Tag Archives: legal

Navigating Compliance: Practical Application of Fit-For-Purpose

By Darwin Millard
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What is “fit-for-purpose?” Fit-for-purpose is an established best practice used in several major industries, like information technology, pharmaceuticals, agriculture and inventory management. It is a concept that aligns infrastructure and systems specifications with desired outputs – be that product, service or bottom line. When applied to a cannabis plant, its parts, products and associated processes, it can streamline regulatory framework development, implementation and compliance.

Fit-for-purpose is simply a series of logic questions you ask yourself to determine what business practices you should implement and the regulatory framework in which you must comply. What are you making? Who is it for? Where will it be sold? All this impacts how you would cultivate, process, handle and store a cannabis plant, its parts and products regardless of the type of cannabis plant. The fit-for-purpose concept is a tool that can be applied to any scenario within the cannabis/hemp marketplace. Take for instance, sustainability: a practical example would be to design cultivation standards that are “fit-for-purpose” to the climatic region in which the plants are grown – allowing any type of cannabis plant grown anywhere in the world to meet specifications regardless of the method of production.

There is no “special sauce” here. All fit-for-purpose does is get you to ask yourself: “Are the protocols I am considering implementing ‘fit/appropriate’ to my situation, and if not, which protocols are more ‘fit/appropriate’ based on the products I am making, the target consumer and marketplace in which the products are to be sold?”“Fit-for-purpose is a powerful concept that can be used for simplifying regulatory framework development, implementation and compliance”

A non-cannabis/hemp example of fit-for-purpose could be a scenario where a banana producer wants to implement a data management system into their cultivation practices to better track production and yields. There are many data management systems this banana producer could implement. They could implement a data management system like that of big pharma with multiple levels of redundancy and access control related to intellectual property and other sensitive data. They could also implement a data management system used for tracking warehouse inventory; it cannot exactly capture everything they need but it is better than nothing. Neither example is really “fit/appropriate” to the banana producer’s needs. They need something in between, something that allows them to track the type of products they produce and the data they want to see in a way that is right for them. This idea is at the core of the fit-for-purpose concept.

Applying Fit-for-Purpose

So how do we apply fit-for-purpose to the cannabis/hemp marketplace? Fit-for-purpose reduces the conversation down to two questions: What products are you planning to make and how do those products affect your business practices, whether that be cultivation, processing, manufacturing or compliance. The point being the products you plan to produce determine the regulations you need to follow and the standards you need to implement.

Growers can use it to guide cultivation, harvesting, handling and storage practices. Processors and product manufacturers can use it to guide their production, handling, packing and holding practices. Lawmakers can use it to guide the development, implementation and enforcement of commonsense regulations. This is the beauty and simplicity of fit-for-purpose, it can be applied to any situation and related to any type of product.

Growers can use fit-for-purpose to guide most aspects of their operation

Let us look at some practical examples of fit-for-purpose for cultivators and processors. Cultivators have three main areas of focus, growing, harvesting and storage, whereas processors and product manufacturers have it a little more complicated.

Cultivation of a Cannabis Plant

Growing

Requirements for growing a cannabis plant, including those that can be classified as “hemp”, should be dictated by the product with the strictest quality and safety specifications. For example, growing for smokable fruiting tops (i.e. the flowers) may require different cultivation techniques than other products. You may not want to apply the same pesticides or growth additives to a cannabis plant grown for smokable fruiting tops as you would to a cannabis plant grown for seed and fiber.

Harvesting

The next point is important – harvesting and handling requirements should be agricultural, period. Except for those products intended to be combusted or vaporized and then inhaled. Following our previous example, smokable fruiting tops may require different harvesting techniques than other products, especially if you are trying to maintain the aesthetic quality of these goods. You may choose a different harvesting technique to collect these fruiting tops than you would if primarily harvesting the seed and fiber and thinking of the leftover biomass as secondary.

Storage

When considering the products and their storage, you need to consider each one’s quality and safety specifications. One product may have a temperature specification, whereas another may have a humidity specification. You need to make sure that you store each product according to their individual quality and safety specifications. Then consider the products with the highest risks of diversion and potentially if you need to implement any extra protocols. Continuing our example – smokable fruiting tops, whether classifiable as “hemp” or not, pose a higher risk of theft than seeds or fiber and may require additional security measures depending on the authority having jurisdiction.

Processing and Manufacturing Operations

When applying fit-for-purpose to processing and manufacturing operations, first you must choose the products you want to make and specify the intended use for each product. This allows you to identify the quality and safety requirements and the potential for diversion for each good. Which in turn allows you to specify your manufacturing, processing and handling protocols for each product related to their quality and safety requirements. Then those specific products with higher risks of diversion requiring extra protocols to be put into place depending on local regulations and/or internal risk assessments, should be considered and your practices modified, as necessary.

Commonsense Regulations

Image if regulations governing a cannabis plant, its parts, products and associated processes were based on the intended use rather than a set of attributes that vary from jurisdiction to jurisdiction. It is complicated enough for regulators to think about a cannabis plant or cannabis product without having to worry about if that cannabis plant or cannabis product can be classified as “marijuana” or “hemp.” Fit-for-purpose removes this complication and simplifies the debate.

Using a fit-for-purpose approach eliminates the need to think about the molecular constituents and focuses the conversation on the intended use rather than one or two specific molecules – in this case, d9-THC, the boogie-man cannabinoid. Considering the intended use promotes consumer and environmental health and safety by allowing operators and regulators to focus on what is most important – quality and safety instead of whether something is “marijuana” or “hemp.”

This idea is what drives the real impact of fit-for-purpose. It creates a path forward to a one plant solution. We have where we are now – with “marijuana” and “hemp” – and where we want to get to – cannabis. It is all one plant with many different applications that can be used to create different commercial products. Fit-for-purpose helps bridge the gap between where we are now and where we want to get to and allows us to start thinking about “marijuana” and “hemp” in the same manner – the intended use.

Fit-for-purpose is a powerful concept that can be used for simplifying regulatory framework development, implementation and compliance. Regulations imposed on a cannabis plant, its parts and products should be appropriate to their intended use, i.e. “fit-for-purpose.” This approach challenges the confines of the current draconian bifurcation of the cannabis plant while working within this system to push the boundaries. It creates a path forward to a one plant solution and begs the question: Is the world ready for this novel concept?

Jane & Leafly Join Forces: An Interview with Socrates Rosenfeld, CEO of Jane

By Aaron Green
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As retailers accept the end of in-store shopping as we know it and start adjusting to e-commerce, an improved and more involved customer experience will be imperative for an e-retailer to grow, let alone stay afloat.

Jane recently announced a strategic partnership that combines Jane’s best-in-class product catalog and business tools with Leafly’s consumer marketplace and reach. Together, the companies will build solutions that empower cannabis retailers with fast and simple online shopping experiences that increase consumer purchase behavior. The partnership will seek to help instill consumer trust in the online shopping experience, build stronger customer acquisition tools for retailers, and help dispensaries grow their ecommerce capabilities with consistency and automation.

This strategic partnership comes after a massive year of growth for both Jane and Leafly. In the past year, Jane powered over 17 million orders and $2 billion in cannabis sales, while Leafly has seen more than 4,500 cannabis retailers in North America leverage their platform to bring new customers through the door.

Socrates Rosenfeld, CEO of Jane

We spoke with Socrates Rosenfeld, CEO of Jane to learn more about e-commerce and online marketplaces and how Jane and Leafly came together as partners, rather than competitors. Prior to Jane, Socrates was an Apache helicopter pilot for the US Army later transitioning to consulting with McKinsey.

Aaron Green: Socrates, thanks for taking the time today. What trends are you seeing and following in the industry?

Socrates Rosenfeld: Always happy to chat about the industry. Thanks for having me.

If you were to ask me that question a year ago, I’d say having a digital footprint was something that would give a dispensary or a brand a nice advantage. Today, it’s a must-have for survival. Where it used to be one or the other; online or offline, now we are able to merge the two by replicating a physical store into a digitized form to extend its reach far beyond its walls.

As things become more digitized, information becomes more necessary to run operations. With that we are able to meet the expectations of the consumers who are accustomed to convenience and curation. The omnichannel experience provides the best of both worlds. Access and ease of search with the ability to pick up or have the product delivered the same day from a locally owned and run business.

Reviews are one of the most important aspects of this unification of online and offline. It is something that is lost in solely offline purchases, that we’re now able to collect and organize. This product information allows us to provide customers the purchasing power to make a well-informed decision.

At Jane, we believe it is possible to create wins for the dispensaries, brands and customers – and digitization creates the opportunity for that to happen. I think there’s no better incubator in the world than the cannabis industry to prove that online and offline retail can work in harmony.

Aaron: Jane is the largest e-commerce platform in North American cannabis and Leafly is the largest marketplace in North American cannabis. What’s the difference between an e-commerce platform and a marketplace?

Socrates: Great question. There is definitely some overlap between the two, which is why it makes so much sense for us to collaborate. Ultimately though, our focus and expertise are different. Jane’s ecommerce platform serves as the industry’s digital infrastructure that pushes digital products across various order origination points like a dispensary’s own website, a brand’s own website and now, Leafly’s marketplace. Paired with Leafly’s industry-leading content and market information, together we can complete the entire online cannabis shopping experience – from product discovery through order fulfillment.

Aaron: At first glance, one might think that Jane and Leafly are competitors. How did you see it differently? And how did this partnership come about?

Socrates: Not only is our tech complementary, but we are aligned on mission – to empower consumers, dispensaries and brands with the integrity of the plant in mind.

We want to make it simple for consumers to reach the products that will be most helpful for them. We want to make it possible for dispensaries and brands, regardless of their size, to be able to compete on an even playing field.

It all comes back to being good stewards of the industry. Education and access create a healthy demand for a diverse range of products. That means that the plant stays in the hands of many – safeguarding it from homogenization.

Aaron: How do consumers benefit from the partnership?

Socrates: It really is all about bringing this industry in line with any other retail vertical and meeting the customer where they are. It unlocks more avenues for customers to discover products and access a vast catalog of information and verified customer reviews. Bottom line, this partnership makes shopping for cannabis as simple as shopping online for everything else in the world, while also ensuring the success of the sellers.

Aaron: When you say the sellers, are you talking about the dispensary or the brands?

Socrates: Both, we want to provide value for the entire ecosystem. We can do that directly for dispensaries and brands by enabling an automated ecommerce platform that they can use to power their own website. At Jane, we know that technology can unlock value for everyone, where it is not a zero-sum game and success for one means success for the other. With Jane, both the dispensaries and the brands win.

Aaron: What kind of regulatory challenges do you face through the partnership?

Socrates: There are no real regulatory challenges for the partnership itself. The entire industry operates under regulatory challenges, but it is those regulations that have been the catalyst for innovation. I see the opportunity for legal online payments and national product distribution to play a large role in shaping the industry soon, and a partnership like this will ensure a seamless transition for the industry as things continue to evolve.

Aaron: Final question. What are you personally interested in learning more about?

Socrates: I’ve always been curious about disruptive models. The companies, not just in tech, but any company that has set out to do things differently and has been able to hold true to a vision. That’s what interests me, and I think I will always have something to learn and draw inspiration from. 

Aaron: Excellent, that’s the end of the interview, Socrates!

Socrates: Thanks, Aaron.

GMPs & Cannabis Manufacturing

By Kathleen May
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Editor’s Note: While CIJ typically omits the word “marijuana” where possible due to antiquated nomenclature and prejudicial connotations, we understand the legal distinction between cannabis containing THC and hemp requires the use of the word when referencing federal government policies and legislative language.

Despite the rapid evolution of the cannabis industry, the assurance of safe manufacturing practices remains unclear.Both the Food and Drug Administration (FDA) and the Drug Enforcement Administration (DEA) have imposed significant hurdles for cannabis operators to remain on the “right side of the law.” Therefore, manufacturers of both hemp and marijuana products have been left to figure things out on their own, or choose to ignore existing guidance because the lack of federal oversight allows them to do so. Inconsistent regulation on manufacturing, packaging, labeling and testing of cannabis products offers the potential for unsubstantiated, non-scientific and often times blatantly false claims on product safety and efficacy.

Science vs. Law

Hemp and marijuana are both species of the Cannabis family, Cannabaceae. Genetically they are identical but are arbitrarily defined by the presence of delta-9 tetrahydrocannabinol (THC). While science does not differentiate between hemp and marijuana, the law does.

The hemp industry declared a small victory with the passing of the Agricultural Act of 2014 (2014 Farm Bill). Under this bill universities and state agriculture departments were allowed to grow hemp under state law. Additionally, “industrial hemp” was officially defined by establishing the legal limit of THC at 0.3% on a dry weight basis. The Agricultural Improvement Act of 2018 (2018 Farm Bill), under the guidance of the United States Department of Agriculture (USDA), took things a few steps further by authorizing the cultivation of hemp and removed hemp and hemp seeds from the CSA. The bill however provides no language that mandates the safe manufacture of hemp-derived consumer goods. The 2018 version also preserved the FDA’s authority to regulate products containing cannabis and cannabis-derived compounds under the Federal Food, Drug, and Cosmetic Act (FD&C Act). To the surprise of most, listing cannabidiol (CBD), even hemp-derived, as an ingredient on consumer product labels remains illegal under the bill. Furthermore, CBD product manufacturers are not protected under the current regulations. Since 2015 the FDA has issued warning letters to firms marketing CBD products as dietary supplements and/or foods, and in December 2018, FDA declared it illegal to introduce food containing CBD (or THC) into interstate commerce, regardless if it is derived from hemp. To date, the only FDA approved CBD product is GW Pharmaceutical’s Epidiolex.

Marijuana remains classified as a Schedule I controlled substance under the CSA. Thirty-six (36) states have approved comprehensive, publicly available medical marijuana programs, and now 14 states have approved adult use programs, with New Jersey passing legislation on February 22, 2021. However, the industry has seen minimal movement toward mandating GMP requirements in the marijuana market. Only a handful of medical programs require manufacturers to follow GMP. Furthermore, the requirements are inconsistent between states and the language in the regulations on how to approach GMP implementation is vague and disjointed. This fragmented guidance supports the complexity and difficulty of enforcing a coherent, standardized and reliable approach to safe manufacturing practices.

What is GMP and Why Should You Care?

Good Manufacturing Practices (GMPs) are a system for ensuring that products are consistently manufactured and controlled according to quality standards and regulatory guidelines. The implementation of a GMP compliant program ensures consumer health and safety, allows manufacturers to understand the intended use of their products, allows manufacturers to defend product specifications as being appropriate, considers the risks to vulnerable populations and minimizes overall business risk. In a nutshell, GMP equals product safety and quality, and defines the responsibilities of the manufacturer to ensure consumers are protected from the distribution of unsafe and ineffective products. Currently, the GMP “landscape” in the cannabis space is complicated. The various “flavors” (food, dietary supplements, cosmetics and drugs/devices) of GMP leave many confused and frustrated when making the decision to implement GMP. Confusion is a result of unclear regulatory requirements as well as operators not fully understanding how to classify or designate the end use of their product(s). Implementing an effective GMP program requires proper planning (both short and long term), financial commitment and qualified resources.

Where Should You Start?

As the regulatory landscape continues to evolve and mature in the cannabis space, your business model must consider GMP implementation if you wish to remain successful and sustainable.

Intended Use

Before you can implement GMP you must first understand what GMP regulations apply to the intended use of your product(s). Are you manufacturing food, beverages or dietary supplements? Get acquainted with the FDA Code of Federal Regulations (CFRs) on GMP. 

Conduct a Gap Assessment

A gap assessment allows you to determine your deficiencies in relation to GMP compliance. The assessment should include, but is not limited to facility design, equipment design, supply chain, risk management and employee training.

Develop an Action Plan

Once the gap assessment is complete a comprehensive action plan will be developed to map out the steps required to achieve GMP compliance. The action plan should follow the SMART Goal principles:

  • Specific (simple, well-defined)
  • Measurable (meaningful)
  • Attainable (achievable, agreed upon)
  • Relevant (resource-based, reasonable and realistic)
  • Timely (time-based, defined due dates)

The plan will include prioritized deliverables, due dates and allocated resources in order to strategically plan and execute and complete the required tasks.

Schedule a Mock GMP Inspection

A mock inspection verifies that the action plan was adequately executed. Hire an experienced resource familiar with related GMPs and QMS to conduct the inspection. A successful mock inspection is a perfect litmus test if the end goal is to achieve GMP certification.

Cannabis manufacturers that ignore the obvious progression toward an FDA-like industry will not survive the long game. Those that embrace the momentum and properly plan to mitigate product and business risk – those who demonstrate integrity and are truly in this space to ensure safe, effective and quality products to consumers will come out on top, gain credibility and secure brand recognition.

References:

  • 21 CFR Part 111, Current Good Manufacturing Practice in Manufacturing, Packaging, Labeling, or Holding Operations for Dietary Supplements.
  • 21 CFR Part 117, Current Good Manufacturing Practice, Hazard Analysis, and Risk-Based Preventive Controls for Human Food and the Food Safety Modernization Act (FSMA).
  • 21 CFR Part 210, Current Good Manufacturing Practice in Manufacturing, Processing, Packing, or Holding of Drugs; General.
  • 21 CFR Part 211, Current Good Manufacturing Practice for Finished Pharmaceuticals.
  • 21 CFR Part 700, Subchapter G-Cosmetics.
  • 21 CFR Part 820, Subchapter H-Medical Devices; Quality System Regulation
  • Congressional Research Service, FDA Regulation of Cannabidiol (CBD) Products, June 12, 2019.
  • United States Food and Drug Administration-Warning Letters, Current Content as of 02/19/2021.

Links:

Learning from The First Wave Part 3: Seven Basic Questions About Local Cannabis Ordinances & Real Estate

By Todd Feldman
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Part One of this series took a look at how the regulated cannabis market can only be understood in relation to the previous medical market as well as the ongoing “traditional” market. Part Two of the series describes how regulation defines vertical integration in California cannabis.

If you are considering getting involved in California cannabis, imagine the following sentence in ten-foot-tall letters made out of recently ignited $20 bills:

Before you put any money down on property, carefully examine the local cannabis ordinance and tax rates. 

This article is written in the form of advice to a newbie cannabis entrepreneur in California, but it will discuss issues that are also of significance to investors, as well as (to various degrees) cannabis entrepreneurs in other states.

Here are seven basic questions that you need to ask about local regulations (in order, except for Number 7).

1. What’s Your Jurisdiction?

If you’re in city limits, it’s the city. If you’re outside city limits, it’s the county.

2. Does the Jurisdiction Allow Cannabis Activities?

If the answer is yes, go to the next question. If the answer is no, pick another jurisdiction.

3. Where Does the Jurisdiction Allow Cannabis Activities?

A zoning ordinance will limit where you can set up shop. The limitation will probably vary by license type.

4. How Does the Local Ordinance Affect Facility Costs?

The short answer is: in many ways. Your local ordinance is a Pandora’s box of legal requirements, especially facility-related requirements.1 Read your local cannabis ordinance very carefully.

Generally speaking, the cannabis ordinance will set out two types of requirements – those that are specific to cannabis and those that apply generally to any business.

Looks great but . . . where are the sprinklers? Does it need a seismic upgrade? How about floor drains?
Photo by Wilhelm Gunkel on Unsplash

Cannabis-specific requirements:

  • Typically incorporate state cannabis laws by reference.
  • Have significant overlaps with state cannabis laws. For example, the state requires commercial-grade locks and security cameras everywhere cannabis may be found on a given premises. Local ordinances generally include similar requirements – keep in mind that you will need to comply with a combined standard that satisfies both state and local requirements.2
  • Vary greatly according to type of activity. For example, manufacturers will need to comply with Health & Safety Code requirements that can have a major impact on construction costs.
  • Vary greatly by jurisdiction when it comes to equity programs.

General requirements:

  • Include by reference building and fire codes, which can require very expensive improvements. Note that this means your facility will be inspected by the building department and the fire department.
  • Can include anything from Americans with Disabilities Act (ADA) requirements to city-specific requirements, such as Design Guidelines.
  • Will be zealously enforced because you’re a cannabis business.

5. What is the Enforcement Policy?

It may be that your local jurisdiction will give you temporary local authorization after meeting some, but not all, of the requirements. For example, you may be able to begin operations once you’ve provided your city or county with your cannabis permit application, a zoning clearance and a business permit. In this jurisdiction, you would be able to bring your building up to code sometime after you begin operations.

On the other hand, your local jurisdiction may require you to meet every requirement – from cannabis-specific security requirements to general building code and ADA requirements – before you can begin operations. Depending on the type of cannabis business (and facility condition), this might be inconsequential. Or it might mean that you will have to pay more than a year’s worth of rent (or mortgage) before you can start making money.

6. Can You Choose a Facility That Saves You Time and Money?

Of course, you won’t have to spend much time or money bringing your facility up to code if it’s already up to code. How likely it is that you will find such a facility varies wildly according to the type of cannabis activity in question. In general:

  • Service-side activities (delivery retail, storefront retail, distribution) are in many respects similar to their non-cannabis counterparts. From a facilities standpoint, the major differences come from security requirements. So, it may be possible to save time and money by choosing a facility that is already up to code for a similar use.
  • Manufacturing activities are trickier, since you will need food-grade facilities and equipment. You may be able to save money by setting up shop in a commercial kitchen.
  • Extraction with volatile solvents is a special (and particularly expensive) case, since it is inherently dangerous and requires special facilities.
  • Outdoor cultivation may be relatively unproblematic if it has an appropriate water source.
  • Indoor cultivation is expensive because of climate-control and lighting requirements. Buildings potentially suitable for large-scale indoor grows frequently come with significant problems. Former warehouses will typically require major power upgrades, while former factories may have inconvenient architecture and/or hidden toxic waste. In all cases, internal reconstruction is likely to be necessary, and will trigger all sorts of building and fire code requirements.

7. What Are the Local Cannabis Taxes?

Cannabis tax rates may be determinative. For example, Oakland imposes a 6.5% gross receipts tax on manufacturers that have gross receipts of less than $5M, and 9.5% on manufacturers that have gross receipts over $5M. In comparison, Santa Rosa only imposes a 1% gross receipts tax on manufacturers.

Local cannabis ordinances and taxes can make or break your business, so you need to understand them before you commit to a location. The seven basic questions listed above are designed to get you started.

This article is the opinion of the author and is not intended to be legal or other advice.

References

  1. For example, see Part II of the City of Oakland’s Administrative Regulations and Performance Standards, and The City of Los Angeles’s Rules and Regulations for Cannabis Procedures No. 3 (A)(14).
  2. For example, compare 16 CCR § 5044 (“Video Surveillance System”) with The City of Los Angeles’s Rules and Regulations for Cannabis Procedures No. 10 (A)(7).

Cannalytics Becomes First Accredited Cannabis Lab in Puerto Rico

By Cannabis Industry Journal Staff
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In a press release sent out this week, A2LA announced they have accredited Cannalytics to ISO 17025:2017. With the finalized accreditation in December 2020, Cannalytics is the first cannabis testing laboratory in Puerto Rico to get accredited to the standard.

Jorge Diaz, owner and director of Cannalytics, says their two main objectives are business excellence and quality. “Being the first ISO/IEC 17025 accredited cannabis laboratory in Puerto Rico affirms our mission to provide continuous quality science to our clients while safeguarding the health of Puerto Rico’s medical cannabis patients,” says Diaz.

Cannalytics is a medical cannabis and hemp testing lab based in San Juan, Puerto Rico. They offer compliance and R&D analysis in their suite of testing services.

“We are glad to see the continued growth of our cannabis program in a new territory, which further promotes the value that accreditation adds in ensuring quality in this emerging industry,” says Anna Williams, A2LA Accreditation Supervisor.

FAQs: How Cannabis Businesses Can Avoid TCPA Liability

By Artin Betpera
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As the cannabis industry continues to experience growth in markets across the country, cannabis businesses are becoming an ever-increasing target of plaintiff’s lawyers in Telephone Consumer Protection Act (TCPA) lawsuits. Text messaging provides a potent channel of customer engagement, but at the same time is subject to strict regulations under the TCPA, with violators subject to steep statutory penalties of $500-$1,500 per message. While one-off cases won’t typically break the bank, that’s far from the case when many thousands of texts are bundled together in a class action. And this potential for big paydays means plaintiff’s lawyers have a financial incentive to file cases as class actions whenever they can.

Some well-known names in cannabis have been the target of TCPA class action. Cannabis delivery service Eaze has battled some fairly well-publicized TCPA class actions in the past couple of years. There has also been an assortment of dispensaries across several western states that have been the targets of similar lawsuits. Notably, these lawsuits share a common thread: they are based on marketing or promotional text messages sent to consumers.

In this landscape, firing off texts without the proper compliance safeguards is a game of roulette. At some point in time, one or more messages will invariably land in the wrong hands, sparking an expensive, high-stakes class action. In this competitive space, there are far more productive things any cannabis business can be doing than spending the time and resources on this type of lawsuit.

So how can your business avoid being caught in a TCPA trap? The following Q&A will walk you through some of the questions you should be asking if you are currently texting, or planning to text your customer base for marketing purposes. One quick note before starting: the TCPA has different rules for different types of messages (such as informational versus marketing messages). This Q&A will cover the distinction between these types of messages, but focuses on the rules around marketing messages since these are rules cannabis businesses get tripped up in most frequently when sued for TCPA violations.

Question: How do I know if the TCPA applies to me?

Answer: Are you texting your customers? If so, are you using some kind of platform that lets you send multiple texts at once? If you answered yes to both, then the TCPA most likely applies to you.

In short, the TCPA prohibits calling or sending texts to cell phones using an Automatic Telephone Dialing System (ATDS). Without getting into the many nuances of how courts have interpreted the legal definition of that term (and risk boring you to death), you can assume that unless you’re hitting send on each and every single text that goes to your customers, that you’re using an ATDS, and your texts are subject to the TCPA.

Q: So it looks like the TCPA applies to me. What now?

A: If you don’t have a compliance plan in place, now’s the time to implement one. To start, take stock of (a) how you’re sending texts; (b) who you’re texting; (c) where you obtained their phone number; and (d) whether you have their prior express written consent. That last part is key: under the TCPA, if you’re sending any text messages to your customers for “telemarketing” purposes, you’ll need what the TCPA calls “prior express written consent”.

Q: But I’m a cannabis business, not a telemarketer. Why should I worry about the TCPA again?

A: The TCPA’s rules requiring prior express written consent apply when the text is sent for “telemarketing” purposes, defined as “the initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services, which is transmitted to any person.” Put simply, if you are sending texts to market or promote something you sell, then it’s likely the message will be considered “telemarketing” under the law. In contrast, if you’re sending a text for purely information purposes, such as sending a receipt for a transaction, or advising on the status of a delivery, then those message are still regulated by the TCPA, but subject to a more relaxed consent standard (a topic for another article).

Q: What do I need to do to get prior express written consent from my customers?

A: It’s important to know that prior express written consent is a technical, legally defined term that requires the caller be provided a written disclosure containing certain information and disclosures, which they “sign.” There are three key components to prior express written consent:

First, the consent agreement has to be in a signed writing. The law affords some flexibility here, allowing callers to obtain consent digitally through a number of mediums including web-based and electronic forms. If structured properly, consent may even be obtained through a text message flow.

Second, the consent agreement has to say certain things. It must authorize the caller to deliver advertisements or marketing messages using an ATDS, it must specify the phone number to which messages are being authorized, and it must say that the consumer doesn’t have to provide their consent as a condition to receiving goods or services.

Third, the disclosures must be “clear and conspicuous”. There’s no real rocket science here, but this is a very important part of the rule. It’s challenging to enforce an agreement that’s hard for a consumer to find or see, meaning the consent disclosures can’t be hidden away, in imperceptible font, or baked into another legal document (such as terms and conditions).

Q: I have a great customer contact database, but I don’t think I check all the boxes for prior express written consent. Can I still text them with specials and promotions?

A: No. At least not with your usual automated or mass-texting platform. But with some legwork, you can leverage your existing database and obtain consent. It’s not ideal, but it’s better than taking the risk of texting in this situation.

Let’s start with the fact that people like to get deals and specials on cannabis products, so there will likely be interest across your customer base for signing up. And with the flexibility afforded by the E-SIGN Act, businesses can try multiple avenues in obtaining prior express written consent from existing customers. This could include a call-to-action campaign, where consumers can initiate a text message consent flow by texting a keyword to a short code. The TCPA does not regulate e-mails, so businesses can consider an e-mail campaign that encourages their customers to follow a link that takes them to a web-based consent form. For businesses with storefronts, customers can be encouraged to sign up for texts on-site by filling out and submitting a form on a tablet device. Bottom line, there’s room for some creativity in designing campaigns to enrich your existing customer database with the necessary consent to send marketing texts.

Q: What happens when a consumer opts out of receiving texts?

A: You should stop all texts to their phone number unless and until they opt back in to receiving texts. Under the TCPA, a consumer has the right to revoke their consent, and any text message sent after an opt-out will violate the TCPA. This means it’s important to have clear opt-out instructions in every message you send (i.e. text stop to stop), and to ensure you have the proper systems in place to automatically suppress any further texts to the consumer’s phone number following an opt out.

Q: If I don’t follow these rules, what are the odds of getting sued for a violation?

A: Pretty high in my opinion. As mentioned, the TCPA is a very lucrative statute for Plaintiff’s lawyers. There are several thousand TCPA cases filed in federal courts each year, and lately cannabis businesses are becoming an increasing share of the defendants named in those suits. Additionally, the TCPA has a four-year statute of limitations, meaning exposure for non-compliant practices has a really long tail. It’s far easier to develop and execute a compliance plan up front, than to take on the risk that comes without one.

Q: Is there anything else I can be doing to protect my business?

Absolutely. Your TCPA compliance policy should be one layer of a holistic approach to legal compliance. Businesses have other tools at their disposal, such as arbitration provisions and class action waivers, that they can build into their consent-gathering process to further protect themselves in the event of a legal dispute.

Q: Any other tips to help keep my business out of the TCPA fracas?

A: Yes. Lots. More than I could fit into just this one article. But my goal here was to get you to think in the right direction when it comes to the TCPA, if you aren’t already. While I tried to make the basics of this as straightforward as possible, there are plenty of grey areas and nuance when it comes to compliance (especially when you inject the real world into the situation). This is where having lawyer experienced in this arena can come in really handy to vet your disclosures, review your compliance processes, and help you implement other risk mitigation strategies.

TCPA claims have become the cost of doing business when contacting consumers on their cell phones. But by being proactive, businesses have ample opportunity to mitigate their risk, and protect themselves in the event the legality of their text message campaigns is challenged.

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THC Remediation of Hemp Extracts

By Darwin Millard
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extraction equipment

Remediation of delta-9 tetrahydrocannabinol (d9-THC) has become a hot button issue in the United States ever since the Drug Enforcement Agency (DEA) released their changes to the definitions of marijuana, marijuana extract, and tetrahydrocannabinols exempting extracts and tetrahydrocannabinols of a cannabis plant containing 0.3% or less d9-THC on a dry weight basis from the Controlled Substances Act. That is because, as a direct consequence, all extracts and tetrahydrocannabinols of a cannabis plant containing more than 0.3% d9-THC became explicitly under the purview of the DEA, including work-in-progress “hemp extracts” that because of the extraction process are above the 0.3% d9-THC limit immediately upon creation.

The legal ramifications of these changes to the definitions on the “hemp extracts” marketplace will not be addressed. Instead, this article focuses on the amount of d9-THC that is available in the plant material prior to extraction and tracks a “hemp extract” from the point it falls out of compliance to the point it becomes compliant again and stresses the importance of accurate track-n-trace protocols at the processing facility. The model developed to support this article was intended to be academic and was designed to follow the d9-THC portion of a “hemp extract” through the lifecycle of a typical CO2-based extract from initial extraction to THC remediation. A loss to the equipment of 2% was used for each step.

Initial Extraction

For this exercise, a common processing scenario of 1000 kg of plant material at 10% cannabidiol (CBD) and 0.3% d9-THC by weight was modeled. This amount, depending on scale of operations, can be a facility’s total capacity for the day or the capacity for a single run. 1000 kg of plant material at 0.3% d9-THC has 3 kg of d9-THC that could be extracted, purified, and diverted into the marketplace. CO2 has a nominal extraction efficiency of 95%, meaning some cannabinoids are left behind in the plant material. The same can be said about the recovery of the extract from the equipment. Traces of extract will remain in the equipment and this little bit of material, if unaccounted for, can potentially open an operator up to legal consequences. Data for the initial extraction is shown in Image 1.

Image 1: Summary Data Table for Typical CO2-based Extraction of Phytocannabinoids

As soon as the initial extract is produced it is out of compliance with the 0.3% d9-THC limit to be classified as a “hemp extract”, and of the 3 kg of d9-THC available, the extract contains approx. 2.8 kg, because some of the d9-THC remains in the plant material and some is lost to the equipment.

Dewaxing via Winterization and Solvent Removal

Dewaxing a typical CO2 extract via winterization is a common process step. For this exercise, a wax content of 30% by weight was used. A process efficiency of 98% was attributed to the wax removal process and it was assumed that 100% of the loss can be accounted for in the residue recovered from the equipment rather than in the removed waxes. Data for the winterization and solvent recovery are shown in Image 2 and 3.

Image 2: Summary Data Table for Typical Winterization of a CO2 Extract
Image 3: Summary Data Table for Solvent Removal from a CO2 Extract

Two things occur during winterization and solvent removal, non-target constituents are removed from the extract and there is compounded loss from multiple pieces of process equipment. These steps increase the concentration of the d9-THC portion of the extract and produce two streams of noncompliant waste.

Decarboxylation & Devolatilization

Most cannabinoids in the plant material are in their acid form. For this exercise, 90% of the cannabinoids were considered to be acid forms. Decarboxylation is known to produce a mass difference of 87.7%, i.e. the neutral forms are 12.3% lighter than the acid forms. Heat was modeled as the primary driver and a process efficiency of 95% was used for the conversion rate during decarboxylation. To simplify the model, the remaining 5% acidic cannabinoids are presumed destroyed rather than degraded into other compounds because the portion of the cannabinoids which get destroyed versus degrade into other compounds varies from process to process.

Devolatilization is the process of removing low-molecular weight constituents from an extract to stabilize it prior to distillation. Since the molecular constituents of cannabis resin extracts vary from variety to variety and process to process, the extracts were assumed to consist of 10% volatile compounds. The model combines the decarboxylation and devolatilization steps to account for complete decarboxylation of the available acidic cannabinoids and ignores their weight contribution to the volatiles collected during devolatilization. Destroyed cannabinoids result in an amount of loss that can only be accounted for through a complete mass balance analysis. Data for decarboxylation and devolatilization are shown in Image 4.

Image 4: Summary Data Table for Decarboxylation and Devolatilization of a CO2 Extract

As the extract moves along the process train, the d9-THC concentration continues to increase. Decarboxylation further complicates traceability because there is both a known mass difference associated with the process and an unknown mass difference that must be calculated and justified.

Distillation

A two-pass distillation was modeled. On each pass a portion of the extract was removed to increase the cannabinoid concentration in the recovered material. Average data for distilled “hemp extracts” was used to ensure the model did not over- or underestimate the concentration of the cannabinoids in the distillate. The variables used to meet these data constraints were derived experimentally to match the model to the scenario described and are not indicative of an actual distillation. Data for distillation is shown in Image 5.

Image 5: Summary Data Table for Distillation of a Decarboxylated and Devolatilized Extract

After distillation, the d9-THC concentration is shown to have increased by 874% from the original concentration in the plant material. Roughly 2.2 kg of the available 3 kg of d9-THC remains in the extract, but 0.8 kg of d9-THC has either ended up in a waste stream or walking out the door.

Chromatography – THC Remediation Step 1

Chromatography was modeled to remove the d9-THC from the extract. Because there are several systems with variable efficiency rates at being able to selectively isolate the d9-THC peak from the eluent stream, the model used a 5% cut-off on the front-end and tail-end of the peak, i.e. 5% of the material before the d9-THC peak and 5% of the material after the d9-THC peak is assumed to be collected along with the d9-THC. Data for chromatography is shown in Image 6.

Image 6: Summary Data Table for d9-THC Removal using Chromatography

After chromatography, a minimum of three products are produced, compliant “hemp extract”, d9-THC extract, and noncompliant residue remaining in the equipment. The d9-THC extract modeled contains 2.1 kg of the available 3 kg in the plant material, and is 35% d9-THC by weight, an increase of 1335% from the distillation step and 11664% from the plant material.

CBN Creation – THC Remediation Step 2

For this exercise, the d9-THC extract was converted into cannabinol (CBN) using heat rather than cyclized into d8-THC, but a similar model could be used to account for this scenario. The conversion rate of the cannabinoids into CBN through heat degradation alone is low. Therefore, the model assumes half of the available cannabinoids in the d9-THC extract are converted to CBN. The entirety of the remaining portion of the cannabinoids are assumed to convert to some form of degradant rather than a portion getting destroyed. Data for THC destruction is shown in Image 7.

Image 7: Summary Data Table for THC Destruction through Degradation into CBN

Only after the CBN cyclization step has completed does the product that was the d9-THC extract become compliant and classifiable as a “hemp extract.”

Image 8: Summary Data Table for Reconciliation of the d9-THC Portion of the Hemp Extract

Throughout the process, from initial extraction to the final d9-THC remediation step, loss occurs. Of the 3 kg of d9-THC available in the plant material only 2.1 kg was recovered and converted to CBN. 0.9 kg was either lost to the equipment, destroyed in the process, attributable to the mass difference associated with decarboxylation, or was never extracted from the plant material in the first place. All of these potential areas of product loss should be identified, and their diversion risk fully assessed. Not every waste stream poses a risk of diversion, but some do; having a plan in place to handle waste the DEA considers a controlled substance is essential. Without a track-n-trace program following the d9-THC and identifying the potential risk of diversion would be impossible. The point of this is not to instill fear, instead the intention is to shed light on a very real issue “hemp extract” producers and state regulators need to understand to protect themselves and their marketplace from the DEA.

New Guidance on Waste Disposal for Hemp Producers

By Stephanie McGraw, Emily Sellers
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On January 15, 2021, the USDA published its final rule on US hemp production. The rule, which becomes effective on March 22, 2021, expands and formalizes previous guidance related to waste disposal of noncompliant or “hot” crops (crops with a THC concentration above .3 percent). Importantly for the industry, the new disposal rules remove unduly burdensome DEA oversight and provides for remediation options.

Producers will not be required to use a DEA reverse distributor or law enforcement to dispose of noncompliant plants. Instead, producers will be able to use common on-farm practices for disposal. Some of these disposal options include, but are not limited to, plowing under non-compliant plants, composting into “green manure” for use on the same land, tilling, disking, burial or burning. By eliminating DEA involvement from this process, the USDA rules serve to streamline disposal options for producers of this agricultural commodity.

Alternatively, the final rule permits “remediation” of noncompliant plants. Allowing producers to remove and destroy noncompliant flower material – while retaining stalk, stems, leaf material and seeds – is an important crop and cost-saving measure for producers, especially smaller producers. Remediation can also occur by shredding the entire plant to create “biomass” and then re-testing the biomass for compliance. Biomass that fails the retesting is noncompliant hemp and must be destroyed. The USDA has issued an additional guidance document on remediation. Importantly, this guidance advises that lots should be kept separate during the biomass creation process, remediated biomass must be stored and labeled apart from each other and from other compliant hemp lots and seeds removed from non-compliant hemp should not be used for propagative purposes.

The final rules have strict record keeping requirements, such rules ultimately protect producers and should be embraced. For example, producers must document the disposal of all noncompliant plants by completing the “USDA Hemp Plan Producer Disposal Form.” Producers must also maintain records on all remediated plants, including an original copy of the resample test results. Records must be kept for a minimum of three years. While USDA has not yet conducted any random audits, the department may conduct random audits of licensees.

Although this federal guidance brings some clarity to hemp producers, there still remains litigation risks associated with waste disposal. There are unknown environmental impacts from the industry and there is potential tort liability or compliance issues with federal and state regulations. For example, as mentioned above, although burning and composting disposal options for noncompliant plants, the final rule does not address the potential risk for nuisance complaints from smoke or odor associated with these methods.

At the federal level, there could be compliance issues with the Resource Conservation and Recovery Act (RCRA), Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and ancillary regulations like Occupation Safety and Health Administration (OSHA). In addition to government enforcement under RCRA and CERCLA, these hazardous waste laws also permit private party suits. Although plant material from cultivation is not considered hazardous, process liquids from extraction or distillation (ethanol, acetone, etc.) are hazardous. Under RCRA, an individual can bring an “imminent and substantial endangerment” citizen suit against anyone generating or storing hazardous waste in a way the presents imminent and substantial endangerment to health or the environment. Under CERCLA, private parties who incur costs for removal or remediation may sue to recover costs from other responsible parties.

At the state level, there could be issues with state agency guidance and state laws. For example, California has multiple state agencies that oversee cannabis and hemp production and disposal. CA Prop 65 mandates warnings for products with certain chemicals, including pesticides, heavy metals and THC. The California Environmental Quality Act (CEQA) requires the evaluation of the environmental impact of runoff or pesticides prior to issuing a cultivation permit. Both environmental impact laws permit a form of private action.

Given the varied and evolving rules and regulation on hemp cultivation, it remains essential for hemp producers to seek guidance and the help of professionals when entering this highly regulated industry.

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Jazz Pharmaceuticals to Acquire GW Pharma

By Cannabis Industry Journal Staff
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Last week, GW Pharmaceuticals (Nasdaq: GWPH) announced they have entered into an agreement with Jazz Pharmaceuticals (Nasdaq: JAZZ) for Jazz to acquire GW Pharma. Both boards of directors for the two companies have approved the deal and they expect the acquisition to close in the second quarter of 2021.

GW Pharma is well-known in the cannabis industry as producing the first and only FDA-approved drug containing CBD, Epidiolex. Epidiolex is approved for the treatment of seizures in rare diseases like severe forms of epilepsy. GW is also currently in phase 3 trials seeking FDA approval for a similar drug, Nabiximols, that treats spasms from conditions like multiple sclerosis and spinal cord injuries.

Jazz Pharmaceuticals is a biopharmaceutical company based in Ireland that is known for its drug Xyrem, which is approved by the FDA to treat narcolepsy.

Bruce Cozadd, chairman and CEO of Jazz, says the acquisition will bring together two companies that have a track record of developing “differentiated therapies,” adding to their portfolio of sleep medicine and their growing oncology business. “We are excited to add GW’s industry-leading cannabinoid platform, innovative pipeline and products, which will strengthen and broaden our neuroscience portfolio, further diversify our revenue and drive sustainable, long-term value creation opportunities,” says Cozadd.

Justin Gover, CEO of GW Pharma, says the two companies share a vision for developing and commercializing innovative medicines, with a focus on neuroscience. “Over the last two decades, GW has built an unparalleled global leadership position in cannabinoid science, including the successful launch of Epidiolex, a breakthrough product within the field of epilepsy, and a diverse and robust neuroscience pipeline,” says Gover. “We believe that Jazz is an ideal growth partner that is committed to supporting our commercial efforts, as well as ongoing clinical and research programs.”

New Cannabis Coalition Launches to Advance Cannabis Reform

By Cannabis Industry Journal Staff
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According to a press release published on February 8, a number of associations, advocacy organizations and cannabis businesses launched the U.S. Cannabis Council (USCC), which they claim is the largest coalition of its kind.

The 501(c)4 nonprofit organization goals are to advance social equity and racial justice, and end federal cannabis prohibition, according to their debut press release. The USCC says it will focus on federal reforms that achieve those goals above as well as promoting a safe and fair cannabis market on a national level.

The USCC’s Interim CEO is Steven Hawkins, who is also the executive director of the Marijuana Policy Project, which is one of the founding members of the USCC. “USCC is a unified voice advocating for the descheduling and legalization of cannabis,” says Hawkins. “Legalization at both the state and federal level must include provisions ensuring social equity and redress for harms caused to communities impacted by cannabis prohibition.”

In the press release, Representative Earl Blumenauer (D-OR) is quoted saying he is looking forward to working with the USCC on Capitol Hill. “As founder and co-chair of the Congressional Cannabis Caucus, I’ve seen firsthand that our most successful cannabis wins have been secured by a team,” says Rep. Blumenauer. “That’s why I am glad to see this first-of-its-kind alliance. We have a unique opportunity in the 117th Congress to advance cannabis reform, but we must remain united to create the change we know is possible.”

Founding members of the USCC include Acreage Holdings, Akerna Corp, the American Trade Association of Cannabis and Hemp, Canopy Growth, the Cannabis Trade Federation, Cresco Labs, MedMen, Marijuana Policy Project, PharmaCann, Vireo, Wana and much more. For a full list of its founding members, visit their website here.