The bill establishes the Office of Cannabis Management, which will launch and manage the regulatory system for the commercial cannabis market in New York.
According to Steve Schain, senior attorney at Hoban Law Group, the Office of Cannabis Management will have a five-member board that will oversee not just the adult use cannabis market, but also medical cannabis as well as the state’s hemp market. For the medical market, the new legislation provides for more patient caregivers, home cultivation and an expanded list of qualifying conditions.
New York Governor Andrew Cuomo Image: Chris Rank, Flickr
Troy Smit, deputy director of the New York NORML chapter, says the bill might not be perfect, but it’s a massive win for the cannabis community. “It’s taken a great amount of work and perseverance by activists, patients, and consumers, to go from being the cannabis arrest capital of the world, to lead the world with a legalized market dedicated to equity, diversity, and inclusion,” says Smith. “This might not be the perfect piece of legislation, but today, cannabis consumers can hold their heads high and smell the flowers.”
The MRTA sets up a two-tier licensing structure that separates growing and processing licenses from dispensary licenses. The bill includes a social equity aspect that requires 50% of the licenses to be awarded to, “minority or women-owned business enterprise, service-disabled veterans or distressed farmers,” says Schain.
New York City Image: Rodrigo Paredes, Flickr
Melissa Moore, New York State director of the Drug Policy Alliance, says she’s proud of the social equity plan the bill puts in place. “Let’s be clear — the Marijuana Regulation and Taxation Act is an outright victory for the communities hit hardest by the failed war on drugs,” says Moore. “By placing community reinvestment, social equity, and justice front and center, this law is the new gold standard for reform efforts nationwide. Today we celebrate, tomorrow we work hard to make sure this law is implemented fairly and justly for all New Yorkers.”
Schain says the new tax structure in the bill shifts to the retail level, with a 9% excise tax and 4%-of-the-retail-price local excise tax (split 25%/75% between the respective counties and municipalities). Revenue from cannabis taxes will enter a fund where 40% will go to education, 40% to community grants reinvestment fund and 20% to drug treatment and public education fund.
It appears that businesses already established in New York’s medical market get a head start on the new adult use market, while other businesses enter the license application process, according to Schain. “Although the existing Medical Marijuana licensees should be able to immediately to sell Adult-Use Cannabis, it will take up to two years for the New York’s Adult Use Program to launch and open sales to the public,” says Schain.
Based on the recent string of cannabis thefts in Portland, Oregon, the spotlight is shining even brighter on the need for enhanced security measures at cannabis dispensaries throughout the country. According to the Oregon Liquor Control Commission, the Portland metro area alone has experienced more than 120 cannabis shop burglaries since March 2020, resulting in a reported total loss of more than $500,000 in cash and products.
Robbing a cannabis dispensary is as lucrative as robbing a bank. Cash is king in the shops until the Secure and Fair Enforcement (SAFE) Banking Act is passed to prohibit federal banking regulators from penalizing depository institutions that provide banking services to legitimate cannabis businesses. Until the Act is passed, it is widely known that all transactions must be done in cash—which makes cannabis dispensaries a prime target for thieves.
Dispensaries are prime targets for burglary. Defending your storefront requires a comprehensive security plan.
While many security protocols—such as product traceability systems and security cameras—are mandated by each individual state, dispensary owners should take measures to actively secure their product, protect their employees and preserve their businesses as theft increases.
One of the quickest and most cost-effective ways to fortify shop security is by implementing rolling security doors. After determining what level of security is needed, consider these four tips to help deter criminal activity and ensure the safety of both employees and products.
Tip 1 – Defend The Storefront
Designed to prevent against looting events and burglaries, heavy-duty rolling steel doors offer cannabis business owners robust security. They can be retrofitted into existing buildings, are exterior mounted and are ideal for storefront defense—including protecting glass windows, which can be expensive to replace. Unlike more common rolling grilles, thieves can’t see merchandise when the rolling door is lowered. In addition to the door giving the building a secure look, blocking sight access is key to deterring criminals.
Heavy-duty steel doors must also be lift- and pry-resistant. Manufacturers put the doors through rigorous testing, and some security doors even meet Department of Defense forced entry standards, which can provide up to an hour of protection against violent attacks against the door to gain entry. Look for rolling security doors that can withstand heavy impact and resist pry attempts with common tools, as well as doors that are lift resistant. Some manufacturers offer doors with robust slide locks and rigid heavy-duty bottom bars, enabling the doors to withstand up to 4,500 lbs of lifting effort.
Tip 2 – Protect While Allowing Visibility and Airflow
If product visibility is desired, but more robust security is needed at the storefront—beyond a security measure such as impact glass—a heavy-duty security grille is an excellent choice. Security grilles are easy to custom order and don’t require structural modifications to fit individual spaces. They are easily installed behind storefront glass, are compact enough to remain out of sight when not in use and require little maintenance.
Strong rolling service doors can protect delivery entrances well
It’s important to work with a manufacturer to select a rolling grille that provides dependable, increased security. Choose grille curtains with rods that are spaced closer together and have heavier links. Security grilles with these features are harder to lift and pry than standard rolling grilles.
Rolling security grilles are also an ideal solution to protect counters inside the dispensary. They can be easily concealed in small headspaces where there is limited ceiling room.
Tip 3 – Fortify A Store Within A Store
For cannabis dispensaries located within high-end retail shops, it is important to consider additional security measures to separate the dispensary from the rest of the store.
A metal grille can be a good barrier for a store within store
A store within a store may be subject to different hours of operation as states often dictate specific operating hours for cannabis dispensaries. Altered operating hours necessitate an easy way to secure only a small section of a larger store.
If aesthetics are of concern inside retail shops, a woven metal mesh grille will provide both beauty and security without imposing looks while securing cannabis products as customers browse throughout the store. Manufacturers offer a variety of patterns and even logo designs as a way to bring more creativity to a grille’s aesthetics—making them rolling pieces of art.
Tip 4 – Secure Deliverables
Dispensary owners sometimes overlook the fact that thieves target deliveries. Deliveries that are made at the back of the store or in receiving areas may be the most at risk. It is of utmost importance to be aware of how deliveries are timed, who is present during them, and how the product is handed off.
Robust rolling service doors provide the best security for delivery entrances and are more secure than traditional rolling sectional doors. Made from slats of formed galvanized steel, aluminum or stainless steel, these rolling doors are completely customizable to meet existing building designs and are ideal for areas with limited overhead room.
Robust Protection
By closely evaluating the levels of security needed, the layout of the building and where deliveries take place, security updates and enhancements are easily implemented with the right rolling doors. Every door is made for a specific opening, so each one is custom-made for its application. Choose a knowledgeable manufacturer that will help determine which rolling closure suits the dispensary’s needs.
The cannabis industry saw close to $15.5B in deals across VC, private equity, M&A and IPOs in 2020 according to PitchBook data. Early and growth stage capital has been a key enabler in deal activity as companies seek to innovate and scale, taking advantage of trends towards national legalization and consolidation. Entourage Effect Capital is one of the largest VC firms in cannabis with over $150MM deployed since its inception in 2014. Some of their notable investments include GTI, CANN, Harborside (CNQ: HBOR), Acreage Holdings, Ebbu, TerrAscend and Sunderstorm.
We spoke with Matt Hawkins, co-founder and managing partner at Entourage Effect Capital. Matt started Entourage in 2014 after exiting his previous company. He has 20+ years of private equity experience and serves on the Boards of numerous cannabis companies. Matt’s thought leadership has been on Fox Business in the past and he has also recently featured on CNBC, Bloomberg, Yahoo! Finance, Cheddar and more.
Aaron Green: How did you get involved in the cannabis industry?
Matt Hawkins: We’ve been making investments in the cannabis industry since 2014. We’ve made 65 investments to date. We have a full team of investment professionals, and we invest up and down the value chain of the industry.
I had been in private equity for 25 years and I kind of just fell into the industry after I’d had an exit. I started lending to warehouse owners in Denver that were looking to refinance their mortgages out of commercial debt into private debt, which would then give them the ability to lease their facilities to growers. I realized there would be a significant opportunity to place capital in the private equity side of the cannabis business. So, I just started raising money for that project and I haven’t looked back. It’s been a great run and we’ve built a fantastic portfolio. We look forward to continuing to deploy capital up to and through legalization.
Green: Do you consider Entourage Effect Capital a VC fund or private equity firm? How do you talk about yourself?
Hawkins: In the early stages of the industry, we were more purely venture capital because there was hardly any revenue. We’re probably still considered a venture capital firm, by definition, just because of the risk factors. As the industry has matured, the investments we make are going to be larger. The reality is that the checks we write now will go to companies that have a track record of not only 12 months of revenue, but EBITDA as well. We can calculate a multiple on those, and that makes it more like lower/middle-market private equity investing.
Green: What’s your investment mandate?
Matt Hawkins, Co-Founder and Managing Partner at Entourage Effect Capital
Hawkins: From here forward our mandate is to build scale in as many verticals as we can ahead of legalization. In the early days, we were focused on giving high net worth individuals and family offices access to the industry using a very diversified approach, meaning we invested up and down the value chain. We’ll continue to do that, but now we’re going to be really laser focused on combining companies and building scale within companies to where they’re going to be more attractive for exit partners upon legalization.
Green: Are there any particular segments of the industry that you focus on whether it’s cultivation, extraction or MSOs?
Hawkins: We tend to focus on everything above cultivation. We feel like cultivation by itself is a commodity, but when vertically integrated, for example with a single-state operator or multi-state operator, that makes it intrinsically more valuable. When you look at the value chain, right after cultivation is where we start to get involved.
Green: Are you also doing investments in tech and e-commerce?
Hawkins: We’ve made some investments in supply chain, management software, ERP solutions, things like that. We’re not really focused on e-commerce with the exception of the only CBD company we are invested in.
Green: How does Entourage’s investment philosophy differ from other VC and private equity firms in cannabis?
Hawkins: We really don’t pay attention to other people’s philosophies. We have co-invested with others in the past and will continue to do so. There’s not a lot of us in the industry, so it’s good that we all work together. Until legalization occurs, or institutional capital comes into play, we’re really the only game in town. So, it behooves us all to have good working relationships.
Green: Across the states, there’s a variety of markets in various stages of development. Do you tend to prefer investing in more sophisticated markets? Say California or Colorado where they’ve been legalized for longer, or are you looking more at new growth opportunities like New York and New Jersey?
Hawkins: Historically, we’ve focused on the most populous states. California is obviously where we’ve placed a lot of bets going forward. We’ll continue to build out our portfolio in California, but we will also exploit the other large population states like New Jersey, New York, Arizona, Massachusetts, Michigan, Ohio and Illinois. All of those are big targets for us.
Green: Do you think legalization will happen this Congress?
Hawkins: My personal opinion is that it will not happen this year. It could be the latter part of next year or the year after. I think there’s just too much wood to chop. I was encouraged to see the SAFE Banking Act reappear. I think that will hopefully encourage institutional capital to take another look at the game, especially with the NASDAQ and the New York Stock Exchange open up. So that’s a positive.
I think with the election of President Biden and with the Senate runoffs in Georgia going Democrat, the timeline to legalization has sped up, but I don’t think it’s an overnight situation. I certainly don’t think it’ll be easy to start crossing state lines immediately, either.
Green: Can you explain more about your thoughts on interstate commerce?
Hawkins: I think it’s pretty simple. The states don’t want to give up all the tax revenue that they get from their cultivation companies that are in the state. For example, if you allow Mexico and Colombia to start importing product, we can’t compete with that cost structure. States that are neighbors to California, but need to grow indoors which is more expensive, are not going to want to lose their tax revenues either. So, I just think there’s going to be a lot of butting heads at the state level.
The federal government is going to have to outline what the tax implications will be, because at the end of the day the industry is currently taxed as high as it ever will be or should be. Anything North of current tax levels will prohibit businesses from thriving further, effectively meaning not being able to tamp down the illicit market. One of the biggest goals of legalization in my opinion should be reducing the tax burden on the companies and thereby allowing them to be able to compete more directly with the illicit market, which obviously has all the benefits of reduced crime, etc.
Green: Do you foresee 280E changes coming in the future?
Hawkins: For sure. If the federal illegality veil is removed – which means there’ll be some type of rescheduling – cannabis would be removed from the 280E category. I think 280E by definition is about just illegal drugs and manufacturing and selling of that. As long as cannabis isn’t part of that, then it won’t be subject to it.
Green: What have been some of the winners in your portfolio in terms of successful exits?
Hawkins: When the CSC started allowing companies in Canada to own U.S. assets, the whole landscape changed. We were fortunate to be early investors in Acreage and companies that sold to Curaleaf and GTI before they were public. We are big investors in TerrAscend. We were early investors in Ebbu which sold to Canopy Growth. Those were huge wins for us in Fund I. We also have some interesting plays in Fund II that are on the precipice of having similar-type exits.
You read about the big ones, but at the end of the day, the ones that kind of fall under the radar – the private deals – actually have even greater multiples than what we see on some of the public M&A activity.
Green: Governor Cuomo has been hinting recently at being “very close” on a deal for opening up the cannabis market in New York. What do you think are the biggest opportunities in New York right now?
Hawkins: If it can get done, that’s great. I’m just concerned that distractions in the state house right now in New York may get in the way of progress there. But if it doesn’t, and it is able to come to fruition, then there isn’t a sector that doesn’t have a chance to thrive and thrive extremely well in the state of New York.
Green: Looking at other markets, Curaleaf recently announced a big investment in Europe. How do you look at Europe in general as an investment opportunity?
Hawkins: We have a pretty interesting play in Europe right now through a company called Relief Europe. It’s poised to be one of the first entrants to Germany. We think it could be a big win for us. But let’s face it, Europe is still a little behind, in fact, a lot behind the United States in terms of where they are as an industry. Most of the capital that we’re going to be deploying is going to be done domestically in advance of legalization.
Green: What industry trends are you seeing in the year ahead?“We’re constantly learning from other industries that are steps ahead of us to figure out how to use those lessons as we continue to invest in cannabis.”
Hawkins: Well, I think you’ll see a lot of consolidation and a lot of ramping up in advance of legalization. I think that’s going to apply in all sectors. I just don’t see a scenario wherein mom and pops or smaller players are going to be successful exit partners with some of the new capital that’s coming in. They’re going to have to get to a point where they’re either selling to somebody bigger than them right now or joining forces with companies around the same size as them and creating mass. That’s the only way you’re going to compete with companies coming in with billions of dollars to deploy.
Green: How do you see this shaking out?
Hawkins: That’s where you start to look into the crystal ball. It’s really difficult to say because I think until we get to where we truly have a national footprint of brands, which would require crossing state lines, it’s going be really difficult to tell where things go. I do know that liquor, tobacco, beer, the distribution companies, they all are standing in line. Big Pharma, big CPG, nutraceuticals, they all want access to this, too.
In some form or fashion, these bigger players will dictate how they want to go about attacking the market on their own. So, that part remains to be seen. We’ll just have to wait and see where this goes and how quickly it goes there.
Green: Are you looking at other geographies to deploy capital such as APAC or Latin America regions?
Hawkins: Not at this point. It’s not a focus at all. What recently transpired here in the elections just really makes us want to focus here and generate positive returns for investors.
Green: As cannabis goes more and more mainstream, federal legalization is maybe more likely. How do you think the institutional investor scene is evolving around that? And is it a good thing to bring in new capital to the cannabis market?
Hawkins: I don’t see a downside to it. Some people are saying that it could damage the collegial and cottage-like nature of the industry. At the end of the day, if you’ve got tens of billions of dollars that are waiting to pour into companies listed on the CSC and up-listing to the NASDAQ or New York Stock Exchange, that’s only going to increase their market caps and give them more cash to acquire other companies. The trickle-down effect of that will be so great to the industry that I just don’t know how you can look the other way and say we don’t want it.
Green: Last question: What’s got your attention these days? What’s the thing you’re most interested in learning about?
Hawkins: We’re constantly learning about just where this industry is headed. We’re constantly learning from other industries that are steps ahead of us to figure out how to use those lessons as we continue to invest in cannabis. We all saw the correlation between cannabis and alcohol prohibition. The reality is that the industry is mature enough now where you can see similarities to industries that have gone from infancy to their adolescent years. That’s kind of where we are now and so we spend a lot of time studying industries that have been down this path before and see what lessons we can apply here.
Green: Okay, great. So that concludes the interview!
By Seth Mailhot, Steve Levine, Emily Lyons, Leah Kaiser, Marshall Custer No Comments
The U.S. Food and Drug Administration (FDA) issued warning letters this month to two companies concerning the marketing and sale of over-the-counter (OTC) drug products containing cannabidiol (CBD) as an inactive ingredient. The letters allege violations of the Federal Food, Drug, and Cosmetic (FD&C) Act related to current good manufacturing practice requirements and marketing of new drugs without FDA approval.
At issue: labeling, NDAs and active ingredients
The companies subject to the warning letters market OTC drug products that contain CBD as an inactive ingredient. In the warning letters, the FDA states that it has not approved any OTC drugs containing CBD. According to the FDA, an approved new drug application (NDA) is required to legally market nonprescription or OTC drug products containing CBD, regardless of whether the CBD is an active or inactive ingredient. The FDA notes that CBD has known pharmacological effects and demonstrated risks, and that CBD has not been shown to be safe and suitable for use, even as an inactive ingredient. As a result, the FDA states that CBD cannot be marketed in OTC drug products.
Further, the warning letters noted the marketing of several CBD products that highlighted the benefits of CBD for a range of conditions in such a manner that, according to the FDA, “misleadingly suggests that [their] . . . products are approved or endorsed by FDA in some way when this is not true.” The FDA also took issue with the way products were labeled, which included callouts on the front label regarding the CBD content of the product (a requirement under most state laws that permit CBD as an ingredient). Similarly, the FDA also noted that some of the products advertised CBD as an active ingredient in a topical pain reliever product. According to the FDA, no company may legally market such a product, since there are no OTC monographs or NDAs that allow the use of CBD in an OTC drug.
What this means for you
These warning letters highlight the FDA’s vigilance regarding OTC CBD products. Regardless of whether the CBD is labeled as an active or inactive ingredient, the FDA has taken the position that nonprescription CBD drugs are in violation of the FD&C Act. Companies marketing CBD products should be careful to ensure their marketing practices, as well as their product formulations, do not present a heightened risk of FDA enforcement.
Freya Farm, a pesticide-free cannabis producer and processor located in Conway, Wash., was recently forced to issue a recall after the chemical o-Phenylphenol, listed under CA Prop 65, was found on its products. Testing traced the antimicrobial compound, known to cause cancer, back to the FDA-compliant food grade gloves used by Freya during packaging.
The reason this could happen with FDA-compliant, food grade gloves needs urgent attention. The production and manufacturing of food contact gloves is largely unsupervised, with limited and infrequent checks on gloves imported into the US. After initial approvals, non-sterile, FDA-compliant food grade gloves are not subject to ongoing controls. This may lead to lower grade and cheap raw materials being used in sub-standard production facilities and processes.
Why “Food Safe” Gloves Aren’t Always Safe
The quality and safety of disposable gloves are limited to Letters of Compliance and Guarantee on the general make and model of the glove, not necessarily the glove you are holding in your hand. There are few controls on the consistency of raw materials, manufacturing processes and factory compliance for both food contact and medical examination grade gloves. Therefore, the opportunity exists for deliberate or accidental contamination within the process of which the Preventive Controls Qualified Individual (PCQI) may not be aware.
In the words of Freya Farm, “Nothing ruins your day like testing your product, confident it will be clean, only to find it contaminated with some crazy, toxic chemical.” In tracing the issue, the gloves were the last thing Freya Farm tested, as they never suspected something sold as food safe could be the culprit.
A recall of this type can be expensive, as fines range up to $200,000. Since this incident, Freya Farm has implemented a responsible sourcing policy for gloves using supplier Eagle Protect to protect its products, people and brand reputation.
Glove inspection includes five factors of quality controls
Eagle Protect, a global supplier of PPE to the food and medical sectors, is currently implementing a unique proprietary third-party glove analysis to ensure a range of their gloves are regularly checked for harmful contaminants, toxins and pathogens. This Fingerprint Glove Analysis mitigates the risk of intentional or accidental physical, chemical or microbiological glove contamination by inspecting five factors: the use of safe ingredients, cross-contamination potential, cleanliness, structural integrity and dermal compatibility.
Harmful toxins and contaminants in gloves have been identified in many peer reviewed scientific studies. This is now a real issue for companies producing consumer products, especially in industries such as organics and cannabis whose products must be handled by gloves and test clean.
Three key areas that can be tested for in a glove analysis to ensure safe product handling include:
Dermal compatibility tests for toxins and chemicals will flag any toxic chemical, such as o-Phenylphenol
GCMS testing for consistent quality and safety of glove raw materials
Cleanliness tests for pathogens inside and outside the surfaces of gloves – particularly pathogens also required in cannabis testing, such as E. coli and Salmonella, mold and fungus and pesticides.
For cannabis producers responsible glove sourcing is vital, especially as the COVID-related demand for single-use gloves exceeds supply, with poor quality, counterfeit and even reused gloves flooding the market. For producers with a product that rests very much on its quality, it’s important to focus on quality and not just cost when procuring gloves.
The unusual nature of 2020 gave rise to a reciprocally roller-coaster-like cannabis market. Cannabis was cemented officially as an essential industry with the rise of COVID-19, and November elections resulted in even more United States markets welcoming medical and adult-use sales.
The stagnant cannabis stock market of 2019 became a thing of the past by the end of 2020. Throughout the course of last year, bag holders anxiously watched cannabis options creep back up. Now, nearly two years since market decline in 2019, the cannabis stock market is exploding with blank checks and buyout fever. Much of this expectant purchasing is due to Canadian companies considering U.S. market entrance. Combined with the recent surge in the use of special purpose acquisition companies (SPACs) to invest, this has led to an increase in asset prices.
A SPAC is defined as “a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.” Though they have existed for decades, SPACs have become popular on Wall Street the last few years because they are a way for a company to go public without the associated headaches of preparing for a traditional IPO.
In a SPAC, investors interested in a specific industry pool their money together without knowledge of the company they’re starting. The SPAC then goes public as a shell company and begins acquiring other companies in the associated industry. Selling to a SPAC is usually an attractive option for owners of smaller companies built from private equity funds.
The U.S.-Canadian market questions that this rising practice asks are: Can Canadian companies enter a bigger market and be more successful? Is it advisable for U.S. companies to sell their assets to Canadian corporations whose records may be marred by a history of losses and a lack of proper corporate governance? Regardless — if both SPAC’s and Canadian bailout money is here, what comes next?
What is Driving this Bull Market?
Underpinning these movements are record cannabis sales internationally, making last year’s $15 billion dollars’ worth of sales in the U.S. look small in comparison. New markets have opened up in various states and countries throughout 2020, and that trend is only expected to continue. New demographics are opening up, especially among older age groups. This makes sense, as most cannabis sales — even in a recreational setting — are people treating something that ails them like insomnia or aches and pains.
Cannabis is set to take off, and we are entering only the second phase of its market expansion. The world is becoming competitive. Well-run companies that are profitable in key markets are prime targets for bigger, growing companies. At the same time, the world of SPACs will continue to drive valuations. Irrespective of buying assets, growing infrastructure is and will continue to be greatly needed.
The Elusive Profitability Factor
When Canada blew up, one of the biggest changes was companies began focusing the year on cost cutting and — most importantly — profitability. Profitability became the buzzword. But bigger companies are on the search for already-profitable enterprises, not just those that have the potential to be. However, profitability is currently still unobtainable in Canada. Reasonable forecasters should expect this year will show a few companies getting bailed out while many others will be forced to either merge for survival or declare bankruptcy.
An ideal company’s finances should highlight not only revenue growth, but also profitability. Attention should be focused on how well businesses are run, and not on how much money they have the potential to raise or spend. Over the years, there have been many prospective companies that spent hundreds of millions only to barely operate, and are now shells in litigation. Throwing money at any deal should have been a lesson learned in the past, but SPACs are tempting because they are trendily associated with new, interesting management styles and charismatic businesspeople.
Companies should be able to present perfect and clear financials along with maintenance logs for all equipment. In today’s day and age, books must be stellar and clean. As money pours into SPACs, asset valuations for all qualities of companies will rise. The focus instead becomes about asset plays, which will cause assets to continue rising as money is poured into SPACs.
Once upon a time, if number counters presented a negative review or had to dig too much, executives would turn a cold shoulder on investment. But in the age of SPACs, these standards of evaluation will be greatly undervalued. Aging equipment and reportability of every piece of equipment may or may not be properly serviced and recorded in a fast-moving market. Costs of repair or replacing equipment that isn’t properly maintained may be a problem of the past. Because when money comes fast, none care for the gritty details.
Issues for SPACs
Shortage of talent and training has become a big concern already in the era of SPACs. How many quality assets are out there? Big operators in the U.S. are content and don’t see Canada as an enticing market to enter. So, asset buys are likely to primarily be in the U.S. Large companies like Aphria may buy out some of the major American players, but most Canadian companies will use new funding rounds to pay down debts. Accordingly, they will then be forced to piece together smaller operators as a strategy.
A cannabis company’s personnel and office culture are very important when looking to integrate into a larger corporate culture. Remember, it’s not just the brick and mortar that is being invested into, it is also the people that run a facility. Maintaining employee retention when a deal occurs is always critical. Your personnel should be highly trained and professional if you want to exit. Easy to plug-in corporate structures make all the difference in immediately gaining from the sale or having to retool the shed and bring in all new people.
The rise of the SPAC-era and Canadian entry into the U.S. market will cause asset increases, but it is only the second chapter in the market expansion of cannabis. Proper buys will nail profitability, impeccable books, proper maintenance records and will have created an efficient corporate structure with talented personnel. The rest will be overpriced land buys that will require massive infrastructure spending. The basics of a well-run organization don’t change. The cannabis market is going to ROAR, but don’t worry if the SPACs pass you by- they are buying at the start of cannabis only.
A thorough cannabis product development process goes far beyond extracting and packaging. Performing advanced analytical testing at each and every stage allows producers to know the quantity, quality and behaviour of compounds in samples. Here are the four key stages from flower to consumption.
Stage 1: Flower
Developing a quality cannabis product begins with knowing the composition of compounds in your starting material. The best analytical tests utilize a metabolomics approach. Metabolomics is a suite of techniques that include a variety of instruments to run samples through in order to receive compositional data. In this stage, LC-qTOF and GC-MS are the best instruments to track all the compounds in the starting plant material. Essentially, metabolomics establishes a fingerprint of the compounds in a plant sample. This is beneficial because producers have to understand how their chosen cannabis plant differs from other cultivars and how it would potentially behave in their desired end product formulations.
Stage 2: Concentrate
After the plant material has gone through an extraction process, producers want to know precisely what is in the extract. Are there compounds that should not be there and are all the desired compounds present? The best way to test the quality of cannabis oils is again to use metabolomics (e.g. via LC-qTOF). This test reveals all the compounds in the sample in order to help the producer determine the purity and consistency of molecules beyond just THC and CBD.
When testing cannabis isolates, it is best to use NMR spectroscopy and X-ray diffraction. NMR characterizes and assesses the purity of single compounds or mixtures in solution or solid state. X-ray diffraction provides information about the crystal structure, chemical composition and the physical properties of the cannabis sample to help the producer prove the identification of desired compounds. Establishing that the concentrates are pure and aligned with what the producer intended to extract is key in this stage of product development.
Stage 3: Formulation
Designing an appropriate drug delivery formula is a universal challenge producers face at this stage of product development. Where nanoemulsion or other carrier approaches are being used, formulation characterization allows producers to understand how their active compounds behave in simulated physiological environments as well as how stable their products are over time. Specifically, nanoparticle sizing and assessing size changes over time can help a formulation scientist ensure the highest quality product is being mixed, and that the desired effect will be imparted on the consumer/patient.
Stage 4: Smoke/Vapor
Many producers might not consider this final stage, but it is critical for all inhalable cannabis products and devices. Using a smoke analyzer and metabolomics testing can identify and quantify compounds present within the formed smoke or vapor from pre-roll joints to vape devices. This is not only important for preventing the production of toxic by-products, but it can help producers create an optimal smoking experience for consumers.
One area that is often an afterthought is quality compliance testing. Despite a number of groups using the required tests well during development, many forget to continue the same robust testing on end products. In the current cannabis product development landscape, there is little guidance on how compliance testing should be conducted on every product “batch.” With these advanced analytical tests, producers can confidently develop compliant, stable and quality cannabis products.
Natural product analysis using Carbon-14 is a valuable scientific tool that can be used to confirm the naturality of cannabidiol-based (CBD) ingredients by verifying the percentage of a product that is obtained from naturally-sourced ingredients. Determining the percentage of biobased content in a product allows companies to ensure their CBD ingredients are truly natural-derived, identify the presence of synthetic adulterants, and authenticate marketing and “natural” labeling claims.
Why consider natural product analysis using Carbon-14 to validate your natural CBD products?
Carbon-14 is an isotope present in naturally-sourced materials. Natural product analysis measures the percentage of Carbon-14 present in an ingredient or product. Higher percentages indicate that a product is primarily or completely made with natural-sourced ingredients as opposed to synthetic, petroleum-derived alternatives. These cheaper, synthetic alternatives created from petroleum-based sources cannot be measured using Carbon-14. A product that is all-natural and completely plant-sourced will show a result of 100% biobased content whereas a low or zero percentage will reveal a product that is partially or completely formulated with synthetic adulterants.
The structure of cannabidiol (CBD), one of 400 active compounds found in cannabis.
Why should you be concerned with verifying the naturality of your CBD products? In recent years, the popularization of CBD extract has increased its demand as an ingredient in personal care and cosmetic products. Higher costs associated with the use of natural CBD extract instead of artificial extracts leads to the use of adulterated ingredients by some manufacturers or false label claims that a product is natural when it is not.
How can you prove your products are the real deal and ensure your customers are sure they’re getting the natural ingredients they expect? Artificial ingredients derived from petrochemical sources do not contain any carbon-14 content. The results of natural product analysis reveal the percentage of a sample that is procured from natural sources, allowing manufacturers and quality assurance teams to confirm their CBD ingredients and products are not synthetic or adulterated and to strengthen claims that their product is truly natural-derived.
Natural product analysis can authenticate the natural content of your CBD products. Validating naturality with Carbon-14 testing strengthens label and marketing claims and confirms your products and ingredients are completely natural and do not contain cheap synthetic adulterants. By verifying the percentage of our product that comes from natural sources as opposed to artificial, petrochemical sources, you can guarantee your product is genuinely made with natural CBD extract.
The task of preserving privacy for any records platform, especially a cannabis registry, cannot simply be relegated to ones and zeros lurking in some forgotten codebase. This past year taught us many lessons, especially related to the trauma unleashed by vulnerabilities in government domains. We learned time and again that a registrant’s privacy must be the first order of business for the architects of registries.
But the first order of business isn’t the last order of business. That intention and effort to secure privacy must then be communicated and reinforced through real-world reality checks.
Lapses in data security and rising distrust for government institutions block the efficacy of well-intentioned and vital registries. Those states launching new registries in 2021 are at a precarious crossroads as public trust erodes.
But many in the government sector are staring at a once-in-a-generation challenge to launch new registries – those related to cannabis – with privacy top-of-mind from the initial Request For Bid.“The question isn’t when these privacy-first registries will be implemented, it’s a question of whether they’ll be implemented proactively ahead of hacks or after the damage is done.”
Here’s how:
Table Stakes for New Cannabis Registries
These suggestions are just the beginning, and I see them as the minimum buy-in to begin the architecture of a new cannabis registry. They include:
End-to-end data encryption while in transit and within the system while the data is at rest.
A solution that is a cloud-native web application which is managed as a service for maximum uptime and strong security posture.
Registries should also leverage algorithms and machine learning to ensure accurate data entry by analyzing incorrect or duplicate data before it is saved within the system.
Beyond HIPAA
The Health Insurance Portability and Accountability Act (HIPAA) requires privacy and security measures to protect Personal Health Information (PHI). Debate exists on whether compliance is a requirement for all entities transacting in the medicinal cannabis space. While some state registries are exempt from HIPAA, others choose to provide HIPAA compliance not just for the optics, but the known benefit to users’ privacy and confidence. New cannabis registries should commit to HIPAA-compliance to set a trusted new privacy standard for medical patient credentials and legal authorization for the use of cannabis for medical purposes.
That’s just the start. Registries should also ensure SOC2 Type II certification, which safeguards security, site availability, confidentiality and privacy through independent third-party auditors.
Connect with Confidence
Registries function as a hub of information in an often-confusing cannabis space. The California Bureau of Cannabis Control displays more than 25 links wired into its top navigation bar alone. Each link sends the curious to new resources. Registries must establish themselves as credible resources, especially when directing users to third-party sites.
One example is for cannabis registries to provide secure access to healthcare professionals who are verified by the Drug Enforcement Agency (DEA). These healthcare professionals are licensed to distribute controlled substances including cannabis. Each third-party link should offer the same high-level of scrutiny to enshrine confidence and credibility in the registry.
Next-Generation ID Cards
A cannabis registry card should not just be a document, but a toolset that attests to the identity and the authority of the carrier represented. An illicit counterfeiting market seeks to exploit registry card vulnerabilities. Next generation ID cards present the best defense against counterfeiting and illegal use with robust security measures. That starts with assuring that any credential is mobile ID compatible with iOS Wallet and GooglePay for mobile identification.
ID cards should also include:
The automated modification of the document bearer’s photograph to ICAO (International Civil Aviation Organization) standards. This critical modification makes the photograph easier to use for ID verification; it also facilitates the detection of photograph substitution.
A two-dimensional barcode compiles information contained in a one-dimensional barcode. It also delivers confirmation of other data shown on the card or in the system such as license authorization and limitations. Adding additional material to the physical document such as holograms, UV image, micro-printing or laser perforations offers another level of protection against illicit use or counterfeiting.
While cannabis registries are the beginning, they’re not the end. Driving efficacy for government registries needed for COVID19 track-and-tracing, cannabis plant track-and-tracing and vaccine distribution require the same attention to privacy, security and ultimate useability. A sea change is required – not just for the sake of those who use the registries but also for those who must implement, deploy and maintain those registries. The question isn’t when these privacy-first registries will be implemented, it’s a question of whether they’ll be implemented proactively ahead of hacks or after the damage is done. I believe the government sector leaders exploring new cannabis registries offer the wisdom and foresight to choose the proactive approach.
On March 23, 2021, Cannabis Industry Journal is hosting our annual Cannabis Cultivation Virtual Conference. From Noon to 5 pm EST, you’ll get access to nine veterans of the cultivation market discussing a variety of topics related to the ins and outs of growing cannabis and hemp.
Hear from subject matter experts who will share their perspectives on growing organically, facility design and planning, hemp farming and integrated pest management.
Back in December during the Cannabis Quality Virtual Conference, the Cultivation Technology episode featured a session titled A Panel Discussion: Integrated Lifecycle of Designing a Cultivation Operation. Due to a large amount of interest and attendee questions that the panel did not have time to address, we are reprising this panel discussion and bringing it back on March 23.
Speakers for that panel discussion include: Gretchen Schimelpfenig, PE, Technical Director of Resource Innovation; Brandy Keen, Co-Founder & Sr. Technical Advisor at Surna, Inc; Adam Chalasinski, Applications Engineer at Rough Brothers/Nexus Greenhouse Systems/Tetra; David Vaillencourt, Founder & CEO of The GMP Collective, and Kyle Lisabeth, Vice President of Horticulture at Silver Bullet Water.
Other talks from the Cannabis Cultivation Virtual Conference on March 23 include:
Why CBD Companies Should Go Organic
Brad Kelley, COO of Socati
The Beginner’s Guide to Integrated Pest Management
David Perkins, Founder of Floresco Consulting
Starting from Scratch: Launching a Hemp Farm in Georgia
Reginald “Reggie” Reese, Founder & CEO of The Green Toad Hemp Farm
Dwayne Hirsch, President & Chief of Business Development at The Green Toad Hemp Farm
You can check out the agenda in its entirety and register here. Attendees will have the opportunity to ask speakers questions during the live Q&A session that follows each session. Registration is complimentary. For sponsorship opportunities, contact RJ Palermo at Rj@innovativepublishing.net
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