Part One of this series took a look at how the regulated cannabis market can only be understood in relation to the previous medical market as well as the ongoing “traditional” market. Part Two of the series describes how regulation defines vertical integration in California cannabis, and conversely, how vertical integration can address some of the problems that the regulations create. But first:
A Grain of Salt
Take the conventional wisdom about vertical integration with a grain of salt. Expected benefits may not materialize under the current circumstances:
Overall, the business environment is highly challenging due to extensive regulation, over taxation, insufficient retail capacity and competition from the “traditional” market. As a result, integrating businesses upstream or downstream may mean capturing losses, not profits.
The three major types of cannabis activity span three major industrial sectors: raw materials (i.e., cultivation), manufacturing and service (distribution, testing and retail). As a result, a vertically integrated company needs to carry out very different types of activity, which require very different types of core competencies, equipment and facilities.
Developing core competencies is especially challenging because each of the major cannabis sectors is still evolving.
Realizing the benefits of vertical integration requires an additional core competency in cross-sector operations.
Regulations Define the Supply Chain
California’s regulations define the cannabis supply chain by defining both the individual links (licensees) and the relationships between those links. Therefore, an understanding of vertical integration must be grounded in an understanding of the underlying regulatory definitions.
The regulatory definition of each link is extensive. For example, each licensee is tied to a specific facility, and must have its own procedures for production, inventory control, security, etc. When the links are strung together, this definition tends to preserve operational redundancies, and impede operational integration.
Overall, the relationships between the links are primarily defined in terms of preserving the chain of cannabis custody. On top of that, regulations define very specific (and very consequential) links between certain licenses, as discussed below.
A Taxonomy of Links
There are currently 26 types of cannabis license in California, 25 of which can be vertically integrated:
Cultivation – 14 licenses, including 4 sizes each for Indoor (up to 22,0000 sf), Mixed Light (up to 22,000 sf) and Outdoor (up to 1 acre), as well as Nursery and Processor (drying, trimming and packaging/labeling). Note that cultivation licenses are the only licenses that restrict the scale of activities.
Manufacturing – 5 licenses, including volatile extraction, non-volatile extraction, everything but extraction (i.e., infusion) and packaging/labeling.
Testing (Type 8), for testing cannabis according to state standards prior to sale. The owner of a testing license cannot own any other type of license.
Distribution (Type 11), acts as the gateway between cultivation and manufacturing on the one hand, and retail on the other. The distributor’s gateway status is entirely an artifact of regulation – cannabis must be officially tested before it is sold to a consumer, and only a distributor can order the official test. All products must stay in a “quarantine” area at the distributor until they pass testing. Products that fail testing must be destroyed if they cannot be remediated.
Transport (Type 13), which can move cannabis between licensees (with a narrow exception). This license does not allow for official testing.
Delivery Retail (Type 10), for delivery services that are subject to the vagaries of software platforms and the intransigence of local authorities.
Microbusiness (Type 12), which allows the licensee to carry out cultivation (up to 10,000 square feet), non-volatile manufacturing, distribution and retail.
Event Organizer
Self-Distribution – A Case of Useful Integration
You may gather from the previous section that shoving a gratuitous and mandatory distributor into the middle of the supply chain creates problems for cultivators and manufacturers. Savvy operators solve this problem by getting a distribution license. This allows the cultivator or manufacturer to:
Pick the time and place for the testing of its cannabis products.
Avoid paying someone else for the storage of cannabis products as they await test results or purchase.
Reduce transport costs (particularly if the distributor is near the other operations).
Sell directly to retailers.
The bottom line is that vertical integration in California cannabis is useful as a means to an end, as opposed to an end in itself. Therefore, cannabis operators should carefully consider how vertical integration will benefit their core business before incurring the risks and expenses associated with an additional license.
This article is an opinion only and is not intended to be legal advice.
It’s no secret that the rollout of cannabis legalization has underperformed in countries like Canada. Since legalization in October of 2018, industry experts have warned that the projections of the big cannabis firms and venture capitalists far exceeded the expected demand from the legal market.
Today, major production facilities are closing down, some before they even opened, dried flower inventory is sitting on shelves in shocking quantities (and degrading in quality), and an extremely robust illicit market accounts for an estimated 80% of the estimated $8 billion Canadian cannabis industry. None of those things sound like reasons for optimism, but while some models for cannabis business are withering away, others are beginning to put down stronger roots. Crucially, we are beginning to see new business models emerge that will be able to compete against the robust black market in Canada.
The Legal Cannabis Industry Can’t Compete
Legal rollout in Canada could easily be described as chaotic, privileging larger firms with access to capital who were able to fulfil the rigid – and expensive – regulatory requirements for operating legally. But bigger in this case certainly did not mean better. The product these larger firms offered immediately following legalization was of a lower qualityand higher price than consumers would tolerate. In Ontario, cannabis being shipped to legal distributors lacks expiration dates, leaving retailers with no indication of what to sell first, and consumers stuck with a dry, poor quality product.
The majority of existing cannabis consumers across the country prefer the fresher, higher quality and generally lower priced product they can easily find on the illicit market. That preference couldn’t be clearer when you look at the growth of inventory, which is far outpacing sales, in the graph below:
Which brings us to the crux of the matter: when it comes to building up the Canadian cannabis industry, what will succeed against the black market that has decades of expertise and inventiveness behind it?
Rising From the Ashes: Craft Growers and Other Small-Scale Producers
The massive facilities like Canopy’s may be shutting down, but our friends over at Althing Consulting tell us that those millions of square feet facilities are being replaced by smaller, more boutique-style cultivation facilities in the 20,000 ft tier, which are looking to be the future of the industry.
Consumers have consistently shown a strong preference for craft cultivators and other small-scale producers who produce higher quality, more varied products that are more responsive to consumer needs. It also hasn’t hurt that prices are also coming down: Pure Sun Farms in Delta, BC is consistently selling out of their $100/ounce special, which is highly competitive even with the illicit market.
This vision of the industry matches up better with the picture we’ve been getting from other legalization projects around the world. It also squares with other indicators of success. Despite the small market capture of the legal market, industry employment numbers are still relatively high, especially when compared with more established legal consumer products markets such as beer. In fact, craft cannabis growers now employ nearly as many people as the popular craft brewing sector here in British Columbia.
But in order to make the craft cannabis market actually competitive in both the regulated and unregulated spaces, the government will have to address four major challenges.
Challenge #1: License Distribution is Uneven and Chaotic
A December 2020 report by Ontario’s auditor general contains admissions by the Alcohol and Gaming Commission of Ontario (AGCO), Ontario’s cannabis industry regulator, that they lack the capacity and resources to manage the number of applications for private cannabis retailing. Problems relating to the issuing of licenses, including long delays and difficult requirements, are widespread across provinces. One way this becomes clear is by looking at the very uneven distribution of stores across the country in the graph below.
Challenge #2: Basic Regulatory Compliance is Complex and Time-Consuming
Smaller-scale micro cultivators, whose good quality craft product remains in high demand, still face prohibitive barriers to entry into the legal market. Licensing from Health Canada is one onerous challenge that everyone must tackle. Monthly reporting requirements have in excess of 477 compliance fields. Without additional support to navigate these requirements – including automation technology to ease the administrative burden – these smaller producers struggle to meet the minimum regulatory standards to compete in the legal market.
Challenge #3: A Long-Distance Road to Compliance and Safety Means Higher Costs
Even with all regulatory requirements satisfied, cannabis cultivators can’t sell their product from “farm to fork” (to borrow a phrase from the food industry). Many growers ship their product to be irradiated in order to ensure they are below the acceptable microbial threshold set by Health Canada. While irradiation positively impacts the safety of the product, new evidence shows that it may degrade quality by affecting the terpene profile of the plant. Furthermore, only a few facilities in Canada will irradiate cannabis products in the first place, meaning that companies have to ship the finished product sometimes thousands of kilometers to get their product to market.
Next year, Health Canada looks set to lower the limit on microbials, making it virtually impossible to avoid cannabis irradiation. If Health Canada follows through, the change will be a challenge for small-scale cultivators who strive to prioritize quality, cater to consumers who are increasingly becoming more educated about terpene profiles, and seek to minimize the environmental impact of production.
Challenge #4: It is Virtually Impossible to Market Improved Products
Finally, there is a marketing problem. Even though the regulated market has made dramatic improvements in terms of product quality from legalization two years ago, Health Canada’s stringent marketing restrictions means that cannabis producers are virtually unable to communicate these improvements to consumers. Cannabis producers have little to no opportunity to reach consumers directly, even at the point of sale – most legal sales are funneled through government-run physical and online stores.
What Can a Thriving, Legal Cannabis Market Look Like in Canada?
The good news is that change is being driven by cannabis growers. Groups like BC Craft Farmers Co-Op are pooling resources, helping each other navigate financial institutions still hostile to the cannabis trade, obtain licenses and organizing craft growers to advocate to the government for sensible regulatory changes. As a result of their advocacy, in October, the federal government initiated an accelerated review of the Cannabis Act’s restrictive regulations related to micro-class and nursery licenses.
Now, more co-op models are popping up. Businesses like BC Craft Supply are working to provide resources for licensing, quality assurance and distribution to craft growers as well. Indigenous growers are also showing us how cannabis regulation could work differently. Though Indigenous cultivators currently account for only 4% of Canadian federal cannabis licensees (19/459), that number looks to be growing, with 72 new site applications in process self-identified as Indigenous, including 27 micro cultivators. In September, Williams Lake First Nation entered into a government-to-government agreement with the province of British Columbia to grow and sell their own cannabis. The press release announcing the agreement includes the following statement:
“The agreement supports WLFN’s interests in operating retail cannabis stores that offer a diverse selection of cannabis products from licensed producers across Canada, as well as a cannabis production operation that offers farm-gate sales of its own craft cannabis products.”
More widespread adoption of the farm-gate model, which allows cultivators to sell their products at production sights like a winery or brewery, has a two-fold benefit: it better supports local, small-scale producers, and it offers opportunities in the canna-tourism sector. As the economy begins its recovery alongside vaccine rollouts and restrictions on travel ease, provincial governments will have the chance to leverage the reputation of unique regional cannabis offerings (i.e. BC bud) through these farm-gate operations.
While the cannabis legalization story in Canada has had its bumps, the clear path forward for greater legal market success lies in increased support for micro-cultivators. By increasing support for these small-scale producers to navigate regulatory requirements, more will be able to enter the legal market and actually compete against their illicit counterparts. The result will be higher quality and more diverse products for consumers across the country.
More and more we are seeing the development of proprietary hardware platforms in cannabis. With proprietary technology in hand, manufacturers often lean on MSOs, LPs and other brand partners to grow their business through existing sales channels.
We spoke with Mike McDonald, President and CEO at Ammonite, to learn more about the history of the Dablicator™ platform and Ammonite’s North American brand partner strategy. Mike formed Ammonite as a spin-off company from Jetty Extracts after getting to know the founders in a real estate transaction. Prior to Ammonite, Mike was an operator in the manufacturing and product development space, having helped to launch the Giant bicycle brand as well as growing and eventually selling the Atlas Snowshoe Company to K2 Sports.
Aaron: How did you get involved in cannabis?
Mike: Well, like a lot of folks in the industry, my background is pretty eclectic. I come primarily from an operator’s perspective – I’ve been in manufacturing, product development and company growth for my whole career. I lived in Taiwan for several years and helped to launch the Giant bicycle brand worldwide. I was also involved with a ski business that was started at Stanford as a thesis project called Atlas Snowshoe Company. Fast-forward, we built it into the largest snowshoe brand and activity in the US and later sold it to K2 Sports. So, I’ve always been involved in the growth of product-related businesses.
Mike McDonald, President and CEO at Ammonite
I’ve also done some real estate development as well; I actually sold our building to the Jetty guys, which is how we met. In that process, I got involved with their company, helped Jetty reorganize its business model, raise some money, and then just got addicted to the whole industry and really found it fascinating. I liked the team at Jetty and couldn’t resist jumping in, and now I’ve been full-time in the business for over three years.
Aaron: How did you get involved in Ammonite?
Mike: Ammonite is actually a spin out company from Jetty Extracts, which is one of the largest brands in California. Our main Ammonite product is called the Dablicator™ Oil Applicator, which was originally invented at Jetty as a medical device for cancer patients. We saw a big demand for it as a private label partnership product, so we decided to spin out a separate hardware company and really focus on developing unique IP and CBD and cannabis related hardware.
Aaron: What trends are you following in the industry?
Mike: Certainly the MSOs of the world are really expanding and the top three to five are making a mark with growth and more sophistication in the market. I think the social equity movement is really a big component that we’re all excited about in the industry. You’re seeing the larger players really put their money where their mouth is around that. We’ve always been a big part of that in California.
Specifically, regarding trends in the cannabis space, Colorado and California are probably the two most mature markets. We generally say what’s happening in California and Colorado eventually make their way out to the rest of the world. Vaping was invented in California and Colorado, and now it’s a huge part of the business where before, four or five years ago, the market was mostly flower-centric.
There’s a trend away from inhalables, with more awareness around lung-related illnesses and of course COVID, so we’re seeing a big growth in edibles, drinks and so forth. Interestingly enough, although it’s an inhalable, infused pre-rolls are a big growth sector as well. Jetty is actually launching an infused pre-roll program in February.
Folks are looking for ways to get their medicine without smoking – and this has definitely led to a growth in the oil application business. Oil application has traditionally been delivered via a syringe. Dablicator™ oil applicator is essentially an improved, more convenient syringe. On the medical side, patients have been taking oil sublingually, putting it in food and drink and so forth for years because a lot of them can’t smoke. As that trend transfers over to the adult use market, oil application is becoming really big. You can take it sublingually; you can put it in your food or beverage. On the recreational side, you can add it to your loose flower or joints, or of course, dab it directly onto your rig via the heat resistant tip.
Further, you’re probably familiar with a lot of these portable dab rigs that are taking off, like the G Pen Roam and the Puffco Peak and a variety of others. So now you can dab on the go with your standard wax and shatter in a jar. It’s just not the most convenient way if you’re up on a hike or on a mountain bike ride. So now, with a portable dab rig and something like the Dablicator™ oil applicator, you can have a really convenient mess-free way to enjoy cannabis. The big growth in concentrates and areas that aren’t necessarily inhalables is where our product hardware really fits in.
Aaron: How did you come up with the idea for the Dablicator?
Mike: The Jetty team had a friend that had brain cancer. He was doing a lot of chemotherapy and was having trouble eating and keeping weight on and he couldn’t smoke. So, the guys at Jetty began to bring him cannabis oil, which he was able to use ingesting it from a spoon initially and it really helped him with his pain, his anxiety and his appetite. In that process, we realized that there wasn’t really a great way to deliver oil. Syringes were there, but they were kind of sketchy and they weren’t convenient.
So, the Jetty team developed a better mousetrap. Several iterations later, this Dablicator™ product was ready for patients. In fact, it became a big part of the Jetty Shelter Project, a non-profit where the team delivers cannabis to cancer patients, and it was a very much sought-after product delivery device in that world. So, it was developed inside of a need on the medical side and it’s really sort of grown inside the expansion on the adult-use side.
Aaron: Can you explain how the Dablicator™ oil applicator works from a perspective of form and function?
Mike: Pre-Dablicator™ you would use a syringe type product – for direct oil application, sublingual application, or as an add on to your flower. The difference between Dablicator™ oil applicator and a traditional syringe is that Dablicator™ is a twist and plunge product. Imagine a pen filled with oil, but instead of inhaling it, you’re able to dispense it through a tip that is heat resistant, which means you can apply directly to your dab rig nail. You’re able to put it in your pocket without fear of cannabis oil leakage. It’s discreet, precise, compact and portable.
Aaron: How does the user dose using Dablicator™ oil applicator?
Mike: Basically, there’s measurements on the plunger of 55 milligrams apiece – one click is 55 milligrams, and you can dispense as many clicks as you like. What’s cool about the product itself is if you’ve clicked too many times accidentally, you can back it off and the excess oil won’t dispense. You can go to dablicator.com and see demo videos as well.
Aaron: Dablicator™ oil applicator started as a Jetty Extracts spin-off. I see you are now white labeling for other oil brands. How do you go about selecting your partners?
Mike: We call it our brand partner program. It’s not too dissimilar to what other hardware manufacturers, like PAX and GPen, are doing. We’ve got a patented and innovative device where our brand partners, MSOs and leading brands throughout the US and Canada, can take their existing vape and tincture oils and offer them in Dablicator™ oil applicator hardware.
Our focus is signing up major, well respected brands and MSOs on to the “platform,” meaning they are able to immediately offer between six and ten new SKUs to their consumers. They take their existing oils, put them into a custom branded Dablicator™ hardware unit and add their custom branded packaging. It’s a full turnkey solution. For example, one of our partners, 710 Labs, is developing their RSO and were shopping for a delivery method specifically geared towards medical patients. Within eight weeks, we had a custom program for them and delivered hardware, and we assisted on the packaging front as well.
Our partners have to be reputable folks that are interested in developing or delivering oil in a unique and innovative way. Frankly, our early partners are those that see where the growth is. 710 Labs is on the platform, as well as Surterra in Florida, Ancient Roots in Ohio, and we’ve got multiple conversations going to some of the other MOSs and the LPs in Canada.
Aaron: Are the brand partners loading the oil applicator themselves?
Mike: We customize the product for them and then ship them unassembled and empty. In their lab, they use the same machinery and equipment they use to fill their vape cartridges. They then fill their Dablicator™, assemble it, package it and ship it out just like any other product that they’re processing and manufacturing.
Aaron: What kind of oils are suitable for Dablicator™?
Mike: Pretty much any oil that’s going into a vape cart is suitable and then some. Some of our customers, including Jetty, started out with a THC distillate. Live resin is becoming a big product category in California as well as solventless oils. Dablicator™ oil applicator can accommodate everything from distillate to live resin to solventless to RSO and even full spectrum CBD. If it can flow, if it doesn’t crystallize up like shatter and sugars and diamonds, you can put it into Dablicator™, even the thickest of oils. It’s designed to contain any kind of liquids that are flammable.
Aaron: What geographies are you currently in?
Mike: We’re in multiple states throughout the US and actually just signed up with an LP in Canada. We only launched the program in August of 2020, and today we’ve got partners California, Colorado, Ohio, Arizona, Missouri, Florida, soon to be Michigan, Illinois, and throughout Canada.
Aaron: Any plans for international expansion beyond North America?
Mike: We’re getting inquiries on a regular basis from all over the place, including internationally. We’re in conversations with some folks down in Brazil. Spain is actually a big cannabis market and we’re having some conversations with some folks there. The inquiries are coming in faster than we can process the relationships, but right now our major focus is on North America.
Aaron: What are your goals with Ammonite?
Mike: We are developing a category, right? So today, oil dispensing isn’t top of mind. Today, if you want oil, you go into a dispensary and say, “Hey, give me those syringes.” My goal is that a year from now, you can walk into Harborside in Oakland and you see a wall of different branded Dablicator™ oil applicators. The goal is to really turn the oil dispensing business into a category, and then position Dablicator™ oil applicator as the best and leading product in that category.
Aaron: What are you personally interested in learning more about?
Mike: Well, I’ve got two teenagers – two daughters, as a matter of fact, a freshman and a senior – and they’re being homeschooled right now. So that’s been quite an interesting development!
I think on the cannabis side, it’s just fascinating what it is as a business model. It’s the most recent multi-billion-dollar opportunity in consumer products. You only get a chance to participate in something like that maybe once in a lifetime. I’m really looking forward to seeing it become more adopted into the mainstream and it’s already becoming that way from a consumer perspective. I am watching the cannabis market become legal from a federal perspective, hoping that the social equity component of the industry really stays with it.
I’ve been in a lot of businesses over the years; I feel like one of the gray hairs in this business that is actually an operator versus someone who came over from the financial side. I am continuing to learn, grow and work with great people and this has been a really amazing experience for me.
Aaron: Okay, great. Mike, that’s the end of the interview. Thank you for your time today!
According to a press release sent out last week, MCR Labs just opened their newest facility in Pennsylvania. The laboratory, based in Allentown, PA, began accepting and testing cannabis samples last week.
A lab technician at MCR Labs weighs flower for testing.
MCR Labs became the first independent cannabis testing lab to get certified in Massachusetts. The lab based in in Framingham, Massachusetts (a little west of Boston) is ISO 17025:2017 accredited.
Michael Kahn, president and founder of MCR Labs, believes this is a huge step for their company. “We’re excited to be expanding and excited for the opportunity to carry out our mission of advancing public health and safety here in the Keystone State,” says Kahn.
The Allentown, PA facility is led by Julia Naccarato. “I’m grateful to MCR for the opportunity to offer the team’s expertise to Pennsylvania’s cannabis providers and to help ensure the safety of products they offer to medical marijuana patients,” says Naccarato.
According to a press release sent out last week, Complex Biotech Discovery Ventures (CBDV) has expanded their testing capabilities considerably with the new addition of a vapor/smoke analyzer. CBDV is a licensed cannabis and psilocybin research laboratory embedded in the University of British Columbia, led by CEO Dr. Markus Roggen.
Dr. Markus Roggen, Founder of Complex Biotech Discovery Ventures (CBDV)
The ability to analyze vapor and smoke is a relatively novel concept for the cannabis space, but has been utilized by the tobacco industry for years now. In the early days of adult-use cannabis legalization in the United States, stringent testing regulations for contaminants like pesticides were adopted out of a fear for what would happen when consumers ingest toxic levels of contaminants.
One of the common refrains iterated throughout the industry over the past ten years was that there just wasn’t enough research on how different contaminants affect patients and consumers when burned and inhaled. We still don’t know too much about what happens when someone smokes a dangerous pesticide, such as myclobutanil. Beyond just contaminants, the new technology allows for companies to measure precise levels of cannabinoids in vapor and smoke, getting a more accurate reading on what cannabinoids are actually making it to the end user.
The smoke analyzer at CBDV
This new development coming from our neighbor to the north could lead to a breakthrough in the cannabis lab testing and research space. CBDV claims they can now analyze cannabis material with a much more in-depth analysis than basic compliance testing labs. The new technology for analysis of smoke, vapor, plant material and formulations allows companies to thoroughly understand their materials in each stage of the product formulation process, all the way to product consumption.
Beyond just smoke and vapor analysis CBDV also offers NMR spectroscopy, metabolomics, nanoparticle characterization, computational modeling and other testing services that go far beyond the traditional compliance testing gamut.
“Our new services offer comprehensive insights into plant material, extracts, end-products and even the smoke/vapor by using state-of-the-art analytical instruments,” says Dr. Roggen. “By understanding the chemical fingerprint of the material, cannabis producers can eliminate impurities, adjust potencies, and optimize extraction processes before wasting money and resources on producing inconsistent end products. As a chemist I am really excited about adding NMR and high-res mass spectroscopy to the cannabis testing offerings.”
The culture of the cannabis industry is filled with passion that many envy, and for valid reasons. The roots of the cannabis plant go back thousands of years. As of this writing, there are no documented human deaths that were caused by a phytocannabinoid overdose. However, it is not all rainbows and unicorns.
Before breaking ground, fundraising, proper facility design, competitive application and permitting requirements are just the start. Once operating, businesses struggle to stay current with regulations that continue to evolve. Cannabis cultivators struggle to scale while mitigating pest infestations, which is a part of life in the conventional agricultural industry. A lack of consistent products frustrates consumers, while regulators and policy makers continue to struggle on the best way to regulate a commodity that has seemingly endless demand. The reality is dizzying!
However, amidst all of the challenges and opportunities, a continually overlooked tool stands out: a Quality Management System (QMS). Merriam-Webster defines a system as “an organized set of doctrines, ideas, or principles usually intended to explain the arrangement or working of a systematic whole.”
A QMS documents processes, procedures and responsibilities that ultimately direct an organization’s activities to meet customer and regulatory requirements as well as continually improve its effectiveness and efficiency. In other words – it steers innovation through the collection of data while ensuring products are safe for the consumer. For further reading, the American Society for Quality (ASQ), now over 70 years old, is an excellent resource and provider of resources and formal training programs that are recognized and revered around the world.
Step 1: Define your stakeholder requirements
This all starts with knowing your stakeholder (e.g., customer, regulatory body) requirements. For simplicity’s sake, let’s start with your customer; at a fundamental level, they expect safe, consistent and reliable products that impart a certain experience.
How does that translate into specifications? Let’s look at them one at a time.
What does “safe” mean? For an edible, safe means the product is free of physical, chemical and microbial hazards. Knowing what potential impurities could be in your product requires understanding your raw materials (inputs) and the manufacturing process. To take a deeper dive, some of the aspects of safety and quality, product specifications and testing considerations are discussed in this recent Cannabis Industry Journal article by Dr. Roggen and Mr. Skrinskas here.
An example of a compliant label in Oregon
What does “consistent” mean? This builds off and complements the safety profile. It could mean a consistent fill level, an acceptable range of cannabinoid concentration, and so on. For example, in the US Pharmacopeia’s peer-reviewed article about quality attributes of cannabis inflorescence (commonly known as flower or bud), they recommend 20% as the acceptable variance in cannabinoid content. For a product labeled as having 25% THC, the product will actually test to between 20% and 30%. This may be surprising, and discomforting for some, but the reality is that products on the market consistently fail to meet label claims.
What does “reliable” mean? That could mean that you always have inventory of certain products on the shelves at your dispensary. Defining “always” as a SMART goal – perhaps it means that you will have your top 3 products in stock at least 90% of the time. Customers need to feel like they can rely on your business to provide them with the products they want. Take the time to capture the data on what your customers want and work to satisfy their needs and you’ll watch your business really accelerate.
Step 2: Build your processes to meet these expectations
This is where your written standard operating procedures (SOPs), forms and records come into play. Your SOPs serve to memorialize your operations for consistency. Most SOPs in the cannabis industry are not written by the actual operators of a process. Rather, they are written by the legal and compliance team without review by the operators to confirm that what they are stating reflects operational reality. The audience needs to be the operators. Without effective SOPs that are utilized by your employees, your business will struggle to meet the established specifications. Cannabis businesses in Colorado, the oldest regulated adult-use cannabis market in the United States, continue to see 1 in 8 of their products fail final product testing! Cannabis businesses that understand their processes, document them in SOPs and have records to prove they follow their SOPs (see Step 3) are able to reduce errors that ultimately lead to costly rework and product failures.
Consistency in quality standards requires meticulous SOPs
Step 3: Monitor and improve
You have your requirements, you have your process, but how do you know that they are being adhered to? By the time you have results from a third-party lab, it’s too late. Look internally. Records and logs that show preventive maintenance was performed, room and canopy temperature and humidity checks, inventory reports, production records, extraction equipment report and employee training records shouldn’t be filled out only to be filed away. These records are data, which is your most valuable tool. Unfortunately, records are one of the most overlooked assets in today’s cannabis business. A team independent from operations (typically a Quality Unit) should be regularly reviewing these for inconsistencies and trends that can alert you to catastrophic failures before they occur.
Initially, the additional expenditure and learning curve may make this seem like an added burden, but keep in mind that succeeding in today’s cannabis industry requires long-term customer retention. By biting off one piece at a time, you can slowly implement a QMS that will improve your business, increase customer satisfaction, and ensure your brand is a staple for years to come. Remember, quality and compliance is a journey, not a “set it and forget it” situation.
The definition of a Quality Management System includes ‘continuous improvement’. Look forward to a future article which will discuss the importance of tools like a CAPA Program – Corrective Action Preventive Action (which all cannabis license holders in Colorado are required to have in place as of January 1, 2021) and how they complete your QMS, keeping you compliant and mitigating your business risks!
In a press release sent out this month, bioMérieux announced they have received the very first approvals in cannabis and hemp for AOAC Research Institute Performance Testing Methods (PTM). AOAC approved method validation for the detection of Salmonella and STEC (Shiga toxin-producing E. coli) in cannabis flower utilizing bioMérieux GENE- UP® SLM2 (PTM 121802) and EHEC (PTM 121806) assays.
According to the press release, these validations are the first of their kind in the cannabis and hemp industries. The AOAC-validated testing methods are approved for 1-gram and 10-gram samples.
Dr. Stan Bailey, senior director of scientific affairs at bioMérieux, says these approvals demonstrate the company’s commitment to innovative and validated science in the cannabis and hemp industries. “We are especially proud that the GENE-UP SLM2 and EHEC are the first two AOAC approvals in the United States for cannabis and hemp,” says Dr. Bailey. “This is increasingly important with now over half the population of the US living in states that have approved cannabis for recreational use and most states approving cannabis for medical use.”
The AOAC PTM designations are recognized by the US Department of Agriculture, the Food and Drug Administration, and global regulatory agencies. The validation guidance builds on AOAC’s Cannabis Analytical Science Program (CASP).
bioMérieux is a French in vitro diagnostics company that serves the global testing market. They provide diagnostic solutions such as systems, reagents, software and services.
Tracy Szerszen, President & Operations Manager, Perry Johnson Laboratory Accreditation (PJLA)
Mohan Sabaratnam, Vice President, IAS
Jason Stine, Sr. Director of Accreditation, ANAB
Anna Williams, Accreditation Supervisor, A2LA
This panel, moderated by CIJ editor Aaron Biros, goes in-depth into the new ISO/IEC 17025:2017 version, changes from the 2005 version, the new transition timeline mandated by ILAC, common challenges labs face when getting accredited and much more.
TechTalk: New Analyzed Cannabinoids Plus Analysis of Pesticides, Residual Solvents & Heavy Metals
Dr. Bob Clifford, General Manager, Shimadzu Scientific Instruments
R&D Lab Testing: Ensuring Success with Results
Christian Sweeney, President, Sonoma Lab Works
In this session, Sweeney discussed new product launches, shelf life, stability and brand identity metrics, quality controls, preparing for compliance batches, environmental testing and more.
TechTalk: Top 7 Things to Consider when Comparing Cannabis Testing Equipment
Greg Kozadjian, MBA, Emerging Markets Business Development – Cannabis Testing, Agilent
Pesticide Testing: Methods, Strategies & Sampling
Mikhail Gadomski, Corporate Senior Chemist, Deibel Bioscience of California
This presentation provides an overview of pesticide testing and current regulations, with a special focus on California. Gadomski also touches on SOPs, instrumentation, method development and sample preparation for pesticide testing.
TechTalk: Potency Testing: Options and New Developments
Dr. Hillel Brandes, Analytical Technology Specialist, MilliporeSigma
Editor’s Note: This article has been edited and updated upon receiving comments from ProVerde Laboratories. This article originally stated that ProVerde was not licensed, but that was incorrect as the company had a 6-month temporary license from the state.
ProVerde Laboratories has cannabis testing laboratories in Milford, Massachusetts and Portland, Maine. They have been operating in Maine for several years now, well before the existence of any licensing process. According to the Press Herald, the city of Portland, Maine shut down ProVerde Laboratories, prohibiting them from conducting business in their Maine location and forcing them to remove cannabis products from the premises. However, the lab was shut down for a seemingly innocuous reason: city permits.
The city issued citations for operating without a permit or a business license back in December, hence why the city shut down the laboratory this month, pending a reinspection in February. ProVerde has already applied for a change-of-use permit, but that process was still in review when the lab was shut down.
The Press Herald says that because of the still pending review process, ProVerde does not have approval from Portland to operate. Citing a violation notice, they say that ProVerde had not yet applied for a cannabis testing facility license. ProVerde had been issued a temporary license, but that expired before the application for a full license was completed.
However, things get a little murky because Chris Hudalla, founder and CSO of ProVerde, told the Press Herald that Maine only requires testing licenses for adult-use labs, not medical testing labs. He is asking for clarification from regulators.
When reached for comment, Hudalla told Cannabis Industry Journal that last April they were given a 6-month temporary license. “When the Maine regulators created a pathway for licensure for adult-use marijuana testing, we started the process for the application of that license,” says Hudalla. “However, as I’m sure you well know, application processes for any type of marijuana license are complex and time consuming, worsened by the impact of COVID, when we had less staff resources available to work on the application.”
Hudalla went on to add that even getting out-of-state fingerprinting for Maine is a challenge, as local police departments were not letting the public in the police station to get fingerprinting, and Maine would not accept electronic transmittal of digital fingerprint records. “We had not completed our application when the temporary license expired, and no extension of the temporary license was granted. Based on that, we were asked to halt our laboratory operation until receipt of that license, which we complied with immediately.”
Until the reinspection next month, Proverde’s operation in Maine looks like it is currently on hold. However, Hudalla says they are working with the State and the City of Portland to get back up and running as quickly as possible. “Our application is in progress, and we are working to get the lab back into operation.”
Natural cannabinoid distillates and isolates are hydrophobic oils and solids, meaning that they do not mix well with water. By formulating these ingredients using various technologies, companies like Caliper and Ripple have learned how to change the solubility properties of the cannabinoids. In addition, formulations can improve bioavailability and onset time of the cannabinoids.
Stillwater Brands is a cannabis formulation company based out of Denver, Colorado, leveraging proprietary technologies for solubilizing cannabinoids in water. Stillwater has a partnership with the Canadian company Green Organic Dutchman and will soon expand their THC line of products, Ripple, into Michigan. Their CBD product line, Caliper, is already sold nationally.
We spoke with Drew Hathaway, senior food scientist at Stillwater, about the Stillwater technology and aspirations for growth. Hathaway joined Stillwater in 2018 after engaging with them as a technical sales representative in his previous role at a food ingredients supplier.
Aaron Green: What trends are you following in the industry?
Drew Hathaway: I can mainly speak to the science side of the business since that’s where I operate, but I do have some insight into the marketing approach and some of the things we look at. We’re looking at traditional food and beverage trends, whether it’s beverage formats, with its unique ingredients that are going to be general flavor trends, which can definitely be very region-specific. One of the things we definitely look at, especially on the THC side, is dosage differences. What are people putting their dosages at? Are they doing a combination of cannabinoids or terpenes? Are they really using individual ingredients? I think that’s something that’s been fairly well established in the THC market, especially since you have the regulatory mandate of 10 milligrams THC being your max single dose.
Drew Hathaway, senior food scientist at Stillwater
When Stillwater first launched in 2016, our company started with lower dose products to provide microdose options. We focus all of our products on functional foods for consumers. It’s why we have three different options for every single one of our products. We have what we call the Pure 10 which is 10 milligrams of THC per serving. We have what we call the Balanced 5. That’s 5 milligrams THC, 5 milligrams of CBD. Then as well as our Ripple Relief, which is a 40 to one ratio of CBD to THC at 20 milligrams CBD and 0.5 milligrams THC. We provide a variety of options for people looking for different dosage levels. We have to look at all of those trends. Packaging trends are also high on our radar.
Aaron: How about flavors?
Drew: We recently launched additional SKUs for our Ripple gummies here in Colorado. We have four different options. We have a sour variety pack that contains sour watermelon, sour apple and sour peach. We also just launched peach cherry, kiwi apple and sour watermelon by itself — and all of those are at the five milligram THC per gummy dose. That aligns with the Pure 10 line as well. We also have been working on some new flavors for the 10 milligram THC quicksticks, which we’re looking to launch early next year. Then, like I mentioned earlier, we’re expanding into Michigan with the THC business, which has been a big goal for us and something that’s gotten a lot of effort behind the scenes.
Aaron: So Drew, how did you get involved at Stillwater?
Drew: I like to describe myself as a traditionally educated food scientist. I went to college and got my bachelor’s and master’s in food science and technology at Ohio State. And then I ended up at a really cool company that was a very large food ingredient supplier. I was technical support to sales for their team. Through that position, I covered the Colorado territory as well as California and I got to cover Stillwater as one of my customers providing technical advice on different products and ingredients that they were looking at. I got involved with Stillwater through that position, back in the early days when they were still trying to develop and figure things out. That would have probably been about four years ago. I was able to see from the sidelines and I was dealing with some other cannabis companies in the space here in Colorado at the time too.
I recognized very early on what they were trying to do by making cannabinoids water soluble and water compatible. It was not only extremely challenging, but also had a ton of potential if they were able to pull it off. At that point, they were still trying to figure out how this is going to work. How do we produce it? How do we sell it? How do we make sure that things are stable? Things of that nature. I got an inside look at Stillwater from the very start, back when there were really only a few people at the company. I would check in with them regularly as they needed help.
I always joked that they were my least important, most interesting customer and I mean that only because they were buying extremely small amounts of ingredients from us. From a sales perspective, naturally, my manager didn’t necessarily want me spending a ton of time working with them. From a personal interest perspective, I was like, “these guys are doing something really intriguing and if they can pull this off this has a ton of potential, so I want to help them however I can.”
I dealt with them in that sales capacity for about two years before they talked about expanding into the CBD space with the Farm Bill passing at the end of 2018. I recognized at that point that I think they had two scientists including Keith, our head of R&D, and I said “alright, that’s really ambitious. You probably need some help! I think it’s time for me to take the leap and see if you guys are interested in having me come on board.” Fortunately, they were and so I’ve been with the company a little over two years now.
Aaron: Can you explain at a high level what the Stillwater products do?
Drew: The base technology behind all of our products for Ripple and Caliper is essentially converting your fat-soluble cannabinoids, whether it’s CBD or THC, into a water compatible product in a process referred to as emulsification. What you’re essentially doing is taking CBD and THC containing oils, whether it’s a distillate or isolate, and you’re essentially breaking those fat droplets into extremely small droplets and then stabilizing them at that size. We make our own emulsion — the fat droplets are extremely small — then when you draw that down into a powder format and redissolve it into water, you are dispersing billions upon millions of fat droplets into your glass. Those droplets are evenly dispersed through the beverage so that you get the same amount of THC or CBD in your first sip that you get in the last sip. That’s really the core technology behind everything that we do.
Taking cannabinoids and making them water soluble is the base technology necessary in order to make something like a shelf-stable infused beverage. There’s no way that you’re going to take traditional distillates or cannabinoids and be able to make a beverage that is shelf-stable otherwise. It’s been really cool since joining Stillwater to learn and understand how that process changes the way that those cannabinoids are absorbed by your body. Emulsification changes things like the onset time, as well as the total amount of cannabinoids your body’s absorbing and using. That’s been something that’s super interesting to see through the clinical research that we’ve done with human participants through Colorado State University.
Aaron: Let’s say if you just take THC oil and put it into an infused product. What’s the difference between that and Ripple?
Drew: Some products formats, such as beverages, just aren’t possible with THC oil without an emulsification technology. As the old saying goes in science, water and oil just don’t mix. So, if you were to take a traditional THC distillate and try to add it to a beverage, that would just float on top as a big oil slick. When you took your first sip, you would essentially get all of the cannabinoids in your first gulp which not only makes precise or partial dosing impossible, but also would taste absolutely terrible. Emulsification makes those infused beverage products possible and stable over a normal one-year shelf life or potentially longer.
Emulsification also changes the way that your body absorbs those cannabinoids, which is something that we’ve definitely put a heavy emphasis on and have really been able to validate with clinical research. I think that’s one of our biggest differentiators versus our competitors. We’re definitely not the only ones in the water-soluble cannabinoid space, but from my understanding, I think we’re one of the few companies that have actually executed human-based clinical trials (vs rodents) through a third-party university and been able to prove that these cannabinoids are detected in your bloodstream as fast as 10 minutes after consumption. We measured those results directly against an oil-based control, where you’re not going to get a peak absorption until maybe 60 to 90 minutes after consumption. What this research found was that not only was our product absorbed much faster, but it also enabled a significantly higher amount of the cannabinoids to actually make it into the participants’ blood stream where it can be used by their bodies. We also found the type of food emulsifier makes a significant difference in absorption – not just emulsion size, counter to common belief.
We use the analogy, “It’s getting a better bang for your buck.” The main purchasing consideration for a lot of edibles consumers when you go to a dispensary is “what is my cost per 10 milligram dose of THC?” That’s one of their key purchasing parameters, especially for your lower budget customer. What’s great with Ripple is one milligram of THC consumed through our Ripple technology is not really equivalent to one milligram of an oil-based product and that your body is actually going to absorb a higher percentage of it. And therefore, you’re going to get more of an effect, whether you’re looking for a medical effect or whether you’re looking for more of a recreational therapeutic effect. It also improves the consistency of that experience. So, with oil-based products, you could have the same products multiple different times and based on what you recently ate, you might get a higher or lower absorption rate or a faster or slower absorption rate. It’s also in the consistency of the experience and I know that from our market research of our consumers of Ripple products here in Colorado since that’s been in the market for a few years now. That’s the number one reason why people really trust our brand is because they can count on getting a consistent experience every time for the same dose.
As we all know, with the THC market and edibles market being newer in general, that’s most people’s biggest fear, especially if you’re a new consumer of THC — you obviously don’t want to consume more than what you can handle as far as getting higher than you want to be or anything like that — So consistency is a really, really key aspect for us and something that I’m definitely proud that we can provide that for our consumers.
Aaron: What does your product look like when you dissolve it into a liquid – let’s say something clear? Is the resulting mixture clear or cloudy?
Drew: We do have liquid concentrates, especially in the Caliper side of things, but with our powders, it kind of billows in as a cloud when you add it to a clear liquid. You can almost think of it like when we pour creamer into coffee: you see the cloud expand and then slowly fill out the cup and then be fully mixed in. Whereas with our products if you pour it into clear water, and you’ll see this white cloud form and then disperse. The final solution is generally a little bit cloudy depending on how much water you add it to.“I’ve been fortunate to be the lead developer for those products for Caliper and for Ripple, and flavor work is definitely something that never gets old.”
Aaron: How are customers using your products?
Drew: For a long time, we’ve had a variety of products in the market, some of which are still in the market, and some of which we’ve pulled since then. The key product for us has always been the Ripple dissolvable powder. It’s an unflavored, unsweetened powder that comes in a little sachet packet that you can tear open just like you would any other product and add to really anything. With its water compatibility, there’s really not a single product that you can’t add it to. It’s been really cool to see through social media, and in general, consumer engagement is electric and is kind of viewed as a novelty. The initial reaction is “Oh, I can take this little powder, put it in my eggs and now I have infused eggs!” It’s been great to see the creativity that our consumers have. We’ve seen it put in such a wide variety of products that literally you can make anything into an edible. I think that’s one of the coolest aspects of that product and why it’s been so successful.
One of the things we did realize pretty fast is that for a lot of people, the convenience and the consistency of the experience was a main driver for why they were purchasing our products. A lot of our real consumers just take that packet apart, ripping it open and pouring it straight in their mouth. It’s the fastest and most convenient way to consume the products, pretty much anywhere. We dug into that with our more recent launch of Ripple Quicksticks. And then we added some flavor, we added a little bit of sugar and sweeteners to make it a consumer-friendly experience where you get a really enjoyable flavor. It’s still just as convenient to consume by just ripping the packet straight open and pouring it in your mouth.
Aaron: It sounds like there must have been some interesting internal product development testing!
Drew: Yeah, definitely. That’s a fun one. I’ve been fortunate to be the lead developer for those products for Caliper and for Ripple, and flavor work is definitely something that never gets old. It can be frustrating at times, it’s definitely not the easiest thing to do. We’ve looked at traditional berry flavors, citrus flavors, as well as weird, kind of out-there flavors, to see what we like and what we think will work with our consumers.
Aaron: What states do you operate in?
Drew: Currently, our Stillwater THC business only operates in Colorado. That’s essentially the genesis of all the companies (Ripple, Caliper) is Stillwater being here in Colorado. We’re excited to announce that we’re expanding to Michigan next year. That’s something that we’ve all been working pretty heavily on developing and getting ready to go. That will be our first expansion of the THC brand to a different state.
We do have a licensing and distribution agreement with The Green Organic Dutchman (TGOD) in Canada. They produce our products using the same technology up there and license also under the Ripple brand name. So, it’s great to see the presence that we’ve been able to expand up there.
Then with Caliper on the CBD side of things with Caliper Ingredients and Caliper Consumer. We operate nationwide for that based on the more recent rules with the 2018 Farm Bill. For me, especially working across all of those business units, it’s really interesting to see the different business approach between your target CBD consumers and your target THC consumers because they’re really different markets. There’s definitely some overlap, but you’re targeting a different demographic to a certain degree. We keep those decisions in mind when we’re choosing how to market and what flavors to use and what products to make. So that’s been really interesting for me to see the behind-the-scenes discussions.
Aaron: I saw on your website, you’ve got consumer options via the dispensaries. Do you work with any infused product manufacturers on a licensing basis or partnership basis?“I’m super excited to continue to see how the medical research will continue to evolve.”
Drew: I’d say the majority of them are definitely on the CBD side for Caliper, partly because the regulatory environment of CBD just is a little bit easier to kind of engage other customers and to sell products across state lines and things of that nature. We do have some partnerships with some of the companies here in Colorado. I’d say the main one that we’ve promoted externally is with Oh Hi infused Seltzers based out of Durango, Colorado. It’s been a great agreement where we provide our base technology via liquid Ripple formulation that they can then infuse into their seltzers. They’ve done a great job with those products and it’s definitely a partnership that’s been mutually beneficial.
Aaron: What are you personally interested in learning more about?
Drew: For me, the whole appeal of joining the industry was research. With prohibition and decades of those restrictions preventing true research there are so many unknown questions that still need to be investigated. I’m super excited to continue to see how the medical research will continue to evolve. I think we’ll get better clarity on the efficacy of individual cannabinoids versus different combinations and ratios of cannabinoids. The entourage effect is something that’s pretty heavily talked about in the industry. I do think there’s some research to support that. I also think there’s still way more unknowns than things that we actually know. So, I’m super interested in seeing how our understanding of everything will continue to improve over time.
I’d love to see the medical research eventually expand into what synergistic benefits exist between cannabinoids and other bioactive ingredients such as turmeric, catechins, antioxidants and other plant-based ingredients that have gotten a lot more interest through the medical research in the last decade.
Then one of the things I’m always excited about being on the science side of things is we’re still investigating the general compatibility of cannabinoids with various types of food and beverage products. That goes not only for ingredient interactions, but also factors like pH, water activity and moisture content. Even packaging definitely plays a role in cannabinoid stability for a variety of products. There’s also a variety of production processing technologies that still need additional investigation, whether you’re talking pasteurization, for beverages, or retort for canned products or newer technologies like high pressure processing (HPP). So, I think the most exciting thing for me, and the reason I was really willing and interested in joining the industry, is there’s so much to learn. I don’t think we’ll ever run out of things to explore. I think as an industry the better we conduct this research, the better off we’ll all be.
Aaron: That’s the end of the interview! Thanks Drew.
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The three major types of cannabis activity span three major industrial sectors: raw materials (i.e., cultivation), manufacturing and service (distribution, testing and retail). As a result, a vertically integrated company needs to carry out very different types of activity, which require very different types of core competencies, equipment and facilities.
The regulatory definition of each link is extensive. For example, each licensee is tied to a specific facility, and must have its own procedures for production, inventory control, security, etc. When the links are strung together, this definition tends to preserve operational redundancies, and impede operational integration.
