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The Evolution of Cannabis Entrepreneurship

By Jonathan Monk
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Cannabis presents a plethora of challenges for entrepreneurs not seen in more traditional industries. Akin to the dot-com boom of the early 2000s, the cannabis industry has seen an astonishing flurry of business over the past decade. Within this dynamic landscape, new cannabis companies come and go on a near-daily basis.

To capitalize on novel markets’ potential, hopeful entrepreneurs from all walks of life have “jumped headfirst” into the cannabis space. This new breed of entrepreneurs must not only be smart, but they must also be challenging. Yet, as the cannabis industry evolves under the forces of legalization and innovation, our understanding of what defines cannabis entrepreneurs continues to change.

Cannabis businesses are shaped by the regulations, challenges and opportunities of specific market niches. As such, cannabis entrepreneurs have evolved with the environments in which they do business.

California & Proposition 215   

California paved the way for the industry of today by legalizing medical cannabis in 1995. Since the passage of historic Proposition 215, cannabis has continued to gain momentum across the globe. This progress has happened through the visions and hard work of small business owners.

The early days of legal cannabis in California are now criticized for their lack of regulation. During the late 1990s and early 2000s, all you needed to start a cultivation business in California was a place to grow a garden. While early dispensaries did need local business licenses, they could legally purchase and sell untested products from unlicensed growers.

The genealogy of the modern cannabis industry can be traced directly back to the days of California’s Prop 215. During this era, the first cannabis dispensaries were founded – this model has since been replicated thousands of times. Also, the Prop 215 model gave rise to America’s first legal, commercial cannabis farms.

Cannabis entrepreneurs in California’s medical space focused primarily on developing the blueprints for a brand-new industry. To this end, they did not have the time or luxury to finetune the businesses for such things as operational efficiency and brand awareness. Even more, these people did not have to deal with such complexities as employee screening, product testing and seed-to-sale tracking.

Medical Cannabis Entrepreneurs

New medical markets stand in stark contrast to those seen in the early days of California. To this end, today’s medical markets operate within a web of stringent government regulations. For entrepreneurs, these rules set forth major emphases on both compliance and technology.

The Pennsylvania medical cannabis industry provides an excellent platform for understanding how the regulatory system of a market shapes entrepreneurial paths. For instance, medical cannabis cards are only issued to patients that meet the minimum criteria of 23 qualifying conditions, including severe conditions like aids, cancer and epilepsy. Beyond that, cannabis dispensaries in Pennsylvania must meet a slew of challenging criteria to operate and pay large sums of money in licensing fees.

To handle the regulatory requirements in places like Pennsylvania and remain profitable, medical cannabis entrepreneurs are incredibly dependent on technology. To this end, dispensaries utilize point-of-sale (POS) and seed-to-sale software to track inventory and stay compliant carefully. Even more, they use state-of-the-art security systems to safeguard their operations.

Cannabis entrepreneurs in medical markets must be able to run compliant operations and support their businesses with requisite technology. These elements stand in stark contradiction to the “wild west” mentality that pervaded the early industry. As such, it’s safe to assume that the rules of today’s markets force entrepreneurs to be more professional than in the days of CA Prop 215.

Adult-Use Cannabis Entrepreneurs

The most considerable difference between medical and adult-use cannabis companies has to do with their available customer base. Importantly, adult-use cannabis companies are only bound by minimum age requirements and state borders. Furthermore, limited restrictions on licensing create highly competitive markets that require sophisticated sales and marketing operations.

As there are no limits on potential customers, and limited regulations on license counts, business opportunities in adult-use markets are primarily directed by supply and demand rules. Because competition is the driving force in adult-use markets, entrepreneurs in this vertical have a good deal in common with peers outside the cannabis industry.

Perhaps the most defining characteristic of adult-use entrepreneurs is an emphasis on branding and marketing. As adult-use markets mature in places like Colorado, a phenomenon known as “brand concentration” occurs when a few companies come to dominate a majority of the market. As smaller companies fight for market share, they must develop professional brands that appeal to a broad customer base.

Cannabis entrepreneurs in adult-use markets must master the skills required in medical cannabis while also expanding their knowledge base in modern business dealings. Of these, the development of professional brands is one of the most defining characteristics of adult-use entrepreneurs.

It’s astonishing to see how much the cannabis industry has grown and matured looking back just a few short years. As business opportunities come about with new legalization efforts, entrepreneurs quickly rise to take advantage of untapped markets. As the cannabis business continues to evolve with the times, entrepreneurs must pivot to stay compliant, relevant and successful.

While the early Prop 215 market in California barely resembles today’s industry, it’s important to remember where we came from. Namely, our understanding of the contemporary cannabis business results from everyone who came before us. As the industry progresses, we will continue to complement established best practices with the requisite innovations that come with new opportunities.

photo of outdoor grow operation

The 2020 Global Cannabis Regulatory Roundup

By Marguerite Arnold
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photo of outdoor grow operation

As a strange year heads to a final, painful finish, there have been some major (and some less so) changes afoot in the global world of cannabis regulation. These developments have also undoubtedly been influenced by recent events, such as the recent elections in the United States, state votes for adult use reform in the U.S. and the overall global temperature towards reform. And while all are broadly positive, they have not actually accomplished very much altogether.

Here is a brief overview of the same.

The UN Vote On Cannabis
Despite a wide celebration in the cannabis press, along with proclamations of an unprecedented victory by large Canadian companies who are more interested in keeping their stock prices high than anything else, the December 2 vote on cannabis was actually fairly indecisive.

Following the WHO recommendations to reschedule cannabis, the UN voted in favor of the symbolic move. Despite removing cannabinoids from Schedule IV globally, a regulatory label designed for highly addictive, prescription drugs (like Valium), the actual results on the ground for the average company and patient will be inconclusive.

The first issue is that the UN did not remove cannabinoids themselves, or the plant, from Schedule I designation. This essentially means that countries and regions will be on the front lines to create more local, sovereign policies. This is not likely to change for at least the next several years (more likely decade) as the globe comes to terms with not just a reality post-COVID-19, but one which is very much pro-cannabis.

In the meantime, however, the ruling will make it easier for research to be conducted, for patient access (for the long term), and more difficult for insurers to turn down in jurisdictions where the supposed “danger” of cannabis has been used as an excuse to deny coverage. See Germany as a perfect example of the same.

It is also a boon for the CBD business, no matter where it is. Between this decision and the recent victory in Europe about whether CBD is a narcotic or not (see below), this is another nail in the coffin for those who want to use semantic excuses to restrain the obvious global desire for cannabinoids, with or without THC.

The U.S. Vote On The MORE Act

While undoubtedly a “victory” in the overall cannabis debate, the MORE Act actually means less rather than more. It will not become law as the Senate version of the bill is unlikely to even get to the floor of the chamber before the end of the session – which ends at the end of this year.

The House voted 228 to 164 to pass the MORE Act.

That said, the vote is significant in that it is a test of the current trends and views towards big issues within the overall discussion, beginning with decriminalization and a reform of current criminal and social justice issues inherent in the same. The Biden Administration, while plagued with a multitude of issues, beginning with the pandemic and its immediate aftershocks, will not be able to push both off the radar. Given the intersection of minority rights’ issues, the growing legality of the drug and acceptance thereof, as well as the growing non-partisan position on cannabis use of both the medical and adult use kind, and the economy, expect issues like banking to also have a hope of reform in the next several years.

Cannabis may be taking a back seat to COVID, in other words, but as the legalization of the industry is bound up, inextricably, in economic issues now front and center for every economy, it will be in the headlines a great deal. This makes it an unavoidable issue for the majority of the next four years and on a federal level.

Prognosis in other words? It’s a good next federal step that is safe, but far from enough.

The European Commission (EC) Has Finally Seen The Light On CBD

One of the most immediately positive and impactful decisions of the last month was absolutely the EC decision on whether CBD is a narcotic or not.

This combined with the UN rescheduling, will actually be the huge boost the CBD industry has been waiting for here, with one big and still major overhanging caveat – namely whether the plant is a “novel” one or not. It is unlikely as the situation continues to cook, that Cannabis Sativa L, when it hits a court of law, will ever be actually found as such. It has inhabited the region and been used by its residents for thousands of years.

However, beyond this, important regulatory guidance will need to fall somewhere on the matter of processing and extraction. It is in fact in the processing and extraction part of the debate that this discussion about Novel Food actually means something, beyond the political jockeying and hay made so far.

Beyond this of course, the marketing of CBD now allowed by this decision, will absolutely move the topic of cannabinoids front and center in the overall public sphere. That linked with sovereign experiments on adult use markets of the THC kind (see Holland, Luxembourg and Denmark as well as Portugal and Spain right after that), is far from a null sum game.

Legal Challenges Of Note

The European Court of Human Rights

Against this changing regulatory schemata, court cases and legal decisions remain very important as they also add flavor to how regulations are interpreted and followed. The most important court case in Europe right now is the one now waiting to be decided in the Court of Human Rights at Strasbourg regarding the human rights implications of accessing the plant.

Beyond that, in Germany, recent case law at a regional social benefits court (LSG) has begun to establish that the cannabis discussion is ultimately between doctors and their patients. While this still does not solve the problem of doctor reluctance to prescribe the drug, barriers are indeed coming down thanks to legal challenges.

Bottom line, the industry has been handed a nice whiff of confidence, but there is a still high and thorny bramble remaining to get through – and it will not happen overnight, or indeed even over the next several years.