Tag Archives: industry

Harvest Connect Aims to Advance Georgia Hemp Market

By Aaron G. Biros
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Georgia doesn’t have a hemp market yet, but that is about to change. In 2019, the Georgia state legislature passed two bills: HB 213, the Georgia Hemp Farming Act and HB 324, the Hope Act, which legalized low-THC oil. While the regulatory framework for the program is still being decided, the market in the state is now beginning to materialize.

Kevin Quirk, CEO of Harvest Connect LLC, wants to be a pioneer for the hemp industry in the Southeast. With a strong focus on local economic growth, Quirk is moving quickly to corner the market and establish a thriving enterprise. His background is in consumer packaged goods (CPG). He’s worked for Anheuser-Busch, Coca Cola and Minute Maid before becoming an entrepreneur in the CPG space. He started White Hat Brands, a children’s health and wellness company, where they worked with the Juvenile Diabetes Research Foundation to co-develop wellness brands for children.

Kevin Quirk, CEO of Harvest Connect LLC

During that time, he saw two major trends unfolding in the CPG arena: organic health and wellness products and hemp-derived CBD products. “Every year we’d see more and more CBD products on the market,” says Quirk. “Almost a year ago, we decided to get into the hemp space coinciding with Georgia’s push around the hemp and medical cannabis market.” That’s when Georgia’s state legislature introduced those two bills.

In October of 2018, Hurricane Michael wiped out an entire season of crops for Georgia farmers, an almost $3 billion hit to the local agricultural economy. Farmers in Georgia were devastated, taking massive losses. “That put momentum behind the hemp program and gave Governor Kemp the impetus to move forward right after the 2018 Farm Bill passed,” says Quirk. With the launch of his newest venture, Harvest Connect LLC, a Georgia-based hemp-derived CBD extraction and retail company, he saw a way to help some farmers get back on their feet.

Quirk says he expects the state will have applications ready for submittal in the next 60-90 days. The state is going to issue permits to processors and farmers. For farmers, the barriers to entry are pretty low- just $50 per acre for a hemp farming permit with a $5 thousand dollar cap. For a processing permit, the barriers are higher and include an application fee, a surety bond and a minimum of at least five Georgia farmers committed to process in a permitted facility. According to Quirk, it is also critical to understand how to manufacture quality products in a highly regulated environment. Quirk has experience in building and running food-grade USDA and FDA manufacturing facilities and already has a number of farmers signed up to process with them once the program gets off the ground. Many of them are tobacco and cotton farmers hit hard in the aftermath of Hurricane Michael.

Harvest Connect, through its subsidiary Graceleaf, is planning to launch a series of retail CBD stores throughout the state. “This will help us  meet the demand in Georgia, which will help patients in Georgia and which will then help farmers in Georgia,” says Quirk. Georgia hasn’t launched a new agricultural product in decades at least, so for Quirk and Harvest Connect, this is about putting Georgia farmers first. “We plan to work very closely with our growers as partners to make sure everyone succeeds,” he added.

Quirk predicts the Southeast will be a leading producer of hemp for years to come. “I think it’s going to be huge,” says Quirk. “With just the pure amount of agricultural land mass that we have, plus the ideal climate, we’ll be able to turn 2-3 crops a year in the southern parts of Georgia. We actually think Georgia could be one of the most significant producers of hemp in the country.”

While the state is working on promulgating the rules, establishing the licensing process and rolling out the hemp program, Quirk is working to iron out the details of his business so they are ready as soon as the time comes. “We expect to be up and running with our processing facility by Q2 of 2020.”

Is Australian Cannabis Going Corporate?

By Marguerite Arnold
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Patient numbers in Australia are going in only one way – up. As of last month, the Australian government reported that it had approved a record 3,594 cannabis prescriptions in October 2019 – or about twice as many as it had approved in only July.

As patient numbers have grown, plans have proceeded afoot Down Under to capitalize on the growing willingness in Australia to accept that cannabis is not only medicine – but can now be prescribed by regular GPs – as opposed to specialists. Not to mention exported to a global medical market suddenly looking for high quality product at affordable prices in far afield places.

Leafcann is one of the companies in that elite territory right now. The new approval by the government for the expansion of facilities to both produce and research cannabis will double the company’s facility somewhere in Adelaide (the location is not being disclosed for security reasons). The new facility will also be the first in the world to produce oil from plant genes and distribute the same to patients.

But they are not the only ones. According to the latest market report by Aussie-based Fresh Leaf Analytics, the numbers of patients domestically are set to jump dramatically again next year.

And as the Australian market mushrooms (indeed European farmers are fielding interest from distributors from the region lately), will the Aussies, rather than any EU-based rival, become the first real global competition to the Canadians first in the race on the flower front?

Don’t count on that. There are too many contenders now for quality cannabis all over Europe for low priced medical cannabis from Down Under to be able to do any more than secure a few early harvests. See the activities of Aphria in the UK for example. Or the proclivities of Lexamed and a few other distributors in Germany.

However, what this development clearly shows is that the Aussie market for oil is not only driving large and well-funded production at home, but also having a knock-on effect internationally.

Whatever else is going on, in other words, the Australians are not only gearing up to go big on the weed front domestically, but driving the market for oil just about everywhere. Starting with CBD.

Don’t Bet The Farm On Aussie Production

Looking at what is going on, in fact, by the numbers, it appears that the Australian market is getting going in ways impossible for their northern brethren. In part that has to do with both Australian federal and state legislation.

It also, when you look at the numbers, is still a market dominated by less than THC medical grade product – the vast majority of patients are still only receiving CBD and most of them in oil form. Australian cannabis bound for pharmacies is also so far clocking in far closer to European prices than Canadian – in part because Canadian companies can ship directly to patients. Australia is also following a European distribution model. And recreational is off the table for now (at least until New Zealand does it). In the meantime, the medical business is proceeding apace.

This means two things: CBD oil is going nowhere either in or outside Australia unless it is either GMP or Novel Food certified – and that takes cash up front. Regardless, will the Aussie market look financially like the salad days of Canada’s medical market? Do not count on it. The flameouts of public companies if not volatility of the public sector, not to mention the growing longevity of the legal biz is creating other paths to financing. Including the fact that most savvy investors at any rate understand that price sensitivity is in the room from the beginning.

So yes, there certainly have been and will continue to be large, well-funded, corporate Aussies – indeed that is the shape of the future just about everywhere. But don’t expect the corporate playbook to be the same as the ones played by the Canadians so far.

What’s Going Down In The Danish Cannabis Market?

By Marguerite Arnold
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Despite the fact that the Danes are going to do something that is still verboten in Germany and many other European locales (namely allow a recreational trial), the overall bloom is off the first heady days of the cannabis rose here in Denmark.

Medical sales have stalled of late because of both supply (and in part CannTrust problems) and of course price in a market with a lot of cultivation enthusiasm, but also one which still imports its medical cannabis (although domestic production is coming online soon).

This is even more interesting of course given some ideas floating in the current Euro cannosphere – namely that Canadian funded, Danish based cultivators are or were planning on importing to both Germany and Poland this fall. In other words, low sales at home for expensive product that can be bought for less at the revived Christiana marketplace are not a market entry strategy that brings ballast to balance sheets. And while the rec market is coming (obviously), the trial is in early days yet.

Further, while the German market certainly presents an opportunity for higher priced cannabis coming out of Denmark (for now), that also will not last. And is certainly not the case in Poland.

For that reason, it is clear there is at least temporary trouble brewing in what some initially thought was going to be a European-based cannabis paradise. But that too, is so 2018.

A Few Numbers

The medical trial in Denmark is now entering the beginning of its third year as of 2020. There are, according to official estimates just over 4,000 legal patients. 34 companies have permits to cultivate cannabis, including all the usual suspects – starting with Canopy Growth, Aurora, Aphria, ICC (Wayland) and The Green Organic Dutchman, plus of course all the indie locals.

Put this in perspective and is it really any wonder why Aurora also just recently announced the halting of partly built construction in both Denmark and Canada this month?

aurora logoEspecially with problems in Poland, slower than expected legal sales in Germany and of course the disaster that is still the UK, this newest setback for the company is also not exactly unexpected. The only cannabis company, European or not, who benefitted from the recent NHS pivot on medical cannabinoids was the home-based GW Pharmaceuticals, albeit at lower negotiated prices as the total pool of patients is now increased with the new NICE guidelines.

Given all of these headwinds, even with a few export possibilities, the Danish market that supposedly offered a promised respite from the problems of the German one (certainly on the cultivation front), has run into a similar problem at point of prescription and sales.

Even Danish patient number growth is anaemic compared to Deutschland – which is, by all reports, not even close to considering a recreational trial in Berlin, Bremen or any other jurisdiction which has suggested the same.

With bulk, high-grade production coming online, there is clearly going to be a regulated cannabis market in Denmark. How the decisions about who will qualify for medical will be made in the future is another question. And one that certainly the larger producers at least, are responding to in kind.

The Winds of Change

Given the amount of compliant cannabis now in the pipeline for the continent (and not just domestically) it will be interesting to see how 2020 shapes up. However, no matter how still sluggish the numbers, another domestic cannabis market has begun to come into its own as the continent moves forward on the issue generally.

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Taking the Guesswork out of Horticultural Lighting

By Leora Radetsky
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With 33 states and the District of Columbia having passed laws legalizing marijuana in some form, cannabis cultivation is quickly becoming a booming new business across much of the US. From an energy standpoint, unfortunately, it’s not easy being “green”.

New Frontier Data’s 2018 Cannabis Energy Report found that legal cannabis cultivation in the US consumes approximately 1.1 million megawatt hours of electricity annually – enough to power 92,500 homes or a community the size of Newark, NJ, and accounts for carbon emissions equivalent to that of 92,600 cars. And that consumption is forecasted to increase 162 percent from 2017 to 2022. The report recommended that the industry “evaluate energy-efficient and renewable energy technologies” to nip this challenge in the bud.

Growers seeking to reduce their electricity usage through more efficient lighting face a confusing landscape of options, however. It can be difficult to know what will save electricity and work well for their operations. Technology is advancing quickly and questions abound, from how long a fixture will last and whether a manufacturer’s claims about efficacy are accurate to the effectiveness of various wavelengths for growing a particular plant.

Here’s the good news: there are reliable, third-party lighting and safety standards to help indoor growers make the leap from old-school lighting to state-of-the-art light-emitting diodes (LEDs) that use a fraction of the electricity and are increasingly effective for growing crops from cannabis to tomatoes. Here’s a closer look:

Most lighting fixtures in the North American market go through rigorous inspection by certified third-party testing labs. The first part of the check is for safety – an official UL safety standard tailored for the unique challenges of the greenhouse environment was recently released (UL 8800, the Standard for Horticultural Lighting Equipment and Systems). This standard and similar safety certifications at other major labs address wiring, environmental conditions, ingress protection and worker safety related to prolonged photobiological exposure to the eyes and skin. Growers should always ask a fixture manufacturer about safety certification specifically targeted for horticultural environments.

Next on the standards checklist for horticultural fixtures is performance testing. This often happens at the same labs that do safety testing, but is designed to verify efficacy, output, spectrum and other important performance variables. Commercial labs are certified for specific standards, so that a test on a fixture is repeatable at any other lab certified to the same standard. This performance testing results in a report summarizing items like photosynthetic photon flux (PPF), input power (watts), photosynthetic flux efficacy (PPE, measured in μmol/J or micromoles of photosynthetic photons per joule of electrical input power), and spectral content (flux per nanometer (nm) between 400 and 700 nm).

Then, there are flux maintenance standards (such as IES LM-80 and IES TM-21) that help make sure the photosynthetic light output of LED products degrades at an acceptable rate to make a grower’s investment worthwhile. The testing and calculation methods that go into these standards were painstakingly developed through a consensus of knowledgeable lighting stakeholders. A key difference between general lighting and plant lighting, however, is how flux maintenance is measured and benchmarked – the bar is significantly higher for plants compared to people since their metabolism and growth are dependent on the light spectrum and amount.

A plant in flowering under an LED fixture

What’s described above just scratches the surface of the detailed testing used to determine and communicate performance features for commercial horticultural lighting fixtures. There’s a lot of important information to know, but it takes an informed reader to analyze this information and use it to select appropriate horticultural lighting. Our organization, the DesignLights Consortium (DLC), strives to make the vetting process easier for everyone, freeing up growers to focus on their core business.

In the early days of LED lighting, electric utilities had to compare these different lighting factors and reports to inform their energy efficiency rebate/incentive programs. The DLC was founded to fill this need, serving as a central clearinghouse for setting energy efficiency and other product performance minimum standards, and to evaluate products against those standards. Then and now, lighting products that pass review qualify for an online qualified products list (QPL) that utilities use to quickly and accurately incentivize high-performing products.

Credit: ProGrowTech

With its new minimum performance standards for horticultural light fixtures, the DLC seeks to accelerate the adoption of new energy-saving LED fixtures in controlled agriculture environments. To be on the new DLC Horticultural QPL, an LED fixture must be at least 10 percent more efficacious than the best non-LED alternative – a 1,000-watt double-ended high-pressure sodium (HPS) fixture. It also must have a Q90 of 36,000 hours (the number of hours before the photon flux output depreciates to 90 percent), and its driver and fan (if included) must have a rated life of at least 50,000 hours.

Most importantly, every product is listed online in a searchable, filterable database to help growers and facility designers quickly narrow their options. For example, in a retrofit, a grower might know what PPF is needed from each fixture but might also need to stay within a power budget to avoid rewiring circuits. The DLC’s Horticultural QPL can be filtered to quickly find and compare conforming products.

When a new technology is introduced, there is always uncertainty about how to optimally apply it. The horticultural world is no different. We look forward to research supporting additional predictive metrics that allow us to take advantage of the full benefits of high-performance LED and controls technologies. In the meantime, the established standards described here allow for energy efficient and safe cultivation facilities where growers can confidently produce more with less.

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FDA Issues Warnings to 15 CBD Companies, Updates Safety Concerns

By Aaron G. Biros
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On November 25th, the U.S. Food and Drug Administration (FDA) sent out warning letters to 15 different companies for “illegally selling products containing cannabidiol (CBD) in ways that violate the Federal Food, Drug, and Cosmetic Act (FD&C Act).” They also published a “Consumer Update” where they express concern regarding the general safety of CBD products. The press release also states that at this time the FDA cannot say that the CBD is generally recognized as safe (GRAS). To see the list of companies that received warning letters, check out the press release here.

The structure of cannabidiol (CBD), one of 400 active compounds found in cannabis.

While the FDA is still trying to figure out how to regulate hemp and hemp-derived CBD products, they published these releases to let the public know they are working on it, according to FDA Principal Deputy Commissioner Amy Abernethy, M.D., Ph.D.:

“As we work quickly to further clarify our regulatory approach for products containing cannabis and cannabis-derived compounds like CBD, we’ll continue to monitor the marketplace and take action as needed against companies that violate the law in ways that raise a variety of public health concerns. In line with our mission to protect the public, foster innovation, and promote consumer confidence, this overarching approach regarding CBD is the same as the FDA would take for any other substance that we regulate. We remain concerned that some people wrongly think that the myriad of CBD products on the market, many of which are illegal, have been evaluated by the FDA and determined to be safe, or that trying CBD ‘can’t hurt.’ Aside from one prescription drug approved to treat two pediatric epilepsy disorders, these products have not been approved by the FDA and we want to be clear that a number of questions remain regarding CBD’s safety – including reports of products containing contaminants, such as pesticides and heavy metals – and there are real risks that need to be considered. We recognize the significant public interest in CBD and we must work together with stakeholders and industry to fill in the knowledge gaps about the science, safety and quality of many of these products.”

The Warning Letters

The warning letters sent to those 15 companies all mention a few types of violations to the FD&C Act. Those include marketing unapproved human and animal drugs, selling CBD products as dietary supplements and adding CBD as an ingredient to human and animal foods. All 15 companies are using websites, online retailers and social media in interstate commerce to market CBD products unlawfully, according to the press release.

FDAThis is not the first time the FDA has sent out warning letters to CBD companies. Previously, most of the warning letters were sent out regarding companies making unsubstantiated drug and health claims. This new round of 15 warning letters reaches beyond just unsubstantiated claims and identifies a few new areas of regulatory oversight that CBD companies should be wary of.

Of the 15 warning letters sent out, some were sent to companies that are marketing CBD products to children and infants, some were sent to companies using CBD as an ingredient in food products, some were marketed as dietary supplements and one company marketed their products for use in food-producing animals, such as chickens and cows. With this press release, the FDA is saying loud and clear that the above list of marketing strategies are currently unlawful, that is, until they finish their work in devising a regulatory framework for hemp-derived CBD products.

Updated Safety Concerns

Regarding the FDA saying they cannot deem CBD as generally recognized as safe (GRAS), they published a fact sheet titled “What You Need to Know (And What We’re Working to Find Out) About Products Containing Cannabis or Cannabis-derived Compounds, Including CBD.” The key words there should be noted in the parentheses: And What We’re Working to Find Out. The FDA’s research is by no means over with and, if anything, has only just begun. Refer to the fact sheet to see why the FDA couldn’t say that CBD is GRAS.

Epidiolex-GWIn the FDA’s research, they have found a few potential health problems associated with taking CBD. During the marketing application for Epidiolex as a new drug, the only approved CBD drug on the market, the FDA identified a couple of safety risks. The first one is liver injury, which they identified in blood tests, but mentioned that it could be managed easily with medical supervision. Without medical supervision, potential liver injury due to CBD consumption could go undetected, according to the FDA.

The second health concern is drug interaction. During the new drug approval process for Epidiolex, they found that other medicines could impact the dose of CBD and vice versa. The other major health concern they have is male reproductive toxicity. The FDA says that studies in lab animals showed male reproductive toxicity, including things like decrease in testicular size, inhibition of sperm growth and development and decreased circulating testosterone. They do mention, however, that “it is not yet clear what these findings mean for human patients and the impact it could have on men (or the male children of pregnant women) who take CBD.” The fact sheet also some side effects that CBD use could produce including sleepiness, gastrointestinal distress and changes in mood.

What Now?

The FDA says they are actively researching and working on learning more about the safety of CBD products. They listed a couple risks that they are looking into right now: Those include, cumulative exposure (What if you use CBD products daily for a week or a month?), special populations (effects of CBD on the elderly, pregnant or nursing women, children, etc.) and CBD in animals (safety of CBD use in pets or food-producing animals and the resulting safety of human food products like milk or eggs).

While the CBD products market could still be classified as a bit of a gray market currently, the FDA says they are working on researching it more to develop an appropriate regulatory framework. What that might look like is anyone’s guess. One thing that remains clear, however, is that the FDA will not tolerate CBD companies marketing products in ways described above. Those include making unsubstantiated health claims, marketing to children, using CBD as an ingredient in foods and marketing it as a dietary supplement.

Nevada Lab License Suspended Amid Potency Results Investigation

By Aaron G. Biros
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Back in September, Nevada officials announced a state-wide investigation into how products with high levels of yeast and mold were sold in dispensaries and alleged that labs could possibly be manipulating potency numbers on certificates of analysis. Then in late November, regulators suspended the license for Certified Ag Labs, a cannabis testing laboratory based in Sparks, Nevada.

Nevada regulators issued a press release alleging that products tested at Certified Ag Labs “may be labeled incorrectly and could contain a different level of THC than what is listed on product packaging.” Randy Gardner, a managing member at Certified Ag Labs told the Las Vegas Review-Journal that investigators showed up to his lab in October twice to collect samples for follow up tests.

On November 18, a state notice posted on the door of the lab read, “Registration and License Suspended,” according to the Las Vegas Review-Journal.

After that, Gardner fired back. In a statement sent out shortly after, Gardner said they were accused of lying about THC test results to the Department of Taxation (the agency that regulates cannabis in Nevada).

“The state’s decision to suspend and potentially revoke our license came without warning,” says Gardner’s statement. “This accusation is as baseless as it is appalling, as we have been completely transparent with the state at all times. We take this matter very seriously, and based on my over 30 years of laboratory experience we believe these allegations unconscionable at best.”

“The state came in for their audit then came back and suspended our license without us having a chance to further clarify or refute their findings,” the statement reads. “We hope the state appreciates that a business and its employees’ livelihoods and reputations are at stake. We are pursuing our options and all legal and equitable redress will be on the table.”

The Department of Taxation, which isn’t releasing any more information currently, says they found “inaccurate and misleading” potency test results, once they tested the samples collected from Certified Ag Labs.

This isn’t the first time Nevada regulators have suspended lab testing licenses. When Nevada legalized adult use sales and the market became operational back in 2017, the state suspended a lab’s license in September of that year. Then in late 2017, Certified Ag Labs and another lab had their licenses suspended for “not following proper lab procedures and good laboratory practices,” according to Stephanie Klapstein, spokeswoman for the Department of Taxation. Those licenses were reinstated in January of 2018.

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Where Does the FDA Stand on CBD?

By Nathan Libbey
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CBD Intro

Cannabidiol, or CBD, is one of over 1000 cannabinoids found in the Cannabis plant. CBD was identified as an isolate from Minnesota Hemp in the 1930s (Gururajan, 2016). Unlike many other cannabinoids and compounds found in cannabis flower, CBD is not adversely psychoactive. CBD, upon its discovery entered the field of vision for US regulators. There are two routes of regulation for the FDA under the 1938 Food, Drug, and Cosmetic Act – as a drug and as a food (Oconnor, 2018). The FDA has jurisdiction over drugs in a broad sense from border to border, intra and interstate. Their jurisdiction over food, however, only extends to food that crosses interstate lines. CBD therefore, because of potential food uses and medicinal uses, darkens what is already a muddy regulatory landscape.

CBD as a drug

FDAUnder the FD&C Act, a drug is defined as “any product, including a cannabis product (hemp or otherwise), that is marketed with a claim of therapeutic benefit, or with any other disease claim (Mayol, 2019). In 1995, Cannabidiol was identified as a possible solution to help combat epilepsy. Since 1995, studies have been performed to evaluate the effectiveness of CBD to treat epilepsy and lessen the frequency and severity of seizures. In 2018, the FDA approved the first cannabidiol drug, brand named Epidiolex (White, 2019). Drug approvals under the FDA jurisdiction require specific approval before they can be launched into market. That is, while Epidiolex has a specific approval, this approval does not lead to implicit approval of similar CBD drugs that treat other illnesses.

Bottom line: CBD is a recognized drug for use to treat epilepsy. Future use as a drug needs to be approved by the FDA.

CBD as an ingredient

What is seemingly the easiest route to market for CBD derived products is increasingly complicated. For ingredients, the easiest road to allowance in food is to be identified as Generally Recognized as Safe (GRAS). GRAS status is granted to ingredients that have been studied and deemed safe for human consumption by FDA-recognized experts. CBD, to date, is not GRAS. Without GRAS status, the FDA has similar mandates to CBD as a drug above. Ingredients must gain premarket approval prior to being offered for sale in interstate commerce.

Bottom line: CBD is not a recognized ingredient in food – it is neither premarket approved by the FDA nor accepted as generally safe for human consumption.

FDA Action

The structure of cannabidiol (CBD), one of 400 active compounds found in cannabis.

CBD product offerings continue to rise, ranging from CBD infused pillows to suppositories. While products containing CBD have increased in popularity, the FDA has stood at a distance until recently. The result of this lack of enforced policy has led to a scenario where upwards of 70% of all CBD products available online are mislabeled (Caroon, 2018).

This lack of enforcement and flexing of authority seems to be a thing of the past, however. In late November, the FDA sent a warning letter to 15 facilities that had engaged in interstate commerce with a CBD product. These warnings stemmed largely from non-compliant claims of health benefits, CBD use as a dietary supplement, and CBD used in food products offered for sale across state lines.

Until CBD is either identified as GRAS or a specific product gets preapproval, the current issues with CBD in food will remain. In the meantime, manufacturers must be aware of their ingredients, their claims, and the ramifications these may have on the FDA jurisdiction over their products.


References

Cohen, P., & Sharfstein, J. (2019). The opportunity of CBD — reforming the law. The New England Journal of Medicine, 381(4), 297-299.

Corroon, J., & Kight, R. (2018). Regulatory status of cannabidiol in the united states: A perspective. Cannabis and Cannabinoid Research, 3(1), 190-194. doi:http://dx.doi.org.ezproxy.neu.edu/10.1089/can.2018.0030

Gururajan, A., & Malone, D. (2016). Does cannabidiol have a role in the treatment of schizophrenia? Schizophrenia Research, 176(2-3), 281-290.

O’Connor, S. and Lietzan, E. (2018). The surprising reach of FDA regulation of cannabis, even after descheduling. American University Law Review 68, 823.

Mayal, S. and Throckmorton, D. (2019).  FDA Role in Regulation of Cannabis Products.  Retrieved from https://www.fda.gov/media/128156/download

White, C. (2019). A Review of Human Studies Assessing Cannabidiol’s (CBD) Therapeutic Actions and Potential. Journal of Clinical Pharmacology, 59(7), 923-934.

Second Canadian Cannabis Company Admits To Illegal Grows

By Marguerite Arnold
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For the second time this year, a Canadian public cannabis company with interests far outside the country, has fessed up to unlicensed growing.

This time it is Hexo, a company with many issues floating since this summer’s bombshell disclosures about CannTrust.

Interestingly, of course, the company claims that it also only discovered the area on July 30 – after the acquisition of Newstrike Brands closed. And while cultivation was also immediately stopped in so-called “Block B”, this also raises many other questions – including about the level of due diligence – no matter the cannabis – in the room leading up to the purchase in the first place. That includes not just both companies on each side of the deal, but, as the Canadian press has also been quick to point out – the regulators themselves.

Beyond a similar window of timing with the sorry events of the summer on the CannTrust front, this decision also comes at a time when the beleaguered Hexo is closing the facility in question in an effort to contain costs. Nonetheless, the convenient timing and slap-on-the-wrist attitude from the regulators for this kind of “self-reporting,” is one thing. That this lenient response from regulators (CA$77 million in destroyed CannTrust product notwithstanding) has now happened twice in a row since summer, has led many to wonder what the regulators are doing when not being tipped off by whistle-blowers and company accountants about the inevitable.

In truth, coming as it does more or less on the anniversary of the first year of recreational reform and massive changes afoot in Europe, such realities should not be surprising.

Planes that are built as they are hurtling down the runway, to paraphrase a frustrated Canadian regulator last summer, tend to have a few bits that clank down to the tarmac upon wheels up. Assuming of course, that things do not just come completely unbolted at point of airborne lift.

There is no chance that this craft however, will be allowed to return to the barn, let alone land. There is too much at stake – economically, politically and medically, truth be told.

This cannabis horse has now left this territory.

And in its wake? The inevitable aftermath of a market that, while certainly deserving kudos in managing to create itself in the first place, needs time to iron out the kinks.

What Does This Mean For The Canadian Market Going Global?

With higher standards in Europe, none of this news about Hexo flies particularly well abroad. Why fight for the market entry rights of foreigners, in other words, who don’t even seem to care, much less respect domestic regulations in their own country?

So in truth, even though it is far too early to count some of the largest companies in the room out (see Canopy’s recent canna coups in Luxembourg), many of “The Canadians” – as Hexo is of course inevitably also tagged, who made the first enters since 2017, and “have all the money,” may in truth be struggling to maintain market share, if not control of their brands.

As many on the ground in Europe are indeed asking now, if large Canadian companies who are also public, cannot even meet Canadian standards, and lightly slapped on the wrist when caught, why trust the product?

The good news? The cannabis industry has proved it is resilient, if not exactly made of Teflon.

Hexo has gotten its issues out of the way for now – escaping censure apparently on a technicality and self-reporting.

However, as Canada now enters its second year of the recreational market and the seeds of not only deeper medical reform but recreational too are playing increasingly loudly in Europe, there are clearly new “shoots” in the room. And as the world prepares to say good bye to 2019, it is also clear that, especially given recent rumbles about the readiness of the Canadian market for international prime time, the dawning of 2020 will certainly begin to answer the many questions now certainly on the cannabis table abroad.

There may be heads who roll, in other words, but the show is rolling on.

How to Protect Your Brand From Counterfeiters

By Gail Podolsky
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Global counterfeiting is expected to reach $1.82 trillion by 2020.1 Counterfeiting includes, but goes way beyond, fake watches or bogus polo shirts. In fact, no product is safe, including cannabis.

Counterfeiting is insidious; it supports child labor, human trafficking, organized crime, and has been linked to terrorist groups.2 “[C]ounterfeit good sales have been linked to al-Qaeda, FARC, Colombia’s rebel army and paramilitary groups in Northern Island.” 3 The FBI believes that counterfeit goods financed the World Trade Center bombing and the attack on September 11, 2001.4

Counterfeiters and their fake merchandise are typically difficult to locate and remove from the marketplace. Currently, we are seeing a proliferation of counterfeiting in the cannabis industry. Cannabis companies must consider the impact that counterfeit products have on their brand and goodwill. It is vital for cannabis companies to implement strategies to combat counterfeiting.

Typically, companies use trademark laws to combat counterfeiters. However, brand protection for cannabis companies is difficult because trademark laws do not provide the breadth of protection needed to successfully protect and enforce a cannabis company’s brand. Currently, U.S. trademark laws prohibit the registration of cannabis trademarks because selling cannabis violates federal law.5 While the 2018 Farm Bill amended this steadfast rule slightly, it only applies in limited circumstances, i.e., when the cannabis product contains less than 0.3% THC.6 As a result, cannabis companies are forced to seek protection through indirect registration, namely filing for goods and services that are not cannabis-related, such as clothing, publications or medical services. Indirect registrations are not enough to combat counterfeiters successfully.

Fortunately, there is another avenue that cannabis companies should be using to protect and enforce their brands against counterfeiters — obtaining copyright registrations for the company’s logo, product packaging and, if appropriate, company name. Copyright protection extends to a protectable work regardless of whether the copyright is in an illegal work or the copyright owner uses its copyright for an illegal purpose.7 Moreover, if there is pending or prospective litigation, a brand owner may request special handling of a copyright application to obtain expedited processing.8 If the application meets all the requirements for registration, special handling will result in the brand owner obtaining a copyright registration in about a week.9 Trademark registrations, on the other hand, typically take at least five months to obtain.

Once a company receives a copyright registration, the Copyright Act provides unique and important avenues for relief against counterfeiters.10 For example, a brand owner may obtain an ex parte seizure order, which allows the company to enter the counterfeiter’s premises, without notice, and seize the counterfeit products, business records, financial information relating to the counterfeit operation, customer and vendor lists, and bank account information.11 A brand owner may also obtain injunctive relief — a court order prohibiting the counterfeiter from buying, selling, and advertising counterfeit products — and freeze the counterfeiter’s bank accounts.12

People often say that imitation is the sincerest form of flattery. However, in the counterfeiting context, imitation can be lethal to your company.A cannabidiol (CBD) company recently used its copyright registrations to stop counterfeiters from advertising and selling counterfeit CBD gummies and oils. The CBD company obtained an ex parte seizure order, injunction and asset freeze, and obtained a $5 million judgment against the counterfeiters.13

Litigation is a valuable and effective tool in fighting counterfeiting. It helps protect the company’s goodwill, enhances consumer confidence and increases the company’s revenues. There are other tools that should be used to combat counterfeiting.

Companies must diligently watch their vendors, distributors, and customers for bad actors. Your vendor agreements should include provisions allowing regular audits and inspections. Your distribution agreements should prohibit distributors from selling outside their territory and engaging in price arbitrage. Your customers should be prevented from selling your products in smaller units. Having unique packaging with holograms will also assist in reducing counterfeits as the packaging is harder to replicate. An effective public relations campaign that includes educating your customers and the industry on the harmful effects of buying counterfeit cannabis products is also a very effective tool.

People often say that imitation is the sincerest form of flattery. However, in the counterfeiting context, imitation can be lethal to your company. Counterfeit cannabis products can be subpotent, superpotent or contaminated. Having these dangerous products advertised under your brand in identical packaging can have dire consequences.

If you are not currently experiencing a counterfeiting problem, you likely will. It is important to be proactive and find attorneys that have experience combatting counterfeiters in the cannabis industry to help protect your brand and company.


References

  1. Global Brand Counterfeiting Report 2018-2020 – ResearchAndMarkets.com, AP News (May 15, 2018), https://www.apnews.com/ef15478fa38649b5ba29b434c8e87c94.
  2. Colleen Jordan Orscheln, Bad News Birkins: Counterfeit in Luxury Brands, 14 J. Marshall Rev. Intell. Prop. L. 249, 259 (2015).
  3. Id. at 260.
  4. Id.
  5. Examination of Marks for Cannabis and Cannabis-Related Goods and Services after Enactment of the 2018 Farm Bill, USPTO (May 2, 2019), https://www.uspto.gov/sites/default/files/documents/Exam%20Guide%201-19.pdf.
  6. Id.
  7. See, e.g., Flava Works, Inc. v. Gunter, 689 F.3d 754, 756 (7th Cir. 2012); Dream Games of Ariz., Inc. v. PC Onsite, 561 F.3d 983 (9th Cir. 2009); Mitchell Bros. Film Grp. v. Cinema Adult Theater, 604 F.2d 852, 855 (5th Cir. 1979); Big Daddy Games, LLC v. Reel Spin Studios, LLC, No. 3:12-cv-00449, 2013 WL 12233949, at *16–17 (W.D. Wis. Apr. 10, 2013).
  8. Special Handling, U.S. Copyright Office, https://www.copyright.gov/help/faq/faq-special.html (last visited November 20, 2019).
  9. Id.
  10. See 17 U.S.C. § 503(a)(3).
  11. Id.
  12. Id.
  13. See Global Widget, LLC v. A.R.T. Wholesale LLC, No. 1:19-cv-02136, 2019 WL 3281321 (N.D. Ga. May 16, 2019); Global Widget, LLC v. A.R.T. Wholesale LLC, No. 1:19-cv-02136, 2019 WL 3244489 (N.D. Ga. July 18, 2019).

How to Protect Your Business from the Emerging Vaping Crisis

By Tom BeLusko, Kelly McCann
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The year 2020 may become a pivotal year for cannabis operators and service providers, including increased access to financial services, and increased exposure to product liability lawsuits. On a positive note, if enacted, the Secure and Fair Enforcement Banking Act of 2019 (SAFE Banking Act) promises to enable cannabis businesses to gain access to financial services previously unavailable to them, including banking and insurance services. The House of Representatives passed the SAFE Banking Act of 2019 on September 25th, 2019. Skopos Labs, an automated predictive intelligence service, predicts there is a 52% chance of the SAFE Banking Act of 2019 becoming law. A recent discovery that vitamin E acetate is likely the culprit in the vaping-related illness epidemic may increase the exposure to costly litigation that cannabis businesses face.

An uptick in litigation like that currently affecting the vaping industry may soon affect cannabis businesses. More litigation affecting the vaping industry is due in large part to the growing number of lung injuries and deaths linked to vaping. As of November 13th, 2019, the CDC reported 2,172 cases of lung injury, and 42 deaths linked to vaping. The cases of lung injury and death have predictably resulted in an increase in litigation facing the vaping industry. Most of the plaintiffs in these cases allege they became addicted to vaping but at least two lawsuits go further. In one, a Connecticut man alleges that he suffered a massive, debilitating stroke as a result of vaping, while in another the parents of a teenage girl allege in a proposed class action suit that their daughter has suffered seizures linked to vaping. On November 14th, 2019, the CDC identified vitamin E acetate as a chemical of concern among people with vaping use associated lung injury. Vitamin E acetate is an additive commonly used as a cutting agent in vape cartridges. About 86% of individuals who have either vaping-related lung injuries, or died due to vaping had used a product containing THC.

The increase in perceived exposure cannabis businesses face has increased their interest in obtaining insurance, but unfortunately insurers are not always interested in insuring them. There are at least two reasons that getting insurance can be difficult for cannabis businesses: (1) insurance industry appetite for cannabis risk is very low due to its status under federal law and (2) express coverage exclusions or limitations of cannabis exposures from standard-form coverage are becoming more common. However, even if cannabis businesses are able to obtain insurance, their insurance may cover them for far less than they believe.

The product liability coverage (which is increasingly crucial for both growers and manufacturers given the mounting litigation facing the vaping industry) may cover far less than it at first appears. The interplay of exclusions and limited coverages in many cannabis-specific policies may leave a cannabis business uninsured.

It is vital now more than ever to ensure you are properly protected against loss.Crucial for cannabis businesses to appreciate is the distinction between “occurrence” and “claims-made” coverage triggers as it relates to both the premises on which cannabis businesses operate their business, and the products they sell.

Many cannabis businesses have an occurrence-based general liability insurance that might actually exclude: (1) product-liability risks; (2) any tobacco-related risks; and (3) any risk associated with governmental investigation or enforcement. These exclusions oftentimes concern cannabis businesses because there is a high likelihood one of these risks could manifest itself as an uninsured loss. Still, the costs of eliminating these exclusions in an occurrence-based general liability insurance policy is often large, assuming an insurer is willing to eliminate the exclusions on an occurrence basis at all. Therefore, cannabis businesses often pair their general liability insurance policy with a “claims-made” coverage trigger for products liability. Navigating the waters of managing the differences between “occurrence” and “claims-made” forms are best left to a qualified and experienced insurance professional.

Consult a local insurance professional that understands how to help your business become properly protected in what would be considered a tumultuous market for this burgeoning industry.

It is vital now more than ever to ensure you are properly protected against loss. As a first step, you must determine what your current insurance policy does and does not cover. After a loss, it is too late to change policies. Rely upon someone that knows the market of insuring this industry and has deep experience in managing both occurrence and claims-made policies.