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The Great Social Experiment: Social Equity in New York

By Abraham Finberg, Simon Menkes, Rachel Wright
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New York is embarking on a great social undertaking. In awarding its adult-use cannabis licenses, under the plan laid out by Gov. Kathy Hochul on March 10, the state is attempting to right generations of wrongs caused by the war on cannabis. The wrongs are numerous and include mass incarceration and complex generational trauma, prevention of access to housing and employment and the forming of an illicit market – all of which have had a disproportionate impact on African-American and Latinx communities.1

In addition to generating significant revenue for the state, New York hopes to make substantial investments in the communities and people most affected by cannabis criminalization and address the collateral consequences of that criminalization, reduce the illicit market for cannabis and illegal drugs, end the racially disparate impact of existing cannabis laws and strengthen New York’s agriculture sector.2

50% of All Licenses Will Be Social Equity

To accomplish these lofty aims, the state’s goal is to award 50% of adult-use cannabis licenses to social and economic equity applicants – and these licenses will be the first issued.3,4 The state’s entire focus is on this social equity licensing program; issues regarding non-social equity licenses are not being addressed at this time.

No one knows yet how many licenses will be issued. There are currently only 38 medical licenses in the state, although everyone expects the number of adult-use licenses to be significantly higher. (These medical licenses serve around 140,000 patients with sales in 2021 of around $300 million.)

The First 100 to 200 Licenses

Chris Alexander, executive director of the state’s Office of Cannabis Management, says he expected between 100 and 200 licenses to go first to people who were convicted of a cannabis-related offense before the drug was legalized, or those who have “a parent, guardian, child, spouse, or dependent” with a cannabis conviction. Alexander also said his office would evaluate applicants on their business plans and experience in retail.5

What’s the Timeline?

In a recent Q&A interview, Tremaine Wright, chair of New York’s newly-formed Cannabis Control Board (CCB), which will be overseeing the licensing process, stated: “We are setting up a system soup-to-nuts … [final] regulations for the state’s marijuana startups will be issued by the Cannabis Control Board this winter [2022] or early spring [2023] … recreational dispensaries should be licensed to operate by summer 2023.”6

Whom Is New York Looking For?

New York has defined social equity applicants as being:

  • Individuals from communities disproportionately impacted by the enforcement of cannabis prohibition
  • Minority-owned businesses
  • Women-owned businesses
  • Minority and women-owned businesses
  • Distressed farmers
  • Service-disabled veterans.7

Extra priority will be given to an applicant who:

  • Is a member of a community disproportionately impacted by the enforcement of cannabis prohibition
  • Has an income lower than 80% of the median income of the county in which the applicant resides
  • Was either: (a) convicted of a cannabis-related offense prior to the effective date of the N.Y. Cannabis Law; (b) or had a parent, guardian, child, spouse or dependent; or was a dependent of an individual who was convicted of a cannabis-related offence prior to the effective date of the N.Y. Cannabis Law.8

Social Equity Licenses Come With Strings Attached

Social equity licenses cannot be transferred or sold within the first three years of issue. An exception will be made if the license is transferred or sold to another qualified social and economic equity applicant, but this must first be approved in writing by the CCB.9

Types of Licenses

While most people appear to be interested in a cannabis dispensary or lounge license, there will be nine types of licenses available: cultivator, nursery, processor, distributor, retail-dispensary, delivery, on-site consumption, adult-use cooperative and microbusiness.

“I don’t hear many people [talking about] processing and manufacturing,” says CCB chair Wright. She noted that processor licenses cover the production of edibles like candy and baked goods, which create a good opportunity to establish a brand.10

CCB Priorities

Wright also noted delivery companies would likely be capped at 25 employees in order to prevent behemoths like Uber from entering the market. “We’re trying to focus on not creating a space where monopolies can take over and kill all our small businesses,” Wright says.11

License Application Costs

The cost for an adult-use cannabis license in New York is still unknown, so the experts are looking at the cost for a medical cannabis license as the baseline, with a greater cost likely for adult-use. Each applicant was required to submit two fees with its medicinal application: a non-refundable application fee in the amount of $10,000 and a registration fee in the amount of $200,000. The $200,000 registration fee was refunded to the applicant only if the applicant was not issued a registration.12

The Marijuana Regulation and Taxation Act (MRTA) states, however, that fees may be waived for social equity applicants.13

Funding Assistance for License Applicants

Because of the requirement that each applicant be from one or more of the social equity classes, it is quite likely many of the applicants will lack the necessary funding to open a cannabis business currently.

New York Governor Kathy Hochul

On January 5, 2022, Gov. Hochul pledged to commit $200 million to support social equity applicants in building adult-use cannabis businesses. New York’s Office of Cannabis management expects that around $50 million of the fund will be raised from registered organizations licensed to operate medical cannabis businesses in NY and that $150 million will be raised from private investors.14

Wright commented, however, that those loans aren’t guaranteed to be available for the first round of licensing because the money to fund them will largely come from tax revenue generated by the industry. “[The Office of Cannabis Management] is not going to be able to right all the wrongs of the financial services industry,” she added.15

This lack of capital will offer opportunities to those who might want to invest with a social equity license applicant.

Requirements for Those Who Invest With Social Equity Applicants

Any person or entity investing with a social equity applicant must keep in mind the State’s following requirements:

  1. Any entity applying for a New York cannabis license will need to be owned at least 51% by a social equity class applicant.
  2. That ownership must be “real, substantial, and continuing.”
  3. The social equity applicant must have and exercise the authority to control independently the day-to-day business decisions of the enterprise.
  4. The individual or entity seeking the license must be authorized to do business in the state and be independently owned and operated.
  5. The individual or entity must be a small business.16

Business Experience & Labor Union Representation Needed

The state is also looking for applicants with previous successful business experience and competency, and preference will be given to those who can demonstrate such experience.17

Additionally, the state would like to see that the applicant “has entered into [an] … agreement with a bona-fide labor organization that is actively engaged in representing or attempting to represent the applicant’s employees, and the maintenance of such [an] agreement shall be an ongoing material condition of licensure.18

New York’s Careful Approach

New York has moved slowly and thoughtfully in getting into the recreational cannabis market. Its leaders have studied the experiences of other states, noting complications and pitfalls that have arisen in such states as California, where small cannabis operators have been squeezed out and a large illicit market has grown to dwarf the tax-paying legal sector.

By opening up New York’s initial adult-use licenses to small, social equity applicants and requiring they have solid business experience, New York is hoping to give awardees a foothold in the cannabis market, enabling them to flourish and build strong roots before the onslaught of sophisticated, multi-state cannabis operators enter the fray.

Additional Keys to a Successful Application

New York City
Image: Rodrigo Paredes, Flickr

Beyond fulfilling the ingredients of the social equity applicant “recipe” outlined above, the key to a successful application will come down to the perception it gives the Cannabis Control Board of the applicant’s commitment to the state’s mission. In other words, how committed is the applicant to using his or her license and business to attempt to right some of the social wrongs perpetrated by the state and federal war on cannabis?

In addition to having an owner-applicant from a social equity class, the MRTA gives other clues of steps applicants can take (and discuss in their application) which could put them ahead of the competition in obtaining licensure.

The MRTA suggests the applicant demonstrate that they will “contribute to communities and people disproportionately harmed by enforcement of cannabis laws … and report these contributions to the board.”19

The MRTA asks each applicant to submit documentation of the racial, ethnic and gender diversity of the applicant’s employees and owners. In addition, the MRTA suggests each applicant consult with the CCB’s Chief Equity Officer and Executive Director “to create a social responsibility framework agreement that fosters racial, ethnic, and gender diversity in their workplace.”20

New York is serious about its mission to use the legalization of cannabis to right some of the social wrongs of the past. An applicant’s dedication to this mission, as evidenced by a well-crafted application that emphasizes these values, may be the deciding factor on whether that applicant is rewarded with one of the state’s “Golden Tickets”. With a population of 20.2 million citizens, New York will be the second largest adult use cannabis marketplace behind California. Initial access to such a valuable and important market is worth the commitment of resources to creating not only a well-crafted application, but a well-crafted management team and business as well.

References

  1. New York Consolidated Laws, N.Y. Cannabis Law § 2, added by New York Laws 2021, ch. 92, Sec. 2 (eff. 3/31/2021) [hereinafter, N.Y. Cannabis Law].
  2. Ibid.
  3. N.Y. Cannabis Law § 87(2).
  4. https://www.nytimes.com/2022/03/09/nyregion/marijuana-sellers-licenses-hochul.html, March 9, 2022
  5. Ibid.
  6. https://gothamist.com/news/faq-new-york-cannabis-board-chair-answers-questions-about-what-it-will-take-snag-marijuana-business-license, Published January 6, 2022.
  7. “Distressed farmer” and “service-disabled veteran” are as defined by N.Y. Cannabis Law §§ 87(5)(e) and (f).
  8. N.Y. Cannabis Law § 87(3).
  9. N.Y. Cannabis Law § 87(7).
  10. https://gothamist.com/news/faq-new-york-cannabis-board-chair-answers-questions-about-what-it-will-take-snag-marijuana-business-license, Published January 6, 2022
  11. https://gothamist.com/news/faq-new-york-cannabis-board-chair-answers-questions-about-what-it-will-take-snag-marijuana-business-license, Published January 6, 2022
  12. https://cannabis.ny.gov/medical-marijuana-program-applications
  13. Marijuana Regulation and Tax Act, § 63-3
  14. See Hodgson Russ LLP, “New York Gov. Pledges $200M to Boost Social Equity Efforts as Part of Adult-Use Cannabis Legislation,” at https://www.jdsupra.com/legalnews/new-york-gov-pledges-200m-to-boost-9306262 (last accessed Mar. 2, 2022).
  15. https://gothamist.com/news/faq-new-york-cannabis-board-chair-answers-questions-about-what-it-will-take-snag-marijuana-business-license, Published January 6, 2022.
  16. Marijuana Regulation and Tax Act, § 87
  17. Id. at § 97
  18. Id. at § 64
  19. Id. at § 64j
  20. Id. at § 66-2

ASTM Launches Standard for International Intoxicating Cannabinoid Symbol

By Cannabis Industry Journal Staff
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A new ASTM International standard seeks to create an internationally recognized symbol that indicates a product contains intoxicating cannabinoids. The cannabis technical committee at ASTM, D37, developed the standard for the International Intoxicating Cannabinoid Product Symbol (IICPS).

The International Intoxicating Cannabinoid Product Symbol (IICPS)

The standard is labeled D8441/D8441M and is supposed to be used with all finished consumer use products, including topical use, ingestion and inhalation. ASTM International members David L. Nathan, M.D. and Eli Nathan designed the symbol with a group of volunteers from the D37 led by Martha Bajec, PhD of HCD Research. The symbol was concurrently developed by Doctors for Cannabis Regulation (DFCR) and Subcommittee D37.04 on Cannabis Processing and Handling. The symbol is designed “to create a truly universal cannabinoid product symbol, mindful of its importance as a means to communicating to adults and children the need for caution with products containing cannabinoids,” says Dr. Nathan. “The symbol has the potential to facilitate a spirit of collaboration among experts, regulators, and all other stakeholders in the cannabis industry.”

Darwin Millard, subcommittee vicechair for ASTM D37.04 and subcommittee co-chair for ASTM D37.07, says this is perhaps one of the most important standards to come out of the committee. “It serves to establish a harmonized warning symbol that is truly international,” says Millard. “It is not intended to replace symbols that have already been established, rather it is intended to be used by marketplaces that have yet to establish a symbol.” As more and more marketplaces adopt the symbol, the hope is that markets with their own symbol will harmonize with the ASTM symbol over time.

Millard says the symbol uses the ISO standard warning triangle, the ANSI standard warning orange/yellow and defines a standardized icon for cannabinoids, the leaf. “There are a number of cannabinoids that are intoxicating, not just delta-9-THC, therefore the symbol is designed to be used to identify any cannabinoid that can be classified as intoxicating,” says Millard. “The symbol doesn’t care if the cannabinoid is naturally derived, isolated and purified, synthesized by yeast or created in a lab; if it is ‘intoxicating’ and a ‘cannabinoid’ the symbol can be used to identify a consumer product containing it. ‘Intoxicating’ was used over ‘inebriating’ or ‘psychoactive’ since neither term is correct. Impairing was recently used by Washington State and might be worth considering down the road.”

The IICPS became the official symbol for the state of Montana as of January 1st. New Jersey and Vermont have also incorporated the IICPS design into their state symbols, already making it the most widely adopted cannabis product symbol in fully legalized states. Alaska and other states are currently discussing use of the symbol as well.

If you are interested in contributing to the development of this and other D37 standards, you are encouraged to join the committee. In addition, they will be hosting a free webinar on June 1 to discuss the development of the international symbol, how to use it and how the marketplace and consumers will benefit from it.

Cannabis Businesses Need D&O Coverage; What Does The Insurance Landscape Look Like?

By Benjamin Sibthorpe
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Cannabis continues to be a hot sector across the United States; buoyed by its ‘Essential Business’ status during the pandemic, a surge of plant touching and ancillary service providers have set up shop in the past 12 months to capture a share of this burgeoning growth. The cannabis industry is currently the leading job creator in the country, employing almost 430,000 workers according to a recent report from Leafly. Estimates on the overall size of the industry vary depending on the source, but projections of over $100bn in value by 2030 are not uncommon, while M&A activity continues to gather pace after a downturn in 2019. Clearly, investors and the public are bullish on the industry as a segment, with further state legislation to expand the number of adult use and medical markets to come. So why is the directors & officers (D&O) and management liability insurance market not embracing this growth industry?

At its core, a good D&O policy will protect the individual directors, officers and executive teams of companies, including their personal assets, in the event of suits and allegations filed based on their running and oversight of their business. For private companies, this also extends to balance sheet protection and coverage for the entity; for public companies, coverage for securities suits and claims.

The cannabis industry, despite the macro factors propelling its growth, faces numerous challenges when trying to procure D&O insurance. Very few D&O and management liability carriers are willing to entertain cannabis and related risks; even fewer are specialty underwriters willing to provide meaningful, expert coverage which truly addresses the exposures faced by executives and operators in the cannabis industry.

Cannabis D&O premiums can cause sticker shock, typically priced 4 to 10 times higher than non-cannabis businesses. Some operators have an air of invincibility and forego the purchase, believing it is not worth the cost. Meanwhile, the ability to attract and retain talented executives and directors away from other industries typically depends on having this coverage purchased and in place. Yet the outlay can be a burden in an industry which already faces fierce competition for market share, and a disparate tax treatment at a state and federal level.“The value of a D&O policy cannot be overstated.”

Even those carriers and underwriters who do entertain cannabis risks are constantly evaluating the nuances of the space: an ever changing complex state regulatory environment; the relative immaturity of the industry and the hyper-focus on growth; the lack of standardized valuation and accounting; the lack of access to institutional financing; the continued uncertainty of insolvency or restructuring in lieu of federal bankruptcy protections for plant touching companies; the operating inefficiencies for MSOs across state lines and the lack of interstate commerce; in short, the cannabis industry certainly poses its own unique and evolving risks for D&O insurers.

Ultimately the market will continue to evolve for cannabis insureds, as the data matures and the regulatory landscape become clearer. The value of a D&O policy cannot be overstated. Most public companies purchase D&O as a matter of course, but even for private cannabis companies, the right coverage is invaluable. Not having the protection afforded by a D&O policy can be ruinous for a cannabis operator, particularly in a niche area where defending claims and circumstances is complex, time consuming and ultimately expensive – typically much more so than the upfront cost of the D&O policy.

Partnering with the right broker who specializes in both management liability and cannabis is step one to getting the best value coverage. Step two is securing a policy from a dedicated market with underwriters who truly understand the cannabis space and tailor coverage to protect the executives, boards and companies that are driving this exciting growth industry.

A Toast to Cannabis Beverages, a Growing Market Segment

By Michael Bronstein, Seth A. Goldberg
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Even if you don’t know much about cannabis pop culture, people are probably familiar with the phrase, “puff, puff, pass.”’But what if the future of cannabis is really more like “sip, sip, sip“? That’s what has everyone from the largest cannabis companies to the most mainstream beverage companies buzzing.

Soft drinks, beer, juice, tea, coffee and bottled waters are major categories of the beverage industry, valued at approximately $1.5 trillion globally and $150 billion in the U.S. It’s no secret beverage companies have long eyed the next big growth opportunity in the cannabis market. Beverage makers, large and small, are now experimenting ‒ some even bringing to market ‒ cannabis-infused drinks in each of these categories.

Pepsi Co. created a hemp-infused energy drink; Canopy Growth introduced a top selling CBD drink, Quatreau, and the company is backed by beverage industry leader Constellation Brands. Meanwhile, Molson Coors revealed a cannabis-infused beverage line with Truss, and Boston Beer developed cannabis-infused beverages in Canada. Jones Soda recently announced its launch of a line of cannabis-infused sodas under the name Mary Jones. These are just a few of the major beverage industry names adding cannabis drinks to their product lines.

That’s not to mention the established cannabis beverage brands and market leaders such as BellRock Brands, Keef, Evergreen Herbal, CannaCraft and CANN, or infusion technologies companies like Vertosa and mainstream beverage packagers such as Zukerman Honickman.

Quatreau CBD infused sparkling water

When will you be able to go to a bar, restaurant, concert venue or lounge and drink your cannabis? Maybe sooner than you think.

Right now, several states are formulating plans to launch adult-use markets, with New York and New Jersey figuring prominently. And with more mature state markets contemplating venues such as lounges, many are pushing for expanded access to beverages. Internationally, Canadian regulators have taken notice of the segment and recently issued regulations on cannabis beverages.

It’s the mainstreaming of cannabis.

Companies are betting big that consumers who choose not to consume cannabis because of perceived social stigmas or fear of getting “too high” from highly concentrated THC products, or who simply don’t want to smoke or vape a product, can find an alternative in cannabis beverages. Cannabis beverages offer consumers an option to microdose and are often more socially acceptable and user-friendly ways to consume cannabis.

It makes sense given larger trends. Consumers who are health-conscious are less likely to smoke anything, let alone cannabis, and are looking for alternatives in their lifestyle choices ‒ and for a relatable product experience that doesn’t ruin the next day.

Think of it this way: Cannabis beverages are to high-THC cannabis products such as vapes, butter and shatter what beer and wine are to high-proof alcohol products such as tequila, vodka and gin. Consequently, just as the lower alcohol content of beer and wine makes those drinks more appealing to more people for more situations, cannabis drinks can reach a larger consumer base than traditional cannabis products.

However, for cannabis beverages to meet their growth potential, a number of things need to happen according to industry experts.

The Veryvell beverage product line

First is the harmonization of state requirements on labeling, testing and packaging and the regulatory acceptance of beverages as a form factor play a role. If regulations are not harmonized, it will impact the cannabis beverage companies’ ability to scale. Second, cannabis beverages need their own separate regulations. Too often, cannabis beverages are shoe-horned into edibles when they are different and distinct product offerings. Third, opportunities for on-site consumption are critical to mainstreaming cannabis beverages.

And, cannabis is still federally illegal. Therefore, many beverage giants are approaching and entering the industry cautiously. Alcohol companies have largely been quicker to jump into the fray than traditional, nonalcoholic beverage brands. It is illegal to combine alcohol and cannabis in the United States, however, so the cannabis-infused market consists of water-based drinks.

Due to national prohibition, beverage companies bringing cannabis into their portfolio are largely operating under state-by-state laws and a varied regulatory environment – catering to states with adult-use cannabis programs. This patchwork of regulation impacts business operations from advertising and marketing to packaging, labeling and even dosing instructions. For most companies, the cost of doing business increases in this operating environment as laws vary across state lines.

happie cannabis infused beverages

When federal prohibition ends, a policy priority for the industry and regulators will be to reconcile the regulatory environments and state-by-state differences. We’re also likely to see the industry come together and advocate for responsible consumption, standard policies and best practices. Expect massive public service campaigns and industry and trade groups coming together to educate the public and policymakers on smart, responsible use of infused cannabis beverages.

Today’s federal cannabis prohibition is also why some manufacturers are embracing CBD-only drinks. Sales of CBD drinks (federally legal as they are derived from hemp versus the psychoactive component of THC) are expected to hit $2.5 billion and are available in places where cannabis is not legal yet.

Meanwhile, THC-infused beverages will account for $1 billion in U.S. sales by 2025, according to Brightfield Group. While not a huge part of the pie in relation to the $24 billion cannabis industry, cannabis infused beverages are one of the fastest growing segments.

So don’t be surprised if sometime soon you see a cannabis drink for sale. Companies are betting big and it might just be time to imbibe.

MedicineManTechGrow

2022 Cannabis Cultivation Virtual Conference

By Cannabis Industry Journal Staff
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MedicineManTechGrow

2022 Cannabis Cultivation Virtual Conference

Sponsored by Hardy Diagnostics

View On-Demand Now

Click here to see all available CIJ events and webinars

Agenda

Moving Forward in Craft Cannabis

  • Ted Harris, Founder & Executive Managing Director, Sweet Leaf Capital

This presentation delves into the craft cannabis market, genetics, going beyond potency, looking into cannabinoids and terpenes, quality vs. yield and much more.

Beyond Terpenes: What Else Is There and Why Should You Care?

  • Dr. Aldwin Anterola, Chief Science Officer, Veda Scientific
  • Leo Welder, CEO of Veda Scientific

Using GCxGC MS technology, we found that on average 40% of terpene content was not accounted for by the 40 standard terpenes used in cannabis testing labs. We have also detected other volatile compounds including alcohols, aldehydes, alkanes, aromatic and other hydrocarbons, esters, fatty acids, ketones and thiols. We will discuss the implications of this more comprehensive “volatilome” data including its significance in characterizing cannabis, distinguishing strains from each other, breeding for desired traits, improving quality and consistency of cannabis products, and even selecting better and safer processes and packaging

Hardy Diagnostics Sponsored TechTalk

  • Jessa Youngblood, Food and Beverage Market Coordinator, Hardy Diagnostics

Applying Integrated Pest Management to Cannabis Cultivation

  • Dan Banks, CCA, Co-Founder, Precision Crop Consulting, LLC

Attendees can expect to learn about: an introduction to IPM and how this approach to pest management applies to cannabis production, the components of an effective IPM program (Pest monitoring and identification, Structural & Environmental controls, Cultural practices, Resistant varieties, Biological controls, Compliant pesticide use) and actionable tips and suggestions relating to each component of a Cannabis IPM program.

Characterizing Nuisance Biofilms with NGS to Adopt Better Water Treatment Program

  • Taylor Robinson, Director of Analytical Services/R&D, Silver Bullet Corp.

Attendees can expect to learn about what biofilms are, how and why do they form, what is NGS and how can it be used in the context of biofilm analysis, and how can we use modern analytical techniques to implement more efficient treatment strategies.

View On-Demand Now

Meet Looming Federal Cannabis Regulatory Compliance Management with Automation & Confidence

By Steven Burton
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Federal regulation of the cannabis and hemp sectors is coming sooner rather than later — and this is mostly good news for cannabis businesses and consumers. But cannabis producers already struggling to meet complex and ever-changing local regulations (where they exist) will be facing a new set of challenges with another level of regulatory oversight and compliance.

Navigating multi-jurisdictional regulatory compliance management requirements is near-impossible with legacy manual systems. That’s why it’s time to leverage the right enterprise resource planning (ERP) system, so that you and your team can meet these compliance management complexities with confidence and ease. Whether you manufacture flower, edibles, beverages, supplements or other dispensary products, here’s what you need to know to stay agile and profitable as more changes loom.

Federal Legalization is Coming

To date, there are 18 states with adult use cannabis markets, 37 with medical cannabis programs, and an additional 13 that have some level of decriminalization. At the federal level, there have already been several attempts at cannabis law reform, with even more on the table in the coming year.

One of the most promising is the Republican-led States Reform Act, filed in November 2021. The central tenant of this proposed legislation is to remove cannabis and cannabinoids from listing as a Schedule 1 Drug under the Controlled Substances Act.

Importantly, if this law passes, it would allow individual states to pursue their own cannabis policies and remove the current risks companies face when going against current federal anti-cannabis scheduling.

The States Reform Act also proposes a three percent federal tax on all cannabis sales and that all cannabis sales fall under the ​​Alcohol and Tobacco Tax and Trade Bureau’s (TTB’s) control. The States Reform Act would — finally — guide the regulation of hemp-derived products through the Food and Drug Administration (FDA).

US Senate Majority Leader Chuck Schumer has also been working on another reform bill, specifically the Cannabis Administration and Opportunity Act (CAOA), which he plans to introduce in April 2022 to further emphasize the criminal justice aspects of legal reform in the context of the War on Drugs.

While the government’s track record on cannabis regulatory reform hasn’t been as progressive as many would like, at this point there is widespread public support and proposed bills from both sides of the aisle. As a result, the US may finally see some movement on cannabis law reform in the very near future.

How to Prepare for Federal Regulatory Compliance Management

With federal regulation looming, it’s time for licensed producers to elevate their internal systems. Whether you work with tetrahydrocannabinol (THC) or cannabidiol (CBD), the regulatory protocols in an already complex marketplace are going to change.

This is especially paramount for those producing cannabis or hemp beverages, edibles and supplements. You will need comprehensive and efficient systems to facilitate this transition. An ERP should reduce compliance headaches and ensure your business is ready to scale when a national marketplace launches.

Automate Data Gathering

It is no longer cost effective to manage seed-to-sale traceability with manual data capture. With the thousands, if not tens of thousands, of data points required at most commercial facilities on a routine basis, data logging is by far the best way to start compliance automation.

Automated ERP systems, which capture essential information across your entire operation, ensure access to real-time data for forecasting, accounting, regulatory compliance reporting and traceability. That means using software that captures and logs intel from across your organization about quality control, inventory and traceability, all without arduous manual input.

The best and most successful ERP systems should be used by all employees to collect data, from sorters/pickers to fork lift drivers to supervisors to senior management. For this to happen easily, the solution must be accessible and user friendly for all employees. ERP systems that can be easily integrated with tablets and smartphones (as well as IoT devices) reduce the need for expensive terminals on the production floor and make data collection a straightforward part of daily operations.

Build Systems to Facilitate Growth from the Start

A rigid ERP system that can’t grow with you is not a smart long-term investment. An adaptable multi-platform system evolves with your company and constantly changing regulatory compliance requirements. A solution that provides access to the entire facility, instead of being limited to individual users, ensures that growing teams can easily contribute to data quality from the plant floor all the way up to the executive office for actionable insights.

Markets are opening up across the country and quite soon, many companies will be looking to expand their operations nationally. As a result, you’ll need systems that can scale, cover additional facilities, keep up with increased production, and even work across different jurisdictions.

Having instant access to detailed operational information delivers greater business oversight at the micro and macro levels – insight that is crucial for expansion, profitability, and cost-cutting measures. Companies with the right systems in place will effectively manage the resulting federal complexities to deliver on regulatory expectations and capture a competitive market share.

Leverage Regulatory Frameworks and Technology from the Food Industry

The Canadian example demonstrates clearly that the regulatory frameworks from the food and beverage industry are the most applicable to the cannabis sector – more so than for pharmaceuticals, nutraceuticals or alcohol. This is most obvious in lucrative value-added markets like edibles and extracts, which are actually also food products.

Issues like dosage standardization, controlling common hazards, managing traceability chains and inventory, and introducing quality standards (including third party certifications like organic and SQF) are all crossovers from the food industry.

Just as the compliance automation wave has hit the food industry in recent years, manufacturers of infused products and extracts can then use the same technology to reduce safety and quality control costs as well as documentation and administrative costs. The lesson? Cannabis industry leaders don’t need to totally reinvent the wheel.

Cannabis Producers Need an ERP System Tailored to Their Needs

In Canada, cannabis manufacturers have learned all too well what a few little mistakes can do to reputation and profitability. MJBiz Daily reported in 2021 that the Canadian government had issued more than CDN $1.3 million (USD $1 million) in fines since legalization. That’s a lot of regulatory compliance issues. Considering there are nearly 500 compliance fields to fill out for monthly reporting, mistakes are difficult to avoid, especially if you rely on a manual system.

FDAlogoThe story is similar in the United States. State regulatory compliance management requirements are complex and arduous for individual companies and employees. When federal regulation does come, US-based producers will very likely face even more strenuous reporting requirements to multiple jurisdictions.

Cannabis companies will need a data-driven system in place to align with the FDA’s Cannabis-Derived Products Data Acceleration Plan. Finding food safety and traceability software that makes reporting easier, automatic, and less prone to human error is paramount to success. As you prepare for the looming federal legislation, look for an ERP system that covers all the bases, including one that:

  • Improves Market Agility: Expedites opening new facilities in new markets as they come online
  • Evolves with Regulatory Changes: Facilitates the transition from unregulated markets into federally regulated ones
  • Automates Reporting: Protects you from regulatory compliance management bumbles stemming from manual input and human error
  • Reduces Workload: Optimizes workflow and reduces labor costs associated with manual input
  • Is Comprehensive: Covers all bases, including food safety, quality control, traceability, production management, and even occupational health and safety

If you aren’t automating the capture of essential information across the entire operation, you won’t be prepared for the regulatory burdens likely to come with federal cannabis legislation. To stay compliant and on top of what will likely be an incredibly competitive marketplace, you are going to need real-time data — data that will provide precise seed-to-sale traceability, product recall capability, and reporting.

Digitizing safety, traceability and complex production management through one state-of-the-art ERP system allows cannabis companies to reap the rewards of data-driven, automation technology almost immediately without the significant capital expenditure on large-scale equipment or robotics. From there, navigating regulatory complexity becomes not only streamlined and operationalized, but an actual market advantage for future growth.

USDA’s Hemp Testing Rules: Fast Track Your Lab’s Preparedness with Digitization

By Martha Hernández
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The United States Department of Agriculture (USDA) issued a Final Rule (FR) on hemp testing that went into effect on 22nd March 2021. Consequently, all hemp testing laboratories must familiarize themselves with what is stipulated in the FR and do all that is required to comply.

The 2014 Farm Bill put to an end to years of hemp prohibition, at least to some extent. It also paved the way for the 2018 Farm Bill that brought hemp at par with other agricultural crops. States, through their departments of agriculture and institutions of higher learning, were allowed to cultivate industrial hemp for research purposes, under what was called the hemp pilot programs. Some states also allowed individuals to cultivate hemp to investigate the economic and agronomic viability of the crop. This increased the acreage of industrial hemp from zero to about 90,000 by 2018 when the Agricultural Act that legalized hemp was passed. Some of the states that participated in this program included Colorado, Kentucky, Montana, and Oregon.

As expected of a new project, some challenges cropped up, including:

  • Inconsistency in the quality of hemp produced for research
  • Varying hemp laws between states
  • Maintaining regular supplies of inputs such as seeds and pest control
  • Lack of appropriate knowledge and technology

The 2018 Farm Bill addressed some of these challenges through the Hemp Farming Act that proposed to remove hemp from Schedule 1 of the Controlled Substances Act. Hemp, in this case, refers to cannabis sativa that contains less than 0.3% THC by “dry weight.” Proposals in the hemp act were incorporated into the 2018 U.S. Farm Bill and it became law in December 2018, thus making hemp legal at the federal level.

Unlike other agricultural commodities, hemp is a highly regulated crop because of its close association with cannabis which is still under Schedule 1 controlled substances. Once hemp exceeds the 0.3% THC threshold, it becomes classified as cannabis and is, therefore, governed under a different set of regulations.

The next step after the legalization of hemp was to roll out a nationwide hemp cultivation and distribution program. Consequently, the U.S. Food and Drug Administration (FDA) was instructed to develop a national framework to regulate the production of hemp in the U.S. An Interim Final Rule (IFR) was published in October 2019 to set the ball rolling. A final rule was published as an improvement of the IFR in January 2021. The Final Rule was created based on public comments received during the period as well as direct lessons learned in the 2020 growing season. The Final Rule took effect on 22nd March, 2021.

A schematic representation of the key federal rules for hemp testing laboratories (Figure courtesy of CloudLIMS)

The USDA requires that all hemp be tested by a third-party laboratory to ensure that quality is maintained and that the THC threshold is not exceeded. The Final Rule made significant changes to the USDA’s hemp testing rules that will affect how laboratories carry out their operations. While the guidelines were issued on January 15, 2021, they went into effect on March 22 of the same year. If you are a hemp-testing laboratory, here are the most important changes that you should brace for.

Nine Changes Hemp Testing Labs Must Comply With

  1. Changes in sampling 

Previously, samples to be tested were restricted to the top third portion of the hemp plant. With the Final Rule, samples can be taken anywhere from 5-8 inches from the main stem (including the leaves and flowers). This provision offers greater flexibility and reduces the chances of “hot” hemp.

  1. Laboratories shall use specific testing methods

According to the Final Rule, hemp-testing laboratories must use reliable methods to test for THC concentration. This includes methods such as post-decarboxylation; they take into consideration the conversion of THCA to THC after decarboxylation. Currently, methods that meet these requirements include gas chromatography and liquid chromatography.

The USDA also expects that laboratories demonstrate consistent testing reliability and validity. The test methods used must have high specificity for THC and other tested compounds.

  1. Negligence limit raised to 1% THC

Negligence limit refers to the extra wiggle room that is advanced to hemp farmers in regards to THC testing. In the IFR, hemp that tested above 0.3% THC but lower than 0.5% was considered negligence and not a violation of federal laws. This limit for negligence has now been pushed from 0.5% to 1%. As much as the Final Rule has maintained the THC limit for hemp at 0.3%, growers now have a wider margin of error to work with.

For hemp-testing laboratories, all samples that test above 0.3% THC are still considered hot hemp and must be destroyed or remediated. However, samples testing below 1% THC are considered a negligent violation and not a criminal offense.

  1. All hemp testing laboratories need to be DEA registered

The Final Rule made it mandatory for all hemp-testing laboratories to be registered with the Drug Enforcement Agency (DEA). Getting this registration is time intensive and the number of registered laboratories is few. With this in mind, the USDA had extended the registration deadline to the last day of 2022. After the expiry of this period, laboratories that are not registered with the DEA will be barred from conducting hemp testing.

  1. Laboratories to calculate Measure of Uncertainty (MU)

With the Final Rule, laboratories are expected to calculate and include the MU when reporting test results. The Guide to the Expression of Uncertainty in Measurement (GUM) defines MU as “a parameter, associated with the result of a measurement, which characterizes the dispersion of the values that could reasonably be attributed to the measurand.”

While there is no upper or lower limit for the MU, it is controlled using performance standards such as AOAC Standard Method Performance Requirements. Organizations such as ISO and Eurachem also provide guidelines for calculating MU. Hemp testing laboratories can refer to those guidelines as well.

  1. Adherence to the ISO 17025 standards

While this is not an enforceable rule, the USDA strongly recommends all hemp testing laboratories be ISO 17025 compliant.

  1. Laboratory SOPs

Testing laboratories must have an internal SOP for testing and retesting hemp. This SOP should be available upon request by state sampling agents or other responsible agents. Laboratory managers should ensure that all staff members follow the SOPs.

  1. Reporting of THC

Once a laboratory has completed the test, whether failed or passed, they should share the results with all stakeholders:

  • The licensed producer
  • The appropriate State Department of Agriculture or Tribe
  • The USDA using AMS Form 22.
  • The THC should be reported on a “dry weight” basis.
  1. Remediating and retestingof hot hemp

Once a laboratory finds a sample that has tested above 0.3% THC, it has to flag it as “hot” hemp. Previously, all hot hemp had to be destroyed but with the FR, parts of the hemp (excluding the flowers) can be salvaged.

A Laboratory Information Management System (LIMS) to manage multi-analyte test results and flag hot hemp (Figure courtesy of CloudLIMS)

The licensed producers (LP) are required to shred the hemp into biomass and send a sample back to the laboratory for retesting. The laboratory shall use the same procedure to retest the biomass and report the results back to the LP and the USDA.

The hemp final rule took full effect on the last day of 2021. The only extended deadline is the one requiring that all hemp-testing laboratories be registered with the DEA that still has a few more months to go.

Fast Track Your Laboratory’s Preparedness with a LIMS

Becoming compliant with USDA’s hemp testing rules can be quite challenging for a laboratory simply because there’s too much to keep up with. A laboratory must monitor samples, analyze and report test results, and at the same time maintain internal quality protocols.

Fortunately, digitization can help streamline processes and accelerate the preparedness of laboratories for the new federal rules. A cloud-based Laboratory Management Information System (LIMS) takes the hard work out of compliance by keeping track of compliance processes seamlessly and in real-time.

A LIMS enables laboratories to:

  • Track samples through their lifecycle
  • Automatically share results with stakeholders
  • Flag hot hemp samples
  • Generate certificates of analysis (COAs) in prescribed formats
  • Meet regulatory compliances
  • Manage SOPs, staff training, and QA/QC protocols

Hemp that tests above the 0.3% THC mark is considered cannabis and is therefore illegal under federal law. Consequently, hemp testing is a highly sensitive process that is strictly regulated. Hemp-testing laboratories must optimize their processes to ensure efficiency at all times and assure the validity of their test results. This can be made possible with a LIMS.

There’s More to Sustainable Packaging than Meets the Eye

By Balaji Jayaseelan
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People today are more eco-conscious than ever. The last several years have seen a growing awareness of the impact of human behavior on the environment, and COVID-19 brought real-life context to the catastrophic effects of a global crisis. Lifestyle changes during the pandemic empowered people to make choices with a positive impact for the collective good. In a June 2021 PricewaterhouseCoopers survey , half of global consumers said they’ve become more eco-friendly since the COVID-19 pandemic. Consumers are changing their behaviors, educating themselves about the businesses they support, and evaluating the products they buy through a “green” lens. Terms like circular economy, zero-waste, ESG and carbon footprint are now part of the common vernacular, and sustainability is no longer a nice-to-have but a business imperative.

Cannabis consumers, in particular, value sustainability. They are conscientious of what they’re putting into their bodies and the planet. There is increased interest in brands and businesses that use responsible growing practices, eco-efficient manufacturing, and sustainable packaging. In a nationwide survey conducted by Canivate Growing Systems, 79% of U.S. cannabis consumers said they support establishing environmental standards. And in 2021, the Sustainable Cannabis Coalition (SCC) was formed to promote sustainability best practices.

Sustainable packaging is an important way that brands can show a commitment to the environment. Packaging is a highly visible and tangible representation of your brand and one that matters to consumers. A July 2021 Adweek/Morning Consult poll found that 77% of consumers believe it is the brand owners’ responsibility to make sure their packaging is recyclable. According to Nielsen, of the top five sustainability attributes consumers are willing to pay more for, three are packaging-focused: Recycled packaging, reduced packaging and reusable packaging. While cannabis packaging has unique regulatory requirements and safety guidelines, it can still be eco-friendly. Sustainable cannabis packaging has the necessary properties to protect against moisture and maintain freshness and smell. It can also be child-resistant and include other unique cannabis functionalities.

Image: Nielsen, 2019

When it comes to sustainable cannabis packaging, that which you may believe to be the “greenest” option may not be sustainable at all. Many factors go into this determination, including packaging material, weight, distance traveled from supplier to manufacturer, water and energy usage and more. At Berlin Packaging , we take a comprehensive and integrated approach to sustainability to ensure our solutions meet customer objectives and consumer expectations. We use life-cycle analysis to quantify a product’s environmental impact throughout its entire life cycle, including sourcing/raw materials extraction, manufacturing, distribution and end-of-life. This analysis ensures that the solutions we provide are effective, impactful, and don’t contribute to greenwashing.

One key pillar of sustainable cannabis packaging is material circulation – using recycled and recyclable plastics and alternative materials. It’s important to understand that not all plastics are created equal. HDPE and PET are fully recyclable and have a ~30% recyclability rate. Polypropylene, on the other hand, while recyclable, only has roughly a 3% recyclability rate. Color can also play a role. PET is valued for its transparency, so colored and opaque plastics are not considered recyclable.

Continuous innovation and technological improvements have contributed to several eco-friendlier plastic packaging solutions. One popular choice for many of today’s brands is post-consumer recycled (PCR) materials. Using recycled plastic reduces single-use plastic waste that fills our landfills and threatens our waterways. Bio-plastics, made using renewable plant-based materials, are another sustainable option. Berlin Packaging has partnered with numerous premium packaging manufacturers to provide sustainable solutions for our customers. Many of our offerings – suitable for flower, pre-rolls, edibles, concentrates and more – can be produced using PCR or bio-plastics.

Material circulation means using recycled and recyclable plastics and alternative materials.

We’re also seeing brands embrace new compostable, biodegradable and paper packaging options. Berlin Packaging offers pre-roll tubes that are 100% compostable in industrial or municipal facilities and are better for the environment while also protecting the product inside. With zero migration, zero odor, and zero visibility, these air-tight tubes maintain freshness and meet regulatory requirements. We also offer a variety of paper tubes for pre-rolls, vape carts, and flower that are reusable, recyclable, and biodegradable.

Other sustainable packaging strategies include refill & reuse systems, which have gained popularity over the past several years, especially among personal care categories. Other tactics to consider when evaluating your package’s sustainability scorecard are eliminating unneeded packaging components like outer wraps and neck seals, ensuring labels are recyclable, and lightweighting (reducing the weight of your package). Berlin Packaging evaluates all of these avenues when developing sustainable packaging solutions.

Beyond the packaging itself, we encourage our customers to consider aligning their branding design and on-pack messaging to tell their sustainability story. We’re seeing many brands elevate their packaging sustainability benefits on their packaging’s primary display panel. The How2Recycle labeling program is another tool that helps educate consumers about how to dispose of packaging to ensure it gets recycled properly. Berlin Packaging’s sustainability specialists assist companies with comprehensive messaging strategies. Given the rise of greenwashing and consumer confusion and skepticism, effective and impactful messaging is a critical part of a sustainable packaging strategy.

Working with packaging suppliers and design partners who understand the cannabis market and have sustainability expertise is key to a brand’s success. A holistic approach that considers consumer insights, design functionality, aesthetics, manufacturability, regulatory requirements and sustainability results in packaging solutions that grow sales and build brand loyalty.

Busting the THC Myth: When it Comes to the Best User Experience, Terpenes Reign Supreme

By Mark Lange, PhD
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The scent of pine from your Christmas tree. The fragrance of a ripe summer peach at the farmer’s market. The whiff of eucalyptus and lavender that greets you when you enter a spa.

Aroma is a keystone in how we experience the world. In any given environment, aroma can help shape your mood, solidify memories and instantly transport you to another place or time.

I have focused my career on studying the fascinating compounds that are often behind these powerful aromas: terpenes. They form the largest class of natural products (compounds produced by living organisms), found in nearly all living beings. There are around 50,000 currently known terpenes in nature — with potentially thousands yet to be discovered.

Terpene-rich plants you might be most familiar with are lavender, mint, oranges (in the peel), and yes, cannabis. In recent years, terpenes have rightfully become a central discussion in the recreational cannabis world. This is because terpenes — not THC level, not “Indica-Sativa” classification — are a key determinant of cannabis’s effect, both psychoactive and non-psychoactive. But the current lack of prioritization and understanding of the crucial role terpenes play may put the collective quality of U.S. cannabis at risk.

At this crucial inflection point for legal cannabis, on its path to becoming a $70 billion dollar global industry by 2028, we need to ensure that everyone across the cannabis space, from breeders to testers, growers and consumers, understands which traits to prioritize for a cannabis world brimming with diversity and predictable effects.

What the cannabis industry has to lose 

What do we lose if the cannabis industry continues to scale without a clear understanding of the compounds that define the uniqueness of each variety?

There is a ripple effect across the ecosystem. For cannabis testing labs, focusing on only twenty of the most dominant terpenes means we are missing out on tapping into potentially over a hundred of less common terpenes in cannabis. For the cannabis consumer, lack of understanding on the breeding and testing side may make it difficult to find cannabis that delivers on its promised effect time and time again. And, most detrimentally for breeders, not understanding the direct correlation between genetics and the formation of terpenes means we will have increasingly fewer terpene profiles and combinations to work with, especially when the industry-dominant focus has been on cannabinoid potency.

Let’s explore some misconceptions related to potency. In recent years, many breeders have prioritized high THC levels over genetic diversity. Consumers often associate high THC levels and that telltale strong “skunky” aroma with a strain’s quality and effect, when in reality, these are poor indicators of potency. (In fact, recent research indicates that this specific cannabis aroma is caused by a family of sulfur compounds.) Terpene profiling is a much more accurate way to determine a variety’s given effect. In focusing too much on increasing THC, breeders miss out on the true potency powerhouse: tapping into the terpene diversity that’s out there.

Terpenes are responsible for giving flowers (including cannabis), fruits and spices their distinctive flavors and aromas. Common terpenes include limonene, linalool, pinene and myrcene.

To illustrate the impact of breeding practices that prioritize crop yield over product quality, I first have a question for you: When was the last time you enjoyed a really good tomato?

If you’re lucky enough to have a great farmer’s market nearby, maybe you purchased an heirloom tomato at peak freshness last August. It was likely fragrant, flavorful and didn’t need much preparation to be enjoyable.

Or maybe you can’t remember the last time you’ve eaten a good tomato, as the last standard grocery store tomato you purchased was watery, tasteless and essentially scentless.

Tomatoes are a prime example of what is unfortunately true for a whole host of traditional crop plants in the U.S. When yield is the goal, flavor and aroma profiles often suffer. The culprit: lack of genetic diversity in the breeding process. The tragedy of the tomato serves as a harbinger for the cannabis industry — and we can draw parallels to what we’ve seen happen to cannabis.

What the cannabis industry should do: Tap into the diversity that’s out there

An important aspect of preventing cannabis from going the way of the tomato is to better understand the genes that generate these different terpene profiles. Different cultivars with varying aromas will hold different collections of genes. We as an industry must learn more about which terpenes correlate with desirable aromas, and then access already existing genetic diversity.

We have just begun to scratch the surface of the potential of terpenes in cannabis. With the right alignment across the industry and a stronger focus on genetics in breeding, we will see the rise of completely unique cannabis varieties. They will smell like lavender, lilac, orange peel or even brand-new aromas that have yet to be discovered. To ensure this future, we need to prioritize the right traits and the right genetics.

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Cannabis Quality Conference Dates, Location Announced

By Cannabis Industry Journal Staff
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Cannabis Quality Conference & Expo logo

EDGARTOWN, MA, Feb. 21, 2022 – Innovative Publishing Company, Inc., the publisher of Cannabis Industry Journal, has announced the return to in-person events with the Cannabis Quality Conference & Expo (CQC), taking place October 17-19, 2022 at the Hilton in Parsippany, New Jersey. Presented by Cannabis Industry Journal, the CQC is a business-to-business conference and expo where cannabis industry leaders and stakeholders meet to build the future of the cannabis marketplace.

“Cannabis markets in New Jersey, New York, Connecticut, Pennsylvania and Massachusetts are all beginning to get off the ground,” says Aaron Biros, editor of Cannabis Industry Journal and director of the Cannabis Quality Conference. “Taking place in a pivotal year for the cannabis industry and in a location surrounded by new market opportunities, the CQC will deliver hands-on education, networking and business discussions. The venue setting, just a short train ride from New York City and Newark International Airport, coupled with highly focused content, creates a unique business meeting environment.”

The 2022 program will have three separate tracks of educational presentations and panel discussions, focused on Regulations & Policy, Safety & Quality and Business & Operations.

Due to safety protocols and venue restrictions, limited space is available for sponsors and attendees. The CQC is a hybrid event, meaning attendees will have the option to either attend in-person in New Jersey, or attend remotely via the virtual platform. Registration is now open. Click here to stay up to date on lodging, early bird pricing, keynote announcements and more.

The CQC is co-located with the Food Safety Consortium, which will take place immediately following the CQC, October 19-21, 2022. For sponsorship and exhibit inquiries, contact RJ Palermo, Director of Sales, and Chelsea Patterson, Account Executive.

About Cannabis Industry Journal

Cannabis Industry Journal is a digital media community for cannabis industry professionals. We inform, educate and connect cannabis growers, extractors, processors, infused products manufacturers, dispensaries, laboratories, suppliers, vendors and regulators with original, in-depth features and reports, curated industry news and user-contributed content, and live and virtual events that offer knowledge, perspectives, strategies and resources to facilitate an informed, legalized and safe cannabis marketplace.

About the Cannabis Quality Conference & Expo

The Cannabis Quality Conference & Expo is an educational and networking event for the cannabis industry that has cannabis safety, quality and regulatory compliance as the foundation of the educational content of the program. With a unique focus on science, technology, safety and compliance, the “CQC” enables attendees to engage in conversations that are critical for advancing careers and organizations alike. Delegates visit with exhibitors to learn about cutting-edge solutions, explore three high-level educational tracks for learning valuable industry trends, and network with industry executives to find solutions to improve quality, efficiency and cost effectiveness in the evolving cannabis industry.