Tag Archives: legal

New Taxes for California Cannabis Industry

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

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

A Brief History of California Cannabis Tax Regulations.

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

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

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

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

Midterm Results Continue Overwhelming Support for Cannabis Industry

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

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

San Francisco

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

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

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

Emeryville

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

Oakland

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

Lake County

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

Mountain View

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

Lompoc

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

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

Riverbank

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

The Chaos Continues

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

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

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

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

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

WSLCB

Washington State Regulators Crack Down On Diversion

By Aaron G. Biros
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WSLCB

For the second time in six months, the Washington State Liquor and Cannabis Board (WSLCB) took swift and severe action on a cannabis business licensee operating in the black market. The regulatory agency issued an emergency license suspension for Port Angeles’ North Coast Concentrates, which are effective for 180 days, during which time regulators plan on revoking the license altogether.

WSLCBAccording to a release emailed last week, the violation was uncovered during a routine traffic stop. “On September 20, 2018 an employee of North Coast Concentrates was pulled over by Lower Elwha Police, during the course of the traffic stop officers found 112 grams of traceable marijuana concentrates, three large jars and a large tote bin of untraced dried marijuana flower,” reads the release. “The products were not manifested in the state traceability system. Subsequent investigation by WSLCB officers revealed that the untraced product had been removed from the licensees grow operation and that the traced concentrates were returned from a marijuana retailer in Tacoma several weeks earlier.”

The release goes on to add that when regulators investigated the matter, they found text messages indicating the license holder’s complicity in the act. When the WSLCB suspended the license, officers seized “556 pounds of marijuana flower product, 24 pounds of marijuana oil and 204 plants from both locations.” Regulators say, “the severity of these violations and the risk of diversion” is the reason for the emergency suspension and product seizures.

According to the end of the release, The WSLCB issued one emergency suspension in 2017, and six in 2018. One of those was roughly six months ago in July when regulators issued an emergency suspension for a Tacoma-based cannabis business for the same reason as the most recent one- diversion.

The WSLCB release email from July
The WSLCB release email from July

The enforcement branch of the WSLCB acted on a complaint and inspected Refined Cannabinoids where they found “numerous and substantial violations including full rooms of untagged plants, clones and finished product,” reads a release emailed back in July. “During the course of the inspection officers discovered and seized 2,569 marijuana plants, 1,216 marijuana plant clones, 375.8 lbs. of frozen marijuana flower stored in 11 freezer chests, 3,423 0.5 gram marijuana cigarettes, and 97.5 lbs. of bulk marijuana flower without the requisite traceability identifiers.”

That July release also states that enforcement officers found evidence of diversion to the black market, in addition to the company not tracking their product. “Traceability is a core component of Washington’s system and essential for licensee compliance,” says Justin Nordhorn, WSLCB chief of enforcement. “If our licensees fail to track their product they put their license in jeopardy.”

aurora logo

Aurora Cannabis Burnishes Its Medical and Recreational Game

By Marguerite Arnold
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aurora logo

It has been a busy couple of weeks for Aurora executives, no matter what else is going on. And all signs indicate that Aurora is not only keeping its pressure on major competitors Tilray and Canopy in particular, but playing a highly sophisticated political and global game right now.

Where the company in other words is not “winning,” Aurora is clearly establishing an effective global footprint that is ensuring that it is at least keeping pace with the speed of market development and even breaking new ground more than once recently.

The Aurora Tour Of The Global Stage In Late October

Forget what is going on in Canada for a moment, if that is possible. Global investors, certainly, in the aftermath of the post legalization glow, certainly seem to be. So are the big LPs like Aurora. They are looking elsewhere, to medical markets and to Europe, for more clarity on where the market will go.

Aurora certainly has been, even if unwittingly, caught in the middle of that conversation, in part because of where and how the company has been positioning itself lately.

Last time around, the company announced it was in the top ten finalists. This time, it is also expected to do well.That said, what Aurora is doing, like everyone else in this space right now, is playing a global game of hopscotch in terms of both raising equity and then where that capital gets spent. Aurora’s recent victories, certainly this year, indicate that it will continue to be a formidable presence in the room.

For now, however, it is clear that retail investors are suddenly cautious and institutional investors are clearly still very leery. So where does that leave Aurora?

Road Trip To Germany

CEO Cam Battley at a conference in Frankfurt
CEO Cam Battley at a conference in Frankfurt

Consider these interesting series of events. Canadian recreational reform “goes live” on October 17. Instead of sticking around Canada, however, CEO Cam Battley spoke at a recent investor road show for the Canadian public cannabis companies over the weekend of October 21-22 in Frankfurt, Germany. Three well placed, but anonymous industry sources confirmed to Cannabis Industry Journal that a meeting between all the major cannabis companies in Frankfurt over the weekend (including not only Aurora, but Wayland Corporation, Canopy, Aphria, Green Organic Dutchman and Hexo) was either planned or attempted with federal Minister of Health, Jens Spahn sometime during this period of time.

Even more interestingly, this conference had clearly been planned to coincide with the original due date of the new German cultivation bid, in which Aurora is also well positioned. Last time around, the company announced it was in the top ten finalists. This time, it is also expected to do well.

Whenever the bid finally is decided, that is.

As of October 23, the day of the IPO in New York and the day after the conference in Frankfurt concluded, news circulated that the bid had been delayed a second time, with rumours of further lawsuits swirling.

IPO In New York

That day, Tuesday October 23, Aurora announced its IPO on the NYSE, not in Frankfurt after announcing this possibility the month before. This is significant, namely because all of the cannabis companies listed here are essentially in what is known, colloquially, auf Deutsch, as being “in the dog house.” Namely, financial regulators are looking closely at listed companies’ profiles on the exchange. If a listed company is too associated with the recreational industry, trades will be barred from clearing by Clearstream, the daughter company of the Deutsche Börse and located in Luxembourg. Earlier in the summer, all of the major LPs were briefly on the restricted list.

The next day after Canadian recreational reform became reality in fact, on October 18, the Deutsche Börse made the latest in a series of comments regarding its intentions about their future decisions on the clearing of cannabis stocks. Namely, that at their discretion, they can prevent the clearing of stock purchases of a cannabis company at any time. In other words, essentially delisting the stock.

Aurora, with its ties to mainstream, “adult use” in North America, is absolutely affected by the same, certainly in the short term. Including of course, all those rumours about Coke’s interest in the company (still unconfirmed by both Aurora and Coke).aurora logo

Looking Toward Poland

Yet here is where Aurora stays interesting. Just two days after its debut on the NYSE, the company announced that Aurora would be the first external company to be allowed to import medical cannabis to Poland (to a Warsaw hospital and pain clinic). The same day, incidentally, as the Polish government announced that medical cannabis could indeed begin to be imported.

This came after a stunning move earlier in the year when the company bagged the first medical cultivation license in Italy.

Clearly, Aurora is keeping good, if not powerful, company. And that will position it well in the long run. Even if, for now, its IPO on the NYSE got off to a less than powerful start.

Why Does Aurora Stand Out?

Like all the major cannabis companies on the global stage right now, Aurora understands what it takes to get into the room (wherever and whatever that room might be) in politically and regulatorily astute ways, much like Tilray. Both companies are also very similar in how they are continuing to execute market entry and public market strategy. Tilray, it should be remembered, went public over the summer, in North America too, right around the announcement of the final recreational date in Canada.

And while Aurora is clearly playing a still retail-oriented stock market strategy, it has proved over the last 18 months that it is shaping up to be a savvy, political player on the cusp of legislative change in multiple European states so far. They are courting the much bigger game now of institutional investment globally.

Richard Naiberg
Quality From Canada

Protecting Intellectual Property in Canada: A Practical Guide, Part 6

By Richard Naiberg
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Richard Naiberg

Editor’s Note: This is the sixth and final article in a series by Richard Naiberg where he discusses how cannabis businesses can protect their intellectual property in Canada. Part 1 introduced the topic and examined the use of trade secrets in business and Part 2 went into how business owners can protect new technologies and inventions through applying for patents. Part 3 raised the issue of plant breeders’ rights and Part 4 discussed trademarks and protecting brand identity. Part 5 took a detailed look at copyright laws for cannabis companies and how they can protect works of creative expression.  

In Part 6, the conclusion of this series, we take a look at nine key takeaways from the series:We hope you enjoyed this series and found the information provided to be useful. If you’d like to learn more about intellectual property law in Canada as it relates to the cannabis industry, feel free to reach out to Richard Naiberg at rnaiberg@goodmans.ca 

Summary of Practical Considerations For Cannabis Producers

  1. Cannabis producers should establish procedures by which the technological innovations achieved by their employees are kept confidential and are quickly reported to management for consideration as to whether the innovation should be protected as a trade secret, by patent, by plant breeder’s right or not protected at all.
  2. If a trade secret protection is desired, the producer must invoke systems that limit knowledge of the secrets to those in the company with a need to know it, and make sure that departing employees understand their obligations of confidentiality and do not take any documentation of the secrets with them when they go.
  3. The nature of the innovation under consideration will drive the choice between a patent and a plant breeder’s right. Plant breeder’s rights only protect whole plants. Patents protect other innovations, subject to the limitations described above. Patents may be drafted to protect whole plants, albeit indirectly: a patent on genetic sequences or engineered cell can be infringed by a whole plant that incorporates those sequences or cells.
  4. The decision as to whether to file an application for a patent or a plant breeder’s right, and in what jurisdiction(s), should be made with careful consideration of whether the producer will employ the invention/variety in its business (and in what countries), as well as the potential value of the invention/variety to other producers who may eventually become licensees of the resulting patent(s) or plant breeder’s right.
  5. Cannabis producers must remain up-to-date on patent and plant breeder’s rights applications that are filed in the jurisdictions in which they operate so as to be in a position to identify patents and plant breeder’s rights that will potentially affect their freedom to operate. Such due diligence will also allow the producer to predict the technological and business focuses of their competitors.
  6. Cannabis producers must select a trademark that is immediately distinctive or can quickly become distinctive of its goods and services. The trademarks ought to be fully available, in the sense that they are not in use by any competing business in any of the jurisdictions in which the producer intends to do business. Ideally, the trademark ought to be available as a domain name to ensure that there is no confusion on the Internet.
  7. Once the trademark is selected, the cannabis producer should make consistent and extensive use of that trademark. The more consistent and ubiquitous the use, the stronger the producer’s brand and trademark will be.
  8. The owner of the trademark must routinely conduct searches to ensure that no third party is using a trademark that is similar that of the owner. If such unauthorized use is discovered, the owner must act quickly to restrain that use or potentially license the use.
  9. Cannabis producers ought to contract to ensure that they are the first owners or assignees of any copyright subsisting in the artwork, literature and websites the company creates or hires other to create. Producers ought also to obtain waivers of the moral rights of any authors of this work.

We hope you enjoyed this series and found the information provided to be useful. If you’d like to learn more about intellectual property law in Canada as it relates to the cannabis industry, feel free to reach out to Richard Naiberg at rnaiberg@goodmans.ca

Midterm Elections Bring Green Wave of Legalization

By Aaron G. Biros
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On Election Night in America, pundits on the news media were reporting on the blue wave of Democrats taking back control of the House of Representatives, a less-discussed green wave made its way through the ballots in a number of states. While not as big of a tidal force as we saw back in 2016, this election still brought a handful of states on the cannabis legalization train.

Measure 3 in North Dakota failed to get enough votes, but many seem to think this was somewhat expected, as the state is still working on implementing their medical framework years later and that this new measure was less than perfect.

However, here comes the good news: Missouri voters passed Amendment 2, which legalizes, regulates and taxes medical cannabis. Very interestingly, this measure includes language allowing for caregivers to grow up to six plants. Check out Tom Angell’s article on Forbes to learn more.

In Utah, Proposition 2 passed by a narrower margin than other states, but legislators in the state are already full steam ahead on legalizing medical cannabis. They planned to pass a bill with the same language in Prop 2 if it didn’t get enough votes. Regardless, Utah will begin working on implementing a regulatory framework for legal medical cannabis, per the voters’ request.

While the 2016 election saw a handful of states legalize recreational cannabis, only one state did so this time around: Michigan. Voters in Michigan passed Proposal 1, making it the ninth state in the country to legalize and regulate recreational cannabis. According to Matthew Schweich, deputy director of the Marijuana Policy Project, Michigan’s legalization is a major milestone for the country. “The passage of Proposal 1 is a major milestone for marijuana policy reform in the U.S. Michigan will be the first state in the Midwest to end marijuana prohibition and replace it with a system in which marijuana is regulated for adult use,” says Schweich. “Michigan is going to demonstrate that regulating marijuana works, and it will set a strong example for other states in the region and around the country.”

Why Does GDPR Matter for The Cannabis Industry?

By Marguerite Arnold
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The global cannabis industry is hitting thorny regulatory challenges everywhere these days as the bar is raised for international commerce. First it was recognition that the entire production industry in Canada would basically have to retool to meet European (medical and food) standards. And that at least for now for the same reasons, American exports are basically a no go.

However, beyond this, the battle over financial reporting and other compliance of a fiscal kind has been a hot topic this year on European exchanges.

As of this summer, (and not unrelated to the other two seismic shifts) there is another giant in the room.

If you haven’t heard about it yet, welcome to the world of EU GDPR (European Union General Data Privacy Regulation).

The German version is actually Europe’s highest privacy standard, which means for the cannabis industry, this is the one that is required for operations here across the continent if you are in this business.

What is it, and what does it mean for the industry?

GDPR – The Elevator Pitch

Here is why you cannot ignore it. The regulation affects bankers as much as growers, distributors as much as producers and of course the entire ecosystem behind medical production and distribution across Europe and actually far beyond it. Starting of course, with patients but not limited to them. The law in essence, applies to “you” whoever you are in this space. That is why it becomes all that much more complicated in the current environment.

While this is complex and far reaching, however, there are a couple of ways to think about this regulation that can help you understand it and how to manage to it (if not innovate with it).

The first is, to American audiences at least, that GDPR is sort of like HIPAA, the federal American privacy civil rights statute that governs medical privacy law. Except, of course, this being Europe, it is far more robust and far reaching. It touches every aspect of electronic privacy including data storage, retention, processing and security that is applicable to modern life. And far, far, beyond just “patients.”

On the marketing side, GDPR is currently causing no end of headaches. Broadly, the legislation, which came into force this year, with real teeth (4% of global revenues if you get it wrong), applies to literally every aspect of the cannabis industry for two big reasons beyond that. Medical issues, which are the only game in town right now in Europe (and thus require all importers to also be in compliance) and financial regulatory requirements.

The requirements in Germany are more onerous than they are in the rest of Europe. Therefore, they also affect the cannabis industry in a big way, especially since there is at this point a great deal of European cultivation with the German (and now British) medical market in mind. Further Germany is becoming European HQ for quite a few of the Canadian LPs. That means German standards apply.

The UK, for those watching all Brexit events with interest, will also continue to be highly affected by this. Whether it stays in the EU or not, it must meet a certain “trusted nation” status to be able to transact with the continent in any kind of favoured nation status.

Bottom line? It is big and here and expensive if you screw it up. If considering doing any kind of business with European customers, start hitting the books now. Large mainstream media organizations in the United States and Canada right now are so afraid of the consequences of getting this wrong that they have blocked readership from Europe for the present. Large financial institutions also must not only be in compliance but compliance of companies also guides their investment mandates on the regulatory front.

For all of these reasons, the cannabis industry would do well to take note.

What Does This Mean for The Cannabis Industry?

The Canadian and rest of the global industry is still struggling with compliance and this will have some interesting repercussions going forward.patient data must be handled and stored differently

Immediately, this means that all websites that are targeted to German eyes (read Canadian LPs and international, even English-only press) should hire German side compliance experts for a quick GDPR audit. There are few European experts at this point, and even fewer foreign ones. It is worth a call around to find out who is doing this auf Deutschland and bite the bullet.

It also means that internally, patient data must be handled and stored differently. And furthermore, it is not just “patients” who have this right, but everyone who transacts with your electronic or other presence. That includes consumers, subscribers to email newsletters and other stakeholders in the industry.

As the cannabis industry also starts to embrace technology more fully, it will also have highly impactful influence on what actually passes for a compliant technology (particularly if it is customer facing) but not limited to the same.

On the marketing side, GDPR is currently causing no end of headaches. Starting with PR and customer outreach teams who are trying to figure out how much of their master mailing lists they can keep and which they cannot. On this front, Mail Chimp is undeniably the go-to right now and has also implanted easy to understand and use technology that is being adopted by European marketers and those targeting Europe.

Stay tuned for more coverage on GDPR as we cover how data protection and privacy regulations will impact cannabis businesses, their marketing and outreach, plus service design efforts (in particular to patients) and other areas of interest.

Ellice Ogle headshot

Designing a Recall Plan for Your Company

By Ellice Ogle
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Ellice Ogle headshot

Bearing through four voluntarily recalls in the first two months since the transition window ended, the California cannabis industry showed its commitment to providing safe goods for its consumers. Recalls are considered the removal of products deemed unsafe at the point of retail. With unsafe product already on shelves, it is that much more important to have a thought out strategy if a recall need arises. Currently, the California Department of Public Health-Manufactured Cannabis Safety Branch is the only regulatory agency in the state of California with recall stipulations for California cannabis companies. Thus, the onus is on individual cannabis companies to initiate their own recall plans.

Why establish a recall plan if one is not compulsory? To start, a cannabis product recall is more challenging than recalls in other industries because of the classification as a Schedule 1 drug and the misunderstanding and stigma of the drug that promotes fake news. These considerations affect the way both the government officials and consumers perceive cannabis recalls – not preparing ahead of time could be devastating to your brand. Furthermore, a recall is not just a one day headache – in December 2017, the Inspector General of Department of Health and Human Services  found that food companies took 57 days on average to initiate a recall after the Food and Drug Administration (FDA) first learned a product was potentially hazardous. Not only is a recall tricky to navigate and time intensive, a recall can also be costly – a joint study by the Food Marketing Institute (FMI) and the Grocery Manufacturers’ Association (GMA) in the USA found that 77% of the study respondents estimated the financial impact to be up to $30 million dollars; 23% reported even higher costs. One major factor of the financial impact to consider is that many retailers do not remove only the affected products, instead sweeping entire lines and brands. To estimate how much a food recall would cost your company, researchers Moises Resende-Filho and Brian Burr developed a model to estimate the direct costs of a food recall. To take a step back, it is true that, while recalls can be tricky to navigate, time intensive and costly, recalls are generally infrequent. At the same time, you never know where or when a recall could happen. For example, your manufacturing process might be flawless, but a supplier may suddenly issue a recall or the retail facility is compromised. Moreover, not all recalls are equal – imagine that consumers would react differently to an undeclared allergen on the label versus a life threatening pathogen in a product distributed to patients with weakened immune systems. Ergo, it is strategic for every cannabis company (grower, manufacturer, retail, etc.) to have a recall plan to be ready for any type of recall situation.

Take these 6 tips in designing a recall plan:

Food processing and sanitation
Product recalls due to manufacturing errors in sanitation cause mistrust among consumers.

Before a Recall

1) Be familiar with how recalls work by staying up to date with recalls

2) Write a recall plan. Select a recall template and fill in your company information, but also take into consideration any regulations on recalls at the federal, state, and county levels.

During a Recall

3) Record everything that was said and done. If there was no prewritten recall plan, during a recall is a good time as any to begin documenting all actions and communication – internal within the management team and external with business partners (suppliers, retailers) and external with the consumers.

4) Find the flaw in the product. Why is the product being recalled? This is important to know, whether it was your item or not, to better answer the next question of “What happens with the recalled product?” The most common causes for a recall in the USA are identified in the joint study mentioned above by the FMI and GMA.

After a Recall

5) Reevaluate the recall plan. Compare to a reputable third-party auditing standard (example here is Safe Quality Food Institute’s SQF Food Safety Code for Manufacturing Edition 8). Updates to the recall plan are inevitable and constant. The changes may be due to updates in company products, adjustments in the recall network or the experience gained when going through a recall. Also keep an eye out for updates to templates of recall plans. Conduct mock recalls with different recall origins.

6) Reevaluate the food safety plan. After finding the flaw in the product, identify the flaw in the process and improve. Examples to improve the food safety plan may be to: amend the supplier approval program, refine process flow, polish the sanitation program or revise the preventative maintenance program. The foundation of a recall plan is having a robust food safety plan to minimize the risk of running a recall.

California Midterm Ballots To Bring Green Wave of Cannabis Tax Regulations

By Jasmine Davaloo
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As state and local jurisdictions rake in millions of dollars in tax revenue from the state’s legal cannabis industry, new states, counties and cities are piling onto the cannabis tax bandwagon. There are currently hundreds of local cannabis business taxes in place in California. On the November ballots, there are 47 new local cannabis tax measures. In fact, even some local jurisdictions that outlaw cannabis operations want a piece of the green pie and are asking voters to impose cannabis business taxes.

More cannabis tax measures being passed means more regulations and compliance responsibilities for cannabis businesses. This is especially taxing (pun intended) for multi-licensed and multi-location cannabis businesses. With hefty monetary penalties and even revocation of business licenses as consequences of noncompliance, adherence to state and local tax regulations is of paramount concern to cannabis businesses. Below is a list that Taxnexus has put together showing all of the cannabis tax measures on the November 6 ballots in California:

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

California City and County Cannabis Tax Measures November 6, 2018 Ballots

City County Measure Name Proposal
Adelanto San Bernardino S Adelanto Marijuana Tax To authorize the city to impose a tax on marijuana businesses of up to $5.00 per square foot on nurseries and up to 5% on other businesses.
Atascadero San Luis Obispo E-18 Atascadero Cannabis Business Tax To impose a tax on cannabis businesses at annual rates not to exceed $10.00 per canopy square foot for cultivation, 10% of gross receipts for retail cannabis businesses, 2.5% for testing laboratories, 3% for distribution businesses, and 6% of gross receipts for all other cannabis businesses.
Atwater Merced A Atwater Marijuana Tax To authorize the city to impose a 15% tax on marijuana businesses.
Benicia Solano E Benicia Marijuana Business Tax To authorize the city to impose a tax of up to $10 per square foot for marijuana nurseries and 6% of gross receipts for other marijuana businesses.
Capitola Santa Cruz I Capitola Marijuana Business Tax To authorize the city to tax marijuana businesses at a rate of up to 7% with no expiration date to fund general city purposes.
Chula Vista San Diego Q Chula Vista Marijuana Business Tax To authorize the city to tax marijuana businesses at the following rates: 5% to 15% of gross receipts or $5 to $25 per square foot for cultivation.
Colfax Placer C City of Colfax Cannabis Business Tax To tax cannabis businesses at annual rates not to exceed $10.00 per canopy square foot for cultivation (adjustable for inflation), 6% of gross receipts for retail cannabis businesses, and 4% for all other cannabis businesses.
Colton San Bernardino U Colton Marijuana Tax To authorize the city to impose a tax on marijuana businesses of up to $25.00 per square foot on nurseries and up to 10% on other businesses.
Emeryville Alameda S Emeryville Marijuana Business Tax To enact a marijuana business tax at a rate of up to 6% of gross receipts to fund general city purposes.
Fresno Fresno A Fresno Marijuana Business Tax To tax marijuana businesses at rates of up to $12 per canopy square foot and up to 10% of gross receipts for medical dispensaries and other marijuana businesses, with revenue dedicated to the city’s general fund an a community benefit fund.
Goleta Santa Barbara Z2018 Goleta Marijuana Business Tax To authorize the city to tax marijuana businesses at the following initial rates with a cap at 10% of sales: 5% for retailers; 4% for cultivators; 2% for manufacturers; and 1% for distributors/nurseries.
Hanford Kings C Hanford Cannabis Business Tax To tax cannabis businesses at an annual maximum rate of $7 per square foot of canopy for cultivation businesses using artificial lighting only, $4 per square foot of canopy for cultivation businesses using a combination of artificial and natural lighting, $2 per square foot of canopy for cultivation businesses using natural lighting only, and $1 per square foot of canopy for nurseries, 1% of gross receipts of laboratories, 4% of gross receipts of retail sales, 2% of gross receipts of distribution and 2.5% of gross receipts of all other types of cannabis businesses.
Hesperia San Bernardino T Hesperia Marijuana Tax To authorize the city to impose a tax on marijuana businesses of up to $15.00 per square foot on nurseries and up to 6% on other businesses.
La Mesa San Diego V La Mesa Marijuana Business Tax To authorize the city to tax marijuana businesses at rates of up to 6% gross receipts and up to $10 per square foot of cultivation.
Lassen Lassen M Lassen County Commercial Marijuana Business Tax To authorize the county to enact a tax on commercial marijuana at rates of between $0.50 to $3.00 per square foot for cultivation and 2.5% to 8% on gross receipts for other businesses, such as retail, distribution, manufacturing, processing, and testing.
Lompoc Santa Barbara D2018 Lompoc Marijuana Business Tax To authorize the city tax marijuana businesses at the following rates: $0.06 per $1 of non-medical retail sales proceeds; $0.01 per $1 of cultivation proceeds; $15,000 for net income less than $2 million of manufacturing/distribution proceeds; $30,000 for net income $2 Million or more of manufacturing/distribution proceeds; a total aggregate tax of $0.06 per $1.00 of microbusinesses proceeds; and no tax on testing.
Malibu Los Angeles G Malibu Marijuana Business Authorization and Tax To authorize the sale of recreational marijuana in the city and imposing a general tax at the rate of 2.5% of gross receipts on the sale of recreational marijuana.
Marina Monterey V Marina Marijuana Business Tax To authorize marijuana businesses to operate in the city and authorizing the city to tax marijuana businesses at rates of up to 5% of gross receipts, with revenue funding general city purposes.
Maywood Los Angeles CT Maywood Marijuana Business Tax To authorize the city to tax marijuana businesses at a maximum rate of 10% of gross receipts to fund general city purposes.
Moreno Valley Riverside M City of Moreno Valley Commercial Cannabis Activity Tax To enact a tax on cannabis sales and cultivation, not exceeding 8% of gross receipts and $15 per square foot of cultivation.
Morgan Hill Santa Clara I Morgan Hill Marijuana Business Tax To authorize the city to tax marijuana businesses at annual rates up to $15.00 per canopy square foot for cultivation and up to 10% of gross receipts for all other marijuana businesses.
Mountain View Santa Clara Q Mountain View Marijuana Business Tax To enact a tax on marijuana businesses of up to 9% of gross receipts to fund general city purposes.
Oakland Alameda V Oakland Marijuana Business Tax Amendments To amend the marijuana business tax law to: allow marijuana business to deduct the cost of raw materials from their gross receipts and to pay taxes on a quarterly basis; and allow the city council to amend the law in any manner that does not increase the tax rate.
Oroville Butte T Oroville Marijuana Tax To authorize an annual gross receipts tax on cannabis businesses at rate not to exceed 1%, with initial rates of 5% on retailers and manufacturers; 4% on cultivators; 3% on distributors; 2% on nurseries; 0% on testing laboratories; and 7% on microbusiness to generate approximately $300,000 to $600,000 in annual revenue.
Paso Robles San Luis Obispo I-18 Paso Robles Cannabis Business Tax To impose a maximum tax rate on every person or entity operating or conducting a cannabis business within the City a cultivation tax of up to$20.00 per square foot of space utilized in connection with the cultivation and processing of cannabis; a gross receipts tax of up to 10% for all cannabis transportation; a gross receipts tax of up to 15% for all cannabis manufacturing, testing, and distribution; and a gross receipts tax of up to 10% for dispensaries.
Pomona Los Angeles PC Pomona Marijuana Business Tax To authorize the city to tax marijuana businesses at rates of $10.00 per canopy square foot for cultivation and up to 6% of gross receipts for all other marijuana businesses to fund general city purposes.
Riverbank Stanislaus B City of Riverbank Cannabis Business License Tax To authorize the City Council of the City to impose a business license tax at a rate of up to 10% of gross receipts on cannabis businesses and dispensaries, to help fund general municipal services.
San Bernardino San Bernardino W San Bernardino Marijuana Tax To authorize the city to impose a tax on marijuana businesses of up to $10.00 per square foot on nurseries and up to 6% on other businesses.
San Diego San Diego AA City Council Marijuana Business Tax Measure To authorize the city to tax marijuana businesses at the following rates: $14 per square foot; up to 8% on manufacturing and distribution; up to 10% on medicinal retail; up to 12% on adult-use retail; and up to 3.5% on testing.
San Francisco San Francisco D San Francisco Marijuana Business Tax Increase To tax marijuana businesses with gross receipts over $500,000 at a rate between 1% and 5%, exempting retail sales of medical marijuana, and expanding the marijuana business tax to businesses not physically located in San Francisco.
Santa Ana Orange Y Santa Ana Recreational Marijuana Business Tax To authorize the city to tax marijuana businesses at rates of $0.25 to $35.00 for gross square footage and up to 10 percent for cultivating, manufacturing, distributing, selling, or testing.
Santa Clara Santa Clara M Santa Clara Marijuana Business Tax To authorize the city to tax commercial marijuana businesses up to 10% of gross receipts and up to $25 per square foot for cultivation.
Simi Valley Ventura Q Cannabis Business Tax To enact a maximum tax on gross receipts of cannabis businesses in the City after January 1, 2019, as follows: for testing, 2.5%; for retail sales, retail delivery, or microbusiness retail, 6%; for distribution not to consumers, 3%; for manufacturing, processing or nonretail microbusiness, and any other type of business not otherwise specified, 4%; and for cultivation, a tax per square foot of canopy ranging from $2.00 per square foot of canopy to $10.00 per square foot of canopy, depending on the type of lighting (artificial or natural) used.
Solvang Santa Barbara F2018 Solvang Marijuana Business Tax To authorize the city to tax marijuana businesses at an initial rate of 5 percent of gross receipts with a cap of 10 percent and a maximum annual increase of 1 percent.
Sonora Tuolumne N City of Sonora Cannabis Business License Tax To enact a business license tax at a rate of up to 15% of gross receipts on cannabis businesses, to help fund general municipal services; and increasing the City’s appropriations limit for the Fiscal Years 2019-2023 by the amount of tax proceeds received.
Suisun Solano C Suisun Marijuana Business Tax To authorize the city to impose a tax of up to $25 per square foot and 15% gross receipts for marijuana businesses.
Union City Alameda DD Union City Marijuana Business Tax To authorize the city to tax marijuana businesses at rates of $12.00 per square foot for cultivation and 6 percent of gross receipts for other businesses to fund general municipal services.
Vista San Diego Z Vista Retail Medical Marijuana Sales and Tax Initiative (November 2018) To authorize commercial retails sales of medicinal marijuana for up to 11 retailers and enacting a 7% tax on the business’ gross receipts.
Contra Costa R Contra Costa County Marijuana Business Tax To authorize Contra Costa County to tax commercial marijuana businesses in the unincorporated area in the amount of up to $7.00 per canopy square foot for cultivation and up to 4 percent gross receipts for all other cannabis businesses to fund general County expenses.
El Dorado N, P, Q, R, S Commercial Cannabis Tax Measures To impose a general tax on any independently authorized commercial cannabis activity in the unincorporated areas of El Dorado County at rates up to: $30 per square foot or 15% for cultivation; 10% for distribution, manufacturing, and retail; and 5% for testing laboratories, effective until amended or repealed, with estimated annual revenue of $1,900,000 to $52,800,000.

To authorize outdoor and mixed-light (greenhouse) commercial cannabis cultivation for medicinal use on parcels of at least 10 acres zoned Rural Lands, Planned Agricultural, Limited Agricultural, and Agricultural Grazing that are restricted in canopy size, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.

To authorize outdoor and mixed-light (greenhouse) commercial cannabis cultivation for recreational adult use on parcels of at least 10 acres zoned Rural Lands, Planned Agricultural, Limited Agricultural, and Agricultural Grazing that are restricted in canopy size, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.

To authorize the retail sale, delivery, distribution, and indoor cultivation of commercial cannabis for medicinal use on parcels zoned Community Commercial, Regional Commercial, General Commercial, Industrial High, and Industrial Low that are restricted in number and concentration, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.

To authorize the retail sale, delivery, distribution, and indoor cultivation of commercial cannabis for recreational adult use on parcels zoned Community Commercial, Regional Commercial, General Commercial, Industrial High, and Industrial Low that are restricted in number and concentration, required to pay a County commercial cannabis tax, and subject to a site-specific review and discretionary permitting process with notification to surrounding property owners and environmental regulation.
Lake K Lake County Marijuana Business Tax To authorize the county to enact a marijuana business tax at the rates of $1.00 per square foot for nurseries and cultivators and between 2.5% and 4% for other businesses.
San Joaquin B Unincorporated County of San Joaquin Cannabis Business Tax To impose a special tax on commercial cannabis businesses in unincorporated San Joaquin County at a rate of 3.5% to 8% of gross receipts, with an additional cultivation tax of $2.00 per square foot of cultivation space.
Tuolumne M Tuolumne County Commercial Cannabis Business Tax The County to impose a 0%-15% gross receipts tax on commercial cannabis businesses (but no less than $0-$15 per square foot for cultivation businesses as annually increased by a consumer price index) in the unincorporated area of Tuolumne County, and to authorize the Board of Supervisors to implement and adjust the tax at its discretion, with funds staying local for unrestricted general revenue purposes, including but not limited to public safety, health,environmental protection and addressing industry impacts, unless repealed or amended by voters.
Richard Naiberg
Quality From Canada

Protecting Intellectual Property in Canada: A Practical Guide, Part 5

By Richard Naiberg
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Richard Naiberg

Editor’s Note: This is the fifth article in a series by Richard Naiberg where he discusses how cannabis businesses can protect their intellectual property in Canada. Part 1 introduced the topic and examined the use of trade secrets in business and Part 2 went into how business owners can protect new technologies and inventions through applying for patents. Part 3 raised the issue of plant breeders’ rights and Part 4 discussed trademarks and protecting brand identity. Part 5, below, will detail copyright laws for cannabis companies and how they can protect works of creative expression.

Copyright: Protection for Works of Creative Expression

In the course of describing and marketing its products, the cannabis producer will prepare or have prepared any number of articles, instructions, write-ups, photographs, videos, drawings, web site designs, packaging, labeling and the like. Copyright protects all such literary and artistic works from being copied by another.

Copyright arises upon the creation of the work, although one can register the copyright under the Copyright Act for a minimal cost.Canada’s Copyright Act provides that the owner of copyright has the exclusive right to make copies of copyrighted work for the lifetime of its author, and for fifty years thereafter. The Court will enforce this copyright, stopping infringements and ordering infringers to compensate the owner in damages, accountings of profits and delivery up of infringing material for destruction. Intentional copying or renting out of a copyrighted work is also an offence that can attract imprisonment. The owner of a copyright can also request the seizure of infringing articles being imported or exported in Canada.

Copyright arises upon the creation of the work, although one can register the copyright under the Copyright Act for a minimal cost. Registration creates a presumption that copyright subsists in the work and that the registrant is the owner, presumptions that can simplify copyright proceedings. In litigation, the fact of registration also removes the ability of a defendant to argue that it did not have notice of the copyright, a factor relevant to the Court in awarding a remedy.Copyright protects all such literary and artistic works from being copied by another. 

There are two aspects of copyright law that tend to cause confusion. The first involves the distinction between the right to use a copyrighted article and the copyright itself. To illustrate, consider the sale of a literary work, such as a book. The purchaser acquires the physical book but not the copyright. The purchaser can use the physical book and can sell that book to another.  What the purchaser may not do is make and sell another copy of the book. Making copies is the exclusive right of the copyright holder.

The second involves the ownership of a commissioned work. The first owner of a copyright is either the author of the work or the employer of the author if the author creates the work in the course of his or her employment. Ownership of copyright can only be transferred by written assignment. Further, the author of a work is granted moral rights in the work, meaning the right to be associated with the work and the right to its integrity. These rights can be waived by the author but not assigned.

Ownership of copyright can only be transferred by written assignment.Therefore, if a company hires a third party supplier to prepare copyrightable work, such as brochures, artwork or web sites, and does not secure an assignment of the copyright and wavier of the author’s moral rights as part of the transaction, that supplier will own the copyright in the resulting work and the author of that work will have the right to insist on his or her moral rights. The hiring company will not have the right to make or authorize others to make copies of the work, to amend the work, to derive new works from what was delivered, or to use the work without reference to the name of the author or in a way so as to offend the author’s integrity. The supplier will also be free to sell the same brochures, artwork or web sites to other companies, or to derive other works from it. All of this is so even though the hiring company paid for the work to be done. This result is often surprising and disappointing to hiring companies.

Accordingly, cannabis producers contracting with the third parties for literature, photographs, web sites and the like will need to think about how they want to use the work in the future. It is simplest if the producer contracts to have the owner assign the copyright in the work to the producer upon creation, and deliver the author’s waiver of moral rights. While the third party will likely charge more for an assignment of the copyright and the waiver of moral rights, it may be worth avoiding negotiations over specific uses and how the author is to be credited, as well as avoiding the uncertainty inherent in trying to imagine how the producer will use the material in the future.

In the 6th and final part, Naiberg will summarize the key takeaways from his series that cannabis companies can use to protect their intellectual property in Canada.

Khyrrah-Cymone Shepard
Soapbox

Challenges in Cannabis Genome Sequencing for Genetic Tracking and Traceability

By Khyrrah-Cymone Shepard
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Khyrrah-Cymone Shepard

Genome sequencing has made remarkable strides since the initiation of “The Human Genome Project” in 1990. Still, there are many challenges that must be overcome before this methodology can reach its fullest potential and be useful in serving as a method of Cannabis sativa genetics verification and tracking throughout the cannabis supply chain. Several major milestones that must be realized include end-to-end haploid type (single, unpaired set of chromosomes instead of complete paired set or “diploid”), long read, resolved genome sequences at a reasonable cost within a reasonable timeframe and with confidence in accuracy (Mostovoy et al.). These genomes are typically generated as shorter reads that are then scaffolded (Fig 1.) or matched to reference genomes in order to build a longer continuous read. While shorter sequencing reads indeed lower the cost barrier for producing more genomic data, it has created another issue as a result of this short-read technology.

Figure 1: Four sets of sequencing data (long-read WGS, Hi-C, optical mapping, and short-read WGS) were produced to generate the goat reference genome. A tiered scaffolding approach using optical mapping data followed by Hi-C proximity-guided assembly produced the highest-quality genome assembly. (Bickhart et al.)

There are two main issues with the more affordable short read sequencing methodology, the first being that sequential variants are typically not detected, especially if they involve a ton of repeats/inverted repeats, due to the limitation of the current referenced Cannabis genomes and the mapping process of the short-read sequences. This is especially unfortunate because larger variants can have up to a 13% variance within a diploid multichromosomal genome, such as Cannabis sativa, and this variance is thought to largely contribute to disease in various species, or maybe terpene profile in Cannabis sativa. Not being able to detect these variances with more affordable sequencing methodologies is particularly problematic and reference genomes produced with short read sequences are typically highly fragmented. The second limitation is the inherent errors, gaps and other ambiguities associated with taking tons of short read sequences and combining them all, like a jigsaw puzzle, in order to draft the larger genomic picture. While there is software with algorithms to assist in deciphering raw sequences, there is still much more work to be done on this challenge, considering that cannabis genome sequencing is new genomics territory. Unfortunately, as researchers seek higher and higher levels of data quality, shortcomings of this type of sequencing technology begin to become apparent. This sort of sequencing methodology relies heavily on reference sequences. This isn’t much of an issue with microbial genomes, which tend to be rather short and typically have one chromosome, however, when seeking to analyze much longer genomes with multiple diploid chromosomes and tons of mono and dinucleotide repeats, problems arise (English et al.).

Figure 2: Blockchain Digital Stamping Certificate which publicly documents the date and time of the completion of this work. (Mckernan – Crypto Funded Public Genomics)

The other category of sequencing is long read sequencing. Long read sequencing is as it sounds, the deciphering of much longer DNA strands. Of course, the technology is limited by the quality of the DNA captured, therefore, special high molecular weight DNA extraction protocols must be deployed in order to obtain the proper DNA quality (Fig. 3). Once this initial limitation is overcome there is the stark cost of long read sequencing technology. PacBio without a doubt makes one of the highest quality long read sequence generating instruments that has ever graced the field of biotechnology, but due to the steep price tag of the machine, progress in this field has been stifled simply because it just isn’t affordable and the read depth for mammalian and plant genomes is currently almost completely prohibitive until read lengths double in length for this instrumentation. In order to produce what is considered to be a “validated genome” both short read and long read sequencing methodologies are combined. Long read sequencing data is used to produce the reference contigs because they are much easier to assemble, then short read sequencing is scaffolded against the reference contigs as a sort of “consensus validation” of the long read contigs.

Figure 3: Depiction of various DNA high molecular weight DNA quality captured during cannabis genome submission project. (Mckernan – Crypto Funded Public Genomics)

Despite the shortcoming of utilizing short read sequencing technology for analysis of the cannabis genome, it is still useful especially when combined with other longer read sequencing technologies or optical mapping technologies. Kevin McKernan, chief scientific officer of Medicinal Genomics, has been working feverishly to bridge the information gap between the cannabis genome and other widely studied plant genomes. As a scientist that worked on the Human Genome Project in 2001, McKernan has a demonstrated history of brilliance in the field of genomics. This paved the way for him to coordinate the first crypto funded and blockchain notarized sequencing project (DASH DAO funded) (Fig. 2), which was completed in 60 days, and surprisingly showed that the cannabis genome is over 1 billion bases long which is 30% larger than any cannabis genome submitted prior to his work. By reaching the standard of 500kb N50 set forth by the Human Genome Project, Kevin McKernan was able to see new aspects of the cannabis genome that were not visible due to the fragmented genomic data previously generated. Information such as a possible linkage of THCA synthase and CBDA synthase genes is crucial when seeking to use the cannabis genome for verification and tracking purposes. This is because special linkages can be considered a type of “genetic marker” that may be used to differentiate cannabis cultivars and lineages. There are many types of genetic markers, including SNP (single nucleotide polymorphisms), VNTR (variable number tandem repeats) and even patterns of gene expression. Funding and recording of cannabis genomics must be further developed in order for potential markers to be identified and validated via larger scale genome-wide association studies.

These technologies, when combined, often reduce the number of scaffolds while increasing the percent of resolved genome by filling in gaps within the drafted genome. Nanopore sequencing is an especially interesting and innovative sequencing technology that is useful in many ways. One of the most powerful uses of this technology is its ability to upgrade the quality of draft and pushed genomes by resolving poorly organized genomes and genomic structure for a fraction of the time and cost of other long read sequencing platforms (Jian et al.), making it an excellent candidate for solving cost and time constraints. Nanopore’s portability and convenience makes it a real-time solution to solving genetics-based problems and questions. A notable use of this technology is recorded during an epidemiological outbreak in Africa, its proof of concept in pathogen detection in space, and its ability to detect base modifications during sequencing process. Even still there are more uses to this exciting technology and it has the potential to elevate cannabis genomics and the field of genomics entirely, while remaining portable and expeditious. A shortcoming of the Nanopore sequencing platform is its low sequencing coverage, which makes this platform inefficient for applications like haplotype phasing and single nucleotide variant detection due to the number of variants to be detected being smaller than the published variant-detection error rates of algorithms using MinION data. Single nucleotide variants can be considered to be genetic markers, especially markers for disease, so this is what inhibits Nanopore from resolving our cannabis genome sequencing problems, as of today.

There are genetic markers to discover, molecular biology protocols to optimize, and industry wide potential for exciting collaborationMany algorithmic problems seem to occur due to input data quality. Typical input data quality suffers as the reads get longer and the sequencing depth gets shorter, resulting in not enough data being generated by the sequencing to provide confidence in the genome assembly. To mitigate this, scientists may decide to fractionate a genome, sequence it, or they may clone a difficult to sequence region with highly repetitive regions in order to produce reads with greater depth and thus resolve the region. They can then perform single molecule sequencing to resolve genome structure then determine and confirm the place of the cloned region. Thus, it seems that the best solution to the limitation of algorithms is to be aware of sequencing platform limitations and compensate for these limitations by using more than one sequencing platform to obtain enough pertinent data to confidently produce authentic, “validated” genome assemblies (Huddleston et al.). With input data being critical in producing accurate sequencing data, standardization of DNA isolation protocols, extraction reagents and any enzymes utilized may be deemed necessary.

To conclude, the field of cannabis genomics is teeming with opportunities. There are genetic markers to discover, molecular biology protocols to optimize, and industry wide potential for exciting collaboration. More states will need to take into account the lack of federal government research grant availability and begin to think of creative ways to get cannabis science funds to continue the development of this industry. Specifically speaking, developing a feasible method for genetic tracking of cannabis plants will require improvements within the availability of sequencing technology, improvements in deploying the resources to these projects in order for them to be completed expeditiously, and standardization/validation of methods and SOPs used in order to increase confidence in the accuracy of the data generated.

A special thank you to all of my cannabis industry mentors that have molded and elevated my understanding of current needs and applied technologies within the cannabis industry, without you there would be no career within this industry for me. You are immensely appreciated.

Citations

Bickhart, D. M., Rosen, B. D., Koren, S., Sayre, B. L., Hastie, A. R., Chan, S., . . . Smith, T. P. (2017). Single-molecule sequencing and chromatin conformation capture enable de novo reference assembly of the domestic goat genome. Nature Genetics,49(4), 643-650. doi:10.1038/ng.3802

English, A. C., Salerno, W. J., Hampton, O. A., Gonzaga-Jauregui, C., Ambreth, S., Ritter, D. I., . . . Gibbs, R. A. (2015). Assessing structural variation in a personal genome—towards a human reference diploid genome. BMC Genomics,16(1). doi:10.1186/s12864-015-1479-3

Huddleston, J., Ranade, S., Malig, M., Antonacci, F., Chaisson, M., Hon, L., . . . Eichler, E. E. (2014). Reconstructing complex regions of genomes using long-read sequencing technology. Genome Research,24(4), 688-696. doi:10.1101/gr.168450.113

Jain, M., Olsen, H. E., Paten, B., & Akeson, M. (2016). The Oxford Nanopore MinION: Delivery of nanopore sequencing to the genomics community. Genome Biology,17(1). doi:10.1186/s13059-016-1103-0

Mostovoy, Y., Levy-Sakin, M., Lam, J., Lam, E. T., Hastie, A. R., Marks, P., . . . Kwok, P. (2016). A hybrid approach for de novo human genome sequence assembly and phasing. Nature Methods,13(7), 587-590. doi:10.1038/nmeth.3865