Tag Archives: law

The CBD Regulatory Environment in Europe: Part 4

By Shelley Stark
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This is the final piece of a four-part series discussing European cannabis regulations. Click here for Part One, here for Part Two and here for Part Three. Part Four wraps up the series below. 

Where is the future of CBD heading?

A review of these various jurisdictions, the EU, the UK, and the USA, makes it clear that testing of CBD to ensure public safety is paramount to staying in business, and indeed to the survival of the industry. In the UK it is imperative to be active in the Novel Food licensing regime to remain on the market. In the EU, it is imperative for a legitimate market at all.

In the USA, it may very well become an imperative, if not because of the FDA or even Congress, but rather because as the U.S. market matures, lawsuits over product liability are almost inevitable, pointing to the lack of toxicology reporting or to the way a product was manufactured or marketed. Until the FDA plays a more robust role in establishing standards for the safety of CBD in food products, the best means for companies to protect themselves is with a Novel Food inspired testing regime to confirm product safety.

What this means for the CBD industry

Companies want a clear path forward for investments in the CBD sector. Litigation is predictable, especially in a litigious society like the U.S., as companies prepare themselves with toxicology reporting that satisfies the FDA. There will be clear winners and losers in the CBD market place, most likely based on a toxicology report.

The EFSA, FSA, FDA, the various state level hemp associations dotted across America and more intriguingly, businesses who see testing requirements as a legal means of ousting the less-well-financed competition, are all advocating for testing. This makes sense: There is no future in betting on the unknown. Anything short of a clear safety standard is just guessing with people’s health and thus the company’s future.

So, what are we left with?

Clearly, there is a need for a toxicology report prepared on behalf of the CBD sector. And one about CBD as a food supplement, not as a medicine. It is worth noting that Miller also remarked on how Epidiolex contained high doses of CBD. It needs to be made clear that the medical study of Epidiolex is not consistent with a study of non-medical levels of CBD when used as a supplement.

At present, the biggest challenge facing CBD product manufactures, whether in the USA, EU or UK, is the lack of controlled studies and thus the inability to illustrate the necessary toxicology reporting in their portfolio. Even in the US, the FDA has said it can’t conclude that CBD meets the standard of “generally recognized as safe” (GRAS) for use in human or animal food. Thus, the future of CBD lies in a company’s ability to illustrate by means of a study and accompanying toxicology reports that their brand is firmly in line with the required safety and data standards.

Just some fo the many CBD products in the U.S. market out there

Here is where the EU and the UK may have an advantage, through involvement in the Novel Food application and licensing procedures. The needed legal security for the marketing of CBD products can only be achieved by their approval as Novel Foods. Projected costs for an individual company registering CBD isolate and full spectrum distillate under the Novel Food guidelines requires an investment of €3.5 million. As this is prohibitively high for most companies, at the June 2019 General Assembly, the EIHA proposed the creation of a consortium, with the aim of submitting a joint Novel Food application and sharing these costs among the members.

How the “EIHA projects GmbH” Partnership Works

The founding members of the EIHA projects GmbH have a preferential partnership rate. As a partner, I am able to sub-license products or brands in the EU and this license will be valid in the UK when the application is validated and on the Union list, and is equally valid in the USA.

The Atlantic Ocean is getting smaller and it appears that the FDA might very well decide that the US needs the same European safety standards applied to products at home. Sub-licensing is clearly an inexpensive pathway for an American brand to claim toxicology and safety testing PLUS get access to the EU market. It is imperative for businesses going forward to take a serious look at their future business goals and align themselves with an advancing regulatory environment confirming their commitment to approved quality products.

Alternatives to Bankruptcy for Cannabis Companies: Part 3

By Brent Salmons, Yuefan Wang
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Part 1 of this series discussed the lack of bankruptcy protections for cannabis companies, since bankruptcy in the U.S. is an exclusively federal procedure and cannabis remains illegal under federal law and proposed a number of alternative options for businesses struggling in the current environment. Part 2 of this series focused on state law receiverships for several states.

In this the third and final part of this series, we continue to review state law receiverships for several additional states and discuss the final non-bankruptcy option for cannabis companies, an assignment for the benefit of creditors.

Below is an overview of the laws and rules governing receiverships in several additional states which have legalized cannabis.

Massachusetts

In Massachusetts, receiverships are governed by statute, with numerous statutes for receivership in various industries and entity types but, in general, the appointment of a receiver is granted by a court after the filing of a complaint by third party, most frequently a secured creditor.

In keeping with its industry specific approach, the state cannabis regulator has enacted rules detailing the steps for a cannabis receivership. Most notable among these rules is a requirement to provide notice to the state regulator at least five days before filing a petition to appoint a receiver and, similar to the approach of Nevada, establishing minimum requirements for a person to serve as a receiver for a cannabis company (which generally require a person to pass a background check and have a crime-free past). In addition, because of the fairly restrictive local licensing in Massachusetts, coordination with the locality in which a cannabis company has operations is also required.

Michigan

Michigan has a broad receivership statute, in addition to both entity and industry specific statutes. The general receivership statute allows for the appointment of receivers as part of a court’s equitable powers so long as the appointment is permitted by law. In 2020, Michigan law was amended to specifically permit receivers to be appointed over cannabis companies. The state cannabis regulator’s rules require notice to such agency within 10 days following the appointment of a receiver, and Michigan law further provides that receivers may only operate a cannabis facility upon approval by the state regulator.

Anyone may seek the appointment of a receiver in Michigan, even if they have a connection to the property or business to be placed in the receivership. However, an action may not be brought solely to appoint a receiver but must instead be sought after an action for another claim has already been made. If a court determines it has cause to appoint a receiver, such receiver must have “sufficient competence, qualifications, and experience to administer the receivership estate”. Receivers in Michigan appointed under the general commercial receivership statute (including receivers over cannabis companies) are subject to the court’s equitable discretion but have broad powers, including the power to operate, restructure, liquidate, and sell the business.

Missouri

Like Michigan, Missouri has a general receivership statute as well as statutes for specific receivership situations, notably with respect to corporations. However, Missouri has not enacted any particular rules with respect to cannabis companies and as a result receiverships in Missouri have been conducted under the general receivership statute.

Receivers in Missouri are appointed by a court order following the application of a person with an interest in the assets over which the receivership is sought and an appointment may be made prior to any judgement having been rendered. In addition, the appointment of a receiver may be sought as an independent claim and not as an ancillary claim to another primary claim. Receivers may be granted powers as a general receiver (similar to “equity receivers” in other states) with powers over all of the assets of a debtor, or over specific property of a debtor.

Missouri’s cannabis regulations contain very few rules that specifically relate to a receivership, other than a requirement to provide notice to the state cannabis regulator within 5 days of a receivership filing. While some parties have cited a lack of cannabis specific rules as creating a lack of clarity regarding receivership in these states, Missouri courts and the state regulator appear to be applying the general receivership rules to the industry with at least one receivership in the state in the final stages of completion.

Assignments for the Benefit of Creditors  

To conclude this series, we want to revisit another option we discussed in Part 1 for dealing with a financially troubled firm: an assignment for the benefit of creditors (ABC). While voluntary negotiations with creditors is typically taken where the value of the underlying business clearly exceeds the liabilities of the business, and receivership is an avenue for creditors to seek a court to force a restructuring or liquidation of a business, even over the objections of the business itself, an ABC process can be appealing where the creditor and debtor maintain relatively amicable relations, but the value of the business is such that it is clear the equity holders have little to no value remaining in the business. A creditor may view the ABC process, which is generally a lower cost option as compared with a court-supervised receivership, as the superior proposition in these circumstances.

An ABC is a state common law or statutory remedy available to debtors that is roughly analogous to a Chapter 7 bankruptcy or liquidating Chapter 11 bankruptcy. Unlike a receivership, where a creditor applies to a court for the appointment of a receiver and such an appointment can be granted even over the objection of the debtor, an ABC is a step taken by the debtor itself to liquidate its assets in an orderly fashion with the proceeds paid to its creditors. While courts can be involved to resolve specific matters, and ABC process is principally undertaken without court involvement or direct supervision.

Unlike a receivership, an ABC is a step taken by the debtor itself to liquidate its assets in an orderly fashion with the proceeds paid to its creditorsTo initiate an ABC process, the debtor selects the assignee to take ownership of its assets and such assignee holds such assets in the functional equivalent of a trust for the benefit of the creditors of the debtor. As such, the assignee, while selected by the debtor, owes duties (typically fiduciary duties under state law) to the body of creditors.

Once the assignment has occurred, the assignee will engage in a relatively significant diligence effort in order to gain a clear understanding of the assets and liabilities of the debtor, to complete the assignment and to provide notice to third parties and creditors of the fact that the assignment has occurred. The assignee then generally oversees the operation of the business (if it is continuing) while moving to create a sale process for its assets, whether through some sort of public auction or a privately negotiated sale (which, as in bankruptcy proceedings, may include stalking horse bids).

One notable difference between the bankruptcy and receivership process and an ABC is that, in general, assets sold in an ABC are not sold free and clear of all underlying liens, meaning that senior secured creditors must consent to any sale, or their liens will travel with the assets.

While ABCs offer many advantages over receiverships, including a typically lower cost, flexibility in the selection of the assignee, and a generally easier and faster path to liquidation of assets, there are limitations, including the risk that a third party may seek to appoint a receiver after an ABC has been commenced or that the compensation package granted the assignee is disproportionately high, each of which could ultimately result in higher costs for all involved. Furthermore, sales of assets in an ABC are not automatically sold free and clear of all liens.

In the end, regardless of where a cannabis company may be operating, the lack of access to federal bankruptcy courts does not deprive the company or its creditors of viable avenues to restructure or liquidate a business. However, because these options are less familiar to those who typically operate in the bankruptcy-centric restructuring arena in other industries, companies and creditors in the cannabis space are well advised to consult with counsel familiar with the cannabis industry and the restructuring alternatives that remain available to them.

The CBD Regulatory Environment in Europe: Part 3

By Shelley Stark
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This is Part Three of a four-part series discussing European cannabis regulations. Click here for Part One and here for Part Two. Part Three dives into dosage, approvals and more. Stay tuned for the final Part Four, coming next week.

But does CBD harm the liver?

Here, it is important that we compare apples to apples. Supplements are intended in addition to one’s usual diet. Medicines, on the other hand, are meant to alter a condition to solve a problem. Epidiolex is a medicine, not a supplement. According to Epidiolex the recommend dosage of Epidiolex, a highly purified form of CBD, is between 5mg and 25mg per kilo body weight per day. That means that an average 70 kilo adult would need to take between 350mg and 1750mg per day!

At this moment, even the FSA states that a recommended dosage should not exceed 70mg per day and most recommendations are much lower. This is because supplements are not medicines.

Epidiolex-GWThe point is that Epidiolex is an FDA-recognized medicine and should not be compared to a supplement. Supplements may range from vitamins, minerals, herbal products and botanicals, and are offered without a prescription to people who wish to maintain or improve their health. Purchasers of supplements, as the word suggests, are supplementing their diet or lifestyle, they are not seeking a doctor prescribed medicine.

The supplement or additive industry has no desire to confuse the objective of a supplement with one of a medicine. The objective of testing CBD is to confirm its usage as a supplement, so a firm line can be drawn between what is a medicine, formed to make conditional changes to the body, and what is a supplement to a normal diet.

Despite the FDA’s website warning that CBD is not a legal additive to food or drinks, at this point, the Agency seems to limit actions to claims, and not the safety of the product itself.

This position may be about to change.

The FDA has made inquiries with the European authority, EFSA, concerning testing and safety requirements. It is quite possible the FDA prefers the ‘EU approach’ over the current ‘wild west approach’ driving the American CBD industry.

In response to interview questions directed to FDA spokesperson, Courtney Rhodes says:

“CBD cannot lawfully be sold as a dietary supplement or as an ingredient in food under the FD&C Act. (Bold italics by the FDA) Food ingredients must be shown to be safe to be lawfully added to food. That means, there must be a reasonable certainty that an ingredient’s intended use won’t cause harm”.

FDAlogoIf this is the case, one may well wonder why the FDA is not enforcing the FD&C Act. The answer might lay in great part to the specifics of the 2018 Farm Bill (formally, the Agriculture Improvement Act), where the only statutory metric for cannabis as a controlled substance is the reference to the 0.3% delta 9 THC level. Many see this poorly written bill as an open door for cannabinoids to hit the markets legally, much to the chagrin of many state lawmakers.

FDA spokeswoman Rhodes says that the 2018 Farm Bill effectively “removed hemp from [DEA] regulation.” By defining hemp as Cannabis sativa L. with a delta-9 concentration of 0.3% or less, “hemp derivatives, [like] CBD, …meet that definition of hemp and [are] not prohibited under the Controlled Substances Act.”

Thus, any enforcement on the part of the FDA is legally hamstrung due to the way the 2018 Farm Bill was written.

But is change in the air?

Research has yet to settle on “how much CBD can be consumed, and for how long, before causing harm,” says FDA Principal Deputy Commissioner Janet Woodcock. The existing regulatory framework for food and supplements are inappropriate for CBD, she says, and the FDA does not, in fact, intend to pursue rulemaking that would allow for the inclusion of CBD in dietary supplements.

So, what does the FDA intend to pursue?

While the FDA has generally focused on unsubstantiated health claims for food and beverage products, it is also on record stating that available data did not show CBD products as meeting the safety standard for a human or animal food supplement. “A new regulatory pathway for CBD is needed,” the Agency says, “that balances individuals’ desire for access to CBD products with the regulatory oversight needed to manage risks.”

What would such “a new regulatory pathway” look like? Most likely, that new testing requirements for CBD could come into effect. This could eventually mean testing requirements much like those in the EU.

Have the studies of Epidiolex, with findings based on extremely high dosage levels tainted the CBD discussion?

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

“The FDA is relying on pharmaceutical studies that show risks at larger doses,” says Jonathan Miller, general counsel for the U.S. Hemp Roundtable, adding that there is a decade of clear and established evidence of the safety of CBD products sold at retail. This is hard to deny: The industry has been selling CBD products for the last 10 years without any significant health issues arising. Thus, says Miller, creating a new regulatory pathway would not be necessary as the dietary supplement and food pathways are already provided for under the FD&C Act.

Authorities and industry leaders alike want regulations that promote business while at the same time protecting consumers. “The FDA’s inaction for the past year has facilitated an unregulated marketplace — which is bad for consumers and bad for business. It’s time for FDA to announce a legal pathway to market for these CBD-containing supplements and to commence meaningful enforcement against products that flout category-wide requirements for dietary supplements,” says Steve Mister, president and CEO of the Council for Responsible Nutrition (CRN), quoted on the crnusa.org website.

It is clear that the FDA does not want CBD in food and beverages and likewise claims there is no clear regulatory pathway, citing scientific data on CBD based on the Epidiolx study, which has little room for claiming CBD could be safely used as a supplement because the study is based on medicine, not a supplement.

Parallel to this, the US Hemp Roundtable and other industry stakeholders are urging the U.S. House Committee on Oversight and Accountability to move forward with an investigation into the lack of regulatory action on CBD products by the U.S. Food and Drug Administration (FDA). Does this mean that hemp lobbyist Jonathan Miller for Hemp Roundtable wants toxicology testing? “Yes,” he definitively answered.

Serious business requires the security that only toxicology reporting can give. Most of the large industry stakeholders have been engaged in toxicology testing for years, as time, not just funds, is a crucial factor. The EIHA projects GmbH began testing in 2020 and is not yet finished.

If congress and the FDA were to require toxicology reporting tomorrow, would your company be ready?

Soapbox

Congress Wants YOU To Make Safe Products.

By David Vaillencourt
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Recently, Congress requested detailed information regarding the regulation of CBD and other cannabinoids. This comes on the heels of frustration around federal inaction with regards to cannabinoid-containing products produced from Cannabis sativa L. plant extracts that can be classified as “hemp” products amidst the clear need for safety standards that goes above and beyond state minimum compliance requirements.

A Historical Deja Vu?

The author will be joined by his colleagues leading the Seed to Sale Safety Workshop on October 16 at the Cannabis Quality Conference. Click here to learn more. Product safety standards predate the birth of our nation (and many others). From the days of the first pharmacopeias which rival the oldest documented use of the cannabis plant, to modern regulations, the quest for safety has been a constant theme. But as the saying goes “Old habits die hard,” but so do safety issues. From peanuts to thalidomide and tobacco, we’ve seen this movie before – and it is time for a new ending.

A Universal Desire for Safety

Whether you are an investor, executive, technician or anywhere in between – nobody in the cannabis industry (and all its end uses, including industrial hemp) wants to knowingly produce unsafe products. The risks of ignoring safety are real and tangible. Whether it is 20+ years in jail for being an executive of a company that knowingly sold adulterated products and was linked to seven deaths or 10,000+ deformed children, many of whom died at birth because of a drug approved for morning sickness – there is no shortage of case studies we can learn from. Even cannabis has been known to cause injury and death in consumers – not because of the d9-THC, but the impurities. As the industry continues to innovate and develop new product form factors – whether it is new delivery methods of d9-THC in soluble beverage forms, or the rise of manufactured cannabinoids in unregulated marketplaces – it’s critical to understand the risks of your entire production process and to mitigate them. No cannabis company is immune from making costly and dangerous mistakes. It’s not just about compliance – it’s about public health and safety.

Safety Can Be a Sticky Subject

Safety is indeed a complex subject, especially when it comes to cannabis products. For instance, acceptable limits for microbial contaminants for the inflorescence of a Cannabis sativa L. plant are quite literally all over the map. What about the route of administration? Take an inhaled product (like a vape pen) vs. an ingested product (e.g. an edible). Many outdoorsy people like myself may enjoy the smell of cooking s’mores over a campfire, but the particles and VOCs can irritate our lungs, especially when exposed over long periods of time. We aren’t inhaling those s’mores – so the production of the marshmallow, chocolate and graham crackers come with different risks we need to evaluate. It’s not just about the product – it’s how it’s consumed.

Safety Standards – the Fabric of Our Society

Standards are unsung heroes of our daily lives. Whether it’s to keep planes from falling out of the sky, cribs and dressers from crushing young children, preventing train derailments or ensuring the safety of our food and medical products – standards keep us protected – just like grandma’s quilt. The absence of standards can be expensive, and anyone familiar with the accusations of d9-THC lab-shopping and inflated label claims knows that the cannabis industry is the poster child for this.

Congress has long recognized the importance of standards in protecting everyday consumers, as demonstrated by numerous legislative acts. A few notable and relevant ones to cannabis are below:

  • 1848 Drug Importation Act: First major act that combated the importation of substandard – adulterated drugs imported from overseas into the nation which was having a major impact on soldiers of the Mexican-American War.  This Act included legal requirements for drugs to meet the US Pharmacopeia’s standards for strength, quality, and purity.
  • 1906 Food and Drugs Act: After an increase in adulterated and misbranded foods and drugs – made famous by Upton Sinclair’s The Jungle, the relentless work of Dr. Harvey Wiley, a Chief Chemist with the then US Department of Agriculture and his “poison squad” – led to significant oversight of adulterated food and drugs including legal adherence to the US Pharmacopeia and paved the way for the current FDA.
  • 1938 Food Drug, Cosmetic Act: Shortcomings in the 1906 Food and Drugs Act were catalyzed by over 100 deaths after a wonder drug that was analogous to antifreeze led to an outcry that led to the passage of the FDC&A. From factory inspections, to strict marketing and label requirements, to legally enforceable food standards and tolerances for certain poisonous substances – the FDA was given substantial more oversight to protect the growing United States. It also expressly recognized USP quality standards for medicines with USP standards also binding for any dietary supplement manufacturer that labels their products as being compliant with USP specifications.
  • 1994 Dietary Supplement Health Education Act (DSHEA) defined and regulated dietary supplements which carved out significant exemptions for the dietary and herbal supplement industry from most FDA drug regulations. This act has been met with significant controversy as it greatly limited the FDA’s capacity to ban or restrict supplements until evidence of a major safety or adverse event is tied to the product of concern.
  • 1995 National Technology Transfer Advancement Act (NTTAA) – A lesser known act that is focused on standards and technology that requires participation of federal agencies in voluntary consensus standards bodies. Extending beyond foods and medicines – this act covers a broad array of infrastructure and technology regulations that ensure the fabric of our society operates (largely) without issue.

Over 1,000 ASTM standards are incorporated by reference in the US Code of Federal Regulations across nearly 30 federal agencies (searchable here), a demonstration of the value and impact public voluntary standards have in our society.

At the FDA, ASTM standards are used every day to keep us safe. Whether it is to measure the absorbency of tampons (21 CFR 801.430), enforce safety specifications of synthetic and natural wax coatings that are used to coat much of our produce, gummies and more (21 CFR 178.3770), quantifying the impurities in our bottled water (21 CFR 165.110) and many more.They have long been recognized as the de facto minimum standards that balance the need to protect consumers without imposing undue burdens on innovation by industry.

The process of developing an ASTM standard, which was developed and used to keep our trains from derailing 125 years ago, is now the home of 510+ cannabis industry specific standards. Whether it’s acceptable water activity levels in cannabis flower, a truly universal symbol to alert consumers of intoxicating cannabinoids, medical cannabis flower specifications developed in close guidance of the US Pharmacopeia, or how to apply the principles of HACCP to cannabis products, a lot of the hard work has already been done for the industry. It’s simply a matter of knowing where to look and how to use them!

The path to safe and sustainable cannabis products is clear, and the tools are available. It’s time that we learn from the past, apply the standards of the present and mitigate the risks of the future. Now more than ever before, it’s easy to make safe cannabis products and a credible marketplace not just a goal, but a reality.

Alternatives to Bankruptcy for Cannabis Companies: Part 2

By Brent Salmons, Yuefan Wang
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Part 1 of this series discussed the lack of bankruptcy protections for cannabis companies, since bankruptcy in the U.S. is an exclusively federal procedure and cannabis remains illegal under federal law and proposed a number of alternative options for businesses struggling in the current environment. Part 2 of this series focuses on one of these alternatives: state law receiverships.

Background

A cannabis operation facing financial difficulties may try to avail itself, on the one hand, of the contractual remedies described in Part 1 of this series, but these remedies may be flimsy given their narrow scope and reliance on voluntary negotiation between parties whose relationship is already likely tense; on the other hand, the statutory remedies described in Part 1 of this series may be too rigid and absolute, necessitating the disposition of a business as a collection of assets, instead of its continued operation as a going concern. An alternative is receivership, a flexible but powerful quasi-judicial approach paralleling federal bankruptcy able to be administered by state courts. Compared to federal bankruptcy, state receivership is both over and under-inclusive: while receivership can be used in many more situations than insolvency, such as a financially healthy business that is nonetheless subject to regulatory action, receivership provides less comprehensive protection for an insolvent business.

Receiverships have their roots in English and Welsh courts of equity, which were seen as offering fairer remedies than their contemporary common law courts, bound as they were by ponderous precedent. In contrast, courts of equity had more discretion to apply remedies which could be more tailored and “equitable” to an individual petitioner, even if such remedies were not codified. While this separation of equitable and common law courts does not generally exist in the modern U.S. legal system (except for a few hold-out states, most notably, Delaware), the legacy remains in the type of civil remedy available: while most remedies are awarded as monetary redress for a past wrong suffered by a plaintiff (e.g. liquidated damages for the discloser of confidential information or the “benefit of the bargain” for the seller of a company), equitable remedies often require prospective action (or forbearance of an action) by the defendant (e.g. an injunction on disclosure by a recipient of confidential information or specific performance by a purchaser of a company). To draw the analogy out, bankruptcy is a “legal” process to address insolvency since it is governed by a comprehensive regime of federal statutes and rules in the Bankruptcy Code (which is, ironically, applied by specialized federal courts), while receivership is the “equitable” side of the same coin: a judicially-created remedy to manage or liquidate a business, among other actions, where it would not be equitable (or, most importantly for cannabis businesses, not possible) for a bankruptcy action.

Some states with legalized cannabis have cannabis-specific receivership statutes, usually providing that the receiver either be temporarily or fully licensed similar to any other operator of a cannabis business.As an equitable remedy used by various states and federal entities, generalizations about the receivership process are difficult to make. However, broadly speaking, a typical receivership process begins with a complaint filed against the entity for which receivership is sought in state court. This filing can be made by a variety of parties outside of the standard debtor-creditor relationship (reflecting the equitable nature of receiverships), including by regulators and disputing owners of a business. After this filing, a motion to appoint the receiver (which is usually but not always a third party) is filed with the court; consent of the opposing party is generally not required in appointing a receiver but can often make the process easier. The complainant must then establish standing and the occurrence of certain events, including insolvency, but also mismanagement of a corporation or a foreclosure. The requirements of such events are fact-specific and may often be governed by statute or the contractual relationship between parties. The order appointing the receiver usually sets out the specific powers the receiver has in any given case to oversee the disposition or operation of the assets subject to the receivership (called the “receivership estate”) for the benefit of its’s creditors.

Receivership laws generally fall into two categories: some states provide for a broad general statute, sometimes accompanied by statutes specific to industries which are heavily regulated, entity types, or process, while in other states the power is an extension of the court’s powers, set forth in the state’s rules of civil procedure. States also differ as to whether a receivership is considered an independent remedy, a standalone legal action which can be pursued in and of itself (e.g. a petition by a creditor to appoint a receiver to resolve settle an unpaid debt), or an ancillary remedy, a legal action that supports a primary claim (e.g. a request to appoint a receiver in connection with a dispute over the ownership of a business). Some states provide for general receiverships, which allows receivers to take control of an entire business, while other states also allow limited receiverships, which allows the receiver take control of a portion of a business, while the owner operates the remainder. Some states with legalized cannabis have cannabis-specific receivership statutes, usually providing that the receiver either be temporarily or fully licensed similar to any other operator of a cannabis business.1

Below is an overview of the laws and rules governing receiverships in certain states which have legalized cannabis.

Arizona
In Arizona, receivership is governed by statute, with a general statute and specific statutes for certain industries and type of receivership. Arizona law recognizes that principles of equity apply to all matters relating to receivers, providing the court overseeing the receivership with additional power to decide the remedies available to the receiver. In addition, Arizona has enacted a specific statutory framework for the appointment of receivers for commercial real property and personal property related to or used in operating the real property. Arizona also uses a separate receivership statute to provide for corporate dissolution receiverships, in which a court in a judicial corporate dissolution proceeding may appoint one or more receivers to wind-up, liquidate, or manage the business and affairs of the corporation.

There are no specific statutes governing receiverships of cannabis businesses, so the general receivership statute applies to cannabis businesses, subject to Arizona’s rules governing the operation of a cannabis business. For example, Arizona cannabis regulations that require anyone volunteering or working at a medical or recreational cannabis dispensary to be registered with the cannabis regulator similarly apply to a receiver appointed over a licensed cannabis business.

California

California does not have significant entity-specific or industry-specific statutes for receiverships; rather a California court’s power to appoint a receiver is granted under the state’s rules of civil procedure. Receiverships in California are solely an ancillary remedy; a receivership is commenced once a complaint is filed and any party to the action may seek to appoint a receiver. Circumstances that allow for the appointment of a receiver are fact-specific and at the discretion of a judge, although contractual provisions for the appointment of a receiver are given weight under the rules. Sales of assets in the receivership estate must be submitted to, and approved by, the appointing court.

While the rules of civil procedure provide for the general powers of a receiver, the specific powers a receiver possesses in any given case is granted by the judicial order appointing the receiver; this appointment order is therefore, along with the court itself, the primary authority for the parties in any given receivership. California explicitly disqualifies certain persons, such as parties to the lawsuit, an attorney of a party, a person interested in an action, or any person related to any judge of the court within the third degree, as receivers.

While California’s receivership rules do not explicitly contemplate cannabis businesses, receiverships for cannabis companies have taken place, but in our experience are less common in California than assignments for the benefit of creditors (which we will address in a later article). Like other licensed businesses in California, cannabis companies must provide notice to the state regulatory agency which granted the license. It is up to the agency’s discretion whether the business may be operated under the existing license or whether the receiver must secure a new or temporary license.

Colorado

Like California, no generally applicable receivership statute exists in Colorado; instead, receiverships are governed by the state’s rules of civil procedure. Under these rules, a receiver can be appointed under a court’s general equitable powers. Appointment of a receiver is an independent remedy in Colorado, but is contingent on a lawsuit having commenced and the court having deemed the receivership as necessary and proper. In addition to the court’s general equitable powers to appoint a receiver, and unlike California, Colorado has receivership statutes that are entity and industry specific. The entity-specific statutes permit the appointment of a receiver for the judicial dissolution of for-profit corporations, non-profit corporations, limited liability companies, and cooperatives, and the industry-specific statutes permit the appointment of a receiver for the windup of failed insurance companies and the closure of long-term care facilities.

Similar to California, the court order appointing a receiver governs the entire receivership process and any disposition of the assets of the receivership estate must be submitted to and approved by the court.

As befitting the first state to legalize adult-use cannabis, Colorado’s cannabis regulations specifically address receiverships: the rules create a notice and application requirement for all court appointees, including receiverships, and require receivers to register with the regulator as a “temporary appointee” of the court.

Illinois

Illinois does not have a comprehensive receivership statute; instead, the state has industry-specific statutes, including for regulated industries such as nursing home facilities and telecommunication carriers. Illinois also provides for “equity receiverships”, which are used as an ancillary remedy in business disputes in order to stabilize a business that is adversely affected by fraud, neglect, waste, dissipation, or other misconduct during the pendency of the underlying proceeding. If the underlying matter is within the general or statutory jurisdiction of the court, then such court has jurisdiction over the receivership.

There are no specific statutes governing receiverships of cannabis businesses, but the governing statute does contemplate operation of a cannabis business by a receiver, so regulations promulgated thereunder should apply to receivers as well, including with respect to licensing.

Maryland

Adult-use cannabis sales only began in Maryland July 1, 2023. Maryland has a general receivership statute.

Receivers in Maryland are generally appointed by the person seeking appointment, including the court, and must meet certain qualifications, such as not having any material financial interest in the outcome of the receivership, and not having any debtor-creditor relationship with or equity interest in any party to the receivership. While the general receivership statute provides for broad powers of the receiver, including general management of receivership property, hiring professionals, and issuing subpoenas, the court may modify or expand the powers of the receiver via the appointment order.

While there is no cannabis-specific receivership statute, Maryland’s medical cannabis rules contemplate and authorize the transfer of licenses to a receivership; similar rules have been proposed for adult-use cannabis licenses as well.

Nevada

Nevada has a broad receivership statute, in addition to both entity and industry specific statutes. Case law is not well-developed and mostly predates the current statutory scheme, but there is support for a receiver being appointed outside of a statutory context, specifically when the situation is governed by contractual agreement.

The general receivership statute provides that a receiver may be appointed in a variety of situations, such as fraudulent property purchases, foreclosure of mortgages, or the dissolution or insolvency of a corporation.

Nevada has a statutory regime for receiverships for cannabis companies. Unlike the general statute, there are significant requirements for who can be a receiver for a cannabis business. A receiver must first secure a cannabis establishment agent registration card for a cannabis receiver issued by Nevada’s cannabis regulator. In addition, the receiver must submit an application to the regulator accompanied by, among other requirements, a statement saying the receiver has not previously had an agent registration card revoked. The receiver must also provide proof that she has (1) experience or knowledge of the cannabis industry, (2) experience as a receiver appointed by a court, (3) knowledge and skills necessary to make reasonable financial decisions, and (4) adequate financial capacity to fulfill the duties of a receiver. If the regulator is satisfied with the receiver’s application, it will issue the receiver an agent registration card which must be renewed two years after issuance. It is worth noting that Nevada’s statute governing the non-transferability of certain agent registration cards for cannabis allows the regulator to adopt regulations that give priority in the processing of transfers of licenses for transferors subject to receivership. To date, however, no such regulations allowing priority for receivership processing have been adopted.

Washington

Washington has a general receivership statute, but not any entity or industry-specific receivership statutes. Washington’s receivership structure with overhauled in 2004 with the passage of a new law, so it is not completely settled whether receivership is now an independent or ancillary remedy; however, the language of the statute language suggests that it is an independent remedy.

To be appointed a receiver in Washington, the individual must meet certain requirements, including not being a party to, or be closely controlled by a party to, the underlying action and not having materially adverse interest to the person against whom receivership is sought. The general statute specifically outlines the powers of the receiver. Certain actions by the receiver require court approval before being finalized, including the assumption or rejection of executory contracts, and sales of property outside the ordinary course of business.

Washington law specifically provides for receiverships for cannabis companies. To be a receiver, the person must satisfy the requirements of Washington’s receivership law, and either be preapproved by the cannabis regulator or else be approved post-application. In order to qualify for the regulator’s preapproved receiver list, or be approved post-application, the putative receiver must (1) submit an application, (2) have been a Washington resident for at least six months prior to submission, (3) submit to and pass a criminal background check, (4) provide financial disclosures as requested by the regulator, and (5) disclose any interests in the cannabis licensees. Once a person is appointed as receiver for a cannabis licensee, she shall not have a financial interest in, or simultaneously serve as receiver for, another licensed cannabis retailer. The receiver may not also serve as a receiver for, or be a party of interest in, more than five cannabis retail licensees or more than three cannabis producer and/or processor licensees at the same time. Finally, any person who files a receivership action involving a cannabis licensee must provide notice to the regulator.

Part 3 of this series on Alternatives to Bankruptcy for Cannabis Companies continue our review of receivership in various states and other bankruptcy alternatives, including assignments for the benefit of creditors.

Reference

  1.  As cannabis legalization continues to spread, more robust industry-specific receivership rules may be promising given the heavily regulated and specialized nature of the business, similar to how a number of states have industry-specific rules for other heavily regulated industries.

HHS Recommends DEA Reschedule Cannabis to Schedule III

By Cannabis Industry Journal Staff
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Massively promising news for the cannabis industry today that many are calling historic: the Department of Health and Human Services (HHS) has sent a letter to the Drug Enforcement Administration (DEA), recommending that cannabis be rescheduled from Schedule I to Schedule III. The news was originally reported by Bloomberg, but further expanded on (and without a paywall we’ll add) by Marijuana Moment with comments from the DEA, HHS and the White House.

Many cannabis stocks across the market saw significant spikes in trading prices following the news of the recommendation. Industry stakeholders and trade organizations seem to share a similar sentiment across the board: Not quite exuberance and celebration, but cautious optimism. The move doesn’t mean the federal government is legalizing cannabis, but they are showing their willingness to work with the industry.

The current Schedule I status of cannabis means the DEA and the federal government see no medical value in it and a high potential for abuse, grouping it with heroin and cocaine. Moving it to Schedule III would mean the opposite, that they recognize cannabis does have medical value and does not have a high potential for abuse, which would put cannabis in the same classification as ketamine, testosterone and Tylenol with codeine.

Importantly, the move would remove the dreaded 280E tax burden that has plagued the cannabis industry with huge tax penalties. It would also lift many barriers to study cannabis that have hindered research for decades.

Last year, President Biden asked HHS to review the scheduling of cannabis, and this recommendation letter to the DEA appears to be the culmination of their review. It is only a recommendation and nothing happens instantly. The DEA still has to decide if they choose to reschedule cannabis.

Out of all the quotes and statements flooding the cannabis media today, Rep. Earl Blumenauer (D-OR) best summarized the feelings shared by many folks in the industry: “This is a step in the right direction but it is not sufficient. I hope it is followed by more significant reforms. This is long overdue.”

Soapbox

Cannabis Industry Banks Still at Risk Without Passage of the Safe Banking Act

By Leslie Bocskor
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Here we are again, crossing our fingers, hoping that the Senate will approve the passage of the Secure and Fair Enforcement Banking Act (SAFE Banking Act). This Act would provide banks with regulatory protections, allowing them to offer critical financial services to cannabis businesses without risking the loss of their banking charter.

As the 2024 elections loom, the stakes have never been higher for passing the SAFE Banking Act.

Cannabis Legalization is On the Rise

As of August 2023, 40 states, four territories and the District of Columbia have legalized medical or adult use cannabis. While some states have moved more slowly, the entire West Coast (including Nevada and Colorado) has voted to pass laws allowing the sale and purchase of adult use cannabis. Most of the East Coast has followed suit; New York, Pennsylvania, New Jersey and Massachusetts have all voted to regulate cannabis. It has become evident that the majority of U.S. citizens are now comfortable with legalized cannabis (156 million people live in jurisdicitons that have legalized adult use).

Banking Roadblocks for the Cannabis Industry

Under current federal policy, banks and other large financial institutions face regulatory restrictions that make it challenging to provide the most basic services to local cannabis companies, regional cannabusinesses and MSOs (Multi-State Operators).

Federal anti-money laundering laws and related record-keeping regulations, such as the Bank Secrecy Act (BSA), have presented complex compliance protocols that prevent banks from meeting the business needs of local growers, manufacturers and dispensaries. Local cannabis business owners are therefore put in a difficult position, as they must balance daily business activity against the potential dangers of operating as a cash-only business.

How Would the SAFE Banking Act Help Banks Serve the Cannabis Industry?

The proposed SAFE Banking Act would protect banks from federal penalties for offering their services to cannabis businesses in states with regulated cannabis industries. Critically, the bill would shield banks from losing their deposit insurance. Without reform through the SAFE Banking Act, financial institutions will remain essentially prohibited from working directly with legal cannabis companies.

What Will It Take to Pass the SAFE Banking Act?

While the bill has successfully passed in the House of Representatives seven times, it has yet to pass in the Senate. Considering the current political climate, the clock is ticking to finally pass the SAFE Banking Act in the Senate.

Policymakers may need to introduce the Act as a stand-alone bill that outlines clear objectives and specifically addresses the issue from a public safety perspective. Cannabis is a hot-button issue, so adding additional legislation will muddy the water and make it easier for Senate members on the fence to vote against the bill.

Cannabis industry representatives and political allies must be strategic in navigating the bill’s potential passage and take the process step by step. First, the SAFE Banking Act must pass to allow cannabis businesses the opportunity to stabilize, grow and prosper. As the sector grows stronger and more accepted by mainstream America, more progressive bills can be introduced and will have a greater chance of successful passage in the House and Senate.

The SAFE Banking Act is an Issue of Public Safety

Every day the Senate chooses to sit on their hands, they put more Americans in harm’s way. This is unacceptable.

Because dispensaries and other cannabis businesses must process daily transactions without basic banking services, they often accumulate large amounts of cash. Dispensaries are, therefore, frequent targets for criminals. Even as the cannabis industry matures and contributes significant tax dollars to State coffers, banks and financial institutions have no choice but to sit with their hands tied, watching with horror as organized criminals literally take aim at dispensary staff.

The passage of the SAFE Banking Act is literally life and death for many cannabis industry employees. How many workers and customers must suffer harm before the Senate wakes up and passes this critical bill? Regardless of their stance on cannabis, members of the Senate must do their jobs, heed the will of the American people and pass the SAFE Banking Act to rectify this increasingly dangerous situation for the good of their constituents.

The CBD Regulatory Environment in Europe: Part 2

By Shelley Stark
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This is Part Two of a four-part series discussing European cannabis regulations. Click here for Part One. Part Two analyzes the differences between the UK, the EU and the US. Part Three, coming next week, dives into dosage, approvals and more. Stay tuned for more.

EU Regulatory Environment

We Europeans look with envy at the American market and wonder, why can’t we be more like that? The differences between the American market, the UK and the EU economic zone couldn’t be more different, but changes seem to be on the horizon. While both the UK and the EU apply the Novel Food law, implementation varies significantly.

In the EU, applications are submitted to the EU Commission, and approval can take up to nine months – just for approval of the application – not the testing that will follow. And while the application carries no fee, collecting the required data just to make the application can be expensive, and can run into six figures or higher. Once the application is approved, there may still be data gaps and uncertainties, with toxicology testing that can take years to complete, and ultimately must be approved and validated by EFSA (European Food Safety Authority). The required toxicology testing is where things get really expensive, with both the EIHA (European Industrial Hemp Association) and EFSA estimating costs around €3.5 million.

The EFSA’s Panel on Nutrition, Novel Foods and Food Allergens (NDA) has received 19 applications thus far for CBD as a novel food, with more in the pipeline. According to their website, NDA chair Prof. Dominique Turck reported that they “have identified several hazards related to CBD intake” and that many data gaps need filling before evaluations can go ahead. However, she concluded, “It is important to stress that we have not concluded that CBD is unsafe as food.”

As always, with food and drug reviews, it is up to the applicant to prove that a product is safe for human consumption. And for the EU Commission, EFSA is conclusive. And while initial testing is with animals, it also includes human testing, which helps explain the high cost.

At present, the EFSA has been unconvinced by the applications submitted so far, and seeks more data regarding the effect of CBD on the liver, gastrointestinal tract, endocrine system, nervous system and on people’s psychological well-being, as well as the impact on human reproduction.

Thus, in 2019, the EIHA formed a German corporation, the “EIHA projects GmbH”, formed for the purpose of pooling partners money to pay for the application and toxicity testing. The Novel Food applications (NFAs) for CBD isolate and synthetic CBD were submitted on November 4, 2022 and full spectrum will follow in April/May of 2023. It should be noted that the application for synthetic CBD has been completely dropped as no testing was ever preformed.

The applications must be reinforced by a series of tox studies under the auspices of the EFSA and for the UK, the FSA. The EFSA will start the risk assessment as soon as the suitability check is performed. The suitability check is a process performed by EFSA to make sure that they have enough data to perform the risk assessment. According to their webpage, the risk assessment can take nine months.

In the case of the application put forth by the EIHA projects GmbH, the CBD isolate dossier will be submitted to the EFSA in September and enter the risk assessment phase. In this phase, the EFSA will go over the data and can ask for more data, should they feel it necessary. They are allowed 9 months to complete this task and submit their recommendations to the EU commission for a 27-member vote, whereby the EIHA projects GmbH application will be valid and legally binding. The EIHA projects GmbH is expecting a validation during the course of 2024. This is a huge game changer!

The application for Full Spectrum distillate should be readied by the end of 2023, whereby the EFSA should be finished with the risk assessment near the end 2024. As Full Spectrum takes into account minor cannabinoid as well as limited THC, it is more complex. It should be noted, that testing full spectrum distillate with a 0.2% THC limit, tests the limit for how much THC can be ingested by humans without side effects. This study is unprecedented and might well have an enormous impact on the issue of THC and its possible future legalization. It is also costing a further one million euros to bring to fruition.

The UK Regulatory Approach

The UK Novel Food approach differs greatly from the EU’s, which has both strengths and weaknesses. What makes the UK CBD market so robust is that the FSA allows products to be sold as long as they were on the market prior to February 13, 2020 and are linked to applications submitted before March 31, 2021. As a result, the FSA was flooded with applications – many later denied on technical grounds, in great part because they didn’t meet these terms. Currently, some 11,000 products worth a projected 1 billion GBP in revenue remain on the FSA list, having passed pre-validation while the FSA awaits the final toxicology report. Only 400 CBD products have been culled from the list, but to date, not a single application has yet been approved. Pre-validation status is incumbent upon a toxicology report, and it remains to be seen how many companies are able to produce such a report.

Important to note is that due to Brexit, a UK validation when it does come, will not be valid in the EU, but products with an EU application accepted on the Union list will be valid in the UK.

UKflagStill with a projected 1 billion GBP at stake, it is easy to why UK CBD manufacturers work to appease the FSA despite the regulatory hurdles. By keeping the door open, the UK has managed to keep investors interested in the CBD market and the public safe from unmonitored products.

This is certainly not the case in the EU, where despite a smattering of products still ducking the authorities, the EU market remains thin by comparison. Their approach has stymied growth compared to the UK where robust Novel Food regulation is in place, but approached differently.

At present, a market comparison of the EU to the UK or North America seems bleak, at least for now, but following approval, future EU-wide distribution could be highly profitable. As we inch closer to a Novel Food listing, the European market may yet prove to be one of the largest markets for the safest CBD products in the world.

The American Market

Still, it is the American market that makes our mouth water; where oils, tinctures, candies, cakes, and drinks with every cannabinoid from CBD to Delta 9, Delta 8, and HHC are available and producers are on their way to becoming millionaires. With a market currently estimated at $6 billion, forecasts reach upwards of $16 billion by 2026.

FDAlogoAnd the health-related concerns, the testing requirements? Are these limited to the UK and the EU? Let’s take a closer look! A mood of caution is emerging in the American cannabis market, that includes producers and lawmakers alike, who are pushing for stricter laws and enforcement.

In America, the FDA (Food and Drug Administration) has alerted the public to CBD’s potential harmful side effects on their website and hope to force congress to deal with the issue.

Many of their concerns validate those of the FSA and the EFSA. For example: on their website the FDA makes a reference to only one CBD product that has been approved: a medicine called Epidiolex. The FDA cites the review of the Epidiolex’s application in 2018 when they identified certain safety risks, including potential for liver damage. The EFSA requires testing on the same issue.

Training, Education & Compliance: A Q&A with Chase Eastman, CEO of Rootwurks

By Cannabis Industry Journal Staff
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Founder and CEO Chase Eastman officially launched Rootwurks in January 2022. But the journey began years earlier, and passed through industries including food safety training and digital media and television. Rootwurks at its core is a training platform. The cannabis industry deals with an incredibly complex system of regulatory environments that vary widely from state to state.

Rootwurks is participating in the upcoming Seed to Sale Safety Workshop at the CQC on October 16. Click here to learn more.Making sense of different and evolving rules across this patchwork of regulations  is a very daunting practice that every cannabis company must undertake. Enter Rootwurks, which helps companies meet compliance demands while maintaining their quality standards across state lines and jurisdictions. 

We sat down with Chase to chat about his background, what he thinks of regulatory compliance in the industry, and how the future of training might mold the cannabis marketplace.

Cannabis Industry Journal: Can you tell us about your background? How did you get involved in the cannabis industry? 

Chase Eastman: Both of my parents were career entrepreneurs. At some level, I was always destined to give this a shot. As a teenager, I started working at Alchemy Studios, my father’s company, before it became the training company it is today – back then we were a small marketing studio that sold creative services & learning development to Fortune 500 companies. 

Chase Eastman, CEO of Rootwurks

About a decade later, I started working for a home shopping network and was instantly hooked on the fun, fast-paced environment of the marketplace. I eventually became head of the digital media department of the company, right about the time Groupon started making waves in 2012-2013.

At the home shopping network, content was key for sales. At the same time, learning platforms like Linda.com (LinkedIn Learning) & YouTube were exploding in popularity and my dad and I started having a lot of conversations about the role these new technologies would have on the adult learning landscape. I decided to go back to work with my father at Alchemy Systems, focusing on end-user learning content. 

Our specialty was the food manufacturing space, and we were constantly experimenting with different strategies for blended learning, mixed media formats, and adult learning. This focus on using technology to connect people to expertise is at the very core of what Rootwurks provides.

This was my 20-year journey to education and training, but my path to cannabis began at home, with my family as my mom battled cancer. Years earlier our neighbors and dear family friends encouraged my mom to try cannabis to treat the side effects of chemotherapy. 

With cannabis, my mom could cope better with the pain and nausea, helping her eat and build up her strength. I witnessed all of this first-hand and cannabis quickly found a special place in my heart as a life-changing medicine. 

My mother, father and I started to look for ways to use our expertise in training and compliance systems to help the cannabis industry ensure the safety and effectiveness of cannabis products. We quickly realized that the best way to help the industry is by making it easier for companies to deal with compliance demands and the frustrating lack of universal standards and consistency in cannabis.  

Food regulations are by no means simple. But cannabis is far more complex, especially for smaller companies that just want to grow weed and help people find the products that will work best for them.

CIJ: Alright so what is Rootwurks? Tell us about your company.

The Rootwurks Learning Experience Platform

Chase: Rootwurks is first and foremost a training platform where education and compliance meet.  

We believe that compliance adherence happens when people are doing what they should be doing when and where they need to do it. We also know that employees must have access to the information they need in real time, in a simple and easy-to-understand manner. 

The Rootwurks Learning Experience Platform is also a communication tool and learning aid devoted to our goal of connecting people with expertise. For specific use cases like sales training for budtenders, the authoring tool and templates make it very easy to disseminate communication or training on a wide scale. 

I like to talk about the Ebbinghaus Forgetting Curve – a theory that essentially says adults are forgetful AF and lose a lot of information very quickly if it isn’t reinforced. The Rootwurks platform contains built-in operational reinforcement tools that flow into auditing, verification & validation modules. All this information feeds into a corrective action engine helping companies develop and deploy  preventive actions. 

A checklist module in the Rootwurks training platform

The ecosystem is based on the premise of training and reinforcement. Checklist modules can be adjusted to create training that reinforces the quick, easily-digested micro learning models. Embedded videos in the modules can include checklists for employees to follow, or they can simply watch videos to reinforce learning at the end of a training module, for example. 

Employees can use the dashboard to instantly see all of their learning activity for the day. Companies can simultaneously use the platform for onboarding new hires while also providing ongoing education and training for longtime employees.  

Flexibility is at the core of the system. Cannabis regulations include a massive amount of unnecessary complexity and all of it varies from state to state. A large operator going into a multi-state phase will have different SOPs for each state, and must still maintain quality standards across every company location. This is why we built all of our programs as templates that customers can adjust to meet compliance guidelines in each and every state they operate. 

But this isn’t an “off-the-rack” platform. Companies can customize the system with their branding and training materials as they see fit. This solves the “blank screen paralysis” that companies face with training programs. 

Our goal is to remove these hurdles and help companies schedule, assign, and validate training.  

CIJ: In the food industry, the culture of safety and quality is such a standard practice. In your eyes, how does the cannabis industry compare and in what areas do you see a need for improvement? In other words, what are the biggest problems facing cannabis from a safety and quality perspective? 

Chase: In the food industry, there is an expectation that safety and quality is ingrained in daily operations. The food industry also knows full well the importance of having a proactive accountability culture in the workplace backed up by internal auditing. The FDA has partnered with the food industry to promote these principles for more than a decade – so we shouldn’t expect this to happen overnight in the cannabis industry.  

Audit insights can help train employees to maintain regulatory compliance

But the food industry had a decades-long headstart on the cannabis industry, during which they’ve pushed back on non-practical regulations and built partnerships with state regulatory bodies. 

In a lot of ways, time is the biggest thing that the cannabis industry needs. It needs time for industry to work in partnership with regulators to honor the intent of the rules, while still maintaining practicality. Succeeding as a cannabis business is tough even without factoring in these regulations, which throw all types of inefficiencies into the manufacturing and sales process.

It’s no wonder we’re dealing with so much confusion, with so many states having such different sets of regulations. We’re seeing all types of companies really struggle, because the current state of affairs is not as sustainable as they thought. 

We need to find ways to honor the fun, subversive, and life-enhancing aspects of cannabis culture while also building partnerships between the industry and regulators. It’s going to take time, but I’m confident we can get there. 

CIJ: How do you envision the future of education and compliance within the cannabis industry and where do you see this market going in the next ten years? 

Chase: The easy answer to that is the sky’s the limit. We timed the launch of Rootwurks right with a global recession at a time when the cannabis industry is facing unprecedented headwinds. We still need SAFE Banking to cross the finish line and full access to the financial system. There’s too much momentum behind cannabis and I think we’ve reached a tipping point.

Moving forward, I think the brands that succeed will be the ones that implement training and education programs and treat them as vital to their daily operations. 

The next 24-36 months won’t be easy. But we are learning so much as we go and we are not done figuring out all the different ways the plant can be utilized. The industry is only going in one direction and I’m thrilled that at Rootwurks, we can help more and more companies achieve their dreams in cannabis.