On January 15, 2021, the USDA published its final rule on US hemp production. The rule, which becomes effective on March 22, 2021, expands and formalizes previous guidance related to waste disposal of noncompliant or “hot” crops (crops with a THC concentration above .3 percent). Importantly for the industry, the new disposal rules remove unduly burdensome DEA oversight and provides for remediation options.
Producers will not be required to use a DEA reverse distributor or law enforcement to dispose of noncompliant plants. Instead, producers will be able to use common on-farm practices for disposal. Some of these disposal options include, but are not limited to, plowing under non-compliant plants, composting into “green manure” for use on the same land, tilling, disking, burial or burning. By eliminating DEA involvement from this process, the USDA rules serve to streamline disposal options for producers of this agricultural commodity.
Alternatively, the final rule permits “remediation” of noncompliant plants. Allowing producers to remove and destroy noncompliant flower material – while retaining stalk, stems, leaf material and seeds – is an important crop and cost-saving measure for producers, especially smaller producers. Remediation can also occur by shredding the entire plant to create “biomass” and then re-testing the biomass for compliance. Biomass that fails the retesting is noncompliant hemp and must be destroyed. The USDA has issued an additional guidance document on remediation. Importantly, this guidance advises that lots should be kept separate during the biomass creation process, remediated biomass must be stored and labeled apart from each other and from other compliant hemp lots and seeds removed from non-compliant hemp should not be used for propagative purposes.
The final rules have strict record keeping requirements, such rules ultimately protect producers and should be embraced. For example, producers must document the disposal of all noncompliant plants by completing the “USDA Hemp Plan Producer Disposal Form.” Producers must also maintain records on all remediated plants, including an original copy of the resample test results. Records must be kept for a minimum of three years. While USDA has not yet conducted any random audits, the department may conduct random audits of licensees.
Although this federal guidance brings some clarity to hemp producers, there still remains litigation risks associated with waste disposal. There are unknown environmental impacts from the industry and there is potential tort liability or compliance issues with federal and state regulations. For example, as mentioned above, although burning and composting disposal options for noncompliant plants, the final rule does not address the potential risk for nuisance complaints from smoke or odor associated with these methods.
At the federal level, there could be compliance issues with the Resource Conservation and Recovery Act (RCRA), Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and ancillary regulations like Occupation Safety and Health Administration (OSHA). In addition to government enforcement under RCRA and CERCLA, these hazardous waste laws also permit private party suits. Although plant material from cultivation is not considered hazardous, process liquids from extraction or distillation (ethanol, acetone, etc.) are hazardous. Under RCRA, an individual can bring an “imminent and substantial endangerment” citizen suit against anyone generating or storing hazardous waste in a way the presents imminent and substantial endangerment to health or the environment. Under CERCLA, private parties who incur costs for removal or remediation may sue to recover costs from other responsible parties.
At the state level, there could be issues with state agency guidance and state laws. For example, California has multiple state agencies that oversee cannabis and hemp production and disposal. CA Prop 65 mandates warnings for products with certain chemicals, including pesticides, heavy metals and THC. The California Environmental Quality Act (CEQA) requires the evaluation of the environmental impact of runoff or pesticides prior to issuing a cultivation permit. Both environmental impact laws permit a form of private action.
Given the varied and evolving rules and regulation on hemp cultivation, it remains essential for hemp producers to seek guidance and the help of professionals when entering this highly regulated industry.
According to a press release published this week, Quicksilver Scientific, a nanoemulsion delivery technology company, announced a partnership with Truss CBD USA, which is the joint venture between Molson Coors and HEXO Cannabis.
Quicksilver is a manufacturer of nutritional supplements that uses a patent-pending nanoemulsion delivery technology. Their technology is what enables companies to produce cannabinoid-infused beverages.
Because cannabinoids like CBD are hydrophobic, meaning they are not water-soluble, companies have to use nanoemulsion technology to infuse beverages. Without this technology, beverages with cannabinoids would have inconsistent levels of compounds and they wouldn’t work well to actually deliver the cannabinoids to the body. Nanoemulsion essentially cannabinoids water soluble, thus allowing the delivery of cannabinoids to the bloodstream, increasing bioavailability.
Dr. Christopher Shade, Ph.D., founder & CEO of Quicksilver Scientific says they have perfected their nanoemulsion technology over the past decade. “CBD is not water-soluble, which creates challenges for manufacturers when attempting to mix it into beverages,” says Dr. Shade. “Our innovative nanoemulsion technology overcomes these challenges by encapsulating nano-sized CBD particles in water-soluble spheres that can be directly added to beverages. The result is a clear, great-tasting product with greater bioavailability, a measure of a compound’s concentration that is absorbed into the body’s bloodstream.”
The Veryvell beverage product line
Quicksilver is providing their technology to be used with Veryvell, the joint venture’s new line of non-alcoholic, hemp-derived CBD beverages. The beverage line is already available in the Colorado market. According to the press release, the three product offerings include: “Focus” (grapefruit and tarragon with ginseng and guarana), “Mind & Body” (strawberry and hibiscus with ashwagandha and elderberry) and “Unwind” (blueberry and lavender flavors with ashwagandha and L-Theanine).
Due to quick progressions in legalization, today’s cannabis industry bears little resemblance to the industry of five years ago. As the cannabis space gains mainstream acceptance, it resembles more “traditional” industries closely. In turn, how we consume cannabis has changed dramatically within this novel legal framework.
A brief visit to a cannabis dispensary quickly illuminates just how much the industry has changed in the past few years.
Within the dynamic of modern cannabis, perhaps no vertical has seen the same advancements as cannabis extracts. It’s precisely the growth of the concentrate category that has given rise to the many branded products that define the legal market.
To give a clear picture of how advancements in extraction have stimulated the concentrate category’s growth, we put together this brief exploration.
Standards & Technology
Before legalization, the production of cannabis extracts was a shady affair done in clandestine and often dangerous ways. Especially concerning BHO (Butane Hash Oil), home-based laboratories have long since been notorious fire hazards. Even more, with a total lack of regulation, black-market extracts are infamous for containing harmful impurities.
In the few short years that cannabis has been legal in Nevada, Washington and other states, extract producers have adopted standards and technology from more professional arenas. By borrowing from the food and pharmaceutical industries, concentrate companies have achieved excellence undreamed of a decade ago.
Good Manufacturing Practices
One of the essential elements in the extracts vertical advancements is the adoption of good manufacturing practices. According to the World Health Organization website, “Good Manufacturing Practice (GMP) is that part of quality assurance which ensures that products are consistently produced and controlled to the quality standards appropriate to their intended use.”
When adult-use cannabis was legalized in markets such as Colorado, cannabis companies were able to come out of the shadows and discuss GMPs with legit businesses. In doing so, they implemented professional controls on extract manufacturing in accordance with “quality standards” of state regulatory agencies.
Supercritical CO2 Extraction
As cannabis businesses adopted GMP from other industries, extract producers also embraced more sophisticated technology. Of these, supercritical CO2 has pushed the cannabis concentrates vertical into the future.
According to the equipment manufacturer Apeks Supercritical, “CO2 is considered to be a safer method of extraction because the solvent is non-volatile. The extract is purer because no trace of the solvent is left behind. It is also versatile and helps protect sensitive terpenes, by allowing cold separation.” By deriving methods from food production, supercritical equipment manufacturers have given cannabis companies a viable option for the commercial production of extracts.
Supercritical technology has helped push the concentrates vertical forward by providing a clean and efficient way to produce cannabis extracts. Nonetheless, supercritical CO2 equipment is highly sophisticated and carries a hefty price tag. Producers can expect to pay well over $100,000 for commercial supercritical CO2 extraction setup.
Products
Just as standards and technology have evolved in the cannabis extracts vertical, we have also seen products rapidly mature. Notably, the legal environment has allowed manufacturers to exchange ideas and methods for the first time. In turn, this dialogue has led to the development of new products, like isolates and live resin.
Isolates
Just as the name implies, isolates are concentrates made from a singular, pure cannabinoid. In today’s market, CBD isolates have grown increasingly popular because people can consume pure CBD without ingesting other cannabinoids or plant materials, including the legal 0.3% THC found in hemp.
Isolates are made by further purifying cannabis extracts in the process of purification, filtration and crystallization. As seen with other concentrates, isolates are used as the base for many cannabis products, such as gummies.
There is also growing interest in CBG isolate, which is another non-psychoactive cannabinoid when consumed orally.
Live Resin
The cannabis concentrate live resin has taken the industry by storm over the past few years. Live resin is a form of extract that is originally sourced from freshly harvested and frozen cannabis plants. The primary selling point behind this extract is the fact that fresh flowers produce much more vibrant aromas and flavors than dried cannabis. Interestingly, this pungency is tied to the preservation of terpenes in live resin.
Just a few of the dozens of various products types on the market today.
To make live resin, producers “flash freeze” fresh cannabis plants immediately after harvest. Valuable cannabinoids and terpenes are then extracted from the fresh, frozen plant material using hydrocarbon solvents. This whole process is done at extremely cold temperatures, ensuring no thermal degradation to the precious and volatile terpenes.
In lieu of these intricate steps to preserve the flower and extracts, live resin has continuously gained popularity. Namely because vaping with live resin is the best way to sample fresh cannabis terpene profiles in its most authentic fashion
It is amazing to see how much cannabis extracts have grown and progressed with legalization. Due to such amazing advancements in standards, technology, and products, the concentrates category has exploded on the dispensary scene. In today’s market, flowers have been largely sidelined in favor of concentrate-based products like gummies. These products now adorn dispensary shelves in beautiful packaging replete with purity and testing specifications.
It’s an often-overlooked fact that the purity standards of the legal extracts have made reliable cannabis brands possible in the first place. You cannot develop a cannabis brand without consistent products that customers can rely on; all things considered, it can be said that advancements in extraction have not only stimulated the concentrate category but the entire industry as we know it today.
Plant genetics are an important consideration for cultivators planning to grow cannabis crops. Genetics can affect how well a plant grows in a particular environment under various conditions and have a major impact on the production of cannabinoids, terpenes as well as other molecules and traits expressed by the plant.
Front Range Biosciences is a hemp and cannabis genetics platform company, leveraging proprietary next generation breeding and Clean Stock® tissue culture nursery technologies to develop new varieties for a broad range of product applications in the hemp and cannabis industries. FRB has global reach through facilities in Colorado, California and Wisconsin, and a partnership with the Center for Research in Agricultural Genomics in Barcelona, Spain. FRB is headquartered in Lafayette, Colorado.
We spoke with Jonathan Vaught, Ph.D., CEO and co-founder of Front Range Biosciences. Jonathan co-founded Front Range in 2015 after a successful career in the diagnostics and food testing industries.
Hemp tissue culture samples like these sat in an incubator aboard the ISS
Jonathan Vaught: This was a collaborative project between the BioServe group at the University of Colorado Boulder, which is a part of their aerospace engineering program. They do research on the International Space Station, and they have for quite some time. We partnered with them and another company, Space Technology Holdings, a group that’s working on applications of space travel and space research. We teamed up to send tissue culture samples to the space station and let them sit in zero gravity at the space station for about a month, and then go through the reentry process and come back to Earth. We brought them back in the lab to perform some genomic analyses and try to understand if there’s any underlying genetic changes in terms of the plants being in that environment. We wanted to know if there was anything interesting that we could learn by putting these plant stem cells and tissue cultures in an extreme environment to look for stress response, and some other possible changes that might occur to the plants by going through those conditions.
Aaron: That’s an interesting project! Are there any trends that you’re following in the industry?
Jon: We’re excited to see ongoing legalization efforts around the world. We’ve seen continued progress here in the United States. We still have a long way to go, but we’re excited to see the additional markets coming onboard and regulations moving in the right direction. Also, we’re excited to see some of the restorative justice programs that have come out.
Aaron: How did you get involved at Front Range Biosciences?
Jon: It really starts with my background and what I was doing before Front Range Biosciences. I’ve spent more than 15 years developing commercializing technologies in human diagnostics, food safety and now agriculture.
Jonathan Vaught, Ph.D., CEO and co-founder of Front Range Biosciences
I started my career during graduate school in biotech at the University of Colorado at Boulder, where I helped develop some of the core technology for a human diagnostic startup company called Somalogic here in Colorado. I went to work for them after finishing my dissertation work and spent about six years there helping them grow that company. We ended up building the world’s largest protein biomarker discovery platform primarily serving pharmaceutical companies, hospitals and doctors, with personalized medicine and lab tests for things like early detection of chronic illness, cancer, heart disease and inflammation.
I then went to another startup company called Beacon Biotech, that was interested in food safety. There I helped develop some similar technologies for detecting food-borne illness — things like salmonella, listeria and E. coli. That was my introduction to big food and big agriculture. From there, I went to help start another company called Velocity Science that was also in the human diagnostic space.
Along the way, I started a 501(c)3 nonprofit called Mountain Flower Goat Dairy, a dairy and educational non-profit that had a community milk-share, which included summer camps and workshops for people to learn about local and sustainable agriculture. I became more and more interested in agriculture and decided to take my career in that path and that’s really what set me up to start Front Range Biosciences.
Aaron: Do you have any co-founders?
Jon: I have two other co-founders. They both played various roles over the last four years. One was another scientist, Chris Zalewski, PhD. He currently works in the R&D department and helps oversee several different parts of the company including pathology and product development. My other co-founder, Nick Hofmeister served as chief strategic officer for the last few years, and has helped raise the majority of our funding. We’ve raised over $45 million dollars, and he played a big role in that.
Aaron: What makes you different from other cannabis seed companies?
John: We’ve built the first true cannabis genetics platform. What I mean by that is we built a platform that allows us to develop and produce new plant varieties that support both the hemp and the cannabis markets. To us, it’s all cannabis. Hemp and cannabis are scientifically the same plant. They just have different regulatory environments, different products and different markets, but we stay focused on the plant. Our platform is built on several different pillars. Genetics are one of the core pieces, and by genetics I mean, everything from molecular based breeding to marker assisted breeding to large germplasm collections. We collect different varieties of germplasm, or seed, from all over the world and use those to mix and match and breed for specific traits. We also have large nursery programs. Another one of our pillars of the platform includes greenhouse nursery production — everything from flowering cannabis plants to producing cannabis seeds to cloning and producing mother plants and rooted cuttings or clones.
Then tissue culture is another part of the platform, it’s basically the laboratory version of a greenhouse nursery. It’s housed in a sterile environment and allows us to produce plants that are clean and healthy. It’s a much more effective, modern way to manage the nursery. It’s part of our clean stock program, where we start clean, stay clean, and you can finish clean. It’s really built on all of those different pieces.
We also have capabilities in analytical chemistry and pathology, that allow us to better understand what drives performance and the plants, and both different regions as well as different cannabinoid products or terpene products. All of the science and capabilities of the platform are what allow us to create new varieties faster, better, stronger.
Aaron: It sounds like you’re vertically integrated on the front-end of cannabis cultivation.
Jon: Absolutely, that’s a great way to think about it.
The last piece I’d say is that we have areas of research and development that cover the full span of multiple product lines. We think about it from an ingredient perspective. Cannabinoids and terpenes are certainly what drive a large part of the cannabis market in terms of edibles, smokable flower, vapes and extracts and the different effects and flavors that you get. We also are looking at other ingredients, like plant-based protein and hemp as a viable protein source and the ability for hemp to produce valuable fiber for textiles, as well as industrial building materials and applications.
Lastly, there are additional small molecules that we’re working on as well from a food ingredients perspective. There are all kinds of interesting compounds. Everybody talks about the cannabinoids and terpenes, but there are also things like flavonoids, and some other very interesting chemistries that we’re working on as well.
Aaron: What geographies are you currently in?
Jon: Colorado and California primarily and we have a small R&D partnership in Barcelona.
Hemp clones and seeds is a big part of the Front Range Biosciences business
Aaron: Do you have plans for expansion beyond that?
Jon: Our current headquarters are out of Colorado, and most of our Colorado operations right now are all hemp. Our hemp business is national and international.
We work with a licensed cannabis nursery partner in California which is our primary focus for that market, but we will be expanding the cannabis genetics and nursery program into Colorado next year. From a regulated cannabis perspective, that’s the first move. Beyond that, we’re in conversations with some of the multi-state operators and cannabis brands that are emerging to talk about how to leverage our technology and our genetics platform across some of the other markets.
Aaron: How do you think about genetics in your products?
Jon: Genetics means a lot of things to different folks depending on your vantage point and where you sit in the supply chain. Our business model is based on selling plants and seeds. At the end of the day, we don’t develop oils, extracts and products specifically, but we develop the genetics behind those products.
For us, it’s not only about developing genetics that have the unique qualities or ingredients that a product company might want like CBD, or other minor cannabinoids like THCV for example, but also about making sure that those plants can be produced efficiently and effectively. The first step is to introduce the ingredient to the product. Then the second step is to make sure that growers can grow and produce the plant. That way they can stabilize their supply chain for their product line. Whether it’s for a smokable flower product, or a vape product, or an edible product, it’s really important to make sure that they can reproduce it. That’s really how we think about genetics.
Aaron: What is a smart plant? That’s something I saw on your website.
Jon: It’s really about plants that perform under specific growing regions, or growing conditions. For example, in hemp, it’s one thing to produce CBD or CBG. It’s another thing to be able to produce it efficiently in five different microclimates around the U.S. Growing hemp in Florida or Alabama down on the Gulf Coast versus growing on the Pacific Northwest coast of Washington, or Oregon are two very different growing conditions that require smart plants. Meaning they can grow and thrive in each of those conditions and still produce the intended product. Generally, the different regions don’t overlap. The genetics that you would grow in Pacific Northwest are not going to do as well as some better selected varieties for the South East.
It’s not only different outdoor growing regions, but it’s different production styles too. When you think about regulated cannabis the difference between outdoor and indoor greenhouse is mixed light production. Even with hydroponic type growing methods, there are lots of different ways to grow and produce this plant and it’s not a one size fits all. It’s really about plants that perform well, whether it’s different regions in the United States in outdoor production or different indoor greenhouses with mixed lights and production methods.
Aaron: You market CBG hemp as a product line. What made you start with CBG? Is that a pull from the market or something you guys see trending?
Jon: So I think it’s a little bit of both. We offer CBD dominant varieties and CBG dominant varieties of hemp. We also now have other cannabinoids in the pipeline that we’ll be putting out in different varieties next year. Things like CBC as well as varins, or propyl cannabinoids. Also things like CBDV, CBCV, or CBGV, which are the propylcannabinoid versions of the more familiar compounds.
Their nursery services include breeding, propagation and production of cannabis
There was a lot of market demand for CBG. It was a fairly easy cannabinoid to produce as a single dominant cannabinoid similar to CBD or THC. There’s a lot of up-and-coming demand for some of the other minor cannabinoids. Up until a few years ago, CBD was considered a minor cannabinoid. It wasn’t until Charlotte’s Web in the Sanjay Gupta story that it became a major cannabinoid. So I think we see some level of market pull across the category.
On the flip side of that, we have one of the world’s largest R&D teams and consolidated expertise in terms of cannabis. We see the potential for minor cannabinoids, and even terpenes and other compounds like flavonoids to have wide ranging implications in human health. Everything from wellness products, to active pharmaceutical ingredients, to recreational products. From our perspective, that’s the reason why we’re pushing these ingredients. We believe that there are a lot of good products that come out of this work and the genetics that produce these minor cannabinoids.
Aaron: Okay, great. And then last question, is there anything you’re interested in learning more about?
Jon: I think the most exciting thing for me, given my background in clinical diagnostics and human health, is to see more data around how all of these different compounds of the plant can support improved wellness, health and nutrition. I think we’ve only scratched the tip of the iceberg. This type of research and data collection takes years, even decades, especially to see outcomes over time of people using these products. I’m really excited to see more of that and also hopefully be able to make stronger conclusions about some of the benefits that can be had from this plant.
Aaron: That’s the end of the interview, thanks Jon!
According to a press release sent out last week, Kennebec Analytical Services (KAS) announced that they have acquired Cannabis Testing Laboratories (CTL), which was previously owned by Doane University. KAS is based in Lincoln, Nebraska and provides testing services for hemp and CBD producers in Nebraska.
CTL operates independently of the university, but the lab is a resource for faculty and students. There are internship and experiential learning opportunities available at the lab for students. In addition to that, the lab also helps faculty that teach cannabis-related courses.
Concetta DiRusso, Ph.D. is the CEO of KAS and says CTL has done provided testing for over 50% of Nebraska’s hemp market and provides hemp farmers with educational resources as the market gets off the ground. “Drs. Andrea Holmes, CTL founder, and Arin Sutlief, Laboratory Director, have done an outstanding job for Nebraska hemp farmers,” says Dr. DiRusso. “KAS is committed to continuing these valuable relationships and services for the hemp and CBD industries.”
In a press release sent out this week, Trichome Analytical, based in Mount Laurel, New Jersey, announced two new developments for their business: They have achieved ISO 17025:2017 accreditation and they are officially registered with the DEA for hemp compliance testing.
The press release also mentions their collaboration with Shimadzu, who supplies 80% of the lab’s equipment and supports the Trichome’s operations with technical guidance.
For the hemp industry, pre-harvest testing for THC levels is a requirement and labs are required to get registered with the DEA in order to perform that testing.
These announcements are somewhat timely, given the results of the election. Voters in New Jersey approved adult use cannabis legalization just last week.
Editor’s Note: This article has been updated to include the presidential and congressional election results.
While the votes continue to come in for the presidential and congressional elections and we have some concrete results materializing, cannabis legalization has emerged as a clear winner across the board. Five states had initiatives on the ballot to legalize cannabis in one form or another and voters in all five states approved those measures by wide margins.
As of this writing, 15 states now have legalized adult use cannabis and 36 states have legalized medical cannabis. That is a significant portion of the United States with some form of legal cannabis, even without counting the emergent hemp markets across the country.
After a tight race and mail-in vote counts diminishing President Trump’s lead days following the election, Joe Biden has won the White House. Most cannabis industry stakeholders see this as a win for cannabis as both Biden and Vice President-Elect Kamala Harris have voiced support for federal decriminalization of cannabis. The vocal support is very much so tied to their campaign on ending racial injustices and systemic racism, citing the failed war on drugs for disproportionately harming communities of color.
While it is looking like the Democrats will retain control of the House of Representatives, it is still unclear which party will control the Senate. That question likely won’t be answered until January 2021, when voters in Georgia will decide on two Senate seats in runoff elections that will decide which party gets the majority. With a Democratic majority in the House and Senate, it is entirely possible that the Biden administration could decriminalize cannabis on a federal level within the next four years. Without that majority, however, it is possible reform could come at a much slower pace.
As more states legalize cannabis, their neighbors see the potential economic benefits and want to cash in on the movement. Just take a look at the West Coast.
Comments made by politicians leading up to the election in the Northeast also shed some light on the alleged domino effect coming to the United States. In late October, about two weeks before the election, New York Governor Andrew Cuomo was asked when his state will legalize adult use cannabis. His answer: “Soon, because now we need the money.” Back in September, Pennsylvania Governor Tom wolf specifically asked the state legislature to legalize adult use cannabis. Governor Wolf said “people will go to New Jersey” to purchase cannabis once it becomes legal in the neighboring state.
Question 1 in NJ won by a very wide margin
Well, New Jersey legalized adult use cannabis. So now it appears we are in a waiting game to see which neighboring state will move forward before the other. Alyssa Jank, consulting services manager at Brightfield Group, predicts cannabis sales in New Jersey to reach about $460 million in 2021, up from about $94 million this year. She says the market could reach $1.5 billion by 2025.
Sam D’Arcangelo, director of the Cannabis Voter Project, a division of HeadCount, says the New Jersey measure is pretty bare-bones, so the legislature will need to pass enabling legislation that actually creates the adult-use program. “It’s tough to tell exactly what that legislation will look like or how long it will take to pass, but it’s possible it will be approved pretty quickly,” says D’Arcangelo. “Tonight’s results could set off a domino effect that inspires lawmakers to move forward with legalization in a number of states throughout the region.”
Let’s take a closer look at Arizona: Back in 2016, Arizona had a measure on the ballot to legalize adult use cannabis that failed to get enough votes. Things have clearly changed in the state in the last four years because Prop. 207 (the 2020 ballot initiative to legalize adult use cannabis) won 59.8% to 40.2%. Arizona now joins a massive West Coast bloc of states slowly creeping inland that have legalized adult use cannabis, including, Washington, Oregon, California, Nevada and now Arizona, not to mention Montana. Drug Policy Alliance’s Emily Kaltenbach believes that New Mexico will follow suit as well, with three out of four voters in the state in favor of it.
Voters in Mississippi approved a medical cannabis program by a wide margin with almost 74% in favor. Even more encouraging, voters in the state rejected the legislature’s attempt to hijack the initiative with their own alternative measure that would have involved developing their own program as they see fit without any sort of deadline.
While Montana can tend to lean slightly Democrat, it is surrounded by heavily Republican-dominated states like Wyoming and Idaho. With both Montana and South Dakota voters approving adult use legalization measures, this presents a potential inroad for cannabis to reach far more conservative states in the Northern Rockies and beyond.
Greg Kaufman Partner at Eversheds Sutherland and frequent Cannabis Industry Journal contributor, says this election puts considerable pressure on Congress to take some action on one or more of the cannabis-related bills currently pending. “In several states, cannabis was more popular than the winning presidential candidate, regardless of the party of the winning candidate,” says Kaufman. “This suggests that cannabis is not a partisan issue, nor should it be.”
The 15 states that have legal adult use cannabis now represents about 34% of the population in our country. “During the most divisive election in modern U.S. history, Americans demonstrated unity around at least one issue – cannabis policy reform,” says Aaron Smith, co-founder and chief executive officer of the National Cannabis Industry Association. He says the victories we saw this week are commendable and will lead to a lot of new jobs, tax revenue and thousands of fewer arrests, but there is still a lot of work to be done. “We look forward to building on this progress as we continue to work with Congress to end the conflict between outdated federal laws and the growing number of states with regulated cannabis markets, and help undo the racially and economically disparate harms caused by prohibition.”
While we wait to hear who will control the Senate in 2021, which will have a massive impact on cannabis reform, we leave you with this great quote from Aaron Smith: “There is still a lot of work to do, but the wind is at our backs.”
While we’re pleased to report that 2020 is almost over, 2021 will be a mixed bag. New jurisdictions will open their doors to cannabis and consumption will continue to rise, but competition from new operators and illicit supplies will increase. As California’s cannabis industry matures and turns the page on a bizarre year, market uncertainty will linger as the pandemic drags on and overtaxation and regulation strangle profits. But let’s remember, cannabis has been cultivated for over 6,000 years and has withstood far worse—this market isn’t going anywhere and will continue to grow and become more impactful.
Access to Traditional Finance Services
The U.S. Senate will likely pass legislation providing cannabis businesses access to traditional banking and financing services. This will be a game changer for the industry. Valuations will go up. Increased liquidity will smooth transactions. Companies will look to affordable debt to expand their footprints and capacity to compete on a new scale. Full federal legalization could be a game changer if 280E tax restrictions are lifted and interstate and international cannabis trade open up, but the timing of this is hard to predict.
Continued Quarantine-Induced Consumption
Cannabis consumption will continue to increase as Californians seek to ease pandemic-related stress, temper quarantine conditions, and sample an eye-popping array of new products. Sophisticated consumers will be open to spending more on unique and niche products. But hemp-derived cannabinoids may present a new source of competition, especially if CBD remains unregulated. By the end of 2021, cannabis beverages will begin to compete with mainstream alcohol categories. Pharmaceuticals will increasingly take notice of this industry and the increasing share of consumers turning to plant-based remedies.
Ever More Cultivation Opportunities
In pursuit of revenue, agricultural counties will liberalize their policies on cannabis cultivation by permitting more acreage and streamlining permit processes. Neighborhood groups will push back, but policymaker concerns will be assuaged when they see cannabis farms operating innocuously (and sustainably) around the state. Advances in seed breeding, pest-and-disease control, outdoor growing techniques and odor abatement technology will help too.
New Retail
Cities and counties will revisit opening their borders to cannabis retail storefront and delivery as they attempt to fill budget gaps. Many cities will allow cannabis retail for the first time and/or expand the number of licenses available. These new dispensaries will provide a much-needed outlet for the influx of licensed flower and will continue to spur innovation and consumer education. But a “second wave” of retail speculators seems poised to let optimism override judgement, setting themselves up for failure or acquisition by incumbents.
Getting Social Equity Right
2021 will be a pivotal year for social equity, which will establish a foundation for a just cannabis economy. The industry will have to grapple with how to ensure that those most impacted by the criminalization of cannabis and most often excluded from traditional financing exposure are provided with equitable access to meaningful opportunities. As California’s regulated cannabis market grows, getting social equity right will be important if the industry is to firmly establish itself as an inclusive industry that addresses impacts on marginalized communities and responds to customer demands.
Formalizing Appellations
California’s new CalCannabis Appellations Program will provide cultivators and brands a way to credibly market the value of their unique growing regions and cultivation methods. These distinctions only apply to cannabis planted in the ground, excluding greenhouse and warehouse grows. The expectation is that high-end consumers, trained to recognize place-based designations and quality certifications in other products, will reward products that boast these designations. How many consumers will be willing to pay the premium and how long full implementation of the program will take, remains to be seen.
Prices May Begin to Drop
2020 was a great year for the few fully licensed cultivators in California permitted to sell to the regulated market. 2021 may be different. Numerous licensed cultivation projects will complete the permitting processes and come online next year. While growing demand may outpace supply at first, by Q3 supplies could swamp the market. Premium flower is perhaps an exception. Adding to the pricing pain, as always, is California’s illicit market, which will continue to undercut prices, as legal growers toil to comply with a labyrinth of state and local regulations. Nonetheless, cannabis will remain the most profitable crop on a per acre basis for some time.
Business Turmoil
The drop in prices coupled with continued high taxes and regulatory burdens will result in turnover of assets and businesses. Less efficient and inexperienced cultivators will struggle, many unable to ultimately withstand pricing pressure. Others will be hit by enforcement actions for failing to comply with California’s myriad regulations. Retailers, already burdened by punitive tax structures, real estate finance commitments and onerous local regulations, will need to be disciplined and have a clear strategy to address new competition.
Consolidation
Driven by business failures and renewed investor interest, California’s regulated cannabis industry may consolidate rapidly in the second half of 2021. Institutional finance will enter the space with a much more disciplined approach than prior capital sources. Traditional agricultural interests will invest in cannabis cultivation projects. Well-run retail chains will begin to outcompete, and then acquire, mom-and-pop competitors. Big brands will continue to expand their shelf space, relegating smaller competitors to niche and novelty status.
In short, the cannabis industry will continue to be highly dynamic, exciting, enticing and risky.
As of this writing, the United States Food and Drug Administration (FDA) has approved GW Pharma’s CBD drug Epidiolex for treating profound refractory pediatric epilepsy syndromes (Dravet syndrome and Lennox Gastaut syndrome) as well as for treating seizures associated with tuberous sclerosis complex (TSC) in patients one year of age or older. The product is a very simple, orally-administered formulation comprised of 100mg/ml cannabidiol (CBD), dehydrated alcohol, sesame seed oil, strawberry flavor and sucralose – basically, an alcohol-based solution with sesame seed oil to help solubilize the CBD oil, flavoring and sweetener.
On April 6th, 2020 GW Pharma performed a regulatory miracle when they succeeded in convincing the Drug Enforcement Administration (DEA) to deschedule Epidiolex (i.e., remove it from the Schedule 1 and Schedule 5 lists of substances that the agency regulates due to concerns regarding safety, potential for abuse or both) for all indications – including indications for which it has not yet been approved by the FDA.1 The benefit to GW of having their product descheduled is incalculable. This status change removed potential barriers to insurance reimbursement and made the need to set up and administer an expensive REMS2 drug safety program less likely. In part because of this regulatory coup d’état, the drug recently posted yearly earnings of nearly $300 million.
It is important to note that the DEA descheduled the Epidiolex formulation and not cannabis-derived CBD itself. Thus, GW Pharma is now in the enviable position of being the only company that can legally sell cannabis-derived CBD. More importantly, because the DEA descheduled the formulation and not the active ingredient, other companies who wish to market cannabis-derived CBD pharmaceutical formulations will have to repeat whatever it is that GW did to get Epidiolex descheduled.3 The DEA effectively gave the company a huge head start with respect to competitors who are developing other cannabis-derived CBD formulations that would compete with Epidiolex. That advantage will remain in place unless and until cannabis-derived CBD itself is descheduled or cannabis is legalized at the federal level.
GW Pharma’s CBD drug Epidiolex, which is FDA-approved to treat profound refractory pediatric epilepsy syndromes
GW Pharma’s attorneys demonstrated considerable virtuosity in devising this approach. However, there is another aspect of the GW Pharma story – one that could have profound implications for the exploding CBD consumer packaged goods (CPG) industry. The Federal Food, Drug, and Cosmetics Act4 (FFDCA) prohibits the introduction into interstate commerce of any food to which has been added an approved drug or a drug for which substantial clinical investigations have been instituted and made public.5 Because CBD was and is still the subject of clinical trials run by GW Pharma and others, even hemp-derived CBD is currently illegal to use as a food additive or dietary supplement under the FDCA
The FDA has recently re-started the public commentary stage of a long process that will hopefully result in the creation of a regulatory pathway for CBD to be used as a food additive – something that would seemingly be a straightforward matter given the copious amounts of safety data being generated from all of GW Pharma’s clinical trials. However, as long as the FDA continues to drag its feet in providing a regulatory pathway for CBD CPG products, CBD, regardless of its source, will remain illegal to use as a food additive or supplement under either the CSA or the FFDCA despite the existence of safety data obtained through the Epidiolex clinical trials. If, as many people in the industry anticipate, the agency decides to begin enforcement action, this could have a hugely negative impact on the industry.
In addition to the potentially disastrous effect that federal law could have on an important new industry, the federal regulatory scheme introduces unnecessary regulatory complexity and cost by imposing two different regulatory schemes depending on the source of the CBD. CBD derived from hemp is chemically identical to CBD derived from cannabis. Despite that identity, the 2018 Farm Bill nonsensically exempts only hemp-derived CBD from the Controlled Substances Act. If a regulatory pathway is created for hemp-derived CBD, but the DEA insists on maintaining cannabis-derived CBD as a schedule 1 substance, then the same molecule will be subject to two different regulatory schemes. This scenario would require tracking and certifying CBD sources and thereby impose regulatory and economic burdens that are entirely unnecessary from a public health point of view.
An alternative, economically disastrous scenario: given the pharmaceutical industry’s formidable lobbying power, it is entirely possible that the FDA could decide to limit the use of CBD exclusively in prescription drug formulations. This could kill the entire US hemp CBD CPG industry, currently estimated to reach $22 billion by 2022.6
Overall, the current state of affairs is unfair, expensive, uncertain and entirely unworkable over the long term. The CSA must be amended, ideally to deschedule both hemp and cannabis entirely, but at least in the short term, to deschedule CBD and preferably all non-THC cannabinoids regardless of their source. Further, the FDA must provide a regulatory pathway to allow the use of low doses of cannabinoids shown to be safe, either by existing clinical trial data or future testing pursuant to the NDIN submission process.
A 2019 Gallup poll found that 14% of Americans – 1 in 7 – use CBD products.7 The demand is there, the industry is thriving, and adequate safety data exists to justify a regulatory system that allows low-dose over the counter CBD products provided those products are produced using Current Good Manufacturing Practices (CGMPs) for food and dietary supplement manufacturing prescribed by the FDA and that such products undergo regular testing that demonstrates they are safe, unadulterated and accurately labeled. It is time for the industry to collectively fund a New Dietary Ingredient Notification (NDIN) submission that would provide safety data sufficiently compelling to force the FDA to either recognize CBD and other non-THC cannabinoids as being GRAS substances regardless of their source, or in the alternative create a regulatory path for CPG products containing low-doses of CBD and other non-THC cannabinoids.
Editor’s Note: The opinions expressed in this publication are those of its author. They do not purport to reflect the opinions or views of the Cannabis Industry Journal, its editorial staff or its employees.
References
Clincialtrials.gov lists 256 different clinical trials in which Epidiolex has been, is being or will be tested for a wide variety of other indications, including but not limited to opioid use disorder, several types of prostate cancer, alcohol use disorder, musculoskeletal pain, and a host of others.
REMS – risk evaluation and mitigation strategy – are drug safety programs that the FDA requires in cases where mediations pose serious safety concerns with respect to potential abuse and other adverse effects.
Exactly what they did isn’t clear, and won’t be for a long while given the snail’s pace at which FOIA requests are filled.
Title 21 United States Code Chapter 9
Title 21 United States Cod Chapter 9, Sections 331(ll), 342(a)(1) and Section 342(d)(f)(1)
“Exclusive: New Report Predicts CBD Market Will Hit $22 Billion by 2022” Rolling Stone Magazine, September 11, 2018, citing cannabis industry analysis from the Brightfield Group.
Private labelling, or white labelling, is a popular option for brands looking to enter the CBD space. This practice is where a product is manufactured by one company but branded, marketed and sold by another.
There are several companies that specialize in manufacturing end-to-end finished CBD products. They commonly provide third-party test results, certificates and data to verify the purity and potency of products created. Technically, all new brands need to do is place their label on the package and start selling! However with any new venture, establishing a successful private label CBD brand will inevitably mean various challenges need to be overcome.
Securing Quality Sources of CBD
Finding the right partners to work with is a must. The best way to source credible and trustworthy suppliers and manufacturers is to look for certifications and audits from third-party agencies. These include the Global Food Safety Initiative (GFSI), the Safe Quality Food (SQF), the United States Department of Agriculture’s (USDA) organic certification program and others.
The USDA organic certification program is a rigorous multi-step audit process to increase supply chain sustainability. Organic certification is a form of elective, self-regulation for manufacturers which consumers have eagerly welcomed into the marketplace. Look for the USDA organic seal to help identify which manufacturers are trustworthy and can produce a range of organic products.
From a consumer perspective, certifying your products as organic is an additional way to provide both supply chain transparency and increase confidence when trying new CBD products. It also provides a form of quality assurance to skeptical consumers, especially those who avidly read product labels prior to making a purchasing decision. Members of this “label reader” demographic will consistently choose organic products for the quality and transparency they provide with pure and natural ingredients.
Creating a Unique Product
Innovation and creativity will continue to be important differentiators due to the highly competitive nature of the CBD marketplace. New ingredient innovations such as water dispersible materials are big game-changers. From chewing gum to energy drinks, the opportunities for new and unique CBD products under your own private label are limitless.
Just some of the many hemp-derived CBD products on the market today.
There are only a handful of CBD brands who are willing, or even able, to be certified organic today. USDA certification is an opportunity for brands looking to adapt to changing consumer preferences, diversify their product offerings and invest in supply chain transparency.
In the past, product differentiators involved third-party lab testing or providing COAs — today that’s just industry standard. The USDA organic seal is becoming one of the hemp industry’s most coveted certifications because it is a product differentiator.
Building Credibility
Trustworthiness, transparency and traceability are important factors for consumers to consider when shopping for products. These factors should also be considered when producing products and while vetting vendors, partners, stakeholders and supply chain suppliers.
Credible certifications allow consumers to make informed decisions while feeling confident that they are purchasing products from reputable sources. Research has shown that today’s CBD market lacks credibility while consumers are desperately seeking comfort and are eager to purchase from trustworthy brands.
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Alternatively, the final rule permits “remediation” of noncompliant plants. Allowing producers to remove and destroy noncompliant flower material – while retaining stalk, stems, leaf material and seeds – is an important crop and cost-saving measure for producers, especially smaller producers. Remediation can also occur by shredding the entire plant to create “biomass” and then re-testing the biomass for compliance. Biomass that fails the retesting is noncompliant hemp and must be destroyed. The USDA has issued an additional guidance document on remediation. Importantly, this guidance advises that lots should be kept separate during the biomass creation process, remediated biomass must be stored and labeled apart from each other and from other compliant hemp lots and seeds removed from non-compliant hemp should not be used for propagative purposes.
At the federal level, there could be compliance issues with the Resource Conservation and Recovery Act (RCRA), Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and ancillary regulations like Occupation Safety and Health Administration (OSHA). In addition to government enforcement under RCRA and CERCLA, these hazardous waste laws also permit private party suits. Although plant material from cultivation is not considered hazardous, process liquids from extraction or distillation (ethanol, acetone, etc.) are hazardous. Under RCRA, an individual can bring an “imminent and substantial endangerment” citizen suit against anyone generating or storing hazardous waste in a way the presents imminent and substantial endangerment to health or the environment. Under CERCLA, private parties who incur costs for removal or remediation may sue to recover costs from other responsible parties.
