide an estimate or statement of work (SOW) that outlines the details of the anticipated elements with as much specificity as possible. These elements should include the cost of licensing or subscription, core items needed to comply with regulations, the total cost of optional items, and the required services such as LIMS implementation, maintenance, technical support, training, product upgrades, and add-ons. There are two main pricing models for LIMS solutions: a one-time license fee and a subscription fee for cloud-hosted LIMS. If a laboratory has an internal IT team, it may prefer the one-time fee, but a SaaS subscription may be more cost-effective if they don’t have an IT team and want to save on hefty upfront cost. To accurately reflect the various pricing nuances, the estimate or SOW should specify whether the costs are for monthly or annual subscription services, hourly support and training, or a one-time fixed cost. 

The ISO/IEC 17025 accreditation offers several benefits, including improved credibility, lower operational costs, and better conformity with local and state regulations. However, integrating ISO/IEC 17025 requirements into a laboratory’s practices can be challenging. That’s where a cannabis lab testing software comes in. Laboratory managers and staff must consider several critical factors when selecting a LIMS to meet the requirements of ISO/IEC 17025. Key considerations for selecting a LIMS to meet ISO/IEC 17025 requirements with ease include technology considerations, cybersecurity considerations, regulatory compliance considerations, system agility and cost considerations. By meeting the compliance requirements of the ISO/IEC 17025 standard, cannabis testing laboratories can ensure the quality of their results and provide trustworthy services to their customers.

Building An Integrated Pest Management Plan – Part 6

By Phil Gibson
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This is the sixth and final in the series of articles designed to introduce an integrated pest management framework for cannabis cultivation facilities. To see Part One, an overview of the plan and pest identification, click here. For Part Two, on pest monitoring and record keeping, click here. For Part Three, on preventative measures, click here. For Part Four, control methods, click here. For Part Five, pest control action thresholds, click here.

This is Part 6: Emergency Response

When all prevention efforts have failed and your escalation procedures must be implemented, your emergency response document takes the stage.

Figure 1: We never want to see these at our door

It sounds obvious, but your emergency response document is your team’s guide to structure your response to an emergency. This begins with the simple definition of what is an emergency for your business. Emergencies can be to your personnel (personal injury) or your infrastructure (broken pipes/floods, power failure), and finally, a pest or pathogen outbreak that threatens the entire facility (insects/fungus, molds). Be sure to get the advice of your local service providers on the important things to put in to your response plan. This article is far from an exhaustive list, but it can get you started quickly with the basics for example purposes.

Personal Injury

Personal injuries are the events where you would call your local fire or police resources after stabilizing trauma events. Examples are chemical exposure, cuts, lacerations or broken bones from falls or crush events, burns, electric shock or earthquake or weather events. Injury response is to assess, call for medical assistance if appropriate, provide first aid and stabilize the injured, move to safety if possible, treat the injury and after the event is over and still fresh in everyone’s mind, consider what can be done to avoid the repeat of this or similar events in the future. Work those changes into your standard operating procedures.

Emergency Response to Facility Events

Figure 2: Cultivation IPM Prevention with Beneficial Insects

Whether the event is broken pipes or flooding, power failure or interruption, fire, HVAC failure or weather event, emergencies come in all sizes possible. It is likely that you built up a plan for emergency response as part of your city permitting process. Be sure to use those experts to refine your plan to include your operations.

Broken pipes start with the basics of turning off the source feeds and fixing the plumbing. If the water is actually rich fertilizer nutrients, cleaning and disinfectant is necessary as part of the drying and mop up process.

Environmental damage from fire, HVAC or weather event, lead to immediate treatment to try and save the current crops. This would include manual watering/misting, portable heater/cooler/CO2 burners. Verifying that backup power supplies turned on as planned. Are emergency fixes sufficient to power or run the systems necessary for plant life until power is returned?

Cultivation Events

Figure 3: Emergency Response Team Investigating Treatments

This entire paper has been about pest management, so emergency is expected to mean a pest or pathogen outbreak. We defined the escalated response actions up to the point of direct action and chemical interventions in chapters four and five. Your emergency response plan takes those actions to a site wide effort. Identify the pest and location/s that are causing the crisis, isolate the infested plants, remove the infected materials, clean, disinfect, and purify the contacted surfaces. Follow your plan and contact your emergency leaders.

Emergency Response Team

Your emergency response document identifies each of your team leaders and executives that are to be contacted in the event of an emergency. These leaders should be identified in the document with contact details and methods/on-call schedules for days and times of responsibility (after normal hours and holidays included). Someone is always on-call. The personal injury, facility and cultivation lead responsible should be identified and aware that they are the assigned resource and to treat emergencies as a priority.

Figure 4: IPM Preparation – Put It All Together for Success!

In Conclusion

We have covered an example integrated pest management philosophy from prevention through observation to limiting expansion to treatment and review. This continuous monitoring and learning process is a living document of standard operating procedures for any facility.

The attention of your team, their scouting observations, and attention to detail give you an opportunity to address and restrict any pest outbreak before it destroys your crop. Teach your operators well and reward them for their attention to your plan.

Clean and sterilize your facilities regularly. Preventing the emergence of pests will pay for the investment in a multitude of ways in both savings and profits. Plan your response thresholds and use traps to monitor your escalating protections. Target your treatments and remediations to match the threats to your harvests. As a last resort, apply approved chemical treatments judiciously to minimize the impact on non-target organisms.

Evaluate the effectiveness of your plan on an annual basis. Put your improvements to work for you to minimize your pest footprint and to increase your profits in every harvest.

For a copy of the complete Integrated Pest Management guide, download the document here.