Jason Vegotsky, Chief Executive Officer, Petalfast
Current cannabis distribution models make it hard for emerging cannabis beverage brands to launch and scale their businesses successfully. Instead, the wine & beverage sector could provide a model that would allow these brands to build relationships with retailers, foster competition, and improve brand diversity for consumers. In this presentation, Jason Vegotsky will delve into the cannabis sales and distribution model, examine how current models hurt emerging brands and products, and analyze how other CPG models, specifically in food & beverage industries, can be applied to cannabis to build relationships and improve sales.
Track-and-Trace Technology: Building Resilience in the Cannabis Supply Chain
Michael Johnson, CEO, Metrc
Building resilience in supply chains is a goal for all parties involved in a given market. Governments have an interest in protecting the health of consumers while safeguarding the flow of goods; businesses want to stay compliant while efficiently moving products; and consumers want and should expect that the products they buy are safe and effective. With heightened awareness around transparency and consumer safety in the cannabis industry, track-and-trace technologies have been central to building broad trust by ensuring more secure supply chains. In this presentation, Michael Johnson will discuss how these tools will continue to be deeply transformational in the sector.
Improve Your Operations through Cannabis Industry Analytics – CannaSpyGlass Sponsored Tech Talk
Adam Hutchinson, Co-Founder, CannaSupplyGlass
As new markets legalize and additional business licenses are distributed, competition between cannabis operators is intensifying in every stage of the supply chain from seed-to-sale. It is now tougher than ever to carve out a piece of this increasingly saturated market and cannabis operators aiming to succeed must incorporate industry analytics into their decision-making process. With data analytics, cannabis is no longer an industry of trial and error, and in this session, cannabis operators will learn how to obtain and utilize data analytics to improve their businesses and sustain long-term growth.
Quality and Safety and the Edibles Supply Chain
Steven Gendel, Ph.D., Principal, Gendel Food Safety
As the number and variety of cannabis and hemp-containing edibles continues to increase, the supply chains for these products have become complex and diverse. This means that manufacturers must understand how to develop and apply supply chain controls that protect consumers and ensure product quality and safety. For example, a simple cannabis-infused baked product might contain more than 20 non-cannabis ingredients sourced from multiple suppliers. The manufacturer of this product must ensure that each of these ingredients meets specifications every time a new batch or lot is received and used. Unfortunately, there is little guidance available to the cannabis industry (especially those who are not familiar with food manufacturing) on how to identify and evaluate supply chain risks or on what controls will be most effective in mitigating these risks. This talk will look at the steps that cannabis manufacturers can take to evaluate their supply chain, monitor and control identified risks, and respond to changes in the industry landscape.
The cannabis supply chain has pitfalls and landmines that can severely hurt a business if navigated improperly. The balance between branding, packaging, growing, distribution, testing, and quality is difficult to achieve. If one of aforementioned topics fails to deliver, it can mean huge financial losses or the death of a brand. In this presentation, we will cover how managing cash flow throughout the supply chain is critical to running a successful operation. There will be several case studies in improperly managed supply chains and their consequences on the balance sheet. There will also be an exploration of what the ideal supply chain would look like in the California market, how that correlates to other adjacent industries, and how it manifests into liquidity.
That said, between the 38 states, there’s plenty of differences and those show up in the nitty-gritty details that appear on the product label – health warnings, regulatory statements, THC symbols, THC limits and more.
Planning for packaging & labeling in advance will help maintain brand integrity, control costs, and ensure compliance across states.
This fragmented regulatory environment creates confusion, cost and risk. It also challenges brand owners and licensees to be thorough in their discussions around costs and responsibilities. Planning for packaging & labeling in advance will help maintain brand integrity, control costs, and ensure compliance across states. Here are some of the nitty-gritty details to consider:
Brand Design/Logo
Building a successful brand starts with giving it a name and designing a distinctive look that speaks to your target market. Are you selling in one state or do you plan to expand? Commonly, state regulations prohibit images of humans, cartoons and children as well as any resemblance to commercially available non-cannabis consumer food, beverage or candy products. But what about images of fruit? Be careful. Be prepared to adapt. In Massachusetts and Illinois, images of apples, lemons and berries on the package are fine, but in Maine and Maryland they’re not. Some states regulate colors and layout.
Font Specifications
Within labeling regulations, some states specify easy-to-read fonts (e.g., Arial, Helvetica, Times Roman), font style (e.g., bold, all capitals), and font size (e.g., 1/16” is the minimum in some, 1/12” in others). Illinois relies on reasonable judgment – “Warning statements should be of a size that is legible and readily visible to a consumer inspecting a package.” If you may have any questions on legibility, think about what an inspector may say.
Warnings & Regulatory Statements
Edible products need to contain nutrition facts, ingredients, allergens and more.
Warnings printed on cannabis labels differ from state-to-state but all contain verbatim statements regarding health risks, pregnancy, breastfeeding and emergency instructions. Most advise caution though some say “impairment” while others say “intoxicating” and “illegal.”
Regulatory statements, like warnings, are usually provided verbatim. The statements can be age requirements, health authority disclaimers or testing disclaimers. Always required is the manufacturer name, contact information and a version of “keep away” from children and animals.
Edible Requirements
Edible labels are regulated the same as consumer packaged foods so must include ingredients, allergens, nutritional values, but some states require more or different information. For example, depending on the state, consumers are warned that edible “effects may be delayed.” In Massachusetts, Illinois, New Jersey and Maryland, the label specifies the delay could be “2 or more hours.” In Maine, New York, the warning says “4 hours or more.” Other states simply warn without a quantitative measure, or fail to mention it.
THC Symbol
One of the more obvious examples of differing labeling requirements between states is the THC symbol. Starting with CA and CO, each state that legalized cannabis chose to design and adopt a unique THC symbol (with the exception of ME, VT and MA, which share one). In 2020, Doctors for Cannabis Regulation proposed a universal THC symbol, the “International Intoxicating Cannabis Product Symbol (IICPS)”. In 2022, ASTM International recognized the symbol and published the Standard Specification for International Symbol for Identifying Consumer Products Containing Intoxicating Cannabinoids and it’s starting to take hold in the U.S.
Batch Specific Information
This is the label that is printed on site and applied to a finished package. Again, requirements may differ between states but typically, at a minimum, this label will include a batch number, product identifier, manufacture date, weight, package date, test date and cannabinoid potency values, and more.
A growing segment of consumers are becoming more educated and seeking to make informed decisions about the cannabis products they are inhaling, ingesting or applying. Beyond THC and CBD potency, they want to know about other cannabinoids, terpenes and flavonoids. For them, QR codes that link to this information are highly valued. Is this part of your brand strategy?
When designing the package for any one state, it’s important to create a template batch label and specify on the label artwork where it will be applied. This way, you will avoid stickers covering your beautiful branding or worse, obscuring regulatory content.
And Finally,The Container
Cannabis packaging suppliers offer a wide range of containers designed to meet federal child resistance regulations. (Request certification documentation for your records.) Other considerations are the brand strategy. What’s the “look and feel”? Simple for the budget-conscious, premium for the luxury buyer? Will you be offering single servings, multiple servings, how many flavors/strains?
In addition to the usual variables such as volume, price and delivery, cannabis manufacturers also need to have an eye on state regulations when making procurement decisions. Some states are considering aligning sustainability goals with cannabis packaging requirements. For example, within New York’s proposed adult-use regulations is a provision for manufacturers to incorporate at least 25% post-recycled consumer content into their packaging. While the law as written may not get adopted, the movement for states to consider sustainability in cannabis packaging regulations has begun.
The variation in labeling regulations between 38 states is in the nitty-gritty details. Brand owners & licensees that take a strategic approach to expansion will minimize cost of goods, maintain brand integrity and ensure compliant labeling in each state they sell.
As the former CEO of Partner Colorado Credit Union (PCCU), Sundie Seefried has been in the credit union space for 39 years. Established in 2015, Safe Harbor Financial is now a leading provider for banking and financial services in the cannabis industry.
Seefried founded Safe Harbor as a cannabis banking program for PCCU, and since then it has withstood scrutiny of 16 separate federal and state exams. Entering its ninth year as a cannabis banking program, they have almost 600 accounts in 20 states and have processed over $14 billion in transactions for the cannabis market. In September, Safe Harbor began trading on Nasdaq under the symbol SHFS. The company has also announced a definitive agreement to acquire Abaca, an industry-leading cannabis financial technology platform.
Seefried has seen it all in the cannabis banking world. We wanted to get her thoughts on some current events, the future of cannabis banking and lending, and what the next few years might hold in store for an industry ready to grow.
Cannabis Industry Journal:Tell us a bit about yourself. What is your background and how did you find yourself in the cannabis industry? How did you get to become president and CEO of SHF?
Sundie Seefried, President & CEO of Safe Harbor Financial
Sundie Seefried: I’ve been in banking in the credit union space since 1983. I became CEO of Partner Colorado Credit Union in 2001 and stayed there for 21 years. Everything I do, I have a very conservative nature just from being in the banking world and doing things methodically and building good foundations that endure long term. In 2014 when FinCen issued guidance, I was supposed to retire, and I had dinner with some old friends that were attorneys who couldn’t get bank accounts for their clients in the cannabis industry. They asked me to help and I looked into it for them. I assumed the regulator would shut me down but he didn’t; he actually encouraged me to move forward and look further into things. As I educated the board, we saw just how unsafe Colorado was and the serious need for the community to figure things out with respect to banking and cannabis. Coming from that credit union perspective, I said I think we can do this, let’s try and I’ll go through the third parties necessary. And that’s how we got into this, just looking to try and help solve Colorado’s problems and get banking access for cannabis companies.
CIJ: Tell me about your company’s mission. What is your financing strategy in cannabis and of the companies you do business with, what do you look for most?
Seefried: Our mission remains the same, and that is to normalize banking in the cannabis industry as much as possible. Because the black market still exists, the issue becomes sorting the legal entities out from the illicit actors in the industry. We know that the illicit market is trying to hide amongst the legal environment, which really makes things difficult for upstanding cannabis businesses. We can normalize banking by making sure we help legitimize the compliant entities and sort out the bad actors. We really only want to work with legitimate players with licenses, who are fulfilling expectations on the regulatory level and have no problems with compliance. We have been able to do that on the depository side.
We have always been a low-cost provider and our clients count on that. As we move into the lending part of the industry, we’re looking to do the same thing. There are lenders who charge one-to-three percent per month, 18 to 36 percent per year. We, on the other hand, are targeting more of an eight to thirteen percent annual rate. More of a conservative approach. Real debt underwriting. No extremely high interest rates. We look for the collateral, we look for well-organized businesses and solid documentation. Those are the businesses we are trying to bring into the fold and offer them normal loans. Cannabis will always have a premium on it simply because it is illegal at the federal level and there are additional hoops we have to jump through. Because of the potential forfeiture and seizure, if there are bad actors, etc., it really behooves any clients coming to us to also place their depositary services with us so we can prove their legitimacy and provide loans to them.
CIJ: Let’s talk about the Canopy Growth news. They announced they are pulling the trigger on acquiring Wana Brands, Acreage Holdings and Jetty Extracts, under the Canopy USA holding company and ahead of federal legalization. On the surface, it looks like they are bypassing a lot of the hurdles American cannabis companies currently face with financial red tape. As a foreign company trading on the NASDAQ dealing with a schedule 1 substance, do you expect Canopy to have a significant, some would say unfair, competitive advantage with their early entry? Or is this perhaps more of a rising tide lifting all boats scenario? What effect will this have on the current market landscape?
Seefried: I find it a very interesting move on their part. Certainly, they have a big advantage in comparison to other companies. The consolidation in the industry is moving so quickly. Other players will keep up with this just as fast as Canopy is moving in. That’s my opinion in terms of what I see in the consolidation area of the market. I think what it really hurts is small businesses. My heart goes out to them. So many of them worked so many years to build excellent small companies with boutique shops, and this whole move will really change that part of the industry.
I see a lot of these small players, non-vertically integrated companies, being impacted in a negative way due to such mass consolidation and the entry of foreign businesses. We need to get more competitive on a global level in order for our companies to grow and thrive. This happened back in 2018, when so many companies started doing those reverse takeovers onto the Canadian Securities Exchange and suddenly, they were putting tens of millions of dollars into the U.S. market. People didn’t see that as a competitive disadvantage for American companies, but now this move by Canopy may really show that we have to look at things more globally.
CIJ: Biden’s announcement regarding the scheduling review for cannabis has a lot of industry folks very hopeful that federal legalization is closer to a reality than before. Do you share their optimism?
Seefried: Closer than before, yes. But how close? I am not convinced it will happen quickly. If they are really going to consider rescheduling or descheduling, everything happens in Washington very incrementally. Eight years and seven attempts at the SAFE Banking legislation and still no movement on that front. Tomorrow, we’re going straight to legalization? I have a hard time swallowing that one. I just don’t see that big of a jump all at once. I think it is interesting coming just before the midterms and votes are really needed now more than ever.
What Biden did was a great start. Especially for those people in prison for possession. The interesting part of it is, we are very serious about people who have used it, but the people who have sold it and are in prison might be in the same situation. Given how the laws worked for so long, just based on the amount of cannabis you had could get you automatically labeled as a dealer, which isn’t the case for a lot of incarcerated folks.
The fact is, the social equity and justice issue, who do you free or who do you not free from prison, is a very difficult issue to get through. I think it is a great step forward and it will help some people who were treated unjustly, but there is still a lot of work to be done.
“I believe we’ll start seeing pressure from the global market on the United States to move things along a little faster in our own country.”As far as rescheduling, if they go from a Schedule I drug to a Schedule II drug, that will do no good, but it certainly is a bone to throw to the industry if you want to look like you are making some progress. Schedule II is still subject to 280E tax code so it will only do so much. If they want to make things more equitable and actually level the playing field, they have to do something about the 280E issue hindering every cannabis business in the country.
As far as full legalization, I am not optimistic because of all the players that need to be involved. Full legalization will require a change to the IRS tax code 280E as well as other tax issues. I think there are too many players: The DOJ, FinCen, the DEA, the FDA, the IRS. All of these agencies will have to agree on full legalization and moving forward in unison. The DEA is trying to fight illicit actors and illicit drugs. FinCen is trying to follow the money to find illicit actors. As long as there is an illicit market it will make their job tough, and on top of all of that, we have politics in play. That is just my take on legalization. It is going to be a much more complex problem than just legalizing the plant and moving on. Rescheduling seems like lower hanging fruit, but they will have to move it higher than a Schedule II.
CIJ: With the midterm elections here, there are a number of legalization measures in a handful of states, along with political control of Congress on the ballot. How do you think a Republican or Democrat controlled Congress will affect cannabis legalization progress?
Seefried: I just finished doing some lobbying in September in DC and spoke to some Senator offices in person, and I heard a lot of interesting topics being discussed. One of the things that keeps popping up is that social equity and justice is a huge issue. If we can’t solve this injustice in our system that has been going on for decades and decades, maybe they’ll hold banking legislation hostage. You can’t correct 50-60 years with one piece of legislation. Everything has to be incremental, unfortunately, so there will be some give and take there. I think that was a primary focus, especially with the Democrats and I do think it is a worthy cause.
On the Republican side, economically improving our competitive advantage as a country. They are starting to see the jobs being created and the tax revenue coming in and the growth of the industry. They will have to make that decision at some point in time whether they are going to leave the American cannabis industry behind or allow them to compete on a global level. I really think everything will move slowly and continue as it has happened in the past.
I believe we’ll start seeing pressure from the global market on the United States to move things along a little faster in our own country.
CIJ: As we inch closer to 2023, what do you expect the next year to offer for the cannabis financing market?
Seefried: I would say, with or without legislation, they’re finding greater access to banking. And the reason they are getting better access to banking is because none of us have been prosecuted for simply engaging in cannabis banking. I think we have set a precedent over the past eight years, not only us but other service providers in the industry and that we are not being prosecuted.
I see more financial institutions entering the market slowly. The second reason access to capital and banking will increase is because every financial institution in the country wants that lending relationship. In order to get there, they want to start with the depository relationship, and they don’t want smaller players presently doing it and getting all of those relationships before they enter the market. I think the competitive nature of the financial industry to land that lending relationship is going to force them into the game sooner than later.
Election Day in 2022 has come and gone and as the dust settles, it looks like voters favored cannabis legalization in some states, but failed to pass muster with other key ballot initiatives. While we wait to see the final tallies for which party will gain congressional power in the United States, we can safely call the cannabis legalization ballot initiatives.
In Maryland, voters overwhelmingly passed a legislatively-referred ballot question to legalize cannabis for adults. Question 4 passed with a clear 65.5% margin. The General Assembly gets to decide a sales tax rate for all cannabis sales following the question’s approval.
With 89% of the votes reported, Missouri’s Amendment 3 appears to have passed muster with a 53.1% margin. Amendment 3 legalizes cannabis for adults and sets a 6% sales tax rate. Notably, it also expunges convictions non-violent cannabis-related offenses.
According to the Marijuana Policy Project and the Associated Press, ballot initiatives to legalize adult use cannabis in Arkansas, North Dakota and South Dakota have all failed.
Arkansas’s Issue 4, which would have legalized adult use cannabis and instated a 10% cannabis sales tax, lost by well over 100,000 votes. With 95% of the votes being reported, it appears that only 45.1% of voters in North Dakota backed cannabis legalization. South Dakota’s population struck down cannabis legalization with a 52.9% majority.
The cannabis laboratory testing market has undergone a lot of changes in the past ten years. With those growing pains so common in such a new industry, come plenty of challenges driven by market dynamics, new regulations and scientific advancements.
Julie Kowalski, a cannabis testing consultant at JA Kowalski Science Support, has seen these changes firsthand. For twelve years, she worked at Restek as a senior chemist, helping to provide expertise and develop analytical solutions for their cannabis testing partners. She also worked as chief scientific officer for Trace Analytics, a cannabis testing lab in Spokane, Washington. Between being an advisor, consultant, trainer and accreditation assessor, she wears many different hats in the space. We sat down with Kowalski to learn more about the evolution of the marketplace, the importance of product safety and some of the common challenges that labs face.
Greg Kozadjian: Tell us a little about yourself and how you came to be working as a consultant in the cannabis and hemp testing industry?
Julie Kowalski, Owner of JA Kowalski Science Support
Julie Kowalski: I began working on gas chromatographs when I was about 20 years old, added liquid chromatography to my repertoire in my early 20’s, and have been in the lab nearly every day since then.
My consulting business launched in early 2020 after I received numerous requests from my network for help and advice regarding cannabis testing. I am passionate about helping people, talking science, and promoting growth and innovation in the cannabis industry.
Speaking with individuals and businesses who potentially received conflicting advice or felt somewhat overwhelmed by the complex and rapidly evolving cannabis industry, I realized I could help. So, I decided to utilize my experience and knowledge to promote trust and expertise within the cannabis industry and champion science over profit.
Kozadjian: Why do you think it’s crucial to test cannabis and hemp-based products in today’s market?
Kowalski: The way I look at it is that cannabis and hemp-based products are like any other product in that the consumer has the right to have some assurance that these products are safe, and that the labeling information is accurate.
Then, there are the increasing number of people seeking to use cannabis for medicinal reasons. Again, the industry should be able to assure them that the products they are using are safe to help them with their health issue.
Kozadjian: How has the market evolved over the last five years to meet the current testing regulations, and which of those regulations focus more on the safety of cannabis and hemp-based products?
Kowalski: In the past five years, more states have been coming online domestically. So, we are dealing with a regulatory environment where different states may have different regulations, a situation that will continue to exist for the foreseeable future. There have been efforts on the regulatory side, if not to coordinate efforts directly, to at least connect and communicate, and hopefully, out of those communications comes increased coordination.
I am hopeful that scientists, myself included, can do our part and provide additional data and information about testing that works, testing that doesn’t work, and that the regulators will consider and incorporate much of that information into changes in current and future regulations.
It is important to note that many state agencies were put in the position of creating a regulatory system that they were perhaps not familiar with, or accustomed to doing, particularly from the testing standpoint. There are no federal programs to model against, so programs are being developed from scratch and need to address all aspects of the market. It is a complicated task. It made sense to borrow from similar existing markets, but there is now the opportunity to use what we have learned to improve regulations.
For example, adopting certain criteria and practices from environmental, food, and agricultural testing was a great place to start. Now, we better understand some of the unique challenges associated with cannabis testing, it is time to set our fit-for-purpose best practices.
I hope that we, as an industry, can increasingly provide more data to help guide the regulators so that their goals are achieved and based on a growing body of data. I am optimistic that there will be much more interaction and coordination between regulators and scientists. This would greatly help with some of the struggles some cannabis labs are feeling in the current market.
Kozadjian: What are some of the challenges that testing labs face?
Kowalski: The cannabis and hemp-based products market is competitive with multiple sources of pressure. A definite challenge has been the gold rush mentality. Folks want to enter the cannabis business, and establishing a testing lab is attractive and perhaps perceived as more comfortable because it is not directly growing or producing a product.
There is a burden to set up a lab and open as quickly as possible because while the lab is being set up no money is being made. It can be stressful, and sometimes shortcuts are taken while developing technical programs. These shortcuts can ultimately cause disruption, stress, and risk. I saw this ten years ago, I saw this five years ago, and I am still seeing it now. I am still waiting for people to come into the industry with more realistic expectations of what it takes to establish functional technical programs and laboratories.“There are fundamental knowledge gaps that this market as a whole needs to address.”
Inadequate technical programs resulting from poorly vetted and insufficiently validated methods do not function well in the real world, changing regulations, as well as changing matrices, can result in chaos in the lab. A lab will fight fires daily if it does not plan for and build well-vetted, robust methods. Unfortunately, I have seen many new testing labs rush through development, and then when they open their doors for business, they realize their methods do not function properly.
Daily, they may be faced with deciding whether they should pass a sample batch because technically, it did not meet the criteria, but the client is waiting. Or labs constantly needing to retest may lose confidence in their ability. This is a high-stress situation, and quite a few labs are probably operating in this mode in the market right now. Substandard testing is becoming riskier as we see scrutiny, mainly due to test lab shopping increasing. I do want to make it clear and be fair to point out that the economics of cannabis testing is challenging. Pricing in most markets is too low to allow high-quality testing.
Kozadjian: How do you think this testing era will evolve in the next five years?
Kowalski: I think we will start to see more involvement and recognition of standards organizations like the AOAC, USP, ASTM. They have existed and have been working for at least a few years, and now are publishing methods, guidance documents, and providing education. That will be very helpful, and I invite testing labs to join in and participate in these efforts. Your voice is critical. We need more knowledge in the market, whether it is knowledgeable people entering the market, or people currently in the market who are willing to invest the time to learn analytical chemistry, for example. There are fundamental knowledge gaps that this market as a whole needs to address.
As the cannabis industry continues to grow, regulations will only get more onerous and complex, and enforcement will ramp up. In order to survive, it’s imperative for cannabis business owners and the ancillary companies that support them – such as banks, insurance agencies, law firms and marketers – to keep on top of regulations.
Due to cannabis’ fractured regulatory environment, confounding state and local laws, and the fact that regulations are constantly changing, keeping track of it all can nearly seem impossible at times. But companies don’t need to reinvent the wheel and handle compliance on their own.
There are a host of tools on the market today that can help cannabis related businesses (CRBs) streamline their operations. RegTech solutions can drastically reduce the challenges of navigating compliance, saving companies significant time and money so they can focus on their core competencies. Here, let’s take a look at five of the main reasons everyone in the cannabis ecosystem should seriously consider adopting RegTech solutions today.
1. Simplify the Complex
The heart of RegTech solutions is taking out the guesswork when tackling compliance while mitigating risk. Besides there being a vast number of regulations that vary by state, they’re also not easy to understand – they’re really written for lawyers, can be hundreds of pages long, and don’t offer implementation guidance. Thankfully through RegTech, operators and ancillary companies are alerted when regulations change and are given easy-to-follow implementation and remediation guidelines that can be as easy as checking a box.
Beyond just simplifying compliance, RegTech can substantially increase operational efficiency.
As the cannabis industry has been rapidly growing and maturing, we’ve been seeing a major uptick in M&A activity – M&A activity tripled in the sector from 2020 to 2021 – and with each new state a company enters, comes a host of new regulatory challenges. When expanding to a new state, RegTech solutions provide updates in real time, making sure, for example when you expand to Ohio, it’s not at the expense of complying with regulations in your core market of Illinois. Also, from an operations strategy perspective, RegTech solutions can be incredibly useful in helping companies decide what markets to pursue, as they can offer regulatory snapshots that compare tax laws, average margins, consumer segments, product stipulations, marketing restrictions and more. Thus besides simplifying compliance, RegTech can substantially increase operational efficiency.
Since cannabis is such a highly regulated industry, there are a ton of documents an operator has to keep on hand and be able to produce in a moment’s notice. Through RegTech, operators can store and organize all documents that are applicable to them electronically. So, when an inspector comes into a dispensary for a surprise inspection, rather than sweating bullets and digging through six filing cabinets trying to locate say a visitor log from three years ago, using RegTech a manager can quickly search records electronically, download and print the needed document, pass the inspection and go back to work.
2. Save Costs by Streamlining Compliance
While adopting RegTech solutions has a cost, the cost savings companies yield from RegTech way exceed the investment. RegTech providers have teams of dedicated analysts constantly tracking regulations and providing updates, making it so companies don’t need to hire much more costly lawyers to track regulations and amend policies and procedures. Rather, they can tap into RegTech solutions and leverage decades of experience and lean on the best regulatory experts in the field, while saving a lot of money.
RegTech providers have teams of dedicated analysts constantly tracking regulations and providing updates,
Just to give a small example of the cost savings RegTech can provide, on average a CRB spends over $20,000 to produce a new SOP package when using an attorney and nearly $8,000 when updating an SOP package using an attorney. Compare that to Simplifya’s fully customizable SOP package, where a CRB spends on average less than $1,600 to produce a new SOP package and less than $650 to update an SOP package – a 92% savings.
When considering costs, it’s important to think holistically and anticipate potential problems that could come up. One of the biggest pain points for companies starting up operations or entering new markets is complying with confusing tax codes – no industry is taxed to the degree cannabis is, and it’s easy to lose sight of tax obligations when planning operations. Unanticipated withholding requirements can create serious cash flow problems. RegTech solutions clearly outline requirements, as well as track updates, which help companies plan operations and expansion plans and prevent nasty tax surprises from creeping up, and they’re a much cheaper alternative to hiring tax lawyers.
While there are tremendous growth opportunities in cannabis, the industry is also facing significant headwinds, including the high cost of capital, supply and demand misalignments, and shrinking margins, and as we head towards recession, cost efficiency will become more and more important. Not only can RegTech help companies survive by helping ensure they stay compliant and don’t get fined or even shut down for breaching regulations, they also help companies run more efficiently and save major costs on operations.
3. Hold Your Employees Accountable
In addition to using RegTech to stay on top of compliance, it can be a powerful HR tool as well. Companies can utilize RegTech platforms to make and track assignments and tasks for employees. If you’ve already spent the time and money to create SOPs, RegTech tools are essential to making sure they’re actually being followed correctly.
As many cannabis companies are expanding rapidly and bringing new employees into their fold – particularly those that are engaging in M&A – it can be difficult to get employees up to speed and following SOPs. RegTech automation and tracking solutions help flatten the learning curve and ensure employees are completing tasks on time, boosting efficiency and preventing problems that may arise – and if problems do arise, the tools help pinpoint where and when for efficient remediation. And if you’re an MSO or a SSO with multiple locations, RegTech allows employers to keep track of their dispersed employees without having to be in 10 places at once. This holds employees accountable for their actions for smooth operations while reducing growing pains.
4. Identify Issues Before They Become an Issue
The most compelling reason for having strict regulations in the cannabis industry in the first place is to protect consumer and patient health. Given the long, brutal history of cannabis prohibition, where lies and misconceptions about cannabis consumption being “dangerous” were perpetuated in the mainstream, the last thing the industry needs is people consuming products that are in any way contaminated. If you skirt the rules and manage to put out compromised products without a regulator catching and dinging you first, consumers may get sick. This can lead to a recall and tarnish a brand’s reputation. Competition is steep in this industry and even one incident can be irrecoverable. If consumers have reason to believe you’re not putting out consistent, safe products, they’ll buy from your competitor instead.
RegTech helps companies track all processes and procedures so that they can spot problems before they occur and ensure nothing dangerous makes its way to the public, which in turn shields brand reputation. Also, it’s important to note – in the cannabis ecosystem, every company you work with has to be licensed. If you work with an entity that’s not, you are very liable. Tracking licensing information is burdensome, especially for retailers and ancillary businesses like lenders and insurers who work with many vendors. Luckly, RegTech providers have already done the heavy lifting, pulling APIs into state databases and creating tracking systems of licenses that make it easy for companies to ensure every entity they work with is operating with a valid license. This saves companies from having to hire people to track licensing information on a weekly or even daily basis, which can be very costly, and more importantly, keeps them compliant and prevents slip ups that could jeopardize consumer and patient health.
5. Looking Towards the Future, Regulations will Only Become more Complex – Only the Compliant Will Survive
A common misconception people have about the cannabis industry is thinking that federal policies like SAFE banking will be a catch-all to their banking woes, opening up the floodgate to institutional investment. The fact of the matter is, however, SAFE banking would be ineffective without RegTech. Cannabis companies need to demonstrate reliability and a history of compliance in order to attract investors and accumulate capital, and they do this through using RegTech platforms. Conversely, financial institutions also use RegTech to verify licenses, ensure legitimacy and assess lending risks based on the locations in which their borrowers operate. After SAFE banking is finally enacted, since larger institutional investors have so much on the line, they’re going to be particularly careful and only invest in those companies that can comprehensively demonstrate a history of compliance. This will also be the case for major CPG companies looking to acquire cannabis companies – they’ll want companies that have used RegTech to show compliance and optimize operations, since those companies will be more trustworthy and transitioning them under new management will be easier. In every major industry other than cannabis, RegTech solutions have been adapted. This is where cannabis is headed, and the companies that adopt solutions and demonstrate compliance will come out ahead.
Cannabis companies need to demonstrate reliability and a history of compliance in order to attract investors and accumulate capital
The other major misconception some people have about the cannabis industry is that once cannabis is legalized on a federal level, state and local regulations will somehow just go away, so current RegTech solutions may become ‘obsolete.’ This couldn’t be further from the truth. In no world is there going to a federal legalization system that says states can no longer create their own rules around cannabis. Think about the alcohol or gambling industries. Alcohol and gambling are federally legal, but every state – and even some counties and cities within those states – can have very different rules. Federal legalization will just mean additional regulations will be piled on and thus RegTech will only become more important.
While many companies in the cannabis space have already adopted RegTech solutions, there are still many others that have taken a reactive rather than proactive approach towards compliance. When major legislation like SAFE banking or federal legalization is approved, there will be a paradigm shift and RegTech will be deemed more essential quickly. Those who have implemented RegTech will have distinct advantages. To survive and thrive in the industry going forward, it’s prudent to proactively handle compliance and adopt RegTech solutions today.
Last week, Uber Eats and Leafly announced a partnership to begin cannabis deliveries in Toronto. Adults in Toronto can now place orders from licensed cannabis dispensaries through the Uber Eats app, delivered to them by the cannabis retailer. This marks the first time cannabis deliveries are possible on major delivery platforms.
General Manager of Uber Eats Canada Lola Kassim says their investments in delivery growth in Canada are paying off with deals like this. “We are partnering with industry leaders like Leafly to help retailers offer safe, convenient options for people in Toronto to purchase legal cannabis for delivery to their homes, which will help combat the illegal market and help reduce impaired driving,” says Kassim. “Over the last few years, we have invested heavily in our delivery business and selection has expanded tremendously. Uber Eats has grown quickly to become a versatile platform usable by diverse businesses large and small.”
Currently, Uber Eats Canada is working with three dispensaries: Hidden Leaf Cannabis, Minerva Cannabis and Shivaa’s Rose. Marissa and Dale Taylor, owners of Hidden Leaf, say this deal allows their small business to expand their reach and grow their business across the city.
Meanwhile, much further south in Florida, Circle K and Green Thumb industries have reached a deal offer up their gas station convenience stores in Florida as retail space for cannabis dispensaries.
Circle K is a massive global convenience store chain with 600 locations in Florida. The partnership they signed will allow Green Thumb to set up shop in ten of those locations beginning next year.
However, Florida regulators have stepped in and told reporters that they have not approved the deal. “This project has not been approved by the State,” a Florida Health Department spokesperson told the Washington Examiner. “Florida has never approved a Medical Marijuana Treatment Center to operate out of a gas station.”
PARSIPPANY, NJ, October 17-19, 2022 – The Cannabis Quality Conference & Expo (CQC) took place in New Jersey last week. The agenda featured three tracks of educational talks, panel discussions, keynotes and breakout sessions.
Highlights from the 2022 CQC
At this year’s event, the conference featured three different keynote presentations, each on different days as well as Lunch & Learn sessions, led by Matthew Anderson, CEO of Vanguard Scientific. He sat down with two experts in cannabis law for interviews during the lunch hour on Tuesday, October 18.
Investigations & Enforcement: A Former Federal Prosecutor’s Perspective
Matthew Anderson spoke with Barak Cohen, Chair of the Cannabis Industry Group at Perkins Coie, to discuss federal investigations, Justice Department prosecutions and white-collar offenses.
Compliance is Key: Best Practices for Your New Jersey Cannabis Business
Anderson interviewed Casey Leaver, Director of Regulatory Compliance at Vicente Sederberg, to discuss compliance culture, quality controls, New Jersey regulations and more.
Commissioner Maria Del-Cid Kosso takes the stage on Monday
The conference began on October 17 with a keynote presentation led by Commissioner Maria Del Cid-Kosso of the New Jersey Cannabis Regulatory Commission. Commissioner Del Cid-Kosso highlighted the progress the state has made so far with respect to cannabis legalization as well as their goals for the future of the state’s new market.
On the second day of the CQC, Toi Hutchinson, President & CEO of The Marijuana Policy Project, kicked things off with an inspiring keynote discussion where she discussed racial disparities in the industry, social equity, progress and reform efforts.
What People Are Saying About The 2022 CQC
Below are some testimonials we found from this year’s event:
Toi Hutchinson delivers her keynote presentation on Tuesday
“What set the Cannabis Quality Conference apart from many others was the intentionality and focus on high value substance from the presentations.”
“Once again, excellent panels today at the CQC here in Jersey! Have I mentioned how much I love to learn? This industry is forever evolving and being able to observe and watch it roll out from infancy in New Jersey has been tremendous.”
“What an informative and motivating event!”
“I feel fortunate to have been in attendance for such inspiring, informative and REAL discussions being had by industry experts from all across the country.”
“It was so great to listen, meet and speak with so many industry influencers!”
Coming Soon For 2023
After a successful event in New Jersey, the conference begins its planning for next year. The Cannabis Quality Conference & Expo will be returning to New Jersey in 2023. Stay tuned for important announcements, like the dates and location, coming soon.
Scenes From The 2022 CQC
Below are some snapshots of what this year’s CQC had to offer.
About Cannabis Industry Journal
Cannabis Industry Journal is a digital media community for cannabis industry professionals. We inform, educate and connect cannabis growers, extractors, processors, infused products manufacturers, dispensaries, laboratories, suppliers, vendors and regulators with original, in-depth features and reports, curated industry news and user-contributed content, and live and virtual events that offer knowledge, perspectives, strategies and resources to facilitate an informed, legalized and safe cannabis marketplace.
About the Cannabis Quality Conference & Expo
The Cannabis Quality Conference & Expo is an educational and networking event for the cannabis industry that has cannabis safety, quality and regulatory compliance as the foundation of the educational content of the program. With a unique focus on science, technology, safety and compliance, the “CQC” enables attendees to engage in conversations that are critical for advancing careers and organizations alike. Delegates visit with exhibitors to learn about cutting-edge solutions, explore three high-level educational tracks for learning valuable industry trends, and network with industry executives to find solutions to improve quality, efficiency and cost effectiveness in the evolving cannabis industry.
In 1996, the Harvard Business Review published an article called Making Differences Matter: A New Paradigm for Managing Diversity, in which the authors argued that companies should adopt a radically new way of understanding a diverse workforce. Instead of hiring employees of different backgrounds and asking them to blend in, or limiting people to areas of work based on their identity, they suggested embracing and bringing together the varied perspectives and approaches to work that members of different identity groups bring. Since then, a steady stream of companies – from GE to PricewaterhouseCoopers to cannabis companies – have implemented several new practices, initiatives and programs under the category of Diversity, Equity and Inclusion (DE&I).
DE&I has become highly important over the last few years, and many companies are seeing the benefits. Today, 83% of professional investors are more inclined to invest in stock of a company well-known for its social responsibility. On the other hand, a company that is seen as not responsible stands to lose as much as 39% of its potential customer base, with one in four consumers telling their friends and family to avoid it. As these benefits draw more companies to focus on DE&I, it’s important to remember that your plans should ultimately be centered around uplifting employees from all backgrounds.
“Listen, test, learn and then listen again!”While still relatively new to the cannabis sector, one DE&I initiative that is making some headway towards that goal is the Employee Resource Group (ERG). Essentially, it’s a group of employees who join together in their workplace based on shared characteristics or life experiences. ERGs work to create communities which bring people together, with internal and external partnerships to support those groups, and they are gaining popularity. In fact, according to a Bentley University report, almost 90% of Fortune 500 companies utilize them. They’re often used because issues are addressed from within an organization by the people who are most directly impacted by them. They can also serve as a direct pipeline of communication between employees and employers, as well as a place for new ideas and solutions to problems to blossom.
When it comes to recruiting and retention, ERGs have their own specific benefits. According to a survey conducted by Software Advice, 70% of respondents between 18 to 24 years old and 52% of respondents between 25 and 34 reported they would be more likely to apply for a role at a company that had ERGs. With regards to retention, 50% of survey respondents across all ages stated they would remain at a company because it had an ERG.
While some in the cannabis sector have already implemented ERGs, this new practice is one that all cannabis companies should consider – particularly as this industry grapples with its own unique DE&I challenges and history. To that end, check out the tips below to help get you started.
Gauge interest: Many ERGs start organically. The first question you need to answer before you can start building an ERG is to ask if your employees want one. The statistics indicate they likely will, but it’s important to establish that leadership is willing to listen. Employees should play a major role in this process from the beginning. However, remember that the DE&I strategy is not their responsibility, and ERGs should be a part of a more comprehensive plan.
Find the willing and work with them: You’ve got to find the people that these topics matter to and embrace them. Participation is key, and if the topic at hand is one that someone is not personally connected to, your ERG may not live up to its full potential. ERGs are a significant time investment, so you have to make sure those taking part are ready, willing and capable of balancing their job responsibilities with their additional role in the group. Participation goes both ways, too. You have to make sure that managers are aware that someone is in an ERG. “Be open to making mistakes and learning from them, and then changing for the better.”
Use executive sponsors: An essential piece of successfully incorporating ERGs into your organization is recruiting executive allies from the corporate side to serve as sponsors. This can help break through barriers, get decisions made, and keep all parties organized. Executive sponsors are also great for employee development, as they can see firsthand the talent in the organization and become a mentor. Executive sponsors are often an important request from ERGs, and they are worthwhile to recruit for. Sponsors don’t have to be from the same affinity as the group, and in some ways, that can actually be a good thing. Solidarity is another important factor to company health, and allyship is imperative for solidarity.
Set goals: Define a mission early on. It’s important for ERGs to have a strong mission statement with core goals that the group is formed around achieving. Keep in mind, these need to be tangible goals with specific benchmarks. It can’t just be “increase diversity in hiring.” Set a number you’d like to reach and a date you’d like to reach it by. Having clear objectives keeps a track record for your ERG, and is the foundation for success. These will also ensure that your ERG is not just for marketing purposes. Achieving substantive goals will keep the group going, as confidence gets built on the inside and from the outside.
Be clear: ERGs are all about communication, so clarity has to be a top priority. None of the above tips work without that. You have to make sure the groups are not questioning what is expected of them, what resources they have to work with and what goals they are working towards. It’s always going to be a learning process, and there will certainly be unforeseen challenges, but being on the same page from chapter one will make the process that much more beneficial to all involved.
As stated above, ERGs are still new, just like the industry we want to bring them into. Be open to making mistakes and learning from them, and then changing for the better. That process is what ERGs are about at their core, after all. Listen, test, learn and then listen again!
Businesses often require outside capital to finance operating activities and to enable scaling and growth. Financing in the cannabis industry is notoriously challenging with regulatory obstacles at the local, state and federal levels. Recent market dynamics pose additional challenges for both financiers and cannabis operators.
We sat down with Matt Hawkins, Founder and Managing Partner of Entourage Effect Capital (EEC) to learn more about EEC and to get his perspective on recent market trends.
Aaron Green: In a nutshell, what is your investment/lending philosophy?
Matt Hawkins, Founder & Managing Partner at Entourage Effect Capital
Matt Hawkins: Entourage Effect Capital’s long history and experienced leadership allow us to access and construct high potential later-stage growth investments with sought-after industry leaders. We want to get ahead of what is happening on the regulatory and federal level to build scale with our investments.
Green: What types of companies are you primarily financing? What qualities do you look for in a cannabis industry operator or operating group?
Hawkins: Essentially, we are focused on investing in companies that will benefit the most when legalization occurs. We are currently working on multiple such deals, and separately, we are excited by how our newly minted, early-stage focused Arcview Ventures Seed Fund will provide a pipeline to the next generation of leading growth opportunities. When evaluating opportunities, we always look for the potential for scale and a strong management team.
Green: Capital market dynamics have led to significant public cannabis company revaluations in 2022. How has this affected your business?
Hawkins: As an industry, we all want companies to be valued for what they are worth, and right now, there are a lot of companies where that’s not the case due to the downturn in valuation. For us, it works the other way, because we are now able to invest at lower valuations with the hope of more upside when valuations reset.
Green: Debt on cannabis companies balance sheets have increased significantly in recent years. What is your perspective on that?
Hawkins: Debt is at its highest in industry. Operators don’t want to take equity capital at this point because valuations have come way down. However, we are lucky to have been in this business for a long time so that we can create our own deals. Our reputation precedes us — as a result, combined with the strength of our portfolio, people want us in their capital stack.
Green: How does the lack of institutional investor participation in the cannabis industry affect your business?
Hawkins: The lack of institutional capital in the industry makes it difficult for a large chunk of companies to grow and scale. For the industry to grow, there needs to be a different type of investor, investors who are not scared to go through the peaks and valleys we go through as an industry, whereas retail investors take their losses and move on. Everybody’s competing for the same small pool of money; managing cash is the most important factor for operators, whether private or public, big or small.
Green: What would you like to see in either state or federal legalization?
Hawkins: The illicit market still has a strong presence, and until we get regulatory reform, it’s going to continue. Reducing the tax burden on legalized markets would bring more revenue to both operators and the government because they’d reduce the market share of the illicit market, with the price offset trickling down to the retail customer.
Passing the SAFE Banking Act would create consequential changes for the cannabis industry. There is also a small chance that the New York Stock Exchange and the Nasdaq could start listing legal plant-touching businesses. If that happens, more institutional capital would enter the market and flush the industry with cash, with market caps going way up. There is a lot of unease and uncertainty with retail investors that prop up the stocks in the space, and it will continue until there is regulatory movement, even on the private side.
Green: What trends are you following closely as we head towards the end of 2022?
Hawkins: I don’t see anything happening unless the SAFE Banking Act passes. Otherwise, things are status quo, especially with public companies. For private companies, we’re going to see a lot more consolidation, especially in California.
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