Update: Governor Michelle Lujan Grisham signed the bill into law on April 12, 2021, making New Mexico the fifth state to legalize cannabis via the legislature.
On March 31, 2021, legislators in New Mexico reached an agreement on SB2/HB2, a bill that legalizes adult use cannabis. The bill now heads to Governor Michelle Lujan Grisham’s desk, where she is expected to sign it.
Following the conclusion of the regular legislative session, the New Mexico House and Senate reconvened for a special session to finalize the cannabis legalization deal at the governor’s request.
New Mexico Governor Michelle Lujan Grisham
The Cannabis Regulation Act (SB2/HB2) decriminalizes possession for adults over 21 and sets up a regulatory framework for licensing, commercial production and sales by April 1, 2022 (a year from now).
According to AP News, the New Mexico bill gives the governor’s office a lot of power in licensing the industry and “monitoring supplies.” That includes the power to appoint a superintendent of the Regulation and Licensing Department, which is in charge of regulatory oversight in the new market.
The Cannabis Regulation Act sets up an excise tax on adult use sales of 12% that rises to 18% over time, in addition to the “current gross receipts on sales that range from 5% to 9%.” The bill also removes taxes on medical sales.
The cannabis industry is quickly growing with the chance of sales tripling to $30 billion by 2023. With many rules and regulations that business owners must follow, marketing your cannabis business can be a challenge. While many may not know where to start with marketing, there are organic and simple tactics that owners can implement that can help drive more traffic to your website, resulting in more leads and sales.
Digital marketing is the most effective way to improve your brand’s online presence, reach your target audiences, rank higher on Google searches and ultimately drive more sales. Today, 81% of people turn to the internet before making a purchasing decision, but determining what digital marketing efforts are most valuable can be a daunting task for business owners. When looking to implement digital marketing strategies, businesses should leverage the 80/20 rule—focusing efforts on the 20% of the digital marketing tactics that yield 80% of the most impactful results. With this in mind, some of the key digital marketing tactics to implement today include:
Keep up with Reputation Management
This dispensary ad appeared on Variety.com
Having positive reviews for your company is key to having customers come back, and for new customers to try your business out. With 72% of customers not making a buying decision until they’ve read reviews, companies should prioritize soliciting for reviews from customers and stay up to date on the reviews that are coming in. Businesses should respond to all reviews, whether good or bad, as this shows to customers that the brand cares and values the customers opinion and feedback and wants to continue creating a positive experience for everyone. Reviews should be shown prominently on the business’s website for customers to clearly read and can also be used in emails or social media posts.
Make Search Engine Optimization (SEO) Top of Mind
Focusing on developing a solid SEO strategy ensures that customers can find your company on Google when they are searching. In оrdеr to rank well in search engine results, websites need search engine optimization (SEO), which is a powerful tool and a must if your company wants to be found online by customers. With Google processing 12.18 billion search queries in July 2020 alone and 93% of all online experiences beginning with a search engine, making sure your business can be clearly found and seen online is imperative for your cannabis business’ success. Keeping your website and basic information—such as hours, contact information and prices—up to date will keep your SEO high.
PlugPlay, a California cannabis brand, stays relevant with creative posts like these.
Gathering customer emails is KEY and your business should have a solid plan on how to capture them, whether that’s an incentive for providing an email when they enter the site or one at checkout in the retail shop. Businesses should have the customer’s name, phone and email as a baseline to use to email or text blast out the latest promotions. From there, companies can also create a loyalty program for customers in order to give them an incentive to keep purchasing from your business. By creating targeted and personal messaging to customers with the help of CRM tools, loyalty is created to the brand, which can increase purchasing power and the amount spent.
Embrace Social Media
Social media is a part of almost everyone’s life and it’s the perfect opportunity to give customers an inside view into your company, the products you sell and any promotions or specials going on. Utilizing Facebook, Instagram and Twitter is essential for directly reaching your customer base with visually appealing and timely content. Social media is an opportunity to get personal with your brand and build relationships with your customers for them to see what kind of brand you are. Social pages should remain up to date and should be keeping up with the comments that followers are saying.
As more dispensaries and cannabis businesses pop up across the country, marketing your business may seem like a challenge for business owners, but simple and useful digital marketing tools can be incorporated into the business plan to create more quality leads and sales. Ensuring you have a strong digital presence for customers to find you and learn about your business online is the key to success.
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.
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.
This presentation delves into why consumers want organic products, why going organic is good for the CBD industry and what would it take to become a certified organic brand.
Rapid Potency Screening by Fourier Transform near/mid Infrared Spectroscopy – TechTalk sponsored by PerkinElmer
A Guidance on an Integrated Lifecycle of Designing a Cultivation Operation
Gretchen Schimelpfenig, PE, Technical Director of Resource Innovation
Brandy Keen, Co-Founder & Sr. Technical Advisor, Surna, Inc.
Adam Chalasinski, Applications Engineer, Rough Brothers/Nexus Greenhouse Systems/Tetra
David Vaillencourt, Founder & CEO, The GMP Collective
Kyle Lisabeth, Vice President of Horticulture, Silver Bullet Water
Back by popular demand, this panel discussion is returning with the same cast of subject matter experts to foster a longer, more comprehensive dialogue on cultivation facility design. Designing a cannabis cultivation facility that can produce consistent quality cannabis, meets the demands of the business objectives (profit, time to market, scalability) and consumers and stays within budget and timelines has been a major pain point for new and seasoned business owners and growers. What appears on the surface as a simple proposition – build a structure, install HVAC and fertigation systems, hire a master grower, plant some seeds and watch the sea of green roll in — is anything but.
The Beginner’s Guide to Integrated Pest Management
David Perkins, Founder, Floresco Consulting
This presentation goes into detail on everything you need to know to get started with integrated pest management. Learn about planning and designing your cultivation facility to minimize pest pressure, how to apply pesticides safely and lawfully and pest identification, as well as choosing the correct pesticides.
Starting from Scratch: Launching a Hemp Farm in Georgia
Reginald “Reggie” Reese, Founder & CEO, The Green Toad Hemp Farm
Dwayne Hirsch, President & Chief of Business Development, The Green Toad Hemp Farm
This presentation discusses how The Green Toad Hemp Farm started with an empty lot with no water, power or structures and turned the space into a productive vertically integrated hemp cultivation operation. Learn how to work with local and state regulations from this case study in Southeast Georgia and learn how to operate with friends, not enemies: How building partnerships with your community can ensure business success.
National Agriculture Day (March 23, 2021), is an annual event held by the Agriculture Council of America (ACA), a not-for-profit 501-c (6) organization, to increase the public awareness of agriculture’s vital role in our society.
The ACA believes that every American should:
Understand how food and fiber products are produced.
Appreciate the role agriculture plays in providing safe, abundant and affordable products.
Value the essential role of agriculture in maintaining a strong economy.
Acknowledge and consider career opportunities in the agriculture, food and fiber industry.
We investigated how the hemp and cannabis industry is disrupting agriculture in positive ways, from automated trimming, to controlled environment agriculture, to water conservation and beyond. We interviewed Aaron McKellar, CEO and President of Eteros Technologies, parent company of Mobius Trimmer and Triminator, Mark Doherty, Executive Vice President of Operations, urban-gro, Inc. and Derek Smith, Executive Director at Resource Innovation Institute (RII) to get their perspective on agricultural innovation.
Aaron McKellar, CEO and President of Eteros Technologies
Aaron Green: Why is hand-trimming inefficient at scale?
Aaron McKellar: Hand-trimming is inefficient at scale because it is so labor-intensive and time-consuming, not to mention repetitive and frankly boring. It’s hard to stay fully engaged as a worker trimming by hand, so the consistency of your finished product isn’t reliable with a crew of hand-trimmers.
Aaron McKellar, CEO and President of Eteros Technologies
A hand-trimmer can produce good quality trim on about 2 or 3 pounds per day. A scaled-up facility running just one Mobius M108S Trimmer can realize up to 120 pounds per hour, replacing many dozens, or even into the hundreds of hand-trimmers. The HR nightmare this presents, and all the associated costs of paying and facilitating dozens of employees (parking, washrooms, lunchrooms, PPE and gowning, etc) is simply unworkable. And that’s before COVID.
Green: How does automated trimming benefit large producers and how does the quality compare to hand-trimming?
McKellar: Not all automated trimmers are created equal. Any of the machines out there will help to reduce the need for hand-trimmers by taking off the bulk of the leaf, leaving a small team of “hand-polishers” to finish it up. The Mobius Trimmer is the only automated trimmer on the market today that leaves the technology of the original machines in the past and employs next-gen technology to truly mimic hand-trimmed quality with stunning through-put rates.
We have high-end producers using Mobius Trimmers whose own QC department cannot discern Mobius-trimmed flower from hand-trimmed flower. Hand polishing crews tend to be far smaller when using a Mobius vs first-gen machinery, and many Mobius users don’t touch up at all, instead going straight to market right out of the trimmer. For a look at how our technology differs from the rest of the field, check out this look under the hood.
Mark Doherty, Executive Vice President of Operations, urban-gro, Inc.
Aaron Green: What is controlled environment agriculture?
Mark Doherty: Cannabis cultivators understand growing indoors because, prior to legalization, they had been doing it for years in the gray market. It is by way of that experience that cultivators learned how to manipulate a highly-valuable, complex plant in an indoor setting. As cannabis legalization spread across the United States, many government regulators required that it be cultivated indoors according to strict regulatory protocols. Fast forward 10 years, and we have an industry that is keenly aware of the indoor environmental conditions required to be successful. Critical factors like heating, cooling, ventilation, dehumidification, and how to best mimic Mother Nature’s energy through lighting are all deliberately optimized.
Mark Doherty, Executive Vice President of Operations, urban-gro, Inc.
With cannabis cultivation driving the advancements of controlled environment agriculture, market and regulatory forces demanded higher efficiency, reduced energy and resource consumption, and clean crops. In most states, cannabis crops have more stringent testing than food crops. For instance, the lettuce in Massachusetts will not pass the standards for cannabis in Massachusetts. It’s through rapid innovation and technology adoptions that the cannabis industry has paved the way for lettuce to be profitably grown indoors.
Green: How can controlled environment agriculture help alleviate supply chain stresses?
Doherty: By growing food closer to the consumer, you reduce food miles; meaning, that link in the food supply chain gets a lot shorter and is less prone to disruption. Whether you have hyper small cultivation facilities on every street corner, or a larger cultivation facility geographically close to consumers, you can grow 24/7/365. Furthermore, growing locally allows for better prediction of facility output—10 boxes of greens on Monday, 50 boxes of greens on Tuesday, and five boxes of greens on Thursday. This eliminates harvesting a large crop before it is ripe and likely requiring cold storage. The controllability of controlled environment ag is that consistent, reliable contribution to the food supply chain and shortening that path to the consumer.
Derek Smith, Executive Director at Resource Innovation Institute (RII)
Derek Smith, Executive Director at Resource Innovation Institute (RII)
Derek Smith: Until this report, if you searched for cannabis water usage, you’d basically find one cited statistic. It was “six gallons per plant per day.” We knew this was from a model based on one extreme illicit market scenario. Based on the data we were seeing and the conversations we were having, this number seemed way off. So, we pulled together a multidisciplinary Water Working Group as part of our Technical Advisory Council. The objective of the Water Working Group was to establish a scientific understanding of how, and how much, water is used for cannabis cultivation so that cultivators have confidence in taking steps to be more efficient, and so that industry leaders, governments and media can be accurately informed about the range of water practices of today’s regulated market.
Green: What key points should cannabis cultivators take away from the report? What key points should regulators and policymakers take away from the report?
Smith: As the cannabis industry matures, water use efficiency will become more important, as it has for other agricultural crops. Pressures to use water efficiently will mount from multiple channels including – reducing input and energy cost, protecting the environment, meeting regulatory standards and simply being good stewards. We recommend that industry and regulators focus efforts on the following areas:
When grown outdoors, water for cannabis production should be assessed like any other agricultural crop and be subject to state and local regulations that apply to other crops. Our research indicates that cannabis neither uses a massive share of water nor uses more water than other agricultural crops. Applying the same standards to cannabis as to other agricultural crops will correctly categorize outdoor grown cannabis as an agricultural crop.
In areas where there may be conflict between water use for cannabis and environmental concerns, regulators and the industry should focus (1) on the timing of water use and (2) the potential of storage to mitigate environmental conflict. Our results show that in many parts of the country legal cannabis farmers have ample water storage to satisfy their needs. In areas where storage is insufficient, increasing storage should be a priority for farmers and regulators.
Our research shows there are still massive differences between cannabis production techniques. As farmers continue to experiment and improve, we expect to see water use be a more important part of cannabis farming decisions and expect new plant varieties and growing techniques to be developed that increase water use efficiency. Yet more data from actual farms and facilities are needed to point the way toward the technologies and techniques that drive optimal efficiency and productivity. It is recommended that producers benchmark their performance and governments consider requiring energy and water reporting by producers. The Cannabis PowerScore can assist in these efforts.
As indoor production continues to grow, especially in areas that have unfavorable climatic conditions for outdoor growing, we expect more cannabis users to rely on municipal water sources. Yet, it is unclear if municipal water suppliers are equipped to work with the cannabis industry. We suggest outreach efforts between the cannabis industry and municipal water suppliers to incentivize efficiency where possible.
In this “Flower-Side Chats” series of articles, Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses integrate innovative practices in order to navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.
Large-scale agricultural practices can take a toll on soil health leading to inefficiencies over the long term. Harvey’s All Naturals is a Colorado-based company specializing in premium farm-to-table full spectrum CBD products. Harvey’s gets all of its hemp from Boot Ranch Farms, an off-grid sustainable hemp farm in Southern Colorado supplied by an artesian well.
We spoke with Harvey Craig, CEO Harvey’s All Naturals and co-founder of Boot Ranch Farms, to learn more about the benefits of regenerative agriculture, how he thinks about soil health, and how they produce their CBD products. Harvey started Boot Ranch Farms in 2014 after the passing of the Farm Bill and Harvey’s All Naturals followed shortly thereafter.
Aaron Green: How did you get involved in the cannabis and hemp industry?
Harvey Craig: I got involved at a very young age, as the youngest of eight kids, seven of which are boys, I was introduced to cannabis on the marijuana side first. As an engineer through the years, I’ve always been involved in creating very efficient growing systems for cannabis.
Harvey Craig, CEO Harvey’s All Naturals and co-founder of Boot Ranch Farms
In the early 2000s, I learned about CBD a little bit through experimenting with marijuana strains to help a friend who had Parkinson’s and also through the research performed by Raphael Mechoulem, an organic chemist and professor at the Hebrew University of Jerusalem in Israel. In 2014, when the Farm Bill made hemp legal, I dropped everything and went into it because I felt “this is what I need to be doing.”
Green: What is sustainable farming mean to you?
Craig: Sustainable farming to me means putting soil health and responsible natural growing practices at the forefront of all agriculture – regenerative processes for soil, in a nutshell. To me, soil health is one of the biggest problems in the United States right now. By regenerating and making our soils living, healthy and with a rich nutrient base we create an ecosystem that is good for human health and health all around.
Green: What do you mean specifically when you say, “soil health?”
Craig: Soil is living. A good natural soil has a living microbiotic structure inside it. There’s a living habitat that forms inside our soil over the years. Large scale agriculture in many cases has depleted or killed this living structure through readily accessible fertilizers and tilling practices.
Farmers understand the soil. There are practices we can undertake that are helping our living soils and helping the microbiotic habitat to thrive. Practices such as no-till technologies, rotating crops, using cover crops, not being a monocrop, responsible water use, healthy fertilizer and pesticide technologies, minimal processing, the list goes on and on…
When we talk about this thing called sustainability, I think it’s very important that we understand there are two sides of cannabis. There’s the marijuana and then there’s the hemp. We can’t put those two together – they’re governed very differently. Hemp became legal through the Farm Bill and is governed by the Department of Agriculture. Hemp is just like any other crop out there really. That means we can mix hemp in with other crops. It’s very much like corn and other crops in how it’s grown on a large scale, industrial basis.
Marijuana on the other hand is governed by each state’s regulatory commission. Those regulations make it very hard to mix in with general agriculture. So, when it comes to the marijuana side, unfortunately, it must be a monocrop. Most marijuana is grown in pots and pots are fine. However, if you are just growing in a pot and then throwing your soil away, that is not very sustainable. As it sits right now, in the marijuana industry there is really no sustainability, unfortunately. The energy use for the lights in indoor grows, for example, creates a huge carbon footprint and load on the electrical grid. I’m not trying to put indoor growing down, but that’s the way it is. The only way I foresee sustainability in the marijuana side of cannabis is to let loose a little bit on regulation and allow it to become a part of normal agricultural processes.
Green: What is it about tilling that degrades the soil quality?
Craig: When we till our soil, we’re turning the organisms in the soil up and we’re allowing the sun to dry them out. If it’s not done properly, you kill that soil structure.
Now, these little microorganisms in our soil create a healthy soil, but it doesn’t happen instantly, this takes years to create. Nobody has the time anymore, everybody’s “go go go” and “make it happen instantly”. So that gets destroyed. Now we have all these dead soils that everybody’s growing in and growers turn to factory-produced fertilizers with readily available nutrients.
When we are talking about cannabis, we can’t just look at monocropping. If you grow one crop in the same soil over and over, the soil is going to get depleted. One of the main things that we deplete is nitrogen and growing other crops, such as clover, can replenish that nitrogen. Growing cover crops protects the soil from the sun, creates nitrogen for the soil, and holds the water within the soil.
Instead of tilling, you can rotate with crops like root vegetables, radishes and other things that have deep root structures. Instead of tearing them up, just let them degrade organically and go back into the soil. Those deep root structures will also help aerate the soil.
Green: What is a farmer’s first approach?
Craig: Farmers want their land to be healthy. True farmers have a oneness with the earth and understand the earth. The farmer’s first approach keeps the farmer involved in creating new technologies for agriculture.
Green: Let’s say you’re a farmer that has land or recently acquired land that’s been industrially grown upon. How would you take that land and start fresh with a regenerative process?
Craig: The first thing you have to do is take soil samples and send them to a lab. That’ll tell you what you’re working with. Also, knowing a little history about the land helps as well. Was it used for grazing? Was it used for growing corn? What was it used for? Were organic practices used?
Then, there are many things you can do to start to regenerate your soil, but it takes time. In many situations, people don’t want to take that time. But what we’re learning is, the people and the farmers that do take that time often take a hit monetarily for the first two or three years. After that, once that structure is maintained, the natural health of the soil can be replenished. Crops will grow better, and they won’t spend as much money on fertilizers and pesticides in the long run because the microbiotic structure in the soil is creating a healthy ecosystem. When we destroy that ecosystem, it doesn’t come back easily or quickly. If there’s a little bit there, it can be regenerated with the right practices.
Green: I understand that the Boot Ranch is an off-the-grid farm. What was your motivation for either going off-grid or remaining off-grid?
Craig: I have a background in alternative energies and engineering, and when creating Boot Ranch Farms there was a lot that went into the sustainability side of it. The farm is extremely far away from the power grid for starters. So, an investment in solar for electricity was money well spent. My thought process was, why would I invest in bringing the wires in when I could actually save money and resources by creating a very efficient solar system and not be tied to the grid? Our farm is self-sustaining without being connected to any grid, which is one of the main reasons for remaining off-grid.
Green: I understand the farm is supplied by an artesian well. How do you monitor your water quality?
Craig: Well, we’re very fortunate. Existing natural water quality is one of the main reasons we decided to grow in the San Luis Valley. When you’re starting something new, you have to look at your financial side of things. Investing in a hemp farm is very different than the marijuana side because you won’t make as much money per pound of product sold. So, you have to watch your budget and not spend too much, or you’re never going to make a profit.
The self-sustaining artisanal well and water rights were existing on the property. There’s no pumping required for it and the water goes into a 10,000-gallon holding tank, where we can monitor and test for water quality. In order to water our plants, we use a pump/drip water system that supplies water to each individual plant. It’s very efficient compared to most watering systems out there, such as flood irrigation or pivots, and really doesn’t use a heck of a lot of water.
Green: Are you growing in open air or greenhouses?
Craig: We grow in two 3,000 square feet industrial-grade greenhouses at Boot Ranch Farms. Greenhouse One has all the bells and whistles including heating, cooling, light deprivation, supplemental lighting, automated controls and more. That greenhouse allows us to mimic Mother Nature a little bit. We can get up to six harvests throughout the course of the year in that greenhouse. However, in reality, we get about four.
In addition, we have a second greenhouse that is set about 100 feet away and set up to keep plants growing on mother nature’s cycle. We can move groups of mature plants to Greenhouse One after each harvest for multiple flowering cycles. Lastly, between greenhouses, we have a 10,000 square foot courtyard that’s protected with shade cloth and other things to help protect those plants from the elements. In late October, all remaining plants in both greenhouses and the courtyard become mature and ready to harvest due to shorter days created by mother nature.
Green: Do you insure your crops?
Craig: We have not. Hemp is a new industry and we have not found good crop insurance.
Green: Do you cultivate your own genetics?
Craig: We work with some other companies here in Colorado to provide genetics. Consistent genetics are extremely important on the hemp side because we need to trust that they are going to keep the THC levels down. On the marijuana side, that part doesn’t matter so much
There are different strains that have been created that I absolutely love, and I’ve tried to stick with them and stay with that seed stock. One of them is called The Wife and the other Cherry Wine. Most of the best hemp I have found is based upon the Cherry strain. People are always looking for high CBD. I’d rather have a lower CBD level in the 8% to 12% range. Something higher in the 14% to 20% range has a higher chance of producing a product with more than the legal amount of THC.
Green: Is Harvey’s All Naturals fully supplied by Boot Ranch Farms?
Craig: Yes, it is. There are a lot of things that go into a quality product and we focus on that at Boot Ranch. We’re small, not trying to compete with the large-scale market. Unfortunately, a high percentage of the products out on the market come from large-scale industrial hemp grows. We focus on long-term medicinal value and grow very high-quality hemp and we try not to degrade it in any way, shape or form throughout processing.
Green: How many square feet or acres is the Boot Ranch Farm?
Craig: Boot Ranch farm is about 260 acres. We only grow on less than three of it.
Green: What’s your extraction process?
Craig: We use cold alcohol extraction. We do not distill to separate our alcohol from the hemp oil. We use what’s called a roto vape. That cold processing preserves our terpenes, it preserves our full-spectrum cannabis oil profile and doesn’t fully decarboxylate our CBDa. We want a large CBDa percentage because there are many things that CBDa is good for when it comes to long term medicinal reasons.
Green: Are you processing your own hemp?
Craig: No, we sub that part of it out. What I’ve learned in this industry is three main parts: 1- the farming; 2- the extraction, and; 3- the product line. Those are three very separate processes and require specialized expertise within themselves. Each is a large investment and it’s very hard to do it all. I decided to work with other people on the extraction part of it. They have the expertise, and we pay them well to do what they do.
Green: Okay, great. And then any final words for Ag Day?
Craig: Support your small farmer in nutrient-rich agricultural products.
Green: Great. That concludes the interview, Harvey!
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.
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