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HACCP

Implementing a HACCP Plan to Address Audit Concerns in the Infused Market

By Daniel Erickson
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HACCP

The increasing appeal and public acceptance of medical and recreational cannabis has increased the focus on the possible food safety hazards of cannabis-infused products. Foodborne illnesses from edible consumption have become more commonplace, causing auditors to focus on the various stages of the supply chain to ensure that companies are identifying and mitigating risks throughout their operations. Hazard Analysis and Critical Control Points (HACCP) plans developed and monitored within a cannabis ERP software solution play an essential role in reducing common hazards in a market currently lacking federal regulation.

What are cannabis-infused products?

Cannabis infusions come in a variety of forms including edibles (food and beverages), tinctures (drops applied in the mouth), sprays (applied under the tongue), powders (dissolved into liquids) and inhalers. Manufacturing of these products resembles farm-to-fork manufacturing processes common in the food and beverage industry, in which best practices for compliance with food safety regulations have been established. Anticipated regulations in the seed-to-sale marketplace and consumer expectations are driving cannabis infused product manufacturers to adopt safety initiatives to address audit concerns.

What are auditors targeting in the cannabis space?

The cannabis auditing landscape encompasses several areas of focus to ensure companies have standard operating procedures (SOP’s) in place. These areas include:

  • Regulatory compliance – meeting state and local jurisdictional requirements
  • Storage and product release – identifying, storing and securing products properly
  • Seed-to-sale traceability –  lot numbers and plant identifiers
  • Product development – including risk analysis and release
  • Accurate labeling –  allergen statements and potency
  • Product sampling – pathogenic indicator and heavy metal testing
  • Water and air quality –  accounting for residual solvents, yeasts and mold
  • Pest control – pesticides and contamination

In addition, auditors commonly access the reliability of suppliers, quality of ingredients, sanitary handling of materials, cleanliness of facilities, product testing and cross-contamination concerns in the food and beverage industry, making these also important in cannabis manufacturers’ safety plans.

How a HACCP plan can help

HACCPWhether you are cultivating, harvesting, extracting or infusing cannabis into edible products, it is important to engage in proactive measures in hazard management, which include a HACCP plan developed by a company’s safety team. A HACCP plan provides effective procedures that protect consumers from hazards inherent in the production and distribution of cannabis-infused products – including biological, chemical and physical dangers. With the lack of federal regulation in the marketplace, it is recommended that companies adopt these best practices to reduce the severity and likelihood of compromised food safety.

Automating processes and documenting critical control points within an ERP solution prevents hazards before food safety is compromised. Parameters determined within the ERP system are utilized for identification of potential hazards before further contamination can occur. Applying best practices historically used by food and beverage manufacturers provides an enhanced level of food safety protocols to ensure quality, consistency and safety of consumables.

Hazards of cannabis products by life-cycle and production stage

Since the identification of hazards is the first step in HACCP plan development, it is important to identify potential issues at each stage. For cannabis-infused products, these include cultivation, harvesting, extraction and edibles production. Auditors expect detailed documentation of HACCP steps taken to mitigate hazards through the entire seed-to-sale process, taking into account transactions of cannabis co-products and finished goods at any stage.

Cultivation– In this stage, pesticides, pest contamination and heavy metals are of concern and should be adequately addressed. Listeria, E. coli, Salmonella and other bacteria can also be introduced during the grow cycle requiring that pathogenic indicator testing be conducted to ensure a bacteria-free environment.

Harvesting– Yeast and mold (aflatoxins) are possible during the drying and curing processes. Due to the fact that a minimal amount of moisture is optimal for prevention, testing for water activity is essential during harvesting.

Extraction – Residual solvents such as butane and ethanol are hazards to be addressed during extraction, as they are byproducts of the process and can be harmful. Each state has different allowable limits and effective testing is a necessity to prevent consumer exposure to dangerous chemical residues.

Edibles– Hazards in cannabis-infused manufacturing are similar to other food and beverage products and should be treated as such. A risk assessment should be completed for every ingredient (i.e. flour, eggs, etc.), with inherent hazards or allergens identified and a plan for addressing approved supplier lists, obtaining quality ingredients, sanitary handling of materials and cross-contamination.

GMPFollowing and documenting the HACCP plan through all of the stages is essential, including a sampling testing plan that represents the beginning, middle and end of each cannabis infused product. As the last and most important step before products are introduced to the market, finished goods testing is conducted to ensure goods are safe for consumption. All information is recorded efficiently within a streamlined ERP solution that provides real-time data to stakeholders across the organization.

Besides hazards that are specific to each stage in the manufacturing of cannabis-infused products, there are recurring common procedures throughout the seed-to-sale process that can be addressed using current Good Manufacturing Practices (cGMP’s).  cGMPs provide preventative measures for clean work environments, training, establishing SOPs, detecting product deviations and maintaining reliable testing. Ensuring that employees are knowledgeable of potential hazards throughout the stages is essential.Lacking, inadequate or undocumented training in these areas are red flags for auditors who subscribe to the philosophy of “if it isn’t documented, it didn’t happen.” Training, re-training (if necessary) and documented information contained within cannabis ERP ensures that companies are audit-ready. 

Labeling

The importance of proper labeling in the cannabis space cannot be understated as it is a key issue related to product inconsistency in the marketplace. Similar to the food and beverage industry, accurate package labeling, including ingredient and allergen statements, should reflect the product’s contents. Adequate labeling to identify cannabis products and detailed dosing information is essential as unintentional ingestion is a reportable foodborne illness. Integrating an ERP solution with quality control checks and following best practices ensures product labeling remains compliant and transparent in the marketplace.

Due to the inherent hazards of cannabis-infused products, it’s necessary for savvy cannabis companies to employ the proper tools to keep their products and consumers safe. Utilizing an ERP solution that effectively manages HACCP plans meets auditing requirements and helps to keep cannabis operations one step ahead of the competition.

New Taxes for California Cannabis Industry

By Jasmine Davaloo
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Welcome to the evolving world of cannabis legislation and taxation in California. With the recent 2018 midterm election, a green wave of new laws and regulations has washed ashore, and Taxnexus, a cannabis tax compliance service provider for cannabis businesses, has analyzed the results, looking for insights to guide cannabis business owners in 2019.

In summary, the trend of local counties and cities imposing new cannabis taxes on dispensaries, distributors and cultivators continues, but with some important lessons being learned.

A Brief History of California Cannabis Tax Regulations.

The legalization of cannabis in California brought with it cannabis excise tax and cultivation taxes with the hope of bringing in significant amounts of income in cannabis taxes. The state had projected $185M in cannabis tax revenue for the first six months of 2018. Although California has since collected tens of millions of dollars fewer than anticipated, it did bring in over $135M in the first and second quarters from a brand new industry.

Local governments are able to collect these taxes directly from cannabis businesses.  With the green light from the state and the need for a new source of revenue, many local governments followed suit and passed laws to impose taxes on cannabis businesses operating in their jurisdictions. The need for additional revenue is even greater for localities that allow cannabis business operations given that the state takes virtually all of the state-imposed cannabis taxes while the local government entities are burdened by the related costs of regulations and enforcement at the local level.

Cannabis business taxes have an extra allure for local jurisdictions. Unlike local sales and use taxes, the state does not require local cannabis business taxes to go through the state before a portion of it gets funneled back to the localities. Local governments are able to collect these taxes directly from cannabis businesses.

Since January 1, 2018, many local jurisdictions have come onboard and placed ballot measures for their voters to decide whether to tax cannabis businesses. According to research conducted by Taxnexus, by the end of the second quarter this year, there were over 500 different local cannabis tax rates in California.The new cannabis tax measures are also continuing the trend of widely ranging local cannabis tax laws.

Midterm Results Continue Overwhelming Support for Cannabis Industry

With over 50 cannabis tax measures placed on the November 6 local ballots, most of which passed with overwhelming support from voters, the number and variation of local cannabis business taxes continue to grow. This demonstrates the continuing trend of local governments welcoming cannabis businesses, the evolving voter attitude toward recreational cannabis, and perhaps most importantly, the localities’ desire to take their cut of the new industry’s tax revenue.

The new cannabis tax measures are also continuing the trend of widely ranging local cannabis tax laws. Given that the Medicinal and Adult-Use Cannabis Regulation and Safety Act granted local jurisdictions control over deciding their own cannabis business regulations, there is no statewide uniformity. Here are a few examples of the cannabis business tax measures that were on local ballots on November 6:

San Francisco

While some local jurisdictions were quick to impose cannabis taxes, others have delayed in taxing their local cannabis businesses. San Francisco’s Proposition D, which received a 66% voter approval, won’t go into effect until January 1, 2021. It imposes taxes on cannabis businesses that do business in the city, whether or not they are physically located there. The new cannabis business taxes are as follows:

  • For cannabis retail businesses, 2.5% of gross receipts up to $1M and 5% of gross receipts over $1M.
  • For cannabis non-retail businesses, 1% tax of gross receipts up to $1M and 1.5% of gross receipts over $1M.

These taxes do not apply to the first $500,000 of recreational cannabis gross receipts nor revenues from medical cannabis retail sales. The measure allows the Board of Supervisors to adjust the tax rates up to 7%. The cannabis businesses taxes are expected to generate $5M to $12M in cannabis tax revenue, and will go into the City’s general fund.The new tax measures underscore the lack of uniformity in local cannabis business taxes throughout the state. 

Emeryville

Emeryville passed a new cannabis business tax measure to increase its current nominal rate. Measure S imposes a cannabis business tax of up to 6% of gross receipts. This is estimated to generate $2M in tax revenue to be used for unrestricted governmental purposes.

Oakland

Oakland is among the few local jurisdictions that placed a measure on its November 6 ballot to lower its existing cannabis business tax rates. Previously, Oakland imposed a 5% tax on medical cannabis and a 10% tax on recreational cannabis, for all cannabis activities throughout the supply chain. These are among some of the highest cannabis tax rates in the state and are squeezing out small operators. Although Oakland has long been seen as the leader in California’s cannabis industry, the high taxes are making it difficult for its cannabis businesses to compete with nearby cities that charge lower taxes. While the city acknowledged the hardship its high taxes imposed, it maintained that it could not lower the rates on its own and required the voter approval. On November 6th, Oakland voters passed Measure V by 78%, which gives the City Council the authority to lower the city’s cannabis tax rates through an ordinance. To give additional relief to the cannabis businesses in the city, this measure also allows them to deduct the cost of raw materials from their gross receipts- something they cannot do on their federal tax returns. Furthermore, local cannabis business taxes can now be paid on a quarterly basis instead of one annual payment at the beginning of each year, which was severely burdensome for most businesses.

Lake County

Voters in Lake County approved Measure K by a majority vote to tax cannabis businesses in the unincorporated county effecting January 1, 2021. The county was previously only taxing cultivators at $1 to $3 per square footage depending on the method of cultivation. These rates will be reduced to $1 per square footage for cultivators and nurseries, and other cannabis businesses will be taxes between 2.5% and 4% of their gross receipts.

Mountain View

While there is a maximum of four cannabis businesses permitted to operate in Mountain View, over 80% of voters approved Measure Q to tax them. The measure imposes up to 9% of gross receipts to fund general city purposes, with an estimated annual revenue of $1M.Some have even set the effective dates of their cannabis tax laws several years out to allow their local cannabis businesses an opportunity to establish roots and drive out the black market.

Lompoc

Some jurisdictions have passed more creative cannabis business tax regimens than one rate applicable to the entire supply chain. Voters in Lompoc in Santa Barbara County approved Measure D2018 to authorize the city to impose following cannabis business taxes:

  • Up to $0.06 per $1 (6%) of recreational retail sales proceeds;
  • Up to $0.01 per $1 (1%) of cultivation and nursery proceeds;
  • An annual flat fee tax of $15,000 if net income is less than $2M of manufacturing and distribution proceeds;
  • An annual flat fee tax of $30,000 if net income is $2 Million or more of manufacturing and distribution proceeds;
  • A total aggregate tax of $0.06 per $1.00 (6%) of microbusinesses proceeds, not including medical cannabis transaction proceeds; and
  • No tax on testing.

Riverbank

There are signs that other localities that waited to jump onboard have learned from these high-taxing jurisdictions and opted for lower rates. There are even those localities that although they do not statutorily permit cannabis businesses to operate in their jurisdictions, they still want a piece of the action when it comes to cannabis taxes. The city of Riverbank in Stanislaus County currently does not allow cannabis businesses to operate without first obtaining a permit from City Hall and entering into a development agreement with the city that negotiates how much of their revenue the city would take. However, the voters just passed Measure B, which authorizes Riverbank’s City Council to impose a business license tax of up to 10% of gross receipts on cannabis businesses in the event the city allows cannabis businesses to operate within its city limits in the future. This tax has incentives other than the apparent potential of tax revenue. This guarantees the city a cut of the earnings of any illegal cannabis businesses, and serves as a protection in the event the permit and development agreement scheme the city has enacted is later found to be invalid.

The Chaos Continues

The new tax measures underscore the lack of uniformity in local cannabis business taxes throughout the state. Compliance is especially burdensome for delivery companies and multi-location and multi-license cannabis businesses. Cannabis businesses are required to keep up with new and evolving cannabis tax regimens, which, judging by the shortfall in cannabis tax revenues compared to their projections so far, is a difficult feat for these highly-regulated businesses.Of course, there are still some local governments that appear to have missed all the signs and have passed new high taxes. 

The overall trend in 2018, persisting through the midterm elections, is that more local jurisdictions are joining the cannabis tax bandwagon, and while the tax rates and structures are still all over the map, there appears to be some movement toward honing the cannabis business rates toward that “sweet spot.”

Cities like Oakland and Berkeley that immediately began to tax cannabis businesses at high rates have lowered or taken steps to lower their tax rates to keep their competitive edge and retain cannabis businesses within their jurisdictions. There are signs that other localities that waited to jump onboard have learned from these high-taxing jurisdictions and opted for lower rates. Some have even set the effective dates of their cannabis tax laws several years out to allow their local cannabis businesses an opportunity to establish roots and drive out the black market.

Of course, there are still some local governments that appear to have missed all the signs and have passed new high taxes. In due time, they, too, will give in to the market pressures and make necessary adjustments if they want to continue to benefit from the legal cannabis industry in their jurisdictions.


Taxnexus is an automated transaction-to-treasury cannabis tax compliance solution for the entire cannabis supply chain that provides point-of-sale state and local cannabis tax calculation, sales and use tax calculation, tax data management as the authority of record, and timely filing of returns with all applicable taxing authorities.

Opening a Dispensary on an Island: Overcoming a Barrier to Business

By Aaron G. Biros
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Martha’s Vineyard is renowned for its beautiful beaches, quaint whaling towns and picturesque rolling countryside. The island is well known as a popular vacation spot for the rich and famous, including the Obamas, the Clintons and Larry David. The movie Jaws was filmed there and the infamous Ted Kennedy-Chappaquiddick incident took place there in 1969. Its summer population of 115,000 drops to about 17,000 as the island slows down for the winter. It is also home to roughly 120 registered medical cannabis patients and a dispensary that will have to deal with the complexities of operating on an island.

In 2012, Massachusetts became the eighteenth state to legalize medical cannabis and in 2016, the state legalized adult use of cannabis. Geoff Rose, co-founder of Our Island Club, a local organization that offers discounts to full-time residents, saw a great need for a medical cannabis dispensary. Rose was granted a provisional license to both cultivate and dispense, as required by the state, on the island. Rose’s nonprofit that received the licenses, Patient Centric of Martha’s Vineyard, plans to operate in West Tisbury, a small town located in the center of the island.

Travel to and from the island is restricted to either boat or plane with the vast majority of traffic occurring on ferries operated by the Steamship Authority. But Rose cannot transport any cannabis on the ferries or even a smaller, non-commercial vessel because the waters are under the jurisdiction of the Coast Guard, a federal agency tasked with enforcing The Controlled Substances Act. The same goes for aircraft under FAA jurisdiction. Transporting cannabis products on the ferries, or any vessel for that matter, would be a felony.

Coast Guard vessel conducting training exercises off the Vineyard

Martha’s Vineyard is not just a physical island, but also a jurisdictional island where all cannabis growing, lab testing and dispensing must occur on the island. Currently, those 120 medical cannabis patients living on the island have no legal method of obtaining medical cannabis, unless they grow it themselves. Rose and his nonprofit, Patient Centric, hope to change that. We sat down with Geoff Rose to learn more about his mission to bring medical cannabis to the Vineyard and some of the legal implications associated with running a cannabis business on an island.

Cannabis Industry Journal: How did you get started with the idea to open a dispensary on the island?

Geoff Rose: Well I moved here almost sixteen years ago and as I have often said, when you move here you have three options: you can contribute to the community, you can hide and stay reclusive or you can leave. It is a very unique community and I chose to contribute. We started Our Island Club, which is a service program for year-round residents that helps them save on essential products and services as a means to cope with the high cost of living here. Clearly there is a need as there are 7,000 year round residents participating in that program. We have donated over a half-million dollars to 175 or more charitable organizations on the island. In addition to that, because of the membership fee, anyone who can’t afford it can still receive the membership.

Photo: Michelle Wyrich

I have come to launch the dispensary in the same manner. There is a need. [Legal medical cannabis] has now been law since November of 2012. Over four years later and still no dispensary on the island- I have continued to persevere because I know that there is a need.

CIJ: It is a pretty tight-knit community; did you meet any local opposition?

Geoff: Dukes County (the Vineyard) voted in favor of medical marijuana by a wide margin and 82% of West Tisbury voted in favor of medical marijuana, one of the highest in the state. Well I am currently waiting on my special permit application that I am required to apply for in West Tisbury. It has been sent to the Martha’s Vineyard Commission (MVC) for review.

There have been concerns, including from the local school. But state law requires that a dispensary be located beyond 500 feet from a school. The current location that I am asking for approval is over seven times that distance. There is a perceived concern about that. The first round of applications in 2013 included a score-based application process and while there were four competitors, none of us met the minimum score. In the second round, it moved to a compliance-based application process, and I was the only one who kept the effort alive and was awarded the license.

CIJ: There is a bit of an opioid problem on the vineyard, and multiple scientific studies have suggested a causal relationship between cannabis legalization and a reduction in opioid overdose-related deaths; do you see this as part of the solution?

 Geoff: I have seen studies, particularly one by Johns Hopkins that does show a correlation between medical cannabis and the reduction of the use of opioids. I think it is a byproduct of opening the dispensary, so yes. I shared these findings with the Superintendent of Schools. I think education is the key to really develop awareness. The state has mandated that schools are required to develop a drug education program, it’s part of the school curriculum, and I see that as a critical component in our outreach effort to the community. We have a responsibility to the community in many ways, whether it’s law enforcement or education.

Geoff Rose, founder of Patient Centric

I recently announced that we would allocate a percentage of our net profits for grant money to programs involved in drug education. Community outreach and education are very important. There also needs to be some positive education. There is a clear understanding that children need to be educated about the misuse of cannabis, which is true. But they also need to be educated about the medical value of cannabis. For example, many in the medical community will acknowledge the benefits of cannabis as it relates to cancer patients, whether it is helping nausea, appetite, pain management or being used as a sleep aid. This is an important message that needs to be disseminated to children. How does it help your family member, friend or neighbor who is suffering from the effects of cancer? That is one of the messages that would be helpful for children to receive. We can address the impact of all drugs including cannabis on the developing brain; I understand and agree, and publicly support that in an educational context. I want to be part of the solution.

CIJ: What problems do you run into trying to open a cannabis business on the island?

Geoff: I received my provisional cultivation license in September of last year. Part of the issue is the fact that cultivation has to occur on the island. The Coast Guard regulates everything surrounding the island including all the ferries, or any watercraft.

As part of my provisional license, I am required to have an independent cannabis-testing laboratory on the island that will perform the requisite testing mandated by the state. I am currently in conversations with Ph.D. chemists consulting for the laboratory. I have had numerous conversations with lab directors in other parts of the state, including Proverde Labs and MCR Labs. The Coast Guard has stated that cannabis is a Schedule One substance and therefore any transport is illegal. Unfortunately the law is very specific and not exactly written with Martha’s Vineyard in mind.


Editor’s Note: If you have further questions relating to Patient Centric of Martha’s Vineyard, you can reach Geoff Rose at geoff@patientcentricmv.org