Tag Archives: legalization

Dr. Richard Kaufman
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Replacing Opiates with Cannabis is Finally Becoming a Reality: Where do we go from Here?

By Dr. Richard Kaufman
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Dr. Richard Kaufman

Opiate abuse is a far-reaching international public health issue, impacting tens of thousands of people every year in the United States alone. As the epidemic continues to spread, the medical community is faced with the immense task of researching and developing safer, non-addictive treatment alternatives for patients of chronic pain and other ailments. The controversial and oft-debated notion of cannabis as an opiate alternative has become increasingly well-researched and gained considerable credibility in recent years. The new challenge lies in advancing the cannabis industry to the point of being a legitimate medicine that can be prescribed and administered by doctors.

Opioids are among the most commonly prescribed medical treatments for severe chronic pain, yet prescription opioid overdoses killed more than 165,000 Americans between 1999 and 2014 according to the Department of Health and Human Services. In fact, the health and social costs of opioids are estimated to be as much as $55 billion a year. As such, it has become more imperative than ever that mainstream medical practitioners take notice of the cannabis plant’s powerful healing properties and shift away from potentially harmful pharmaceutical medications.

Dr. Richard Kaufman
Dr. Richard Kaufman, co-founder and chief science officer of Nanosphere Health Sciences.

The evidence of cannabis’ safety and efficacy is well established. For instance, in a literature review of 38 studies evaluating medical cannabis’ efficacy for treating pain, 71 percent concluded that cannabinoids had empirically demonstrable and statistically significant pain-relieving effects. In addition, a 2015 meta-analysis of 79 studies found a 30 percent or greater reduction of pain with the use of cannabinoids compared to placebos. Further, an analysis of a decade of randomized, double-blind placebo-controlled clinical trials on cannabis for treating pain concluded that cannabis should be a first line treatment for patients with painful neuropathy and other serious and debilitating symptoms, who often do not respond to other available medications.

Not only is cannabis demonstrably safe and effective, but numerous studies also present compelling evidence that the prescription of opiates has dropped sharply in U.S. states and countries that have legalized medical cannabis. For example, a study in the Clinical Journal of Pain followed 176 chronic pain patients in Israel over seven months. Researchers found that 44 percent of participants stopped taking prescription opioids within seven months after starting medical cannabis. Patients cited the following reasons for using cannabis instead of pharmaceutical drugs: 65 percent reported less adverse side effects, 57 percent cited better symptom management and 34 percent found that cannabis had less withdrawal potential than their other medications.The evidence of cannabis’ safety and efficacy is well established.

The tide is quickly turning as many respected doctors are beginning to advocate for the tremendous medical potential of cannabis as a replacement for prescription pills. That said, if the cannabis industry is to help solve the crisis inflicted by modern pharmaceutical painkillers, we must develop next-generation scientifically formulated products and advocate to improve their accessibility.

Inhalation and oral methods of cannabis consumption have no reliable dosage as medicine, rendering them unfit for administration by health professionals. These mainstream consumption methods also have extremely low bioavailability and bioactivity. Bioavailability for ingested cannabis products is only 6 percent and for inhalation methods can be as low as 2 percent. Oral absorption of THC is slow and unpredictable, with peak blood concentration occurring 1–5 hours post dose. Similarly, inhalation methods can take up to two hours to have any effect. The next phase of the medical cannabis industry must focus on fixing problems that prevent cannabis from being a universally recognized health tool. Fortunately, scientists are making major advancements in cannabis delivery technologies, offering novel and innovative administration methods that have proven both effective and reliable.

With products like Evolve’s NanoSerum™ representing a promising solution to help reduce the morbidity and mortality associated with prescription opioid use and abuse, meaningful progress is already underway. It’s been a long and challenging road to arrive at this point, but our efforts are only just beginning. Achieving long-term change on a national and international scale will require professionals from all levels of the cannabis, science and medical communities to push for advanced product offerings that provide consistent, standardized dosing in healthier, smokeless modes of delivery.

margueriteICBC

Berlin’s ICBC: Meeting the European Cannabis Industry

By Marguerite Arnold
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margueriteICBC

The International Cannabis Business Conference (ICBC) in Berlin is now officially over. The speeches have been made, the parties have been attended. The hard-working crew behind it all has wrapped up, checked out and is off to Vancouver. And most of all, the marathon of meetings and deal discussions that were the mark of this budding and certainly by now established market are done. Even if there are still details to be ironed out in all the new business in the coming months.

As always, the dilemma for conference attendees was how to spend the limited time in this concentrated cannabis gathering. With all of the networking and excitement, people still wanted to hear the experts who spoke on topics ranging from cannabis financing to actually doing business in Germany to new medical advances. Traffic in the expo section was also heavy, as attendees visited the wide range of vendors. Producers and distributors of both plant and derived product were present, along with vape companies brave enough to compete with Storz and Bickel on their own turf, various tech solutions and of course, international consultants.

As the dust clears and the contracts get signed, what are the takeaways from the second edition of the ICBC in Berlin?

Germany Is Going Green

The simplest takeaway? The ICBC Berlin is not a market to be missed in the future for the global cannabis executive. Even if you are an American firm (and for the most part still largely excluded from a rapidly expanding worldwide trade that is establishing itself now with authority), you need to be here. The contacts you make are global, and you do not want to be left out. For foreign investors interested in this market, it is a must. For everyone else, this is a meet and greet, not to mention education, barnone. The German medical and even prosumer CBD market is attracting the world.

Yes, there have been ups and downs even in the last three weeks that include the crashing of the German bid along with news stateside that the Trump Administration is going to hang Jeff Sessions out to dry for Russia with his latest “Make American States Great For Cannabis Again” contortion.

Guenther Weiglein
Guenther Weiglein, activist patient, being interviewed in front of MedPayRx booth

But here on the other side of the Atlantic, it is clear that the federal cannabinoid horse has left the barn. There are now rumorsfloating that the bid is not yet entirely dead (now apparently in a legal purgatory of appeals and even potentially “bid amendments”) that nobody is willing to go on record to discuss. Beyond that, however, as was clear from the frenzied deal-makingon the floor and off it at the ICBC, the market is open, distributors are finding new channels to move product, and patients demanding access are not leaving the streets.

Far from it. In fact, the budding nascent umbrella national non-profit campaign designed to open access for patients and educate doctors, The German Patients Roundtable, had a huge second meeting during the conference, with both German and international attendees from countries including Israel and South Africa.

The CBD and THC genie cannot be stuffed back into the local bottle. And everyone knows it. This is federal medical reform, and even better, covered under German national public health insurance. Despite the hiccups and challenges that still remain, this is open blue water for a medical market that has never existed anywhere to date.

ICBC logoAnyone with a GMP facility, Euro cleared export rights and crop or product ready to ship will be welcome here in a market that at this point, cannot get enough plant or oil. Edibles are still a to-come discussion.

To the extent that this is also negative, it is very clear that the market is still highly inefficient. Producers who do have productare not being found by those on the ground who want to sell it to patients. That will also begin to change. But for now, many on the ground are playing a digitalized Rolodex game of “who do you know” that still consists of personal emails between conference-met colleagues if not LinkedIn contacts and impromptu (and freebie) favors. Those who hope to gain an income merely by connecting the source of product and outlets the old fashioned way are also about to be left in the dust by a market that will not be held back and activist businesses who are eyeing both the United States and Canada right now (if not Israel and Australia), and translating all of that into both euros and German.

It is also very clear that the savvy Germans who were largely left out of the bid proceedings last time do not mean to sit this party out – and are angling to get into the game however they can. This is taking some interesting forms, but processing and testing are going to be huge issues of the market here for a long time to come. And so is home-grown, high-quality CBD. The German government is even offering tax credits for growing certain kinds of hempright now. Sound familiar Kentucky?

Trends and Takeaways

It is not just the Canadians who are going to get market share. The Canadian LPs are still in a good position to dominate the early market but it is clear that there is still room for others to enter. Whether the government allows an appeal of the court’s decision to hold up, there is a quick bid “redo” for the top 10 finalists, or a second bid, the market has now arrived and is in its second year.

margueriteICBC
Marguerite Arnold presents on the impact of blockchain on the cannabis industry

CBD is going to be an important path to other kinds of provision and cultivation. Despite the widespread misconceptions about Germany being a “CBD only” market (it is not), it is clear that a consumer CBD only strategy will be an interesting path into the market here but not one for the faint of heart. The Canadian companies in particular are beginning to move into the realm of big pharma (their market caps certainly are). But it is also clear that more local competition is hip to the same. And as a result, even this part of the market will be a highly competitive one.

German firms are first at this gate, beyond the big Canadian LPs, but they are not the only ones now in the market. See Dutch, Austrian and Swiss firms, many with pharmaceutical company credits and market entry already under their belt.  Not to mention producers from both Greece and the Baltics. Everyone on the import side is eyeing the opening market and stalled bid as a fantastic opportunity. Look for products from these locales as testing and certification protocols become more effective.

Central to all of these developments? The conference is theplacefor the global cannabis industry to meet and get to know one another, put together by Alex Rogers and a seasoned, international team behind the ICBC.

Massachusetts Prepares for Adult-Use

By Aaron G. Biros
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Last month, the Cannabis Control Commission, the regulatory body overseeing Massachusetts’ newest industry, finalized their regulations for the market. At the beginning of this month, the state began accepting applications for business licenses. Now with the full implementation of adult-use sales on the horizon, businesses, regulators, consumers and local governments are preparing themselves for the legalization of adult-use cannabis. Sales are expected to begin June 1st.

On March 29th, the Cannabis Control Commission announced their finalized rules were filed, published and took effect. Leading up to the filing, the Commission reports they held 10 listening sessions, received roughly 500 public comments and conducted 7 hearings for roughly 150 policy decisions. The license categories that businesses can apply for include cultivator, craft marijuana cooperative, microbusiness, product manufacturer, independent testing laboratory, storefront retailer, third-party transporter, existing licensee transporter, and research facility, according to the press release.

What separates Massachusetts’ rules from other states’ rules are a few of the license categories as well as environmental regulations, as Kris Kane highlights in this Forbes article. Experimental policies, like the microbusiness and craft marijuana co-op licenses, Kane says, are some tactics the Commission hopes may help those affected by the drug war and those who don’t have the capital and funding required for the larger license types.This is a groundbreaking reform previously unseen in states that have legalized cannabis. 

The Commission will also establish a Social Equity Program, as outlined in the final rules (section 17 of 500.105). That program is designed to help those who have been arrested of a cannabis-related crime previously or lived in a neighborhood adversely affected by the drug war. “The committee makes specific recommendations as to the use of community reinvestment funds in the areas of programming, restorative justice, jail diversion, workforce development, industry-specific technical assistance, and mentoring services, in areas of disproportionate impact,” reads one excerpt from the rules (section 500.002) identifying the need for a Citizen Review Committee, which advises on the implementation of that Social Equity Program.

This is a groundbreaking reform previously unseen in states that have legalized cannabis. Massachusetts may very well be the first state to actively help victims of the prohibition of cannabis.Some municipalities are hesitant and skeptical, while others are fully embracing the new industry with open arms.

For environmental rules, Kane notes the Commission is taking unprecedented steps to address energy usage in the cultivation process, pushing the industry to think about environmental sustainability in their bottom line and as part of their routine regulatory compliance. He says the Commission mandates a 36 watts-per-square-foot maximum for indoor cannabis cultivators.

On Monday, April 2nd the state began accepting applications for businesses seeking licensure. Within a few days, nearly 200 businesses have applied. That number is expected to grow significantly over the next few weeks.

While businesses continue applying for licenses, local governments are preparing in their own way. Some municipalities are hesitant and skeptical, while others are fully embracing the new industry with open arms.

A couple weeks ago, the City Council of Springfield, Massachusetts passed a six-month moratorium on cannabis sales, citing the need for more time to draft local regulations for businesses first. “I believe the moratorium is in place to make sure that we get it right the first time,” Councilor Adam Gomez, chairman of the council’s Economic Development Committee told MassLive. “We don’t have a chance to get it right the second time. The residents of Springfield supported this.” There are also talks of a potential temporary ban in Truro, MA.

Meanwhile in the city of Attleboro, ABC6 News reports Mayor Paul Heroux is “working to make his city marijuana friendly as city councilors work to draft regulation ordinances.” In Peabody, two businesses just received approval to begin operating as medical dispensaries.

HACCP

Hazard Analysis and Critical Control Points (HACCP) for the Cannabis Industry: Part 2

By Kathy Knutson, Ph.D.
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HACCP

HACCP is a food safety program developed in the 1960s for the food manufacturing industry, mandated for meat, seafood and juice and adopted by foodservice for the safe serving of meals at restaurants. With state requirements for the safe production of cannabis-infused products, namely edibles, facilities may be inspected against HACCP principles. The cannabis industry and state inspectors recognize the need for safe edible manufacture. Lessons can be learned from the food industry, which has advanced beyond HACCP plans to food safety plans, starting with procurement and including the shipment of finished product to customers.

In my work with the food industry, I write HACCP and food safety plans and deliver training on food safety. In Part 1 of this series, I wrote about the identification of hazards, which is the first step in HACCP plan development. Before we continue with the next HACCP step, I will discuss Good Manufacturing Practices (GMPs). GMPs are the foundation on which HACCP is built. In other words, without GMPs in place, the facility will not have a successful HACCP program. GMPs are required in the food, dietary supplement and pharmaceutical industries, all under the enforcement of the federal Food and Drug Administration (FDA). Without federal regulation for cannabis edible manufacture, there may not be state-mandated requirements for GMPs. Let me warn you that any food safety program will not succeed without proper control of GMPs.HACCP

GMPs cover all of your programs and procedures to support food safety without having a direct, instant control. For example, when brownies are baked as edibles, food safety is controlled by the time and temperature of baking. A written recipe and baking procedure are followed for the edible. The time and temperature can be recorded to provide documentation of proper baking. In the food industry, this is called a process preventative control, which is critical to food safety and is part of a HACCP plan. Failure of proper time and temperature of baking not only leads to an unacceptable product in terms of quality, but results in an unsafe product that should not be sold.

Back to GMPs. Now think of everything that was done up to the steps of mixing and baking. Let’s start with personnel. Facilities for edibles have hiring practices. Once an employee is hired, the employee is trained, and training will include food safety procedures. When working at the job after training, the employee measuring ingredients will demonstrate proper grooming and hand washing. Clean aprons, hairnets, beard nets and gloves will be provided by the facility and worn by the employee. The same goes for the employee that bakes and the employee that packages the edible. One category of GMPs is Personnel.

Edibles facilities are not foodservice; they are manufacturing. A second GMP category is cleaning and sanitizing. Food safety is controlled through proper cleaning and sanitizing of food contact surfaces (FCS). The edible facility will have in place the frequency and methods for cleaning all parts of the facility- outside, offices, restrooms, break room and others. GMPs cover the general cleaning procedures and procedures for cleaning receiving, storage; what we would consider processing to include weighing, process steps and packaging; finished product storage and shipping. Management of the facility decides the methods and frequency of cleaning and sanitizing with greater care given to processing. Without proper cleaning and sanitizing, a facility cannot achieve food safety.

I could go on and on about GMPs. Other GMPs include water safety, integrity of the buildings, pest control program, procurement, sewage disposal and waste disposal. Let’s transition back to HACCP. In Part 1 of this series, I explained identification of hazards. Hazards are one of three types: biological, chemical and physical.

At this point, I am not surprised if you are overwhelmed. After reading Part 1 of this series, did you form a food safety team? At each edibles facility, there should be at least one employee who is trained externally in food safety to the standard that foodservice meets. Classes are offered locally and frequently. When the facility is ready, the next step of training is a HACCP workshop for the food industry, not foodservice. Edibles facilities are not foodservice; they are manufacturing. Many colleges and associations provide HACCP training. Finally, at the least, one employee should attend a workshop for Preventive Controls Qualified Individual.

To institute proper GMPs, go to ConnectFood.com for a GMP checklist. Did you draw up a flow diagram after reading Part 1? With a flow diagram that starts at Receiving and ends at Shipping, the software at ConnectFood.com takes you through the writing steps of a HACCP or food safety plan. There are many resources out there for GMPs, so it can get overwhelming. ConnectFood.com is my favorite resource.

The next step in HACCP development after identification of hazards is to identify the exact step where the hazard will be controlled. Strictly speaking, HACCP only covers process preventive controls, which typically start with a weigh step and end with a packaging step. A facility may also have a step where temperature must be controlled for food safety, e.g. cooling. In HACCP, there are commonly two process preventive controls:

  • Biological hazard of Salmonella and Escherichia coli: the heat step
  • Physical hazard of metal: metal detector

Strictly speaking, HACCP does not include cleaning, sanitizing and supplier approval for procurement of ingredients and packaging. I hope you see that HACCP is not enough. There have been hundreds of recalls and outbreaks due to problems in non-processing steps. The FDA requires food manufactures to go beyond HACCP and follow a written food safety plan, which includes hazards controlled at these steps:

  • Biological hazard of Listeria monocytogenes: cleaning and sanitizing of the processing environment and equipment
  • Physical hazards coming in with ingredients: supplier approval
  • Physical hazard of glass and hard plastic: Here I am thinking of glass breaking or plastic pieces flying off buckets. This is an internal hazard and is controlled by following written procedures. The written document is a Standard Operating Procedure (SOP).
  • Chemical hazard of pesticides: supplier approval
  • Chemical hazard of mycotoxins: supplier approval
  • Chemical hazard of allergens: supplier approval, label check at Receiving and product labeling step

Does a cannabis edible facility honestly not care or not control for pesticides in ingredients because this is not part of HACCP? No. There are two ways for procurement of ingredients in which pesticides are controlled. Either the cannabis cultivation is controlled as part of the samebusiness or the facility works with a supplier to confirm the ingredient meets pesticide tolerances. Strictly speaking, this control is not part of HACCP. For this and many other reasons, HACCP is a good place to start the control of food safety when built on a solid foundation of GMPs. In the same way the food industry is required to go beyond HACCP with a food safety plan, the cannabis industry must go beyond HACCP.

My thoughts will be shared in a webinar on May 2nd hosted by CIJ and NEHA. I encourage you to listen in to continue this discussion.Please comment on this blog post below. I love feedback!

Is There a Looming Supply Bottleneck in California?

By Aaron G. Biros
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California’s regulated adult use cannabis market has been up and running for around four months now and rumors of a potential supply bottleneck on the horizon are beginning to circulate. There are a number of factors that could have an impact on the cannabis supply in the market, most of which stem from changes in the distribution channels now that the state is implementing new regulations.

Those include a slow rollout in licensing cannabis businesses, new testing requirements, the supply carryover period prior to January 1stas well as new labeling and packaging regulations. In this piece, we are going to examine some of those rumors, see if there might be some truth to them and provide some guidance for what businesses can do to prepare for this.

A Slow Start to Licensing

This one is perhaps the most obvious factor to impact the supply chain in California. Much of the delays in licensing cannabis businesses came from the issue of local control, where businesses needed to get approval from their municipality before getting a state license. In the first month of the new market, it took Los Angeles weeks longer than other counties to begin licensing dispensaries. Whereas San Diego retailers saw a massive influx of customers right away, forcing them to buy up product to meet the high demand. Smaller producers also had trouble getting licenses as quickly as some of the larger ones.

Basically it all boils down to a slow start for the new market, according to Diane Czarkowski, co-founder of Canna Advisors. “The state is requiring businesses to get their local licenses before they can get their state license and that will create a delay in operators being able to bring products to market,” says Czarkowski. She says this is pretty typical of new markets, or when a market experiences dramatic changes quickly. “It could be a brand-new market, like in Hawaii, where the operators were ready with product, but there were no labs to test the products, which caused delays.” In addition to the licensing roll out being slow to start, the temporary licenses initially awarded to businesses are set to expire soon, by the end of April.

Stricter Rules to Come

The same logic goes for the testing regulations. New testing and labeling requirements, according to the Bureau of Cannabis Control regulating the market, will be phased in throughout 2018.

CA cannabis testing chart
California’s plan for phasing in testing requirements.

The state has already phased in cannabinoids, moisture content, residual solvent, pesticide, microbial impurities and homogeneity testing to some extent. On July 1st, the state will add additional residual solvent and pesticide testing as well as foreign material testing. At the end of 2018, they plan on requiring terpenoids, mycotoxins, heavy metals and water activity testing. All of those tests cost money and all of those tests could impact suppliers’ ability to bring product to market. “Oftentimes regulations require different types of testing to be done to products without recognizing that adequately completing those tests requires different methods, equipment, and standards,” says Czarkowski. “Most labs do not have all of the necessary components, and they are very costly. Producers could wait weeks to get test results back before they know if they can sell their products.”

Back when we spoke with Josh Drayton, deputy director of the California Cannabis Industry Association, about the upcoming changes to the California market, he voiced his concerns with the coming testing rules. “A lot of testing labs are concerned they are unable to test at the state’s threshold for some of these contaminants and pesticides; the detection limits seem very low,” says Drayton. “The testing portion will take years to work out, I am sure we will remove and add different pesticides and contaminants to the list.” California’s testing industry is, however, capable of adapting to changing rules, as they’ve done in the past on more than one occasion. It should be noted that many labs in the state are on the cutting edge of testing cannabis, working with The Bureau to implement the new rules.

roybingham
Roy Bingham, CEO of BDS Analytics

Cannabis products made prior to December 31st, 2017, did not need to comply with the stricter testing rules that are coming in the next few months. This carryover period allowed dispensaries to have products on the shelves when the new market launched in the beginning of 2018. Retailers knew this rule meant they needed to stockpile product in the event of a supply bottleneck, and it appears much of that product is now sold and running out, according to Roy Bingham, founder and chief executive officer of BDS Analytics. “The true impact of licenses is starting to be felt since the carryover from December buying prior to the licensed market has been sold,” says Bingham. “Some of the major brands have consciously not applied for licenses. Some of that has to do with the flexibility the government has given them to wait.”

A fourth reason for a potential bottleneck could also come from packaging and labeling rules. “There will have to be many modifications to products to ensure they follow the new potency regulations, and many formulations will have to be modified in order to meet new regulations,” says Czarkowski. Distributor licenses, according to The Bureau, have a number of compliance documentation requirements, such as arranging for all product testing, quality assurance and packaging and label accuracy. Everything has to be packaged before it gets to a dispensary, which is a new rule California businesses need to comply with.

Pricing is the Indicator

There are a handful of reasons why prices could increase; some of them are more defined than others, the biggest factor being the tax burden passed on to consumers, where reports showed up to a 40% increase from last year. A price increase in the future could also come from The Bureau implementing testing regulations throughout 2018, as mentioned previously.

If prices were to surge enormously and very quickly, that might be an indicator that a shortage is fast approaching. A dramatic increase in price over this year could squeeze margins for smaller producers, forcing retailers to pass that burden on to consumers as well.“So yes, the rumors are true.”

According to Roy Bingham, there has been a significant increase in pricing in all categories at the retail level. “In January and February, we are seeing about 10% increases per month in average retail prices,” says Bingham. “If we look at concentrates in California during 2017, they averaged about $34 by the end of the year, whereas it was about $31 at the start of 2017. So in January, prices have increased up to $38, which is a bit above trend, but in fact we were seeing a trend upwards before January 1st as well.” Comparing that with edibles pricing, Bingham says we see a clear jump at the start of 2018. “It was basically flat in 2017, averaging $14 roughly almost straight-line across, dipped in December, then in January it jumped to $17 and then to $18 in February, a big increase and significantly more than concentrates,” says Bingham. He also says flower was hovering around $9 per gram in December 2017, but surged above $10 in February 2018.

According to Cannabis Benchmarks, the California wholesale averages surged in the summer of 2017 up to $1,631 by September, then reached their lowest point in December, with their spot index at $1,368. The Cannabis Benchmarks report underlines some important reasons for the changes in pricing, but they also attribute it to the new licensing system.

“Increasing operating expenses for businesses preparing to enter California’s licensed system in 2018 were key to propping up supply side rates in the first six months of 2017. New compliance requirements were being instituted to varying degrees by local governments, while market participants warily eyed draft regulations from state officials for guidance as to how to prepare their sites and facilities to meet under-construction regulatory mandates.”

Their report highlights some very important aspects of the supply chain. “Again, it is likely that the increased costs faced by operators up and down the supply chain exert some upward pressure on wholesale rates, preventing them from steep year-over-year declines that were observed in some of the other major Western markets,” reads the Cannabis Benchmarks report.

So How Can Businesses Prepare?

Well to start, producers should make sure their operations and product are clean and safe. Making sure your product will pass a pesticide test should be top of mind. Dispensaries should also be wise in selecting their suppliers, performing supplier quality audits or some form of verification that they meet your standards is key in a consistent supply chain.

Dr. Jon Vaught, chief executive officer of Front Range Biosciences, believes tissue culture could be a viable solution for some California producers. Using tissue culture, as a form of propagation instead of mothers and clones can be cleaner, cheaper and more efficient, thus allowing growers to keep up with demand and prevent a shortage.

Dr. Jon Vaught headshot
Dr. Jon Vaught, CEO of Front Range Biosciences

Dr. Vaught says growers could look to tissue culture as a means to “mitigate risk to their supply chain and mitigate the risk of potential loss and improve their ability to efficiently grow their plant.” Maintaining a disease-free, sterile environment is a huge advantage in the cannabis market. “The real use of tissue culture is to provide disease free, clean, certified material, that has gone through a QA program,” says Dr. Vaught. “In greenhouses, the ability to control your environment is also critical because your margin of error is high. Variations in sunlight, weather, humidity all of these things have an impact in your plants. Technology can help monitor this.”

We’ve covered the basics of tissue culture previously on CIJ, with Dr. Hope Jones chief science officer of C4 Laboratories. She echoes many of Dr. Vaught’s points, firmly believing that, having existed for decades, tissue culture is an effective propagation tool for advanced breeders or growers looking to scale up.It is a complex supply chain that requires systems thinking.

It is important to note they don’t think growers should try this at home. Work with professionals, get the necessary funding, the training and facilities required if this is a project that interest you. “There’s a pretty big barrier to entry there,” Dr. Vaught urges. “The ability to manage thousands or millions of plants in a greenhouse increases risk, whereas in the lab, you’ve got a safe, secure, sterile environment, reducing risk of disease, making things easier to manage. The producers most successful at large scale are controlling those variables to the T.”

Ultimately, one segment of the market can’t prevent a bottleneck. It is a complex supply chain that requires systems thinking. Regulators need to work with producers, manufacturers, retailers, distributors, patients, consumers and laboratories to keep an eye on the overall supply chain flow.

Diane Czarkowski says the California market should prepare for this now if they haven’t already. “We have seen supply issues in every market going through a change. Other potential bottlenecks will occur because former distribution channels will be required to change,” says Czarkowski. “So yes, the rumors are true.”

Washington Lab Conducts Transparency Study

By Aaron G. Biros
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Earlier this week Capitol Analysis Group, a cannabis-testing laboratory based in Lacey, Washington, announced they are conducting a “data-driven Lab Transparency Project, an effort to improve accuracy of cannabis testing results in the state through transparency and a new third-party auditing process,” according to a press release. They plan to look through the state’s traceability data to find patterns of deviations and possible foul play.

The project launch comes after Straightline Analytics, a Washington cannabis industry data company, released a report indicating they found rampant laboratory shopping to be present in the state. Lab shopping is a less-than-ethical business practice where cannabis producers look for the lab that will give them the most favorable results, particularly with respect to higher potency figures and lower contamination fail rates.“Lab shopping shouldn’t exist, because it is a symptom of lab variability,”

According to the press release, their report “shows that businesses that pay for the highest number of lab tests achieve, on average, reported potency levels 2.71% higher than do those that pay for the lowest number of lab tests.” They also found labs that provide higher potency figures tend to have the largest market share.

The Lab Transparency Project logo
The Lab Transparency Project logo

The goal of The Lab Transparency Project is to provide summaries of lab data across the state, shining a light in particular on which labs provide the highest potency results. “Lab shopping shouldn’t exist, because it is a symptom of lab variability,” says Jeff Doughty, president of Capitol Analysis. “We already have standards that should prevent variations in lab results and proficiency testing that shows that the labs are capable of doing the testing.” The other piece to this project is independent third party auditing, where they hope other labs will collaborate in the name of transparency and honesty. “Problems arise when the auditors aren’t looking,” says Doughty. “Therefore, we’re creating the Lab Transparency Project to contribute to honesty and transparency in the testing industry.”

Dr. Jim McRae, founder of Straightline Analytics, and the author of that inflammatory report, has been a vocal critic of the Washington cannabis testing industry for years now. “I applaud Capitol Analysis for committing to this effort,” says McRae. “With the state’s new traceability system up and running following a 4-month breakdown, the time for openness and transparency is now.” Dr. McRae will be contributing to the summaries of lab data as part of the project.

According to Doughty, the project is designed to be a largely collaborative effort with other labs, dedicated to improving lab standards and transparency in the industry.

Steven Burton

3 Ways The Cannabis Industry Can Benefit By Adopting IoT Tech

By Steven Burton
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Steven Burton

The cannabis industry of the United States is unlike other horticulture markets in the country. It’s younger, less traditional and with roots in a black market, it’s no surprise that its forerunners aren’t afraid to experiment with new approaches and technology.

The rapid adoption of IoT (Internet of Things) technology is one way in particular that this new generation of producers is stepping up, and they’re beginning to reap the rewards. But to better demonstrate how significant the implementation of IoT tech can be, we’ll peek over the fence at other craft-oriented food industries—namely wine and chocolate—to discover how effective they can be long-term for serious players in the cannabis industry.

The results, as you can probably guess, are astounding.

Farm Productivity and Precision is on the Rise

IoT tech isn’t just a cool new thing for experimental growers – it’s as necessary as air in the 21st century. New and veteran farms alike are discovering ways to streamline production and enhance the quality of their crops. One of the most common implementations of IoT tech in agriculture is the installation of smart measurement tools. Remote sensors can monitor soil acidity, humidity, salt concentrations, temperature and a variety of other metrics, automating the collection of data and providing a clear picture of plant health. For many farms, like E. & J. Gallo Winery, this is a game-changer.By installing hundreds of sensors per block and upgrading to a more precise irrigation system, Gallo was able to connect moisture measurements to a central system

Before placing sensors in over 250 acres of their vineyard, Gallo could only make irrigation adjustments at the large block level. Even with careful monitoring of moisture levels, the grape yield was inconsistent in size and flavor. By installing hundreds of sensors per block and upgrading to a more precise irrigation system, Gallo was able to connect moisture measurements to a central system. The system collects the data, considers the weather forecast, and automatically irrigates small areas of the vineyard as needed to ensure all plants are optimally watered. This resulted in a more uniform crop, less water waste and more desirable grapes.

Cannabis farms are starting to pick up on this simple approach as well. Organigram, one of Canada’s leading Cannabis producers, is well aware of the benefits of this kind of automation and data collection. “All our grow rooms are helping us learn all the time,” says Matt Rogers, head of production at Organigram. “With 20 grow rooms going, we can gather as much information about these plants as you would get in a century of summers.”

Automation and precision have enabled by Gallo and Organigram to improve yield and increase precision, which has helped them achieve their well-respected status in the wine and cannabis industries.

The Supply Chain is Becoming More Transparent

As much as we would like the industry to be free of scams and crooks, there’s more than a few producers stretching the truth when it comes to labeling product. MyDx, a cannabis chemical analyzer, recently revealed that the label on the package often does not totally coincide with the product within.Protecting your brand’s reputation is a necessity and IoT tech is helping some pioneering industries do that.

For example, the most frequently tested cannabis strain, “Blue Dream”, averages a 64% difference in chemical makeup from sample to sample. Similarly, “Gorilla Glue” and “Green Crack” show as much as 83% variation from sample to sample—largely because there’s no regulation of these names.

While variation is inevitable from grower to grower, plant to plant, and even between different parts of the same plant, misleading labels and the addition of ‘fillers’ is a growing issue for edible cannabis producers, and the threat it poses to your brand isn’t minor. Protecting your brand’s reputation is a necessity and IoT tech is helping some pioneering industries do that.

Wine in China is a powerful example of how improved traceability can reduce large-scale mislabeling. Brand-name winemakers in the country face a massive problem: 70% of imported wines are counterfeits. To combat this, winemakers are attaching near-field communication (NFC) labels to imported and domestic bottles. It’s a dramatic solution, but one that’s protecting the brand of winemakers dedicated to quality and transparency.

As the legalization of cannabis spreads and coveted strains emerge, so will the availability of counterfeits—or, at the very least, less-than-truthful labeling. This has proven to be true in almost every specialty market, and adopting improved traceability tech will defend your brand and reputation from the consequences of selling a product that’s discovered to be more ‘filler’ than cannabis.

Compliance is Easily Achieved

The conversation of cannabis regulation generally revolves around age restrictions and driving while impaired, but government compliance is far more complicated – especially for facilities that create cannabis-infused food products. And here’s the frustrating part for those who must (and should) maintain a food safety plan: every time a regulation is adjusted (or every time a new variation is added in another state), facilities must be able to document changes in procedures, recipes and hazard controls. It gets complicated quickly, especially if all the documentation is kept manually.

There’s a lot to be gained by connecting your systems and products to the Internet of ThingsA central, connected system is the best way for food manufacturers to streamline and automate a variety of documentation and food safety tasks, which can mean thousands of dollars saved over months or years. Using software like Icicle, facilities can create a comprehensive data environment that’s dynamic and accessible from anywhere. Incoming measurements from connected equipment and employee records are collected and an admin dashboard allows you to see what food safety systems are thriving and which need revisiting. The records – transformed into a compliant food safety plan – can then be pulled up during audits and inspections on the spot, saving the months that companies usually spend preparing documentation.

According to Mitchell Pugh of Chewter’s Chocolates, their system “gives me a great peace of mind in the sense to know we have all our information prepared and anything that an inspector is going to ask for – whether they’re looking for one product, a general system, a certain hazard, or a bill of ingredients or materials or an allergen – is easy for us to search for it, pull it up, and find exactly what they’re looking for.”

Considering that most food manufacturers still record measurements and create food safety plans manually, this is an area where progressive companies can quickly outpace their non-automated rivals.

Whether you’re a grower, dispensary, food producer, or some other kind of cannabis professional, there’s a lot to be gained by connecting your systems and products to the Internet of Things. Which direction will you take?

Amy-Ankrum-headshot
From The Lab

The Case for ISO/IEC 17025 Accreditation in Cannabis Testing Laboratories

By Amy Ankrum
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Amy-Ankrum-headshot

Government regulations keep millions of Americans safe every year by controlling what companies can put in their products and the standards those products must meet to be sold to consumers.

Enter the strange case of legal cannabis: In order for cannabis to be legally distributed by licensed medical professionals and businesses, it must be tested. But unlike other consumable goods, cannabis is not regulated by the FDA. Without an overarching federal policy requiring cannabis testing laboratory accreditation, the testing and laboratory requirements differ greatly across state lines.For medical cannabis specifically, accredited testing facilities are especially important. 

To be federally regulated, cannabis would first have to be federally legalized. It turns out that states and businesses alike are not willing to wait for a federal mandate. Many states have begun to adopt standards for cannabis testing and some, such as Ohio, have even announced mandatory ISO/IEC 17025 accreditation for all cannabis testing laboratories. As the industry evolves, increased compliance expectations are certain to evolve in tandem.

Some cannabis labs have even taken the initiative to seek ISO/IEC 17025 accreditation of their own volition. Seth Wong, President of TEQ Analytics Laboratories, shared in a press release:

“By achieving ISO/IEC 17025 accreditation, TEQ Analytical Labs believes that we can address the concerns throughout the cannabis industry regarding insufficient and unreliable scientific analysis by providing our clients with State required tests that are accredited by an international standard.”

Other laboratories, such as DB Labs in Las Vegas and EVIO Labs in Florida are also leading the accreditation charge in their respective states, ahead of any state mandates.

There are key reasons why accreditation in cannabis testing labs is important. First and foremost, cannabis is a consumable product. Like fruits and vegetables, cannabis is prone to pesticides, fungi and contaminants. The result of putting a potentially hazardous material on the market without proper and documented testing could lead to a public health crisis. An accredited testing lab, however, will ensure that the cannabis products they test are free from harmful contaminants.

By utilizing role-based trainings, labs can trust employees are receiving proper onboarding.

For medical cannabis specifically, accredited testing facilities are especially important. Because many consumers of medical cannabis are immuno-compromised (such as in the case of chemotherapy patients), ensuring that products are free from any and all contaminants is critical. Further, in order to accurately determine both short- and long-term effects of prescribed cannabis consumption, accredited and compliant laboratories are necessary.

Accreditation standards like ISO/IEC 17025 also provide confidence that testing is performed properly and to an internationally accepted standard. Rather than returning a “pass/fail” rating on products, the Cannabis Safety Institute reports that an ISO/IEC 17025 laboratory is required to produce numerical accuracy percentages in testing for “at a minimum, cannabinoids, pesticides, microbiology, residual solvents, and water activity.” Reliable data sets that can be reviewed by both accreditors and the public foster trust between producers and consumers.

Finally, ISO/IEC 17025 accreditation demonstrates that a laboratory is properly staffed and trained. The Cannabis Safety Institute’s “Standards for Cannabis Testing Laboratories” explains that conducting proper analytical chemistry on cannabinoids (the chemical compounds extracted from cannabis that alter the brain’s neurotransmitter release) requires personnel who have met specific academic and training credentials. A system to monitor, manage and demonstrate proficiency is necessary to achieve and maintain accreditation. With electronic systems in place, this management and documentation minimizes risk and also minimizes administrative time tracking and maintaining training records.

Following the proper steps of a standardized process is key to improving and growing the cannabis industry in coming yearsFor cannabis testing labs, utilizing a comprehensive software solution to achieve and maintain compliance to standards such as ISO/IEC 17025 is key. Absent of a software solution, the necessary compliance requirements can become a significant burden to the organization. Paper tracking systems and complex spreadsheets open up organizations to the likelihood of errors and ultimately risk.

Because ISO/IEC 17025 has clearly defined expectations for training, a software solution also streamlines the training process while simultaneously documenting proficiency. By utilizing role-based trainings, organizations can be confident employees are receiving proper onboarding and in-service training. Additionally, the effectiveness of training can be proven with reports, which results in smoother audits and assessments.

Following the proper steps of a standardized process is key to improving and growing the cannabis industry in coming years- which means utilizing technology tools such as electronic workflows to ensure proper process controls. Beyond adding critical visibility, workflows also create efficiencies that can eliminate the need to increase staffing as companies expand and grow.

For an industry that is changing at a rapid pace, ensuring traceability, efficient processes and visibility across organizations is paramount. Using a system that enables automation, process control, document management and documented training procedures is a step in the right direction. With the proper software tools in place, cannabis testing labs can achieve compliance goals, demonstrate reliable and relevant results and most importantly ensure consumer safety.

The Necessity of Food Safety Programs in Cannabis Food Processing

By Gabe Miller
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When processing cannabis, in any form, it is critical to remember that it is a product intended for human consumption. As such, strict attention must also be paid to food safety as well. With more and more states legalizing either medical or recreational cannabis, the potential for improper processing of the cannabis triggering an illness or death to the consumer is increasing.

The FDA Food Safety Modernization Act (FSMA) is the new food safety law that has resulted in seven new regulations, many which directly or indirectly impact the production and processing of cannabis. Under FSMA regulations, food processors must identify either known or reasonably foreseeable biological, chemical or physical hazards, assess the risks of each hazard, and implement controls to minimize or prevent them. The FSMA Preventive Controls for Human Foods (PCHF) regulation contains updated food “Good Manufacturing Practices (cGMPs) that are in many cases made a requirement in a state’s medical or recreational cannabis laws. These cGMPs can be found in 21 CFR 117 Subpart B.

It is imperative that cannabis manufacturers have a number of controls in place including management of suppliers providing the raw material.Food safety risks in cannabis processing could originate from bacteria, cleaning or agricultural chemicals, food allergens or small pieces of wood, glass or metal. The hazards that must be addressed could be natural, unintentionally introduced, or even intentionally introduced for economic benefit, and all must be controlled.

It is unlikely that high heat, used in other food products to remove bad bacteria would be used in the processing of cannabis as many of its desirable compounds are volatile and would dissipate under heating conditions. Therefore, any heat treatment needs to be carefully evaluated for effectiveness in killing bacterial pathogens while not damaging the valuable constituents of cannabis. Even when products are heated above temperatures that eliminate pathogens, if the raw materials are stored in a manner that permits mold growth, mycotoxins produced by molds that have been linked to cancer could be present, even after cooking the product. Storage of raw materials might require humidity controls to minimize the risk of mold. Also, pesticides and herbicides applied during the growth and harvesting of cannabis would be very difficult to remove during processing.

It is imperative that cannabis manufacturers have a number of controls in place including management of suppliers providing the raw material. Other controls that must be implemented include proper cannabis storage, handling and processing as well as food allergen control, and equipment/facility cleaning and sanitation practices. Processing facilities must adhere to Good Manufacturing Practices (GMP’s) for food processing, including controls such as employee hand washing and clothing (captive wear, hair nets, beard nets, removal of jewelry, and foot wear) that might contribute to contamination. A Pest Control plan must be implemented to prevent fecal and pathogen contamination from vermin such as rodents, insects, or birds.

Processing facilities must be designed for proper floor drainage to prevent standing water. Processing air should be properly filtered with airflow into the cannabis processing facility resulting in a slightly higher pressure than the surrounding air pressure, from the clean process area outwards. Toilet facilities with hand washing are essential, physically separated from the process areas. Food consumption areas must also be physically separate from processing and bathroom areas and have an available, dedicated hand sink nearby. Employee training and company procedures must be effective in keeping food out of the processing area. Labels and packaging must be stored in an orderly manner and controlled to prevent possible mix-up.Cleaning of the processing equipment is critical to minimize the risk of cross contamination and microbial growth.

Written food safety operational procedures including prerequisite programs, standard operating procedures (SOP’s), etc. must be implemented and monitored to ensure that the preventive controls are performed consistently. This could be manual written logs, electronic computerized data capture, etc., to ensure processes meet or exceed FSMA requirements.

A written corrective action program must be in place to ensure timely response to food safety problems related to cannabis processing problems when they occur and must include a preventive plan to reduce the chance of recurrence. The corrective actions must be documented by written records.

Supply chain controls must be in place. In addition, a full product recall plan is required, in the event that a hazard is identified in the marketplace to provide for timely recall of the contaminated product.

Cleaning of the processing equipment is critical to minimize the risk of cross contamination and microbial growth. The processing equipment must be designed for ease of cleaning with the minimum of disassembly and should conform to food industry standards, such as the 3-A Sanitary Standards, American Meat Institute’s Equipment Standards, the USDA Equipment Requirements, or the Baking Industry Sanitation Standards Committee (BISSC) Sanitation Standards ANSI/ASB/Z50.2-2008.

Serious food borne contaminations have occurred in the food industry, and cannabis processing is just as susceptible to foodborne contamination. These contaminations are not only a risk to consumer health, but they also burden the food processors with significant costs and potential financial liability.

Anyone processing cannabis in any form must be aware of the state regulatory requirements associated with their products and implement food safety programs to ensure a safe, desirable product for their customers.

Marguerite Arnold
Soapbox

Paradox or Paragon? A Non-Techie Look at Blockchain, Cryptocurrency & Cannabis: Part II

By Marguerite Arnold
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Marguerite Arnold

Disclaimer: Marguerite Arnold has just raised the first funds for her blockchain-based company, MedPayRx in Germany (and via traditional investment funding, not an ICO). She will also be speaking about the impact of blockchain on the cannabis industry in Berlin in April at the International Cannabis Business Conference.


To read the first part of this series, click here. The Paragon class action lawsuit is likely to shake up two industries – the cannabis world, which has been following this situation at least in the industry press since the company began to raise money – and the ICO space in general. Why? Just the combination of the two topics is a guaranteed conversation starter. In addition, given the focus on whether tokens are securities or not (or whether so-called “utility tokens” are as well, depending on how they are used and sold) far beyond cannabis, this case may well begin to set precedent on the entire subject. Even more worrying for Paragon in particular right now, beyond the federal government, coordinated efforts are underway by both law firms and consumer groups to recruit aggrieved investors as suit plaintiffs. Beyond the United States and far from the Paragon case specifically, banks in Europe have begun to set guidelines on cryptocurrency and ICOs too. It is not routinely hostile everywhere (see Switzerland if not many Asian countries). But the map is now being defined.

The dilemma that Paragon is now facing is also something that has been coming for some time both for the company and others like them – and from both the cannabis investment and crypto coin directions. Digitally astute cannapreneurs take note: Do you really want your dream business used to define precedent as a defendant in a class action? Or targeted by the new SEC cyber unit whose job is to regulate ICOs (and probably “crowd sales” too?). That regulatory glare is coming everywhere. And soon. Globally.In the world of cannabis, in particular, it is also very important to be careful.

If issuing tokens, particularly if you sell them to raise money – no matter what that money will be used for – realize what you are doing. Even if you state to the world that these are not “investment” vehicles” but “utility” tokens. If you sell them, they are by definition, even if not federally litigated and defined yet in the United States, a contract for future worth, services or other benefit. An IOU in other words. As such they are also derivative securities, which is why the regulatory agencies, barely 10 years out of the last global financial meltdown, are now starting to see parallels. So much so, in fact, that SEC Chair Jay Clayton warned in January that any attorneys who are involved in ICOs might be in breach of professional obligations. Other jurisdictions are following suit.

In the world of cannabis, in particular, it is also very important to be careful. Selling (soon to be federally if not internationally regulated) tokens or securities in general for that matter for certain services or products that can be illegal in some jurisdictions is also a space that cannapreneurs are going to find challenging. See the banking problems of the entire U.S. cannabis industry. Same issue.

This is also going to get even more complicated very soon. Particularly in a world of shifting regs and when it comes to “brand creation.” Right now, for example, a crowdfund or ICO (the terms can be used interchangeably, token issue or not) for a “global cannabis lifestyle brand” promoted and sold online is highly problematic just about everywhere. Why? You cannot transport cannabis across state lines in the U.S. Americans and Israelis also still cannot export anywhere. You also cannot sell what is considered “medical” marijuana to a European regulator if it is not GMP certified. It is, according to local definition, most certainly not “medical”. You may also not distribute cannabis online in countries like Germany. And of course, cannabis itself is still federally illegal in many places, including the United States. Issuing a token or security with the intent of engaging in such practices is ill advised at this juncture. No matter what it is labelled.

Those are also situations where investors could legitimately also sue the ICO or crowd sale holder for breach of securities laws or outright fraud.

Beyond the world of banking law, users face other quagmires, depending on your situation and how you use and issue tokens. Or you certainly will in the emerging future. If you use tokens in situations where members “vote” you may also run into other problems. Like civil liberties issues. Poll taxes (where you force people to pay before access to voting or weigh the impact of their votes on financial contributions) is illegal in many jurisdictions and even more specifically certain use cases that may not always be initially obvious. How that plays out in blockchained ecosystems is a discussion of the future, but it is coming. Along with other labour and regulatory issues surrounding the use of “smart contracts.” Which are also known as “utility tokens.” See, it gets confusing. And fast.

In the cannabis space, liabilities sprout more quickly than even the fastest growing strain.As a result, the first major issue that any cannabis business considering a token generation event (or TGE) will face, no matter whether it is state or federally legit in said jurisdiction, has nothing to do with cannabis but rather rather cryptocurrencies and ICOs – and for right now federal if not international financial law – but look for that to also change as the space develops.

For the present, in most places, token issues where monetary value is assigned or implied are considered securities or even defined outright as currency. Or they will be soon. This means that if you are issuing a new coin for any purpose that you intend to sell for any purpose, including an ICO, especially one that will supposedly be used to pay for goods or services, or even to “assetize” the token to give it a market value (the value of the asset it is assigned), you are now in the federal end of the swimming pool. And federal if not international law is not for novices or sissies much less non-lawyers when it comes to crypto coin. There are great white sharks everywhere in this often-strange digital ocean. That is even before you get to cannabis.

In the cannabis space, liabilities sprout more quickly than even the fastest growing strain.

This is also easy to illustrate – even beyond the concept of an ICO. Say you are a cannabis producer in Colorado – where much of the legal cannabis industry we know today was born. You are in business, have a license and even own your grow space and the acres of real estate that it sits on. But you also want to access additional capital (including that of the international kind) and are, as an aside, overwhelmed by the demands of your cash business. You meet an energetic young blockchain geek who says she can sign you up to her service that will create your white paper, website and even hook you up to one of the several “insta-mint” crypto coin services now available for several thousand dollars (don’t forget lawyer’s fees), plus hiring a good PR firm to manage the ICO process.

Groovy.

You issue your own coins and literally mint them for the sole purpose of assigning each coin to every dried gram of your product that you produce to test the market before potentially holding an ICO. You then “sell” this bud (at wholesale prices) to a dispensary with a wallet that will accept your coin via a smart contract that only releases the funds when the right amount and quality of product is delivered to the dispensary. As a clever marketing technique, you also agree with the recreational dispensary you are working with (who happens to be in Aspen) that you both will also now offer jointly issued coins, at a higher retail price, to any tourist with a medical card or any age-appropriate recreational user who has the ID to prove it, to “pre-buy” their cannabis on the way to après ski and have it delivered, no questions asked, at the hot tub. You advertise the service with a cannabis-friendly ski package operator and travel agent, and voila – customer base is assured. If you have any celebrity friends who are willing to promote it, even better. And why not, while you are at it, do some LinkedIn outreach.

No cash needed either. ID verification happens with coin purchase.

Easy, right? So many headaches solved with one coin to rule them all. Banking issues evaporate along with a lot of work for accountants at both ends of the conversation. And the price of the coin you issue cannot be illegally pumped and dumped because the “price” is set by the state or federal market and/or supply and demand and/or another kind of asset (like a piece of real estate designed to be a startup incubator space for which people also pay entrance fees in your tokens, to enter and use). Then you can offer these “coins” for sale, at those market prices, set by the dried bud you are growing, to anyone, anywhere, to invest in too. Right?

No ICO, even. No problem. After all, you say they aren’t securities but “utility tokens.”

Wrong.

By definition, such activity is illegal in the United States if it has anything to do with the plant for the same reasons the U.S. industry remains a mostly cash-only business. There are several U.S. start-ups trying to construct “legal” payment gateways for the industry right now in the lower 48 plus 2 (see CanPay in Hawaii) and some creative efforts in Europe. However, all of those depend on the willingness of a banking institution on the other end to allow that to happen. See Uruguay if you still remain optimistic about any American efforts right now. Not to mention the newly awoken willingness of the federal DOJ to prosecute for money laundering in a post-Cole-memo world. And that includes you too, California.

But this is an issue that is not just limited to the United States.

In other places, like Canada, Australia, Israel and the Eurozone, legitimate cannabis businesses have bank accounts. And banks are absolutely involved in both the blockchain and crypto space – see Ripple. As a simplified payment gateway, the technology is imminently useful, if still forming. But banking authorities are so concerned about ICOs that they are moving, quietly, to implement policies against them even as they are still accepting cyber currency (in limited ways and via strictly controlled channels).

Given such concerns and divided loyalties, it is unlikely that authorities in Canada will sit this one out, even though (and perhaps because), to date, the most intriguing ideas about cryptocurrency and cannabis have tended to waft from this part of the world lately given what is about to happen this summer.

Most dangerous of all to the budding crypto cannapreneur is Germany – home of legal, public health insurance covering medical cannabis. Banking regulators in Frankfurt, in particular, have taken a dim view of even just regular old crowdfunding. Add a token into the mix and the Germans are even less amused. The persistent rumor in the Fintech community in Frankfurt this March is that German banking authorities are refusing to accept any funds raised during an ICO anywhere. Verboten for any purpose. Why? Even if they know who you are, and all of your investors meet their KYC requirements, they do not know the source of the cyber currency coming from those investors. No dice. And KYC in this instance does not refer to a new brand of cannabis-flavored lubricant. It is a term that means, in the most comprehensive understanding of how it must be used, not only “know your customer” but being able to verify all points of data on a chain. Including the coin issuer, purchase conditions, currency used to purchase the same and “chain of title” downstream. If you are confused by this already, you should not be engaged in an ICO right now.Not all of these models or even the ICOs that use them are scams.

Add cannabis to this recipe, and every bank in Germany, even the one at the moment who is still more or less openly participating in ICOs, if not the rest of the European financial community, will probably walk. Even if you reach your “hard cap” (the maximum amount you hope to raise) that might be in the tens if not hundreds of millions of euros. In that case, it will probably be even harder to find a bank to accept your business. Worse, you may never raise the amount you hope for. At that point, you cannot go back to traditional venture capitalists – or anyone else – for more money. You are done. You must start over from scratch. If there was an asset of any kind involved (including a license to do business) legally, everyone who holds a coin owns a piece of it. See securities law. This is precisely why you can never raise money again against that asset or with the corporate entity that owns it. Or at least not without a lot of legal fees or begging your peeved investors for more money. Legally, at that point, they could require you to sell all assets associated with the corporate entity holding the ICO. And they probably would. For investors that is the best-case scenario. ICOs for concepts with no assets or strategic partnerships in place at the time of the “token sale,” create many lose-all scenarios for investors.

There are many pitfalls to this world – and not just from the cannabis side.Issuing a “token” that someone has to pay for that acts like cash (even if to buy goods and services in the future from other members of the ecosystem and social community that crypto coins create) that also is vulnerable to market pricing, is another quagmire. In fact, it might be, beyond any techno or financial queasiness about blockchain, the biggest reason that this industry should look, and with considerable caution, at all tokenized and ICO models that also premise their worth on the idea that such coins will inevitably increase in worth over time. There is also anti-cartel, monopoly and market discrimination to consider.

Not all of these models or even the ICOs that use them are scams. There are and will be valuable alt currencies and tokens in the future (even without a cash value assigned). All of the top start-ups in the current ICO space, in fact, are finding unique ways to create a real alternative currency with values attached that are indisputable. And not all of them will succeed.

However, that is not true of the cannabis business at this juncture. The plant, much like cryptocurrency and beyond that, blockchain itself, has not reached mainstream status yet – starting with market economics and regulation that is already international. A pot-based coin, no matter where it is issued and by whom (including a federal government), would run into multiple issues with valuation just because the price of cannabis itself right now is so volatile, not to mention unevenly priced thanks to jurisdictional restrictions and barriers. For that reason, there is no way to issue a “cannabis coin” with global relevance, much less global value.

And that, of course, is beyond the issue of subsequently selling those coins on exchanges that have been repeatedly hacked, fail to give customers access to their accounts, or are, in the case of China, banned outright (which also deemed ICOs illegal last September).

There are many pitfalls to this world – and not just from the cannabis side. Part III of this series will look at some of the biggest opportunities when cannabis integrates with the DLT (distributed ledger technology).