Election Day in 2022 has come and gone and as the dust settles, it looks like voters favored cannabis legalization in some states, but failed to pass muster with other key ballot initiatives. While we wait to see the final tallies for which party will gain congressional power in the United States, we can safely call the cannabis legalization ballot initiatives.
In Maryland, voters overwhelmingly passed a legislatively-referred ballot question to legalize cannabis for adults. Question 4 passed with a clear 65.5% margin. The General Assembly gets to decide a sales tax rate for all cannabis sales following the question’s approval.
With 89% of the votes reported, Missouri’s Amendment 3 appears to have passed muster with a 53.1% margin. Amendment 3 legalizes cannabis for adults and sets a 6% sales tax rate. Notably, it also expunges convictions non-violent cannabis-related offenses.
According to the Marijuana Policy Project and the Associated Press, ballot initiatives to legalize adult use cannabis in Arkansas, North Dakota and South Dakota have all failed.
Arkansas’s Issue 4, which would have legalized adult use cannabis and instated a 10% cannabis sales tax, lost by well over 100,000 votes. With 95% of the votes being reported, it appears that only 45.1% of voters in North Dakota backed cannabis legalization. South Dakota’s population struck down cannabis legalization with a 52.9% majority.
The cannabis laboratory testing market has undergone a lot of changes in the past ten years. With those growing pains so common in such a new industry, come plenty of challenges driven by market dynamics, new regulations and scientific advancements.
Julie Kowalski, a cannabis testing consultant at JA Kowalski Science Support, has seen these changes firsthand. For twelve years, she worked at Restek as a senior chemist, helping to provide expertise and develop analytical solutions for their cannabis testing partners. She also worked as chief scientific officer for Trace Analytics, a cannabis testing lab in Spokane, Washington. Between being an advisor, consultant, trainer and accreditation assessor, she wears many different hats in the space. We sat down with Kowalski to learn more about the evolution of the marketplace, the importance of product safety and some of the common challenges that labs face.
Greg Kozadjian: Tell us a little about yourself and how you came to be working as a consultant in the cannabis and hemp testing industry?
Julie Kowalski, Owner of JA Kowalski Science Support
Julie Kowalski: I began working on gas chromatographs when I was about 20 years old, added liquid chromatography to my repertoire in my early 20’s, and have been in the lab nearly every day since then.
My consulting business launched in early 2020 after I received numerous requests from my network for help and advice regarding cannabis testing. I am passionate about helping people, talking science, and promoting growth and innovation in the cannabis industry.
Speaking with individuals and businesses who potentially received conflicting advice or felt somewhat overwhelmed by the complex and rapidly evolving cannabis industry, I realized I could help. So, I decided to utilize my experience and knowledge to promote trust and expertise within the cannabis industry and champion science over profit.
Kozadjian: Why do you think it’s crucial to test cannabis and hemp-based products in today’s market?
Kowalski: The way I look at it is that cannabis and hemp-based products are like any other product in that the consumer has the right to have some assurance that these products are safe, and that the labeling information is accurate.
Then, there are the increasing number of people seeking to use cannabis for medicinal reasons. Again, the industry should be able to assure them that the products they are using are safe to help them with their health issue.
Kozadjian: How has the market evolved over the last five years to meet the current testing regulations, and which of those regulations focus more on the safety of cannabis and hemp-based products?
Kowalski: In the past five years, more states have been coming online domestically. So, we are dealing with a regulatory environment where different states may have different regulations, a situation that will continue to exist for the foreseeable future. There have been efforts on the regulatory side, if not to coordinate efforts directly, to at least connect and communicate, and hopefully, out of those communications comes increased coordination.
I am hopeful that scientists, myself included, can do our part and provide additional data and information about testing that works, testing that doesn’t work, and that the regulators will consider and incorporate much of that information into changes in current and future regulations.
It is important to note that many state agencies were put in the position of creating a regulatory system that they were perhaps not familiar with, or accustomed to doing, particularly from the testing standpoint. There are no federal programs to model against, so programs are being developed from scratch and need to address all aspects of the market. It is a complicated task. It made sense to borrow from similar existing markets, but there is now the opportunity to use what we have learned to improve regulations.
For example, adopting certain criteria and practices from environmental, food, and agricultural testing was a great place to start. Now, we better understand some of the unique challenges associated with cannabis testing, it is time to set our fit-for-purpose best practices.
I hope that we, as an industry, can increasingly provide more data to help guide the regulators so that their goals are achieved and based on a growing body of data. I am optimistic that there will be much more interaction and coordination between regulators and scientists. This would greatly help with some of the struggles some cannabis labs are feeling in the current market.
Kozadjian: What are some of the challenges that testing labs face?
Kowalski: The cannabis and hemp-based products market is competitive with multiple sources of pressure. A definite challenge has been the gold rush mentality. Folks want to enter the cannabis business, and establishing a testing lab is attractive and perhaps perceived as more comfortable because it is not directly growing or producing a product.
There is a burden to set up a lab and open as quickly as possible because while the lab is being set up no money is being made. It can be stressful, and sometimes shortcuts are taken while developing technical programs. These shortcuts can ultimately cause disruption, stress, and risk. I saw this ten years ago, I saw this five years ago, and I am still seeing it now. I am still waiting for people to come into the industry with more realistic expectations of what it takes to establish functional technical programs and laboratories.“There are fundamental knowledge gaps that this market as a whole needs to address.”
Inadequate technical programs resulting from poorly vetted and insufficiently validated methods do not function well in the real world, changing regulations, as well as changing matrices, can result in chaos in the lab. A lab will fight fires daily if it does not plan for and build well-vetted, robust methods. Unfortunately, I have seen many new testing labs rush through development, and then when they open their doors for business, they realize their methods do not function properly.
Daily, they may be faced with deciding whether they should pass a sample batch because technically, it did not meet the criteria, but the client is waiting. Or labs constantly needing to retest may lose confidence in their ability. This is a high-stress situation, and quite a few labs are probably operating in this mode in the market right now. Substandard testing is becoming riskier as we see scrutiny, mainly due to test lab shopping increasing. I do want to make it clear and be fair to point out that the economics of cannabis testing is challenging. Pricing in most markets is too low to allow high-quality testing.
Kozadjian: How do you think this testing era will evolve in the next five years?
Kowalski: I think we will start to see more involvement and recognition of standards organizations like the AOAC, USP, ASTM. They have existed and have been working for at least a few years, and now are publishing methods, guidance documents, and providing education. That will be very helpful, and I invite testing labs to join in and participate in these efforts. Your voice is critical. We need more knowledge in the market, whether it is knowledgeable people entering the market, or people currently in the market who are willing to invest the time to learn analytical chemistry, for example. There are fundamental knowledge gaps that this market as a whole needs to address.
As the cannabis industry continues to grow, regulations will only get more onerous and complex, and enforcement will ramp up. In order to survive, it’s imperative for cannabis business owners and the ancillary companies that support them – such as banks, insurance agencies, law firms and marketers – to keep on top of regulations.
Due to cannabis’ fractured regulatory environment, confounding state and local laws, and the fact that regulations are constantly changing, keeping track of it all can nearly seem impossible at times. But companies don’t need to reinvent the wheel and handle compliance on their own.
There are a host of tools on the market today that can help cannabis related businesses (CRBs) streamline their operations. RegTech solutions can drastically reduce the challenges of navigating compliance, saving companies significant time and money so they can focus on their core competencies. Here, let’s take a look at five of the main reasons everyone in the cannabis ecosystem should seriously consider adopting RegTech solutions today.
1. Simplify the Complex
The heart of RegTech solutions is taking out the guesswork when tackling compliance while mitigating risk. Besides there being a vast number of regulations that vary by state, they’re also not easy to understand – they’re really written for lawyers, can be hundreds of pages long, and don’t offer implementation guidance. Thankfully through RegTech, operators and ancillary companies are alerted when regulations change and are given easy-to-follow implementation and remediation guidelines that can be as easy as checking a box.
Beyond just simplifying compliance, RegTech can substantially increase operational efficiency.
As the cannabis industry has been rapidly growing and maturing, we’ve been seeing a major uptick in M&A activity – M&A activity tripled in the sector from 2020 to 2021 – and with each new state a company enters, comes a host of new regulatory challenges. When expanding to a new state, RegTech solutions provide updates in real time, making sure, for example when you expand to Ohio, it’s not at the expense of complying with regulations in your core market of Illinois. Also, from an operations strategy perspective, RegTech solutions can be incredibly useful in helping companies decide what markets to pursue, as they can offer regulatory snapshots that compare tax laws, average margins, consumer segments, product stipulations, marketing restrictions and more. Thus besides simplifying compliance, RegTech can substantially increase operational efficiency.
Since cannabis is such a highly regulated industry, there are a ton of documents an operator has to keep on hand and be able to produce in a moment’s notice. Through RegTech, operators can store and organize all documents that are applicable to them electronically. So, when an inspector comes into a dispensary for a surprise inspection, rather than sweating bullets and digging through six filing cabinets trying to locate say a visitor log from three years ago, using RegTech a manager can quickly search records electronically, download and print the needed document, pass the inspection and go back to work.
2. Save Costs by Streamlining Compliance
While adopting RegTech solutions has a cost, the cost savings companies yield from RegTech way exceed the investment. RegTech providers have teams of dedicated analysts constantly tracking regulations and providing updates, making it so companies don’t need to hire much more costly lawyers to track regulations and amend policies and procedures. Rather, they can tap into RegTech solutions and leverage decades of experience and lean on the best regulatory experts in the field, while saving a lot of money.
RegTech providers have teams of dedicated analysts constantly tracking regulations and providing updates,
Just to give a small example of the cost savings RegTech can provide, on average a CRB spends over $20,000 to produce a new SOP package when using an attorney and nearly $8,000 when updating an SOP package using an attorney. Compare that to Simplifya’s fully customizable SOP package, where a CRB spends on average less than $1,600 to produce a new SOP package and less than $650 to update an SOP package – a 92% savings.
When considering costs, it’s important to think holistically and anticipate potential problems that could come up. One of the biggest pain points for companies starting up operations or entering new markets is complying with confusing tax codes – no industry is taxed to the degree cannabis is, and it’s easy to lose sight of tax obligations when planning operations. Unanticipated withholding requirements can create serious cash flow problems. RegTech solutions clearly outline requirements, as well as track updates, which help companies plan operations and expansion plans and prevent nasty tax surprises from creeping up, and they’re a much cheaper alternative to hiring tax lawyers.
While there are tremendous growth opportunities in cannabis, the industry is also facing significant headwinds, including the high cost of capital, supply and demand misalignments, and shrinking margins, and as we head towards recession, cost efficiency will become more and more important. Not only can RegTech help companies survive by helping ensure they stay compliant and don’t get fined or even shut down for breaching regulations, they also help companies run more efficiently and save major costs on operations.
3. Hold Your Employees Accountable
In addition to using RegTech to stay on top of compliance, it can be a powerful HR tool as well. Companies can utilize RegTech platforms to make and track assignments and tasks for employees. If you’ve already spent the time and money to create SOPs, RegTech tools are essential to making sure they’re actually being followed correctly.
As many cannabis companies are expanding rapidly and bringing new employees into their fold – particularly those that are engaging in M&A – it can be difficult to get employees up to speed and following SOPs. RegTech automation and tracking solutions help flatten the learning curve and ensure employees are completing tasks on time, boosting efficiency and preventing problems that may arise – and if problems do arise, the tools help pinpoint where and when for efficient remediation. And if you’re an MSO or a SSO with multiple locations, RegTech allows employers to keep track of their dispersed employees without having to be in 10 places at once. This holds employees accountable for their actions for smooth operations while reducing growing pains.
4. Identify Issues Before They Become an Issue
The most compelling reason for having strict regulations in the cannabis industry in the first place is to protect consumer and patient health. Given the long, brutal history of cannabis prohibition, where lies and misconceptions about cannabis consumption being “dangerous” were perpetuated in the mainstream, the last thing the industry needs is people consuming products that are in any way contaminated. If you skirt the rules and manage to put out compromised products without a regulator catching and dinging you first, consumers may get sick. This can lead to a recall and tarnish a brand’s reputation. Competition is steep in this industry and even one incident can be irrecoverable. If consumers have reason to believe you’re not putting out consistent, safe products, they’ll buy from your competitor instead.
RegTech helps companies track all processes and procedures so that they can spot problems before they occur and ensure nothing dangerous makes its way to the public, which in turn shields brand reputation. Also, it’s important to note – in the cannabis ecosystem, every company you work with has to be licensed. If you work with an entity that’s not, you are very liable. Tracking licensing information is burdensome, especially for retailers and ancillary businesses like lenders and insurers who work with many vendors. Luckly, RegTech providers have already done the heavy lifting, pulling APIs into state databases and creating tracking systems of licenses that make it easy for companies to ensure every entity they work with is operating with a valid license. This saves companies from having to hire people to track licensing information on a weekly or even daily basis, which can be very costly, and more importantly, keeps them compliant and prevents slip ups that could jeopardize consumer and patient health.
5. Looking Towards the Future, Regulations will Only Become more Complex – Only the Compliant Will Survive
A common misconception people have about the cannabis industry is thinking that federal policies like SAFE banking will be a catch-all to their banking woes, opening up the floodgate to institutional investment. The fact of the matter is, however, SAFE banking would be ineffective without RegTech. Cannabis companies need to demonstrate reliability and a history of compliance in order to attract investors and accumulate capital, and they do this through using RegTech platforms. Conversely, financial institutions also use RegTech to verify licenses, ensure legitimacy and assess lending risks based on the locations in which their borrowers operate. After SAFE banking is finally enacted, since larger institutional investors have so much on the line, they’re going to be particularly careful and only invest in those companies that can comprehensively demonstrate a history of compliance. This will also be the case for major CPG companies looking to acquire cannabis companies – they’ll want companies that have used RegTech to show compliance and optimize operations, since those companies will be more trustworthy and transitioning them under new management will be easier. In every major industry other than cannabis, RegTech solutions have been adapted. This is where cannabis is headed, and the companies that adopt solutions and demonstrate compliance will come out ahead.
Cannabis companies need to demonstrate reliability and a history of compliance in order to attract investors and accumulate capital
The other major misconception some people have about the cannabis industry is that once cannabis is legalized on a federal level, state and local regulations will somehow just go away, so current RegTech solutions may become ‘obsolete.’ This couldn’t be further from the truth. In no world is there going to a federal legalization system that says states can no longer create their own rules around cannabis. Think about the alcohol or gambling industries. Alcohol and gambling are federally legal, but every state – and even some counties and cities within those states – can have very different rules. Federal legalization will just mean additional regulations will be piled on and thus RegTech will only become more important.
While many companies in the cannabis space have already adopted RegTech solutions, there are still many others that have taken a reactive rather than proactive approach towards compliance. When major legislation like SAFE banking or federal legalization is approved, there will be a paradigm shift and RegTech will be deemed more essential quickly. Those who have implemented RegTech will have distinct advantages. To survive and thrive in the industry going forward, it’s prudent to proactively handle compliance and adopt RegTech solutions today.
Last week, Uber Eats and Leafly announced a partnership to begin cannabis deliveries in Toronto. Adults in Toronto can now place orders from licensed cannabis dispensaries through the Uber Eats app, delivered to them by the cannabis retailer. This marks the first time cannabis deliveries are possible on major delivery platforms.
General Manager of Uber Eats Canada Lola Kassim says their investments in delivery growth in Canada are paying off with deals like this. “We are partnering with industry leaders like Leafly to help retailers offer safe, convenient options for people in Toronto to purchase legal cannabis for delivery to their homes, which will help combat the illegal market and help reduce impaired driving,” says Kassim. “Over the last few years, we have invested heavily in our delivery business and selection has expanded tremendously. Uber Eats has grown quickly to become a versatile platform usable by diverse businesses large and small.”
Currently, Uber Eats Canada is working with three dispensaries: Hidden Leaf Cannabis, Minerva Cannabis and Shivaa’s Rose. Marissa and Dale Taylor, owners of Hidden Leaf, say this deal allows their small business to expand their reach and grow their business across the city.
Meanwhile, much further south in Florida, Circle K and Green Thumb industries have reached a deal offer up their gas station convenience stores in Florida as retail space for cannabis dispensaries.
Circle K is a massive global convenience store chain with 600 locations in Florida. The partnership they signed will allow Green Thumb to set up shop in ten of those locations beginning next year.
However, Florida regulators have stepped in and told reporters that they have not approved the deal. “This project has not been approved by the State,” a Florida Health Department spokesperson told the Washington Examiner. “Florida has never approved a Medical Marijuana Treatment Center to operate out of a gas station.”
PARSIPPANY, NJ, October 17-19, 2022 – The Cannabis Quality Conference & Expo (CQC) took place in New Jersey last week. The agenda featured three tracks of educational talks, panel discussions, keynotes and breakout sessions.
Highlights from the 2022 CQC
At this year’s event, the conference featured three different keynote presentations, each on different days as well as Lunch & Learn sessions, led by Matthew Anderson, CEO of Vanguard Scientific. He sat down with two experts in cannabis law for interviews during the lunch hour on Tuesday, October 18.
Investigations & Enforcement: A Former Federal Prosecutor’s Perspective
Matthew Anderson spoke with Barak Cohen, Chair of the Cannabis Industry Group at Perkins Coie, to discuss federal investigations, Justice Department prosecutions and white-collar offenses.
Compliance is Key: Best Practices for Your New Jersey Cannabis Business
Anderson interviewed Casey Leaver, Director of Regulatory Compliance at Vicente Sederberg, to discuss compliance culture, quality controls, New Jersey regulations and more.
Commissioner Maria Del-Cid Kosso takes the stage on Monday
The conference began on October 17 with a keynote presentation led by Commissioner Maria Del Cid-Kosso of the New Jersey Cannabis Regulatory Commission. Commissioner Del Cid-Kosso highlighted the progress the state has made so far with respect to cannabis legalization as well as their goals for the future of the state’s new market.
On the second day of the CQC, Toi Hutchinson, President & CEO of The Marijuana Policy Project, kicked things off with an inspiring keynote discussion where she discussed racial disparities in the industry, social equity, progress and reform efforts.
What People Are Saying About The 2022 CQC
Below are some testimonials we found from this year’s event:
Toi Hutchinson delivers her keynote presentation on Tuesday
“What set the Cannabis Quality Conference apart from many others was the intentionality and focus on high value substance from the presentations.”
“Once again, excellent panels today at the CQC here in Jersey! Have I mentioned how much I love to learn? This industry is forever evolving and being able to observe and watch it roll out from infancy in New Jersey has been tremendous.”
“What an informative and motivating event!”
“I feel fortunate to have been in attendance for such inspiring, informative and REAL discussions being had by industry experts from all across the country.”
“It was so great to listen, meet and speak with so many industry influencers!”
Coming Soon For 2023
After a successful event in New Jersey, the conference begins its planning for next year. The Cannabis Quality Conference & Expo will be returning to New Jersey in 2023. Stay tuned for important announcements, like the dates and location, coming soon.
Scenes From The 2022 CQC
Below are some snapshots of what this year’s CQC had to offer.
About Cannabis Industry Journal
Cannabis Industry Journal is a digital media community for cannabis industry professionals. We inform, educate and connect cannabis growers, extractors, processors, infused products manufacturers, dispensaries, laboratories, suppliers, vendors and regulators with original, in-depth features and reports, curated industry news and user-contributed content, and live and virtual events that offer knowledge, perspectives, strategies and resources to facilitate an informed, legalized and safe cannabis marketplace.
About the Cannabis Quality Conference & Expo
The Cannabis Quality Conference & Expo is an educational and networking event for the cannabis industry that has cannabis safety, quality and regulatory compliance as the foundation of the educational content of the program. With a unique focus on science, technology, safety and compliance, the “CQC” enables attendees to engage in conversations that are critical for advancing careers and organizations alike. Delegates visit with exhibitors to learn about cutting-edge solutions, explore three high-level educational tracks for learning valuable industry trends, and network with industry executives to find solutions to improve quality, efficiency and cost effectiveness in the evolving cannabis industry.
Earlier this month, ASTM International announced that the D37 cannabis committee has approved four new standards for the cannabis industry. Just a few days ago, the same organization announced the development of a new standard that will be published soon.
According to a press release, the four new standards that are already approved will help those working in the cannabis space, as well as regulators and consumers. The four new approved standards are as follows:
D8375: This standard provides a method to establish cannabinoid content in cannabis and hemp samples. ASTM member Garnet McRae says, “the standard will help ensure products are labeled properly in jurisdictions where they are legally produced and sold.”
D8399: This standard “will aid laboratories in analyzing cannabis and hemp samples to establish pesticide concentration levels – or lack thereof – to ensure products meet regulatory requirements within appropriate jurisdictions,” reads the press release.
D8442: This standard aids stakeholders in the cannabis supply chain with quality control measurements. It provides a method for testing terpenes and cannabinoid levels using gas chromatography.
D8469: This one provides a new metals testing method for cannabis using inductively coupled plasma mass spectrometry (ICP-MS).
David Vaillencourt will be discussing standards and more at the Cannabis Quality Conference on October 17. The fifth standard that ASTM International announced this week is D8439. This one is designed “to support sound and reproducible research” by providing specifications for medicinal-use cannabis flower. ASTM member David Vaillencourt says it will help establish consistent testing for safety and quality. “With a fragmented cannabis industry marketplace, there is no common set of requirements around reporting cannabinoids and terpenes, which are the primary constituents that are linked to therapeutic benefits,” says Vaillencourt. “This lack of consistency harms public health and prevents evaluation of product safety and efficacy across jurisdictions. This standard provides a solution to this problem.”
In 1996, the Harvard Business Review published an article called Making Differences Matter: A New Paradigm for Managing Diversity, in which the authors argued that companies should adopt a radically new way of understanding a diverse workforce. Instead of hiring employees of different backgrounds and asking them to blend in, or limiting people to areas of work based on their identity, they suggested embracing and bringing together the varied perspectives and approaches to work that members of different identity groups bring. Since then, a steady stream of companies – from GE to PricewaterhouseCoopers to cannabis companies – have implemented several new practices, initiatives and programs under the category of Diversity, Equity and Inclusion (DE&I).
DE&I has become highly important over the last few years, and many companies are seeing the benefits. Today, 83% of professional investors are more inclined to invest in stock of a company well-known for its social responsibility. On the other hand, a company that is seen as not responsible stands to lose as much as 39% of its potential customer base, with one in four consumers telling their friends and family to avoid it. As these benefits draw more companies to focus on DE&I, it’s important to remember that your plans should ultimately be centered around uplifting employees from all backgrounds.
“Listen, test, learn and then listen again!”While still relatively new to the cannabis sector, one DE&I initiative that is making some headway towards that goal is the Employee Resource Group (ERG). Essentially, it’s a group of employees who join together in their workplace based on shared characteristics or life experiences. ERGs work to create communities which bring people together, with internal and external partnerships to support those groups, and they are gaining popularity. In fact, according to a Bentley University report, almost 90% of Fortune 500 companies utilize them. They’re often used because issues are addressed from within an organization by the people who are most directly impacted by them. They can also serve as a direct pipeline of communication between employees and employers, as well as a place for new ideas and solutions to problems to blossom.
When it comes to recruiting and retention, ERGs have their own specific benefits. According to a survey conducted by Software Advice, 70% of respondents between 18 to 24 years old and 52% of respondents between 25 and 34 reported they would be more likely to apply for a role at a company that had ERGs. With regards to retention, 50% of survey respondents across all ages stated they would remain at a company because it had an ERG.
While some in the cannabis sector have already implemented ERGs, this new practice is one that all cannabis companies should consider – particularly as this industry grapples with its own unique DE&I challenges and history. To that end, check out the tips below to help get you started.
Gauge interest: Many ERGs start organically. The first question you need to answer before you can start building an ERG is to ask if your employees want one. The statistics indicate they likely will, but it’s important to establish that leadership is willing to listen. Employees should play a major role in this process from the beginning. However, remember that the DE&I strategy is not their responsibility, and ERGs should be a part of a more comprehensive plan.
Find the willing and work with them: You’ve got to find the people that these topics matter to and embrace them. Participation is key, and if the topic at hand is one that someone is not personally connected to, your ERG may not live up to its full potential. ERGs are a significant time investment, so you have to make sure those taking part are ready, willing and capable of balancing their job responsibilities with their additional role in the group. Participation goes both ways, too. You have to make sure that managers are aware that someone is in an ERG. “Be open to making mistakes and learning from them, and then changing for the better.”
Use executive sponsors: An essential piece of successfully incorporating ERGs into your organization is recruiting executive allies from the corporate side to serve as sponsors. This can help break through barriers, get decisions made, and keep all parties organized. Executive sponsors are also great for employee development, as they can see firsthand the talent in the organization and become a mentor. Executive sponsors are often an important request from ERGs, and they are worthwhile to recruit for. Sponsors don’t have to be from the same affinity as the group, and in some ways, that can actually be a good thing. Solidarity is another important factor to company health, and allyship is imperative for solidarity.
Set goals: Define a mission early on. It’s important for ERGs to have a strong mission statement with core goals that the group is formed around achieving. Keep in mind, these need to be tangible goals with specific benchmarks. It can’t just be “increase diversity in hiring.” Set a number you’d like to reach and a date you’d like to reach it by. Having clear objectives keeps a track record for your ERG, and is the foundation for success. These will also ensure that your ERG is not just for marketing purposes. Achieving substantive goals will keep the group going, as confidence gets built on the inside and from the outside.
Be clear: ERGs are all about communication, so clarity has to be a top priority. None of the above tips work without that. You have to make sure the groups are not questioning what is expected of them, what resources they have to work with and what goals they are working towards. It’s always going to be a learning process, and there will certainly be unforeseen challenges, but being on the same page from chapter one will make the process that much more beneficial to all involved.
As stated above, ERGs are still new, just like the industry we want to bring them into. Be open to making mistakes and learning from them, and then changing for the better. That process is what ERGs are about at their core, after all. Listen, test, learn and then listen again!
Businesses often require outside capital to finance operating activities and to enable scaling and growth. Financing in the cannabis industry is notoriously challenging with regulatory obstacles at the local, state and federal levels. Recent market dynamics pose additional challenges for both financiers and cannabis operators.
We sat down with Matt Hawkins, Founder and Managing Partner of Entourage Effect Capital (EEC) to learn more about EEC and to get his perspective on recent market trends.
Aaron Green: In a nutshell, what is your investment/lending philosophy?
Matt Hawkins, Founder & Managing Partner at Entourage Effect Capital
Matt Hawkins: Entourage Effect Capital’s long history and experienced leadership allow us to access and construct high potential later-stage growth investments with sought-after industry leaders. We want to get ahead of what is happening on the regulatory and federal level to build scale with our investments.
Green: What types of companies are you primarily financing? What qualities do you look for in a cannabis industry operator or operating group?
Hawkins: Essentially, we are focused on investing in companies that will benefit the most when legalization occurs. We are currently working on multiple such deals, and separately, we are excited by how our newly minted, early-stage focused Arcview Ventures Seed Fund will provide a pipeline to the next generation of leading growth opportunities. When evaluating opportunities, we always look for the potential for scale and a strong management team.
Green: Capital market dynamics have led to significant public cannabis company revaluations in 2022. How has this affected your business?
Hawkins: As an industry, we all want companies to be valued for what they are worth, and right now, there are a lot of companies where that’s not the case due to the downturn in valuation. For us, it works the other way, because we are now able to invest at lower valuations with the hope of more upside when valuations reset.
Green: Debt on cannabis companies balance sheets have increased significantly in recent years. What is your perspective on that?
Hawkins: Debt is at its highest in industry. Operators don’t want to take equity capital at this point because valuations have come way down. However, we are lucky to have been in this business for a long time so that we can create our own deals. Our reputation precedes us — as a result, combined with the strength of our portfolio, people want us in their capital stack.
Green: How does the lack of institutional investor participation in the cannabis industry affect your business?
Hawkins: The lack of institutional capital in the industry makes it difficult for a large chunk of companies to grow and scale. For the industry to grow, there needs to be a different type of investor, investors who are not scared to go through the peaks and valleys we go through as an industry, whereas retail investors take their losses and move on. Everybody’s competing for the same small pool of money; managing cash is the most important factor for operators, whether private or public, big or small.
Green: What would you like to see in either state or federal legalization?
Hawkins: The illicit market still has a strong presence, and until we get regulatory reform, it’s going to continue. Reducing the tax burden on legalized markets would bring more revenue to both operators and the government because they’d reduce the market share of the illicit market, with the price offset trickling down to the retail customer.
Passing the SAFE Banking Act would create consequential changes for the cannabis industry. There is also a small chance that the New York Stock Exchange and the Nasdaq could start listing legal plant-touching businesses. If that happens, more institutional capital would enter the market and flush the industry with cash, with market caps going way up. There is a lot of unease and uncertainty with retail investors that prop up the stocks in the space, and it will continue until there is regulatory movement, even on the private side.
Green: What trends are you following closely as we head towards the end of 2022?
Hawkins: I don’t see anything happening unless the SAFE Banking Act passes. Otherwise, things are status quo, especially with public companies. For private companies, we’re going to see a lot more consolidation, especially in California.
On the afternoon of October 6, President Biden issued a statement that many would call an October Surprise. Biden announced a three-part plan addressing cannabis reform, taking the first steps since he has taken office to address his campaign promise of tackling cannabis prohibition.
In his speech, Biden laid out the three steps he will take: First, he is pardoning all prior federal offenses for simple cannabis possession. Second, he is calling on all governors to do the same for state-level offenses. Thirdly, he announced that he is initiating a federal review of the current Schedule 1 status of cannabis.
Too many lives have been upended because of our failed approach to marijuana. Hear from @POTUS on the three steps he is taking to right these wrongs. pic.twitter.com/IqOxHxjgue
As I often said during my campaign for President, no one should be in jail just for using or possessing marijuana. Sending people to prison for possessing marijuana has upended too many lives and incarcerated people for conduct that many states no longer prohibit. Criminal records for marijuana possession have also imposed needless barriers to employment, housing, and educational opportunities. And while white and Black and brown people use marijuana at similar rates, Black and brown people have been arrested, prosecuted, and convicted at disproportionate rates.
Today, I am announcing three steps that I am taking to end this failed approach.
First, I am announcing a pardon of all prior Federal offenses of simple possession of marijuana. I have directed the Attorney General to develop an administrative process for the issuance of certificates of pardon to eligible individuals. There are thousands of people who have prior Federal convictions for marijuana possession, who may be denied employment, housing, or educational opportunities as a result. My action will help relieve the collateral consequences arising from these convictions.
Second, I am urging all Governors to do the same with regard to state offenses. Just as no one should be in a Federal prison solely due to the possession of marijuana, no one should be in a local jail or state prison for that reason, either.
Third, I am asking the Secretary of Health and Human Services and the Attorney General to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law. Federal law currently classifies marijuana in Schedule I of the Controlled Substances Act, the classification meant for the most dangerous substances. This is the same schedule as for heroin and LSD, and even higher than the classification of fentanyl and methamphetamine – the drugs that are driving our overdose epidemic.
Finally, even as federal and state regulation of marijuana changes, important limitations on trafficking, marketing, and under-age sales should stay in place.
Too many lives have been upended because of our failed approach to marijuana. It’s time that we right these wrongs. – President Joe Biden
Entrance into the cannabis industry is not equally accessible; it’s no secret it tends to be easier for those who are male and white. As a business leader, why should you take on the problem of equal market entrance opportunities? This just may become your company’s competitive advantage.
As a female entrepreneur with a first name associated with being male (and white, maybe a rancher in Wyoming), I have been accidentally invited to and witnessed the consequential shock of more than one exclusive, male-centric event, where any ladies were intended to be accessories and not present for business-talk with the boys. After enjoying their discomfort (and getting over my own), I see these moments as opportunities to advocate for inviting diversity into their discussion, seeking to make small changes to open doors for exponential progress. After all, it wasn’t so bad to have invited the woman, albeit accidentally; it was actually better because it happened.
In a dynamic and challenging industry, increasing diversity access is how to become future-ready. As will be discussed, companies see measurable financial performance and adaptability improvements with relatively small changes in leadership makeup. Here are three overarching tactics for you to increase cannabis market accessibility and champion diversity.
Facilitate Access to Capital for Cannabusinesses with Diverse Perspectives
The past two years of pandemic hardship have posed unique challenges for women, especially Black, Latina, and Indigenous women, who have had to put careers on pause to pick up additional heavy burdens of caregiving. Women’s unemployment is four times higher than men’s, and according to Forbes, the situation is worse for women of color.
Overall deal activity for female-founded companies is discouraging and downright dismal for Black female founders, who receive less than 1% of all venture capital investment. This is particularly vexing when considering that women-led or co-founded start-ups generated 78 cents of revenue compared to 31 cents for male-only-led startups over five years. EBIT margins were nine percentage points higher than companies with below-average diversity on their management teams. Relatively small changes exponentially improve operating earnings over operating sales.
Relatively small changes exponentially improve operating earnings over operating sales.
It’s always been difficult for women to access capital. Women have historically been cordoned into home-keeping and caregiving roles and are often still expected to balance those capacities alongside a full-time career. Accordingly, female entrepreneurs receive fewer invitations to extra-work events and business relationship-building opportunities, such as pursuing financing, mergers, or joint ventures.
Companies with diverse leadership teams have reported nearly twenty percent higher revenue from innovation. Investors would do well to recognize these are the businesses better able to respond and adapt to changes in customer demand quickly.
Increase Diversity Awareness and Facilitate Equal Opportunity
While financial investments are imperative, consider the following non-pecuniary methods of support as part of a full-picture, equitable accessibility solution.
Invite Activity, Provide Mentorship
Businesspeople can play a critical role in accelerating inclusion by actively seeking out people they do not already know. Employers can do this through the non-financial investment of time and resources to grow the pipeline of underrepresented people with skills to serve on investment teams. When under-invested groups bolster one another, the likelihood that investment pans out increases.
Mentoring must be a part of this process, as it provides essential guidance and support for individuals looking to enter or advance within these fields. By creating opportunities for mentorship and collaboration, you can play an active role in breaking down barriers and building a more inclusive economy for everyone.
Open the Door to Accessing Opportunities
Businesses can increase diversity awareness and facilitate equal entry into the cannabis industry by opening the door to events that help connect underrepresented candidates to professional development and capital.
Hosting free webinars is a great way to facilitate learning, conversation, and the exchange of empowering ideas. Webinars allow attendees to ask personalized questions and present your business with a stage from which you can speak about the importance of equity and inclusion.
Consider attending, sponsoring, or running a job fair with a focus on diversity hiring. Diversity hiring practices help businesses identify qualified candidates from different backgrounds, leading to a less homogenous workforce.
Make Continued Education Central
As the President of Oaksterdam University, I see firsthand the importance and empowering quality of ongoing education. I also recognize that not everyone can afford or receives equal access to continued education and accordingly offer this advice to help bolster equitable educational opportunities.
Make partnerships with educational institutions to offer your workforce chances to learn, and ensure they have paid working time to do so. If you can reduce the burden of learning for candidates with extra-work responsibilities, they have a greater chance of absorbing and putting that information into practice. If you have an employee with an incredible entrepreneurial idea, boost them up by offering to pay for a capital-raising class or a fundamental business course they may not be able to afford otherwise.
No one solution will “fix” equal access to education. Every step from open-source databases and free webinars to full college degrees is an incremental movement toward increased cannabis industry participation for traditionally disadvantaged populations.
Realize Social Equity Programs Are Not a Catch-All
Rather than focusing on any one aspect of diversity, the goal should be to invest in and build diverse teams across many dimensions.
Even the best-intentioned social equity program cannot accommodate every disadvantage a potential candidate will encounter. Take women as an example: There are many accommodations to consider for female-identifying participants, as they are at a more significant disadvantage in the licensing/permitting and job preparedness process. Some call for women participants qualifying for cannabis equity program services to receive additional funds and services (e.g., funding for childcare) to ensure equal access to opportunity.
The cannabis industry cannot atone for all the damages of the drug war, nor can a nascent industry that is not federally legal pay to uplift all of society. With that said, cannabis industry investors, executives, and workers might be the tipping point back toward baking justice, equity, and access to the laws we operate under. Better yet, we can raise expectations of one another as we do business and ask, “What do you do to increase fair play, diversify your leadership team, and address the imbalance?”
A Person is Not Diverse, But the Cannabis Industry Can Be
Addressing social equity and the concept of diversity can feel amorphous and confusing. Above all, it’s imperative to remember that a single person is not diverse; rather, a group of people is. A team can be diverse, and within your team is a great place to begin shaping the industry you wish to see. Rather than focusing on any one aspect of diversity, the goal should be to invest in and build diverse teams across many dimensions. Value comes from a range of differences, such as the national origin of executives, the variety of industry backgrounds, education levels, ages, and finding gender balance. The goal is that these different people feel they belong.
Equal market accessibility is not a problem you can solve passively — it must constantly be spoken of, worked toward, and embodied within each business decision and entrepreneurial move. An industry full of entrepreneurs making such decisions will undoubtedly result in a more equitable market than the one we’ve built so far. You will find yourself in a room of folks just like this. Lean into the awkward and invite the unfamiliar in – you will find you and your company are better for it.
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In Maryland, voters overwhelmingly passed a legislatively-referred ballot question to legalize cannabis for adults. Question 4 passed with a clear 65.5% margin. The General Assembly gets to decide a sales tax rate for all cannabis sales following the question’s approval.
