As we continue to witness and experience the medical cannabis industry grow and mature, many of us are wondering where the head-to-head clinical studies are, and why aren’t there more clinical research studies taking place?
Cannabis products created with the intention for medicinal use often state that their formulations and products stack up against traditional pharmaceutical treatments. However, without a substantial number of clinical studies being performed, it’s difficult to truthfully make such a claim. It’s one thing to share testimonials from people who use particular products and report what their experiences were like. However, to go head-to-head in a controlled environment where factors such as underlying conditions, height, weight, medication, lifestyle and nutrition habits are taken into account to accurately compare the efficacy of a traditional pharmaceutical product versus a cannabis-derived product are two completely different things.
The Need for More Capital
Wouldn’t you agree that if a company is having tremendous success with a particular product, that they’d reinvest capital into a true clinical study to have data to support their marketing efforts? Investing into proper studies would not only benefit a company working hard to earn market share, it would benefit those who are relying on a particular product to regain a quality life. As we’ve learned over the years from numerous scientists and researchers digging into the cannabis plant at a more granular level, there’s much more to the medicinal benefits than meets the eye. Discovering new information about how cannabinoids such as CBG and CBN combined with CBD and certain terpenes can create specific effects has helped make a greater impact on the medical cannabis community. Bringing these powerful blends of anti-inflammatory, cannabis-derived compounds and other immune boosting nutraceuticals to head-to-head clinical studies could be a huge step forward towards further legitimizing the healing effects that cannabis has to offer.
Measuring Efficacy Goes Beyond COAs & Product Reviews
Determining the efficacy of medical cannabis products should be viewed in the same light as traditional pharmaceutical products. Traditional clinical studies are designed with an Institutional Review Board (IRB) approval, subject recruitment, electronic data capture as well as electronic patient reported outcomes. Some companies within the cannabis space have made attempts to conduct surveys with measuring efficacy in mind, but using outdated survey technology that hasn’t been validated only leads to insufficient data collection.
Discovering new information about how cannabinoids can create specific effects has helped make a greater impact on the medical cannabis community. Image: Peggy Greb, USDA
There is nothing wrong with adult-use cannabis. However, for the medical cannabis space to be taken more seriously, it is time for organizations to step up their efforts and take note of certain practices from traditional biotech organizations when it comes to clinical research and collecting data to correctly quantify efficacy of certain products. Well-thought-out studies designed with clinical endpoints and validated questionnaires is a strategic way for the industry to take big steps towards doing what is right for patients.
Patients Are Asking For More Research
After speaking with patients who are interested in pursuing a treatment that includes the responsible use of medicinal cannabis, the one thing they all have in common is the desire for more information that they can rely on to make better decisions. Is it time for patients to push the envelope and not purchase products from companies that are not willing to perform the clinical studies? If companies suffered a loss in sales as a result, would they reconsider their stance on reinvesting capital into clinical trials with their products?
Equally as important as proper research is perpetual tele-monitoring. The value in perpetual tele-monitoring is the data. We can showcase miraculous, life-changing stories of how medical cannabis has helped people turn their lives around. However, when seeking greater buy-in from groups like the FDA, data is key. Qualitative data can go only go so far. It’s the quantitative data that will help move the medical cannabis community forward. The ability to be able to review data on an ongoing basis would enable medical cannabis companies to evaluate how products are working based on the electronic data capture, along with questions that a company may develop to ascertain individualized product feedback.
Imagine having the ability to see patients’ data based on real-time, daily, through something as convenient as a wearable device. Understanding test results and correspondence with doctors for patients would significantly improve.
As the legality and availability of hemp and non-hemp cannabis products continues to grow, having strong, recognizable brands will become increasingly important in order to stand out from the competition. Unfortunately, strong brands invite knock-offs and can require aggressive policing. Registering your trademarks makes policing much easier, but registration of marks used to sell hemp and non-hemp cannabis products requires strategy and forethought.
Why Register?
Trademark rights flow from use, so a registration is not required for enforcement. However, “common law” rights based on use alone must be proven in each instance, and you must show that your use of the mark has been sufficient such that consumers recognize and associate it with your goods or services. This can be difficult, expensive and time consuming. Also, common law rights are territorially limited. Even if you can prove such rights in Oregon (for example), you may have no right to prevent use of your mark in other states. State trademark registrations are similarly limited, but are presently all that is available for marks used exclusively to sell non-hemp cannabis products.
By contrast, a federal trademark registration provides the registrant a nationwide, exclusive and presumed right to use the mark in association with the designated goods and services. In addition, counterfeit use of a federally registered trademark can lead to statutory damages. That is, you don’t have to prove an amount of harm—a court may simply award damages based on statute. Yet another benefit is the ability to file based on an “intent to use.” You can thereby reserve a mark nationwide for up to three years before you must show use. Federal registration is available for marks used to sell hemp products, but with some strict limitations as discussed below.
Use in Commerce Requirement
Federal registrations are issued by the United States Patent and Trademark Office (the Office) once an application is approved and use in commerce is demonstrated. To satisfy the “use in commerce” requirement, an applicant must show that a mark is being used in association with the sale of goods or services that are legal to trade under federal law. Sale of products not legal under federal law simply does not count to establish trademark use for purposes of federal registration. This is where the vast majority of federal trademark applications for use with cannabis products get rejected. A search of the federal registry shows that, of over 8000 trademark applications for products containing cannabis extracts, only about 1,300 have resulted in registrations. But these 1,300 illustrate that there is a path to success.
Allowable Goods
The Office traditionally rejected all applications for use with products containing any cannabis extracts under the Controlled Substances Act (CSA). The Agricultural Improvement Act of 2018, commonly known as the Farm Bill, created an exception to the CSA for hemp, defined therein as cannabis extracts containing < 0.3% THC by dry weight. Based on this, the Office began allowing applications provided they designate only goods having 0.3% THC content or less. But even that limitation isn’t sufficient for some types of goods.
Unless specifically disclaimed, the Office will assume the presence of CBD in products containing cannabis extracts, regardless of THC quantity. On that basis it will reject applications for hemp products that are ingestible (food, drinks, nutritional supplements, etc.), or that claim a medical or therapeutic purpose, under the Food, Drug & Cosmetic Act (FDCA). The FDCA requires Federal Drug Administration (FDA) endorsement to add “drugs” to such products, the FDA classifies CBD as a “drug,” and the FDA has authorized only a few products that include CBD. Thus, an allowable good that is ingestible or therapeutic must not only contain the low THC disclaimer, but must also state an absence of CBD. Notably, the Office has not been rejecting products on the basis that they contain CBG (cannabigerol) or other naturally occurring non-THC, non-drug cannabinoids.
Are the Goods Sold Really Allowable?
Of course this scheme of word-smithing designations to obtain allowance of federal trademark registrations invites error, if not fraud. Registrations are subject to cancellation if use of the mark with the designated goods is not maintained, or if it can be shown that the registration was fraudulently obtained. Thus, critical to a claim of use is that the applicant offers products that actually meet the designation description. The Office does not check for THC levels or CBD presence, and most purveyors of hemp products don’t either. Indeed, there is not even a standardized method for measuring these things. However, studies show that more than half of hemp products either purposefully or accidentally misrepresent their actual THC and CBD levels.i Though legally untested, this presents a potential problem for many existing federal registrations.
If a mark registered for use with goods having < 0.3% THC is found to be used only with products that actually have a greater amount of THC in them, the registration could be canceled. The same fate could befall a registration for goods claiming to have no CBD that, when tested, actually do contain more than trace levels. Even if non-hemp cannabis products are legalized under federal level, registrations obtained with THC and/or CBD limitations would still require the registrant to use the mark with products meeting such limitations.
Keeping Evidence for Insurance
So long as a registrant has maintained use of the registered mark “in commerce” in association with the designated goods, the registration is insulated from attack based on claims of non-use or fraud. The fact that the registrant also uses the mark for goods that are not legal on the federal level is of no consequence to the registration. Thus, it is wise to include in the product lineup under the brand to be protected at least some good that meets the present requirements for federal trademark registration.
One option is to include a product where the only cannabis extract is from hemp seed oil. Without even testing it, you can be reasonably assured that such a product will contain little or no CBD or THC. Another option short of testing is to obtain a certification or warrant from your supplier that particular ingredients truly are hemp, i.e., have < 0.3% THC by dry weight. This could be relied on as evidence should no original product be available for testing to show that use was legitimate at the time registration was obtained. If you can’t obtain such a certification, testing the occasional sample and keeping records over time would also work. Product samples can now be tested for THC content for around $100 per sample, with results back in about a week.ii
Zone of Natural Expansion
Though non-hemp cannabis products cannot be covered directly by federal registrations, a federal registration for CBD/hemp products can have spillover benefits. This is because the scope of a registration may expand to cover things similar to what is designated. The question comes down to likelihood of confusion. Imagine a company holds a registration covering LOOVELA for “nutritional supplements containing hemp seed oil having no CBD and < 0.3% THC by dry weight.” It would be logical for a consumer to assume that non-hemp cannabis products sold under the LOOVELA mark would likely be made by the same company. Thus, provided the company actually sold products complying with its designation, it could assert the CBD-based registration to prevent sale of LOOVELA branded non-hemp cannabis products. Also, should such products be legalized federally, the company would likely be the only applicant able to obtain an additional federal registration for LOOVELA for use with them, because any competing attempt would be confused with their pre-existing registration for CBD/hemp products.
In conclusion, it should be noted that the law in this space is evolving rapidly and is nuanced. Every situation is unique in some way, and there are many reasons an application may fail or a registration may be attacked that are not addressed above. But there is value in obtaining a federal registration for your hemp brands, and there is an overall strategy to be employed for brand protection in the cannabis space.
The content above is based on information current at the time of its publication and may not reflect the most recent developments or guidance. Neal Gerber Eisenberg LLP provides this content for general informational purposes only. It does not constitute legal advice, and does not create an attorney-client relationship. You should seek advice from professional advisers with respect to your particular circumstances.
References
See, e.g., Bonn-Miller, Marcel O., et al., “Labeling Accuracy of Cannabidiol Extracts Sold Online,” Journal of the American Medical Association, Vol. 318, No. 17, pp. 1708-09 (Nov. 7, 2017); Freedman, Daniel A. and Dr. Anup Patel, “Inadequate Regulation Contributes to Mislabeled Online Cannabidiol Products,” Pediatric Neurology Briefs, Vol. 32 at 3 (2018).
It wasn’t that long ago that cannabis was underground, sometimes literally, and operators protected what was theirs any way they knew how. Before legalization, cannabis operators needed to secure their plants, cash, supplies and equipment not just from people who wanted to steal them, but also from law enforcement. The legacy cannabis market is now transitioning into a legal one, and licensed operators are joining the industry at an incredible rate, but security is still part of the success equation. Like before, operators need to protect plants, products, equipment and cash, but they now also need to protect records, privacy and data, and do so in a manner that complies with state regulations.
Cannabis regulatory authorities set security guidelines that cannabis business owners must follow in order to obtain and renew operational licenses. For instance, there are state-specific security regulations regarding video surveillance, camera placement, safes, ID verification, and more. While security measures help protect the business, they also protect the public. It’s a win-win for everyone involved. Here are five best practices and techniques to protect cash, records, products and people.
Hybrid cloud storage
State regulations call for reliable video surveillance footage that is accessible, in most cases, 24/7 and upon demand by cannabis regulatory authorities and local law enforcement acting within the limits of their jurisdiction. SecurityInfoWatch.com reports that video data is the industry’s next big investment, meaning there will be an increased demand and need to store video surveillance footage. Most states require video surveillance footage to be retained for a specific amount of time, often 45-90 days or longer if there is an ongoing investigation or case that requires the footage. While some businesses only retain video data for the state-required length of time, others choose to keep it longer.
Storing data on-site can become expensive and precarious. Best practices call for a hybrid cloud storage solution model as it provides on-site and both public and private cloud data storage solutions. This model provides users with the ability to choose which files are stored on-site and which files live in the cloud. Doing so improves file accessibility without impacting or compromising on-premises storage. In addition, it’s helpful to have two methods of digitizing data, for safety’s sake. In the event an on-site storage method crashes—though hopefully this won’t ever happen—there’s a version available off-site via the cloud. That said, with cloud-based storage solutions come cybersecurity threats that must be managed.
Cybersecurity
Dispensaries are prime targets for burglary. Defending a storefront requires a comprehensive security plan
Due to the ongoing COVID-19 pandemic, more businesses are online than ever before. Unsurprisingly, cyberthreats are on an upward trend, including in the cannabis industry. Earlier this year, MJBizDaily reported that a data breach exposed personal information of current and former employees of Aurora Cannabis. The incident involved “unauthorized parties [accessing] data in (Microsoft cloud software) SharePoint and OneDrive”. Although this breach involved only employees, confidential customer information is also at risk of being compromised during a data breach.
On a separate occasion, an unsecured Amazon S3 data storage bucket caused a large-scale database breach that impacted almost 30,000 people across the industry, according to the National Cannabis Industry Association. The breach included scanned versions of government-issued ID cards, purchase dates, customer history and purchase quantities. Unlike the Aurora Cannabis breach, this one included customer data.
Just like other more established industries, the cannabis industry needs to protect and secure confidential data. If you don’t have a cybersecurity expert on your team, consider hiring a consultant to evaluate your risk or partnering with a credible cybersecurity technology company to implement proactive solutions. Before signing a contract, do your due diligence. Does the consultant and/or technology company understand the compliance regulations specific to the cannabis industry? Do their solutions meet the regulations in the state(s) where your facility operates? Taking the time to protect your company’s data before a breach occurs is proactive, smart business.
Smart Safes
A smart safe like this one can helps secure cash handling
Smart safes help secure cash handling, which given the difficult banking environment for cannabis companies, means they’re on the list of best practice security technology products. What is a smart safe? A smart safe is a device that securely accepts, validates, records and stores cash and connects to the other cash management technology solutions such as point of sale systems. They connect to the internet and provide off-site stakeholders visibility into a facility’s cash position.
A high-speed smart safe counts cash by hand faster than a human and is an overall more secure way to deliver cash bank deposits. At the end of the night, making a deposit at a physical bank location can be dangerous, exposing your cash and the individuals responsible for making the deposit to unsecured threats. Using a smart safe reduces that threat and also helps cannabis operators comply with financial recordkeeping and documentation requirements. Due to federal cannabis prohibition, many cannabis businesses lack enough insurance to fully cover their exposure to cash theft, which has led to a trending industry-wide investment in smart safes.
Advanced access control
Best practice access control means more than a ring of keys hanging off the facility manager’s belt. Advanced access control gives cannabis business owners and managers the ability to manage employee access remotely via the cloud. This feature can limit access areas within a facility, enabling an individual to revoke access instantly from a remote location making it a useful tool in the event of a facility lockdown or emergency. A mobile app and/or website can be used to lock or unlock secure doors, monitor access in real time and export access logs.
Advanced access control devices aren’t a standard in the industry yet. Although many state regulators don’t require cannabis businesses to utilize advanced electronic access control, using this technology is a best practice and may be required in the future.
Compliance software
Understanding the ramifications and keeping up with state-mandated compliance is challenging. While state regulations can be found online, they’re often in pieces, leaving operators unsure about whether or not they have them all. Once an operator is confident that they have the most current version of all the laws, rules, and regulations that apply to their cannabis business, making way through the dense legal jargon can be exhausting. Even after multiple readings, it can be unclear about how to apply these guidelines to the operator’s cannabis business, which is one reason cannabis businesses work with a trusted legal counsel to meet compliance requirements. For trusted advisors and cannabis business licensees and operators alike, cannabis compliance software solutions are designed to not just check boxes for a cannabis business, but to help everyone involved understand how the regulations apply to the operation. These solutions improve accessibility so that employees at all organizational levels understand the rules and requirements of their position and the products they work with.
In addition, compliance software can help licensees and operators establish and implement best practice SOPs to meet regulatory requirements. Because the cannabis industry is young and many operators are moving fast, many cannabis businesses are vulnerable to security breaches and threats. Prioritizing security and compliance can help cannabis leaders protect against potential threats. Investing in the latest and most innovative security technology solutions—beyond what is required by state regulations—can help operators outsmart those who seek to steal from them and position their companies as industry leaders that prioritize safety and compliance, protecting not just cash and products, but the people who work in their facilities and the customers who purchase their products.
Discussions about the evolution of the cannabis industry are often focused on the legalization of adult use and medical cannabis, the growth of the business models associated with the industry and so on. An interesting corollary to those discussions is how technology is impacting the evolution of this growth industry.
It’s no longer just a question of growing some buds and offering up a high, with little thought as to product, packaging, marketing or the end consumer. Technology has changed the way cannabis is being commodified, and that’s a good thing. After all, with more and more states making adult use legal, creating products that appeal to a wider market and demographic is in part accomplished thanks to tech.
From the growth stage
Few growers are using outdoor facilities, where the elements cannot be controlled. Until recently, indoor growers ran into issues like simulating natural light to a level that would be of maximum benefit to the plants. The amount of lighting required to be effective was very expensive to maintain in terms of electricity consumption, but that is changing.
Then LEDs came on the scene: high quality, low heat light with a far larger and more natural spectrum, versus blue and red light frequencies that are available in standard bulbs. Using far less electricity and emitting less heat, therefore requiring less need for additional air cooling, as well as longer bulb life spans, LEDs have become an industry standard.
Beyond the plant
LED lights use less energy and omit less heat than other more traditional options
As with any agricultural product, the important work is in growing the plants but thanks to technology, producers and manufacturers can now offer their customers a much wider array of products than buds for smoking. Edibles, vapes, oils, capsules and even creams are all products of technology influencing change in the cannabis industry. For consumers who aren’t interested in smoking directly, these offer promising options.
The issue consumers have often had with edibles has been the lag time from consumption to high, as the THC has to pass through the digestive system, which takes upwards of an hour, and reduces the effectiveness of the dosage as some just doesn’t make it to the bloodstream. Technology has led to the creation of a method for making non-smokable forms of cannabis just as effective as a direct to the lungs hit of a joint: nanoencapsulation.
The point of nanoencapsulation is to reduce the size of the cannabinoid to a nano size and protect it—the encapsulation part of the equation—so that it becomes soluble in water, or in the body which is 75% water. The ability to bypass the digestive system and the gastric fluids that impact the effectiveness of an edible, and get it through the stomach walls to the bloodstream, means that nanoencapsulated formulations can have the virtually the same “time to a high” effects as a joint, without the need to inhale smoke.
It’s now possible for consumers to quantify exactly how much THC they are consuming, allowing for new and different consumption styles, including micro-dosing. Finding the right “dosage” for each individual—as everyone responds differently to cannabinoids—isn’t a simple task but newer technology is setting up a path to personalization that will make it easier.
Personalization
Imagine being able to take a test that would allow you to determine the perfect balance of THC and CBD dosage, as well as the right strain of cannabis, to create the desired effect. Whether that’s a reduction of anxiety, improved sleep or the psychoactive high that cannabis is known for, technology is leading the path to ending the guessing games as to dosage and blending of different cannabinoids.
A perfect example of this isCannabisDNA, a saliva-based swab test that evaluates over 70 of an individual’s genetic markers to establish what strains and dosages are most compatible with that person’s physiology. It’s a matter of time before this technology becomes more readily available and consumers will be able to obtain a range of products created with their personalized profile in mind.
In addition to matching cannabis to an individual’s DNA, there are efforts to decode the DNA of the various strains of cannabis, to better clarify important elements like THC, CBD and other cannabinoids like CBC. This last and far more rare cannabinoid has been associated with very strong anti-inflammatory reactions. This kind of deconstruction of cannabinoids at the DNA level will make it easier for producers and manufacturers to create products that address specific needs, both medical and recreational.
Purchasing power
Boutique dispensaries are popping up to make the more mainstream consumer comfortable. And thanks in part to the recent pandemic, online purchasing has jumped, with apps and websites being developed for purchasing and shipping just the right product, any time.
Ads for CBD products online regularly perform very well
As has occurred in other areas of agriculture, there is a push towards transparency on product provenance and growth methods, so that the end consumer can make choices about what they are putting into their bodies, with as much information as possible. Field to dispensary tracking is on the table as a method to keep consumers educated and informed, which ultimately improves the connection between producers and consumers.
Add to these ideas the fact that there are serious improvements in packaging being developed, which allow buds to remain fresh and full of flavor by eliminating light, air and moisture, while still remaining child proof. This is all part of the evolution of the cannabis industry, with a view to keeping customers happy and interested in the product.
Technology within the cannabis industry isn’t an end in itself: after all, the most important part of the effort is the growth of the plants themselves. But technology can change the evolution of the industry in ways that make it more interesting for everyone, from the grower, to the manufacturer of products, the dispensary owner and the consumer as well.
Federal regulations have made compliant credit processing in the cannabis industry difficult to achieve. As a result, most cannabis retailers operate a cash-only model, limiting their ability to upsell customers and placing a burden on customers who might rather use credit. While some dispensaries offer debit, credit or cashless ATM transactions, regulators and payment processors have recently been cracking down on these offerings as they are often non-compliant with regulations and policies.
KindTap Technologies, LLC operates a financial technology platform that offers credit and loyalty-enabled payment solutions for highly regulated industries typically driven by cash and ATM-based transactions. KindTap offers payment processing and related consumer applications for e-commerce and brick-and-mortar retailers. Founded in 2019, the company is backed by KreditForce LLC plus several strategic investors, with debt capital provided by U.S.-based institutions.
We interviewed Cathy Corby Iannuzzelli, co-founder and chief payments officer at KindTap Technologies. Cathy co-founded KindTap after a career in the banking and payments industries where she launched multiple financial and credit products.
Aaron Green: Cathy, thanks for taking the time today. How did you get involved in the cannabis industry?
Cathy Corby Iannuzzelli, co-founder and chief payments officer at KindTap Technologies
Cathy Corby Iannuzzelli: I’ve been in the payments industry for a long time. I was doing some consulting a few years ago for a client in Colorado and that gave me exposure to the issues in cannabis like the fact that you couldn’t have real payments in cannabis. Then, a close family member with health issues turned to medical cannabis when nothing else seemed to work. I was amazed by the difference it made in her life. At that point, I put those two things together and I said, I need to focus on helping this industry get a real cannabis payments solution because I thought it was ridiculous that you had an industry of this size and importance that had been abandoned by the payments industry.
Aaron Green: Can you highlight some of your background prior to entering cannabis?
Corby Iannuzzelli: Throughout my career, I’ve been a banker, I’ve been a payment processing executive and I’ve been a consultant. So, I’ve kind of done it all in the payments and financial services space.
Aaron Green: Why is it that most dispensaries only take cash?
Corby Iannuzzelli: In the US, even though cannabis is legal in many states, it’s still illegal federally. There are big banks and card networks like Visa, MasterCard, etc., who are national, even global companies and frankly, the executives of those companies don’t want to end up in jail for violating national laws. So, they have put cannabis dispensaries on what’s called a “prohibited merchants” list. This means you cannot accept Visa, MasterCard, Discover, American Express, or similar payments as a cannabis business and so it’s forcing the industry to a cash-based solution.
About the only thing you’re seeing that’s not cash in dispensaries are ATMs. But if you think about it, ATMs are machines where the consumer goes and pulls cash out and pays upwards of $5 or more in fees for doing that. They then hand that cash back to the dispensary who then has the costs of having to deal with that cash. The industry is just stuck in a cash-based business until federal legislation changes.
Aaron Green: I’ve been to some dispensaries where they accept credit cards or debit cards. What is going on there?
Corby Iannuzzelli: I’ve heard reports of consumers who’ve been able to use a credit card or a debit card in a dispensary. Sometimes the processor who sold that solution to the dispensary says, “Oh, it’s compliant, I guarantee you it’s compliant.” But if you dig in, that’s not the case. And eventually, Visa or MasterCard figures it out and shuts it down. In some cases, it’s outright fraud where the processor who sold the payment terminal to the dispensary is misrepresenting it as say a doctor’s office rather than a dispensary. There’s no merchant category code in the payment networks that says this is for processing dispensary payments, so they pretend it’s something else until they get shut down.
When they do get shut down, I’ve heard of cases in Las Vegas where it was basically 100% Visa or MasterCard one day and 100% cash the next day. It completely disrupted the whole business. It’s not just the retail store, but the inventories and everything else throughout the business.
“About the only thing you’re seeing that’s not cash in dispensaries are ATMs”
There have also been some cases where you’ll see something called a cashless ATM. In a store, they call it a debit card transaction. It’s really a cashless ATM where the consumer is making what looks to the ATM network like a cash withdrawal in $10 or $20 increments, but the consumer is getting a receipt instead of cash, and they’re turning around and handing that receipt back to the dispensary who then makes a change because the cashless ATM only dispensed in $10 or $20 increments.
Now ATM networks are looking at these cashless ATM transactions to see if they are compliant. Do consumers know the fees that they’re paying? Are these transactions coming in and looking to the network like real cash when it’s not? Cashless ATM transactions are probably the most common thing you see, but that’s being called into question after the Eaze incident where a large company was misrepresenting its terminals. The federal government stepped in and called it bank fraud and the individuals behind it, the executives, are in jail. Since then, the networks are looking at this and saying, what about these cashless ATMs? Are those transactions within our rules, or is there something funny going on here?
Aaron Green: So, to summarize here: you’ve got federal regulations at the national level that says that cannabis banking is not allowed so major institutions are not offering it. Yet you found a way through the regulations and compliance issues. I’m curious can you pull back the curtains a little bit and tell us how you came up with a solutionhere?
Corby Iannuzzelli: Well, we came up with the solution by stubbornly refusing to believe that cannabis payment processing could not be done in a compliant manner. We just said, “there is a compliant way to do this, let’s figure it out.” We took the same components that are out there for the financial services and payments industry and reassembled them in such a way that we do not violate any rules. We do not use any of the Visa, MasterCard, Discover or Amex rails, we built our own network. We have direct contracts with the merchants and direct contracts with the consumers. We control everything and all the funds flow through regulated financial institutions. So, we designed something that looks and acts to consumers and retailers the way Visa and MasterCard look and act when a consumer goes to make a purchase, but they run on a separate set of payment rails and in compliance with banking regulations and state regulations. When you’re looking at the problem from a different perspective, sometimes you can come up with a better answer.
Green: On the consumer side, what does that user experience look like?
Corby Iannuzzelli: Our product is completely digital. The consumer experience starts with integration at the online checkout. When it’s an e-commerce shopping cart and somebody is placing an order, they will see a button called “Pay with KindTap.” The first time they click that button they’re automatically brought to our integrated web app where they do a quick and easy application for our digital revolving line of credit product. If approved, they instantly go back to the checkout screen and their first purchase will just happen immediately, with flexible payment options over time. If the consumer decides they don’t want our KindTap credit and would rather have a pay now-product where we pull the funds from their bank account, then the consumer can do so. So, there is no physical card per se, it’s integrated like PayPal or Affirm at the point of checkout online. For the consumers who use KindTap credit, there is a mobile app where they can see their transactions, view statements, pay their bills, etc.
Additionally, there is a loyalty program for all purchases – KindTap credit or through the consumer’s bank, because we feel very strongly that a lot of the reasons consumers choose to pay with one card over another is the points and the rewards that they get. So, we’re providing loyalty rewards with KindTap so that consumers can get rewarded for that spending with KindTap and it’s better for the retailers.
Green: On the retailer side, what does that experience look like and what is your business model?
Corby Iannuzzelli: We are not going store by store doing integrations, rather, we’re integrating with various software, delivery and e-commerce providers. That gives us broad reach and ability to expand rapidly in various state markets where cannabis is legal. Once a merchant says “yes, I want to be a member of the KindTap Merchant Network,” then we work to get them set up on our platform in a matter of days. The merchants receive continuous support from our success team, marketing co-investment and a depth of analytics reporting. We made the entire process and ongoing operations streamlined and frictionless for both merchants and consumers.
Aaron Green: What are the benefits of moving from cash to credit type of payments?
Corby Iannuzzelli: On the retail side, there are the obvious benefits of not having all the security, safety and theft issues associated with operating a physical cash business. Consumers very often don’t carry cash anymore, except when they’re making a cannabis purchase. There are a lot of hidden costs to retailers because payments are not just about moving money from the consumer to the business.
“I really am optimistic that with so many scientific breakthroughs we’ve had that we’re going to be able to figure this out.”Payment options – or lack thereof – can shape where people shop, how much they spend and what they buy. It’s a proven science how consumers make impulse purchases. If you’re a cash-based business in cannabis, and you’re trying to get somebody to make an impulse purchase, and they walked in with $100, then you can’t get them to spend more than $100, no matter how creative your marketing is! The consumer is limited by how much cash they have in their bank account or in their pocket at that point in time. So, it’s really about the upsell that comes with the bigger basket sizes that retailers experience when you move from a cash-based business to credit and suddenly, the merchant doesn’t have to deal with long lines of consumers on payday when the store was beyond slow two days before. Now the consumer can spread purchases with the thinking, “I’d rather not be the one standing in that line on payday. I’m going to go Wednesday [instead of Friday] because I have KindTap credit so I can budget and manage my cash flow throughout the month rather than around my paydays.”
So, we think that the lack of an efficient and effective payment system for cannabis is holding back sales. We all focus on how much the industry is growing. KindTap thinks about how much faster it could be growing if it was supported by a decent payment system.
Aaron Green: What are some other cash-only markets you are looking at?
Corby Iannuzzelli: We are laser-focused on the cannabis ecosystem and bringing a compliant credit and loyalty-based digital payments solution to cannabis merchants and customers and rewarding those stakeholders for accepting/using KindTap. Additionally, we are planning to extend the KindTap Merchant Network so that consumers can use/earn our loyalty points with other goods and services they’re purchasing that are adjacent to cannabis or that are important to the cannabis consumer. That’s the direction we’re going.
Aaron Green: Today people can receive gas points for spending with their credit card. Now with KindTap, you can spend to get cannabis points?
Corby Iannuzzelli: That’s exactly right.
Aaron Green: What in either cannabis or your personal life are you most interested in learning about?
Corby Iannuzzelli: Personally, I am most interested in seeing breakthrough technologies in climate change. We’re going to need to correct this situation and I’m reading about collecting carbon dioxide from the air and burying it in the earth and things like that. I really am optimistic that with so many scientific breakthroughs we’ve had that we’re going to be able to figure this out. Certainly, it’s going to take a lot of smart people and a lot of investment, but I really look forward to watching them do their stuff and hopefully taking us out of this nightmare situation that we’re heading into if we don’t make some changes.
Aaron Green: Thanks Cathy, that concludes the interview.
Practicing Law Institute Press’s Legal Guide to the Business of Marijuana: Cannabis, Hemp and CBD Regulation is a one-of-a-kind deep dive into the many regulations governing the industry. Aimed at attorneys representing clients in this space, the treatise offers guidance on a range of interrelated topics including state regulation of medical and non-medical cannabis; federal law, enforcement and preemption and their implications for employment, taxes and banking; and the various aspects of establishing and managing a cannabis enterprise, from growth to licensing, transport and distribution. We spoke with co-authors James T. O’Reilly, professor of Public Health Policy at the College of Medicine of the University of Cincinnati and author of leading references on food and drug law, and Edgar J. Asebey, a founding partner of Keller Asebey Life Science Law and a life sciences attorney with over twenty years of experience, about the intersection of the cannabis business and the law.
Q: From the legal industry’s perspective, how has this area of the law evolved over the past few years – and what would you advise clients in cannabis to look for when engaging legal assistance for their businesses?
James T. O’Reilly & Edgar J. Asebey: Over the past few years, we have seen a growing acceptance of the idea that lawfully serving the needs of cannabis consumers is a commendable business initiative. This evolution in thinking – tied to the myriad business opportunities cannabis presents – has given large, mainstream corporate law firms the incentive to grow practices and develop specialists in this area, which is a very positive development.
But it is not enough for lawyers to know their way around M&A and the capital markets; they must also have experience with federal regulatory bodies. As regulations continue to evolve, it is essential for practitioners to be familiar with the Food, Drug and Cosmetics Act as well as the Federal Trade Commission Act. The framework for regulating cannabis products already exists, as can be seen in the Warning Letters sent to hemp and CBD companies by both the Federal Trade Commission and Food and Drug Administration (as well as, most recently, the FDA and CDC’s warning about delta-8 THC). If a client places their hemp or CBD product into the stream of commerce, that product will be subject to FDA, FTC and relevant state laws. We strongly recommend seeking out advisors who truly understand these regulations and how they align with the regulatory agencies’ procedures and agendas.
Q: What are the most urgent legal and regulatory topics the industry is watching these days?
O’Reilly & Asebey: Our treatise follows and analyzes the most pressing legal issues facing those in the cannabis and hemp space. In our most recent edition, we add discussion of the Final Rule for the establishment of a domestic hemp production program. We think this is a significant development in that it attempted to address some of the industry’s criticism of some provisions found in the Interim Final Rule, particularly around issues of sampling and testing for THC content. The Final Rule clarified issues around THC percentage testing methodologies, but disappointed many in the industry by leaving in place the low 0.3% dry weight threshold for an acceptable hemp THC level. On the other hand, The Final Rule raises the threshold for a negligent violation from 0.5% to 1.0% total THC and limits the number of violations a grower can receive in one year to one, easing potential penalties for violations.
Of course, the regulation of CBD products is on the minds of many in the industry. Key questions remain about whether cannabinoids such as delta-8 THC can be lawfully sold. Since the FDA has provided no clear guidance with regard to the sale and use of CBD and other hemp-derived cannabinoid-containing products, well-meaning businesses find themselves operating in a regulatory gray area. While some states have raced to place delta-8 THC on their controlled substances lists or otherwise regulate it, at the federal level it remains unclear. Our book provides a legal argument showing that current regulations support the lawful production and sale of delta-8 THC. To date, this and other legal arguments have not been tested in the courts and, without FDA guidance, the delta-8 THC sector will remain gray.
Editor’s Note: The Legal Guide to the Business of Marijuana: Cannabis, Hemp and CBD Regulation is now available for purchase here.
About James T. O’Reilly
James T. O’Reilly of the University of Cincinnati College of Medicine is former chair of the 8,000-member Section of Administrative Law & Regulatory Practice of the American Bar Association and has been active in numerous ABA, Federal Bar Association, and state and local bar activities. He retired as Associate General Counsel of The Procter & Gamble Company to teach full-time, and served as a consultant to three federal agencies and to the Deputy Secretary General of the European Commission. He has authored fifty-six texts and more than 230 articles, and his work was cited numerous times in appellate opinions, including “The experts have written . . . ” in a March 2000 opinion of the U.S. Supreme Court (Food & Drug Administration v. Brown & Williamson Tobacco Corp., 120 S. Ct. 1291). He has received numerous honors and awards for his professional and electoral activities and has been listed in Who’s Who in American Law for twenty-five years. He is a graduate of Boston College and the University of Virginia School of Law.
About Edgar J. Asebey
Edgar J. Asebey, a partner at Asebey Life Sciences Law PLLC, is a regulatory and transactional attorney with over two decades of experience in federal regulation of pharmaceutical, biotechnology, medical device, food, dietary supplement and cosmetics companies. Since 2015, he has been working on cannabis-related matters and transactions, and since 2018, he has provided regulatory compliance, business transactional, venture finance and international trade services to hemp/CBD companies. Mr. Asebey practices before the FDA, the USDA, the CBP, the EPA, and the FTC, representing client companies on regulatory compliance, product approval/registration and FDA enforcement defense matters. He founded and served as president of Andes Pharmaceuticals, Inc., a natural products drug discovery company, from 1994 to 2000, and has served as in-house counsel to two life sciences companies. Mr. Asebey is a member of the American Bar Association (Section on Administrative Law & Regulatory Practice: Food and Drug Committee and International Committee), the Food & Drug Law Institute (FDLI), the Dade County Bar Association, and BioFlorida.
By Justin T. Starling, Michael C. Tackeff No Comments
Cannabis law in the U.S. is currently incoherent. What is illegal under the federal laws on the books bears little relation to what is actually happening in cities, states and counties where cannabis is legal for medical and adult use. Although legislators, lawyers and business interests are focused primarily on whether it is legal to buy, sell or grow the cannabis flower itself, the industry’s emergence is also affecting another manufacturing stalwart: packaging. If you can grow it, you can transport it. And if you can transport it, you need a container to sell it in.
As cannabis growers and retailers begin to recognize that attractive, compelling and moisture-retentive packaging can help market and sell their products to a wider audience, packaging companies are presented with an opportunity to expand into this Wild West industry. Seth Rogen is living proof that there is money to be made here: his cannabis company, Houseplant, trades on antique vibes, limited edition releases, celebrity artist sponsorships and old-school tobacco-adjacent products, splashing its unique and charismatic packaging across its website homepage.
But what do packaging industry executives need to know before venturing into the cannabis industry? Although manufacturing packaging that could be used to contain or transport cannabis products is not entirely risk-free, U.S. courts have generally refused in the past to hold manufacturers liable for making products that can be used later as drug paraphernalia. For packaging executives, two questions are of utmost importance. First, could I be held liable for producing drug paraphernalia? And second, what packaging standards must my company follow? This article will address these questions.
Criminal Status of Cannabis Under Federal & State Law
All cannabis containing more than 0.3% THC remains illegal under federal law and under the laws of many large states, including Texas, Georgia, Tennessee and Iowa. But that’s not the full story. While facilitating cannabis production or trafficking is illegal, the federal government has enforcement priorities and restrictions on its resources. And many state and federal law enforcement officials have little incentive to pursue industries supplying trucks, packaging or lighting to a cannabis retailer in another state, as such products and services are not illegal and can be used for other industrial purposes. No law enforcement official is going to sue Staples for selling paperclips to a cannabis retailer.
Cannabis is still a “Schedule I” substance under the federal Controlled Substances Act, which is defined as substance having a high potential for abuse, no currently accepted medical use in treatment, and no accepted safe use.1 Cannabis was always a poor fit for this definition, given its efficacy in helping oncology patients cope with symptoms like nausea, but its continued classification as a Schedule I substance means that cannabis remains illegal under federal law. Despite this federal illegality, the federal government has little power—legally, practically and politically—to prosecute those engaged in the cannabis industry through activities that are legal under state law.
First, since 2014, Congress has banned the Department of Justice (DOJ) from spending a dime enforcing the federal cannabis law against individuals complying with state medical cannabis law via an appropriations rider.2 Courts have interpreted this language to mean that the DOJ may not prosecute individuals complying with state medical cannabis law,3 although there are still instances where individuals are convicted of violating the federal ban because they were found to have been out of compliance with state law.4 Though the rider only pertains to medical cannabis laws, the federal government has historically treated adult use cannabis regimes by states in a similar way.
Second, from a practical standpoint, no federal agency has the manpower to pursue even a tiny fraction of medical and adult cannabis users who are in compliance with state law, much less the industries providing support, logistics and inventory management. Though the federal ban is still on the books, no one has the power or the money to enforce it. The federal ban is thus becoming a dead letter.
Drug Paraphernalia Laws
Drug paraphernalia laws were written to provide law enforcement with other offenses to charge drug users and producers in addition to simple possession. The idea was to criminalize every aspect of the process of consuming and producing cannabis. While drug paraphernalia laws are written incredibly broadly, courts have been reluctant to apply them to companies producing packaging products.
Most packaging companies would have a defense to a suit alleging they are producing paraphernalia
Federal law explicitly defines drug paraphernalia as “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under this subchapter.”5 There are 15 categories of items listed as “per se” paraphernalia, including roach clips, electric pipes, and bongs.6 Packaging products do not fit any of the “per se” categories. The statute also specifies that, in determining whether an item constitutes drug paraphernalia, the court must consider “whether the owner, or anyone in control of the item, is a legitimate supplier of like or related items to the community, such as a licensed distributor or dealer of tobacco products[,]” among other factors.7
In addition, federal courts have been reluctant to apply the drug paraphernalia laws to packaging products.8 In addressing the predecessor statute to the current federal paraphernalia law,9 the Second Circuit ordered an indictment dismissed against a producer of glass vials commonly used for crack cocaine: “Since congress in enacting the Paraphernalia Act deliberately omitted ‘packaging’, ‘containing’, and ‘cocaine vials’ from its definition of drug paraphernalia, we conclude that the plastic containers produced by Lin were not ‘drug paraphernalia’ as defined by the act.”10 The law is not uniform, but even if a zealous federal prosecutor wants to crusade against a cannabis supplier, he must contend with the appropriations rider and this adverse case law.
Nevertheless, the federal Controlled Substances Act does allow property used to manufacture narcotics to be seized.11 It is possible that if a company created packaging for cannabis products, and the customer then used that packaging to pack cannabis, the inventory and packaging could be seized by federal law enforcement. But the same obstacles to enforcement discussed above would apply.
Every state has different paraphernalia laws, but most packaging companies would likely have defenses to a suit alleging they are producing or possessing paraphernalia, including lack of intent to use the paraphernalia for illicit purposes and applying federal caselaw as a defense.
Packaging Laws
State law is the primary vehicle for regulatory guidance on cannabis packaging. Any packaging company selling to cannabis retailers will need to consider both state law and federal packaging standards, which are often incorporated by reference into state law.
Federal Packaging Law
Producing a product that complies with all state standards at once might be a challenge, but adhering to individual state rules is doable.
The Poison Prevention Packaging Act is the primary source of child-resistant packaging law.12 This law does not currently apply at all to any sales of cannabis because cannabis is illegal in the eyes of federal law. There is no private right of action under this statute.13 That means that a packaging company cannot be sued by a private individual for violating the statute. At some point, if Congress chooses to loosen restrictions on cannabis, this would be a very easy statute to simply make applicable to sales of cannabis. The law already has a specific provision for liquid nicotine containers.14 But currently, this statute does not apply to cannabis at all.
State Packaging Laws
State laws are a different matter – each state that allows sales of medical or adult use cannabis has enacted different requirements for cannabis packaging. A comprehensive survey of state cannabis packaging law is beyond the scope of this article, but some state cannabis regulatory regimes explicitly incorporate provisions of the federal Poison Prevention Packaging Act.15 California has a similar requirement, as does Washington state.16 Producing a product that complies with all state standards at once (i.e., a “national” standard) might be a challenge. Contracts with buyers could include a representation that the packaging complies only with the laws of state X or Y.
Products Liability Issues
A detailed assessment of products liability is beyond the scope of this article. But in short, as this industry matures, packaging companies undoubtedly will be subject to the usual kinds of products liability issues for cannabis packaging. In other words, in a cannabis-tolerant state, a packaging company could theoretically be sued under a products liability theory if the cannabis is somehow spoiled by a manufacturing defect in the packaging or if the packaging product permits mold to grow and eventually be consumed by a user. Cannabis contract litigation is a complex subject given its unique legal status. One strategy to avoid these issues is to include a very specific dispute resolution procedure (e.g., mediation, arbitration or the like) in any contracts with cannabis companies in the U.S. It is also important to include a waiver of any defenses of the contract being against public policy due to the uncertain legal status of cannabis.
No transaction in the cannabis industry is entirely risk-free, and packaging executives should consult with local counsel in the states in which the packaging is manufactured and in the states in which they intend to sell products to ensure compliance with the law. But this industry is rapidly growing, and opportunity awaits for the packaging companies that are willing to work through the incoherence in the current laws.
United States v. McIntosh, 833 F.3d 1163, 1179 (9th Cir. 2016).
United States v. Trevino, No. 20-1104, 2021 WL 3235751, at *4 (6th Cir. July 30, 2021) (Michigan dispensary owner could never have been in compliance with Michigan’s medical cannabis laws given his prior felony conviction for cocaine possession).
21 U.S.C. § 863(d); see also generallyUnited States v. Assorted Drug Paraphernalia, 90 F. Supp. 3d 1222, 1229 (D.N.M. 2015).
21 U.S.C. § 863(d)(1).
21 U.S.C. § 863(e)(5); see also 21 U.S.C. § 863(f)(2) (specific exemption for items exported or sold through the mail, “and traditionally intended for use with tobacco products, including any pipe, paper, or accessory”).
Posters ‘N’ Things, Ltd. v. United States, 511 U.S. 513, 526 (1994) (“Similarly here, we need not address the possible application of § 857 to a legitimate merchant engaging in the sale of only multiple-use items.”) (head shop case where establishment was devoted substantially to drug paraphernalia).
21 U.S.C. § 863; see also 511 U.S. at 516 n.5.
United States v. Hong-Liang Lin, 962 F.2d 251, 258 (2d Cir. 1992); see also United States v. Big Apple Bag Co., 306 F. Supp. 2d 331, 334 (E.D.N.Y.), on reconsideration in part, 317 F. Supp. 2d 181 (E.D.N.Y. 2004) (“[T]he Second Circuit has determined that trafficking in items that are used merely to package or contain drugs does not violate 21 U.S.C. § 863.”). But see alsoUnited States v. Main St. Distrib. Inc., 700 F. Supp. 655, 659–60 (E.D.N.Y. 1988) (no legitimate market for glass stirrers used in crack pipes, and where customs agent had placed dummy order using common street term for crack pipes; denying company’s motion to suppress).
21 U.S.C. § 881 (a)(3) (“The following shall be subject to forfeiture to the United States and no property right shall exist in them: All property which is used, or intended for use, as a container for property described in paragraph (1), (2), or (9).”).
15 U.S.C. § 1471 et seq.; 16 C.F.R. § 1700.20(a)(2)(iii).
Doane v. Metal Bluing Prod., Inc., 568 F. Supp. 744, 746 (N.D.N.Y. 1983).
15 U.S.C. § 1472a.
See, e.g., Fla. Stat. Ann. § 381.986(8)(e)(11)(e) (“When processing marijuana, a medical marijuana treatment center must: Package the marijuana in compliance with the United States Poison Prevention Packaging Act of 1970, 15 U.S.C. ss. 1471 et seq.”).
Cal. Bus. & Prof. Code § 26120(a) (“Prior to delivery or sale at a retailer, cannabis and cannabis products shall be labeled and placed in a tamper-evident, child-resistant package and shall include a unique identifier for the purposes of identifying and tracking cannabis and cannabis products. If the cannabis or cannabis product contains multiple servings, the package shall also be resealable.”); Cal. Bus. & Prof. Code § 26001(i) (“‘Child resistant’ means designed or constructed to be significantly difficult for children under five years of age to open, and not difficult for normal adults to use properly.”) (identical to federal standard); see also Wash. Admin. Code 314-55-105(2)(b)(i) (all cannabis concentrates must be packaged consistent with the Poison Prevention Packaging Act).
As state legalization measures begin to legitimatize the US cannabis industry, stakeholders, both those currently in the industry and those who plan to join in the not-too-distant future, grapple with the best ways to right the wrongs from the decades-old War on Drugs. While some stakeholders support residency requirements and setting aside a percentage of a state’s cannabis licenses for social equity and economic empowerment applicants, others contend that these solutions are discriminatory. Reuters reports that lawsuits against social equity programs have been filed in Michigan, Illinois, Missouri and Maine, and some have received decisions that rule against existing social equity programs. While there is disagreement on the best way to create an equitable cannabis industry, few dispute that we’re dealing with an oppressive legacy against low-income individuals and people of color and the cannabis industry is in a unique position to shape a socially responsible industry that focuses not just on profits, but also on the greater good.
Challenges for Social Equity Applicants and Licensees
Currently, Black Americans make up 13% of the US national population, but own less than two percent of cannabis businesses owners, according to Leafly’s Jobs Report 2021. Why? There are five primary factors.
In most states, cannabis licenses are expensive and difficult to get. The application process requires a team of experienced individuals to work on everything from finding and negotiating real estate contracts; to vetting and hiring architects, safety, and security consultants; to working with community stakeholders to gain local approval.
After the pieces are in place, applicants have to write it all down, which is a challenge in itself. It is not uncommon for one state cannabis application to be over one hundred pages.
Since cannabis is still federally illegal and listed as a Schedule 1 drug, it’s nearly impossible to get a business loan to fund the application process or, if an individual is lucky enough to get a provisional license, to renovate or build out cannabis cultivation, processing and/or retail facilities.
Because of the low-income status of many social equity applicants, few have access to accredited investors or low interest loans.
Finally, if an individual or organization makes it through the application process and receives both a license and funding to operate, they face ongoing operational challenges including ever-changing laws, rules and regulations. Maintaining compliance is a process in and of itself.
If cannabis industry stakeholders don’t make honest efforts to provide real solutions to these challenges in the near future, inequalities will proliferate.
Current State of Social Equity in the US Cannabis Industry
To help mend the harms of the War on Drugs and reduce the institutional challenges faced by marginalized individuals, some states have instituted social equity programs that prioritize cannabis business licenses to those previously incarcerated on cannabis-related convictions and/or those who live in zip codes with high incarceration rates for drug crimes. Some states broaden the social equity lens and include women- and veteran-owned businesses in social equity programs.
The goal of social equity laws is to ensure that people from communities disproportionately harmed by marijuana prohibition and discriminatory law enforcement are included in the new legal marijuana industry. Policymakers are working to address criticisms that outsiders are setting up legal cannabis businesses and profiting by doing the same things their less fortunate neighbors were arrested and given jail time for just a few years ago.
By prioritizing social equity applicants, our industry is starting to bridge the access gap and improve the odds that previously marginalized individuals will make it into the C-suite and other influential positions. But is it enough? Many argue that social equity programs won’t make a real difference until more programs include low-interest loans and/or provide access to capital sources and ongoing support after licensure.
Although social equity programs vary, many require applicants to live in a zip code with a high incarceration rate for drug crimes or have a state residency requirement, meaning that social equity applicants must have lived in the state for an established number of years before they can qualify for social equity status. In some states, municipalities are tasked with creating these programs as is the case in Los Angeles and Oakland, California.
While some states offer social equity applicants priority consideration for their licensing applications, others offer reduced application and licensing fees, technical assistance, entry into an incubator program specifically designed for social equity applicants and/or apprenticeship opportunities.
Although social equity programs focus on developing business leaders with marginalized racial and socioeconomic backgrounds, other components of these programs often include criminal justice reform, such as revising resentencing guidelines and expungement requirements for those with cannabis-related convictions. The MORE Act, for example, not only calls for federal legalization, but also for reassessing the legal status of cannabis-related convictions, arrests, and prison sentences.
US States with Cannabis Social Equity Programs
When Colorado and Washington voted in favor of adult-use cannabis legalization nearly a decade ago, lawmakers were tasked with drafting regulations for what a legal marketplace would look like in their respective states. Although legalization efforts focused on the inequities of prohibition, the War on Drugs, and the legal cannabis industry, social justice initiatives were not initially included.
Out of the 19 states with adult-use cannabis, 13 have developed social equity programs to help marginalized people become cannabis leaders in their markets. States that incorporated social equity programs into initial adult-use cannabis legislation include Massachusetts, California, New Jersey, New York, New Mexico, Michigan, Vermont, Illinois, Connecticut, Arizona and Virginia. Although Colorado and Washington’s laws initially did not include social equity programs, both states are now in the process of implementing them.
It’s important to note that not all US states with legal cannabis programs take the social equity approach. States with legal adult-use programs but without social equity programs include Montana, South Dakota, Maine, Nevada, Oregon and Alaska.
After Social Equity Licensure
For those social equity applicants who receive operational licensure, there is the ongoing issue of compliance. As if there were not enough pressure on social equity applicants and license holders, maintaining state-compliant businesses and developing internal policies and procedures that drive brand awareness and loyalty can be a challenge. The hard reality is that admission into a social equity program and even obtaining licensure does not ensure a business leader’s success. Besides increased access to capital, expanding social equity programs to include post-licensure support, at least for the first year or two, would improve the odds of long-term success.
All in all, social equity programs in the US cannabis industry have begun to make a difference and right some of the wrongs of the War on Drugs, but there is still work to be done. To build an industry that improves lives not only with cannabis products but also with financial opportunity, we must continue to prioritize and expand current social equity programs and fight for new social equity programs in all legal cannabis states.
As a fast-growing cannabis company, ensuring your business stays compliant with regulatory agencies of all kinds—planning departments, the U.S. Department of Agriculture (USDA), Occupational Health and Safety Administration (OSHA) and so on—is critical for survival. But is your business also compliant with temporary and part-time employment regulations? Violating these often-overlooked regulations can land your company in hot water at best and force you to shut your doors at worst. Here’s what you need to know about risks, regulations, compliance issues and more.
The 30,000-Foot View: Part-Time and Temporary Employees
Cannabis has proven itself to be a high-turnover industry. But in the ever-shifting, post-COVID landscape, many cannabis employers are seeing the financial and logistical benefits of hiring part-time and temporary workers.
Though the terms “part-time” and “temporary” are sometimes used interchangeably, the fact is, there are legal differences in the definitions of part-time versus temporary work. For starters, temporary employees must work for less than a year at a specific organization, and their work must have a defined end date. Temporary employees, or “temps,” often fill vacant roles in a temporary capacity, such as roles previously occupied by someone on parental leave.
Many full-time employees in the cultivation space are defined as “agricultural workers”
Part-time employees, on the other hand, can work indefinitely for a company—but they must work less than 40 hours per week. And, side note, if a part-time employee works more than 1,000 hours in a calendar year, they could be eligible for retirement benefits—so hiring managers, bear that in mind.
For employers, there are some tangible benefits in hiring part-time or temporary workers. For starters, there are often fewer upfront costs associated with hiring part-time workers (like workers’ compensation and healthcare). Establishing a strong part-time and temp employment strategy also allows for employers to quickly scale up or down based on market tendencies or shifts.
Understanding the Risks of Hiring Part-Time or Temporary Workers
While hiring part-time and temporary workers can help businesses stay agile and responsive to market demands or fill vacancies created by recent resignations, many businesses hire these types of employees without a full understanding of associated regulations. And it can get even trickier: many full-time cannabis industry workers in the cultivation space aren’t considered “employees” at all—they’re defined by the federal government as “agricultural workers.”
It’s essential that businesses classify part-time workers and independent contractors correctly. Attempting to claim a worker is part-time when they’re really a full-time employee (a practice known as “misclassification”) can save a business tax dollars in the short-term but lead to sanctions and hefty penalties down the line. For example, if a worker is misclassified and the Department of Industrial Relations finds out, they can sue the former employer for unpaid wages.
Potential fallout from noncompliance with classification or wage and hour issues includes massive fines, potential litigation and more. Federal agencies are extremely sensitive to cannabis business regulatory violations, it’s vital to adhere to proper staffing regulations and compliance. The wrong kind of attention can tank your business’s reputation and halt your operations altogether. I’ve personally worked with numerous cannabis businesses in their hiring and payroll initiatives, and I’ll say this: It may seem like a headache to cross all the “Ts” and dot all the “Is” in the beginning, but it will make a massive difference down the line.
Understanding the Regulations for Hiring Part-Time or Temporary Workers
All employers must adhere to the regulations set forth by the Fair Labor Standards Act, which mandates that part-time employees must be treated the same as full-time employees. That means they must be paid minimum wage, be paid overtime should they exceed their determined hours, have the opportunity to take job-protected unpaid leave, and so on. I really want to stress how essential it is that employers classify their workers appropriately.
It’s also worth noting that many states have specific regulatory structures for employment, both full- and part-time.
In the heavily regulated cannabis industry, employers must exercise strict due diligence to meet all OSHA standards. Additionally, they must identify all occupational hazards and account for employees’ overtime and double time. Grow operations must also adhere to the Field Sanitation Provisions of the Occupational Safety and Health Act, which includes providing toilets, drinking water, hand sanitation facilities and hygiene information.
Avoiding Compliance Problems with Planning and Diligence
There’s a lot more to hiring workers than businesses realize, especially in cannabis. Most companies don’t intend to be noncompliant with regulations—they simply don’t know the regulations, or they’re overwhelmed by hiring and growing so quickly. To make sure you’re compliant, you might consider building out your HR team, educating yourself as the business leader and reaching out to staffing and HR professionals in the space who can answer your questions. In this rapidly growing industry, which seems to shift and change every day, planting your feet firmly on solid regulatory ground will serve to benefit you in the event of federal legalization, massive business growth or initiatives you may want to undertake in the future.
Lean management or Lean thinking is a process for continuous improvement that can be applied to any business. Most frequently Lean is attributed to the manufacturing sector due to its origins in Japan at the Toyota Motor Company. Lean originated in post-war Japan where resources were scarce as the country rebuilt itself after World War II. The scarcity of resources forced the Japanese to do more with less which manifested itself within the Toyota organization as the Toyota Production System from which Lean originated.
Today, Lean thinking is being applied to every industry and we believe that the cannabis industry, and in particular laboratories, can benefit tremendously from its principals.
What Is Lean and How Does it Apply to Cannabis?
Lean thinking is a set of powerful tools for any business or organization that wants to be the best in their industry and deliver superior value their customers. This is especially relevant to the fast-growing cannabis and hemp testing industry where customers demand fast turnaround times and error-free results.
The reason that Lean applies to all businesses and especially the cannabis industry is because of its focus is on eliminating waste. Waste comes in many forms including defects, waiting time, extra motion, excess inventory, transportation, over production, over processing and underutilized talent.
Companies that adopt Lean management eliminate waste using a wide variety of tools that help surface issues and eliminate the root causes. When companies eliminate waste, they simultaneously improve both their speed and quality, two attributes that customers really care about. Given the fast-changing nature of the cannabis industry and differences state by state, we believe that using Lean thinking to eliminate waste is critical to being a top performing business in the cannabis industry.
One important tool that many businesses begin with is known as 5S or 6S. At our laboratory we recently implemented 6S to organize both our office and laboratory spaces. 6S is a process improvement tool that stands for Sort, Set in Order, Shine, Standardize, Sustain and Safety. The process involves each technician or analyst assessing their areas and asking critical questions such as: Can I easily reach everything I need for this test or process? Is there wasted motion due to the placement of items within the lab? Can I easily tell how much consumable inventory I have on hand at a glance?
This process also helps improve safety because the workspace is better organized, easier to navigate and designed with safety in mind. Each person is responsible for maintaining their workspace and regular audits by rotating teammates, helping drive continuous improvement to our 6S. It is a fundamental process for any business starting to adopt Lean thinking.
Another very helpful process that any cannabis business can implement is the Gemba walk. Gemba is the Japanese word for “actual place” and refers to the place in a business where value is created for the customer. Value in our cannabis business is created in our testing lab. By improving everything in our testing lab we improve our quality and speed for our customers. In our laboratory we begin the Gemba walk as a team reviewing our key performance indicators (KPIs). From there, the management team visits each station to review additional KPIs and discuss any issues that group may be having. We try to surface issues, however small they may be, so that they are solved and hopefully eliminated. This process is key to helping us keep a pulse on the lab, engaging employees and better understand the improvements that need to be made.
How to Implement Lean Processes
Without quality results, a testing laboratory does not really have a product or service to offer
Lean thinking is a very accessible set of tools. Unfortunately, it is quite difficult to implement because of the dedication that it requires. Implementing Lean and changing the culture requires a significant amount of time, investment in training and management commitment. Time and capital for training can be scarce at some businesses in the cannabis industry. For the businesses with capital, it is extremely important that management commit to implementing Lean and changing their culture. Without the support of the executive team most businesses stop implementing new procedures and revert to how they are used to operating. It is also common for changes in management to result in lean becoming deprioritized in place of a new initiative.
If the executive team is inexperienced in Lean management, it will be important to find a Lean consultant that can guide the training and events. A Lean consultant should be able to provide you with thorough training on each tool and help your business implement them in real time to improve the business. The training and knowledge gained during these events are extremely valuable and practical tools that every employee can use.
Results From Implementing a Lean Organization
If a business is able to successfully implement Lean management the results for their customers can be dramatic. In the laboratory setting, turnaround times will be reduced, and more importantly, will remain consistent despite fluctuations in sample volume. Faster turnaround times for cannabis companies means that they can bring inventory to market faster which can be critical for supply constrained businesses.
Additionally, implementing Lean helps reduce the number of errors, rework and retests so the quality of the results for the customer is dramatically improved. Root cause issues are solved, processes are updated and then shared with the entire team so that everyone can learn and benefit from the improvement. Without quality results, a testing laboratory does not really have a product or service to offer so it is critical to get it right every time.
All areas of the cannabis industry are becoming more competitive, and it is important for every business to make sure they can stay competitive considering changing market dynamics. Lean management has helped businesses in other industries stand apart from the rest and we believe that the cannabis industry will be no different. Academic literature has studied and documented the positive impact that Lean has on businesses globally. Lean management has repeatedly shown that businesses that can truly implement Lean thinking in everything that they do will have an inherent advantage because they’ll be faster, more agile, higher quality, more efficient and focused entirely on creating value for their customer.
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