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Alternatives to Bankruptcy for Cannabis Companies: Part 2

By Brent Salmons, Yuefan Wang
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Part 1 of this series discussed the lack of bankruptcy protections for cannabis companies, since bankruptcy in the U.S. is an exclusively federal procedure and cannabis remains illegal under federal law and proposed a number of alternative options for businesses struggling in the current environment. Part 2 of this series focuses on one of these alternatives: state law receiverships.

Background

A cannabis operation facing financial difficulties may try to avail itself, on the one hand, of the contractual remedies described in Part 1 of this series, but these remedies may be flimsy given their narrow scope and reliance on voluntary negotiation between parties whose relationship is already likely tense; on the other hand, the statutory remedies described in Part 1 of this series may be too rigid and absolute, necessitating the disposition of a business as a collection of assets, instead of its continued operation as a going concern. An alternative is receivership, a flexible but powerful quasi-judicial approach paralleling federal bankruptcy able to be administered by state courts. Compared to federal bankruptcy, state receivership is both over and under-inclusive: while receivership can be used in many more situations than insolvency, such as a financially healthy business that is nonetheless subject to regulatory action, receivership provides less comprehensive protection for an insolvent business.

Receiverships have their roots in English and Welsh courts of equity, which were seen as offering fairer remedies than their contemporary common law courts, bound as they were by ponderous precedent. In contrast, courts of equity had more discretion to apply remedies which could be more tailored and “equitable” to an individual petitioner, even if such remedies were not codified. While this separation of equitable and common law courts does not generally exist in the modern U.S. legal system (except for a few hold-out states, most notably, Delaware), the legacy remains in the type of civil remedy available: while most remedies are awarded as monetary redress for a past wrong suffered by a plaintiff (e.g. liquidated damages for the discloser of confidential information or the “benefit of the bargain” for the seller of a company), equitable remedies often require prospective action (or forbearance of an action) by the defendant (e.g. an injunction on disclosure by a recipient of confidential information or specific performance by a purchaser of a company). To draw the analogy out, bankruptcy is a “legal” process to address insolvency since it is governed by a comprehensive regime of federal statutes and rules in the Bankruptcy Code (which is, ironically, applied by specialized federal courts), while receivership is the “equitable” side of the same coin: a judicially-created remedy to manage or liquidate a business, among other actions, where it would not be equitable (or, most importantly for cannabis businesses, not possible) for a bankruptcy action.

Some states with legalized cannabis have cannabis-specific receivership statutes, usually providing that the receiver either be temporarily or fully licensed similar to any other operator of a cannabis business.As an equitable remedy used by various states and federal entities, generalizations about the receivership process are difficult to make. However, broadly speaking, a typical receivership process begins with a complaint filed against the entity for which receivership is sought in state court. This filing can be made by a variety of parties outside of the standard debtor-creditor relationship (reflecting the equitable nature of receiverships), including by regulators and disputing owners of a business. After this filing, a motion to appoint the receiver (which is usually but not always a third party) is filed with the court; consent of the opposing party is generally not required in appointing a receiver but can often make the process easier. The complainant must then establish standing and the occurrence of certain events, including insolvency, but also mismanagement of a corporation or a foreclosure. The requirements of such events are fact-specific and may often be governed by statute or the contractual relationship between parties. The order appointing the receiver usually sets out the specific powers the receiver has in any given case to oversee the disposition or operation of the assets subject to the receivership (called the “receivership estate”) for the benefit of its’s creditors.

Receivership laws generally fall into two categories: some states provide for a broad general statute, sometimes accompanied by statutes specific to industries which are heavily regulated, entity types, or process, while in other states the power is an extension of the court’s powers, set forth in the state’s rules of civil procedure. States also differ as to whether a receivership is considered an independent remedy, a standalone legal action which can be pursued in and of itself (e.g. a petition by a creditor to appoint a receiver to resolve settle an unpaid debt), or an ancillary remedy, a legal action that supports a primary claim (e.g. a request to appoint a receiver in connection with a dispute over the ownership of a business). Some states provide for general receiverships, which allows receivers to take control of an entire business, while other states also allow limited receiverships, which allows the receiver take control of a portion of a business, while the owner operates the remainder. Some states with legalized cannabis have cannabis-specific receivership statutes, usually providing that the receiver either be temporarily or fully licensed similar to any other operator of a cannabis business.1

Below is an overview of the laws and rules governing receiverships in certain states which have legalized cannabis.

Arizona
In Arizona, receivership is governed by statute, with a general statute and specific statutes for certain industries and type of receivership. Arizona law recognizes that principles of equity apply to all matters relating to receivers, providing the court overseeing the receivership with additional power to decide the remedies available to the receiver. In addition, Arizona has enacted a specific statutory framework for the appointment of receivers for commercial real property and personal property related to or used in operating the real property. Arizona also uses a separate receivership statute to provide for corporate dissolution receiverships, in which a court in a judicial corporate dissolution proceeding may appoint one or more receivers to wind-up, liquidate, or manage the business and affairs of the corporation.

There are no specific statutes governing receiverships of cannabis businesses, so the general receivership statute applies to cannabis businesses, subject to Arizona’s rules governing the operation of a cannabis business. For example, Arizona cannabis regulations that require anyone volunteering or working at a medical or recreational cannabis dispensary to be registered with the cannabis regulator similarly apply to a receiver appointed over a licensed cannabis business.

California

California does not have significant entity-specific or industry-specific statutes for receiverships; rather a California court’s power to appoint a receiver is granted under the state’s rules of civil procedure. Receiverships in California are solely an ancillary remedy; a receivership is commenced once a complaint is filed and any party to the action may seek to appoint a receiver. Circumstances that allow for the appointment of a receiver are fact-specific and at the discretion of a judge, although contractual provisions for the appointment of a receiver are given weight under the rules. Sales of assets in the receivership estate must be submitted to, and approved by, the appointing court.

While the rules of civil procedure provide for the general powers of a receiver, the specific powers a receiver possesses in any given case is granted by the judicial order appointing the receiver; this appointment order is therefore, along with the court itself, the primary authority for the parties in any given receivership. California explicitly disqualifies certain persons, such as parties to the lawsuit, an attorney of a party, a person interested in an action, or any person related to any judge of the court within the third degree, as receivers.

While California’s receivership rules do not explicitly contemplate cannabis businesses, receiverships for cannabis companies have taken place, but in our experience are less common in California than assignments for the benefit of creditors (which we will address in a later article). Like other licensed businesses in California, cannabis companies must provide notice to the state regulatory agency which granted the license. It is up to the agency’s discretion whether the business may be operated under the existing license or whether the receiver must secure a new or temporary license.

Colorado

Like California, no generally applicable receivership statute exists in Colorado; instead, receiverships are governed by the state’s rules of civil procedure. Under these rules, a receiver can be appointed under a court’s general equitable powers. Appointment of a receiver is an independent remedy in Colorado, but is contingent on a lawsuit having commenced and the court having deemed the receivership as necessary and proper. In addition to the court’s general equitable powers to appoint a receiver, and unlike California, Colorado has receivership statutes that are entity and industry specific. The entity-specific statutes permit the appointment of a receiver for the judicial dissolution of for-profit corporations, non-profit corporations, limited liability companies, and cooperatives, and the industry-specific statutes permit the appointment of a receiver for the windup of failed insurance companies and the closure of long-term care facilities.

Similar to California, the court order appointing a receiver governs the entire receivership process and any disposition of the assets of the receivership estate must be submitted to and approved by the court.

As befitting the first state to legalize adult-use cannabis, Colorado’s cannabis regulations specifically address receiverships: the rules create a notice and application requirement for all court appointees, including receiverships, and require receivers to register with the regulator as a “temporary appointee” of the court.

Illinois

Illinois does not have a comprehensive receivership statute; instead, the state has industry-specific statutes, including for regulated industries such as nursing home facilities and telecommunication carriers. Illinois also provides for “equity receiverships”, which are used as an ancillary remedy in business disputes in order to stabilize a business that is adversely affected by fraud, neglect, waste, dissipation, or other misconduct during the pendency of the underlying proceeding. If the underlying matter is within the general or statutory jurisdiction of the court, then such court has jurisdiction over the receivership.

There are no specific statutes governing receiverships of cannabis businesses, but the governing statute does contemplate operation of a cannabis business by a receiver, so regulations promulgated thereunder should apply to receivers as well, including with respect to licensing.

Maryland

Adult-use cannabis sales only began in Maryland July 1, 2023. Maryland has a general receivership statute.

Receivers in Maryland are generally appointed by the person seeking appointment, including the court, and must meet certain qualifications, such as not having any material financial interest in the outcome of the receivership, and not having any debtor-creditor relationship with or equity interest in any party to the receivership. While the general receivership statute provides for broad powers of the receiver, including general management of receivership property, hiring professionals, and issuing subpoenas, the court may modify or expand the powers of the receiver via the appointment order.

While there is no cannabis-specific receivership statute, Maryland’s medical cannabis rules contemplate and authorize the transfer of licenses to a receivership; similar rules have been proposed for adult-use cannabis licenses as well.

Nevada

Nevada has a broad receivership statute, in addition to both entity and industry specific statutes. Case law is not well-developed and mostly predates the current statutory scheme, but there is support for a receiver being appointed outside of a statutory context, specifically when the situation is governed by contractual agreement.

The general receivership statute provides that a receiver may be appointed in a variety of situations, such as fraudulent property purchases, foreclosure of mortgages, or the dissolution or insolvency of a corporation.

Nevada has a statutory regime for receiverships for cannabis companies. Unlike the general statute, there are significant requirements for who can be a receiver for a cannabis business. A receiver must first secure a cannabis establishment agent registration card for a cannabis receiver issued by Nevada’s cannabis regulator. In addition, the receiver must submit an application to the regulator accompanied by, among other requirements, a statement saying the receiver has not previously had an agent registration card revoked. The receiver must also provide proof that she has (1) experience or knowledge of the cannabis industry, (2) experience as a receiver appointed by a court, (3) knowledge and skills necessary to make reasonable financial decisions, and (4) adequate financial capacity to fulfill the duties of a receiver. If the regulator is satisfied with the receiver’s application, it will issue the receiver an agent registration card which must be renewed two years after issuance. It is worth noting that Nevada’s statute governing the non-transferability of certain agent registration cards for cannabis allows the regulator to adopt regulations that give priority in the processing of transfers of licenses for transferors subject to receivership. To date, however, no such regulations allowing priority for receivership processing have been adopted.

Washington

Washington has a general receivership statute, but not any entity or industry-specific receivership statutes. Washington’s receivership structure with overhauled in 2004 with the passage of a new law, so it is not completely settled whether receivership is now an independent or ancillary remedy; however, the language of the statute language suggests that it is an independent remedy.

To be appointed a receiver in Washington, the individual must meet certain requirements, including not being a party to, or be closely controlled by a party to, the underlying action and not having materially adverse interest to the person against whom receivership is sought. The general statute specifically outlines the powers of the receiver. Certain actions by the receiver require court approval before being finalized, including the assumption or rejection of executory contracts, and sales of property outside the ordinary course of business.

Washington law specifically provides for receiverships for cannabis companies. To be a receiver, the person must satisfy the requirements of Washington’s receivership law, and either be preapproved by the cannabis regulator or else be approved post-application. In order to qualify for the regulator’s preapproved receiver list, or be approved post-application, the putative receiver must (1) submit an application, (2) have been a Washington resident for at least six months prior to submission, (3) submit to and pass a criminal background check, (4) provide financial disclosures as requested by the regulator, and (5) disclose any interests in the cannabis licensees. Once a person is appointed as receiver for a cannabis licensee, she shall not have a financial interest in, or simultaneously serve as receiver for, another licensed cannabis retailer. The receiver may not also serve as a receiver for, or be a party of interest in, more than five cannabis retail licensees or more than three cannabis producer and/or processor licensees at the same time. Finally, any person who files a receivership action involving a cannabis licensee must provide notice to the regulator.

Part 3 of this series on Alternatives to Bankruptcy for Cannabis Companies continue our review of receivership in various states and other bankruptcy alternatives, including assignments for the benefit of creditors.

Reference

  1.  As cannabis legalization continues to spread, more robust industry-specific receivership rules may be promising given the heavily regulated and specialized nature of the business, similar to how a number of states have industry-specific rules for other heavily regulated industries.

HHS Recommends DEA Reschedule Cannabis to Schedule III

By Cannabis Industry Journal Staff
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Massively promising news for the cannabis industry today that many are calling historic: the Department of Health and Human Services (HHS) has sent a letter to the Drug Enforcement Administration (DEA), recommending that cannabis be rescheduled from Schedule I to Schedule III. The news was originally reported by Bloomberg, but further expanded on (and without a paywall we’ll add) by Marijuana Moment with comments from the DEA, HHS and the White House.

Many cannabis stocks across the market saw significant spikes in trading prices following the news of the recommendation. Industry stakeholders and trade organizations seem to share a similar sentiment across the board: Not quite exuberance and celebration, but cautious optimism. The move doesn’t mean the federal government is legalizing cannabis, but they are showing their willingness to work with the industry.

The current Schedule I status of cannabis means the DEA and the federal government see no medical value in it and a high potential for abuse, grouping it with heroin and cocaine. Moving it to Schedule III would mean the opposite, that they recognize cannabis does have medical value and does not have a high potential for abuse, which would put cannabis in the same classification as ketamine, testosterone and Tylenol with codeine.

Importantly, the move would remove the dreaded 280E tax burden that has plagued the cannabis industry with huge tax penalties. It would also lift many barriers to study cannabis that have hindered research for decades.

Last year, President Biden asked HHS to review the scheduling of cannabis, and this recommendation letter to the DEA appears to be the culmination of their review. It is only a recommendation and nothing happens instantly. The DEA still has to decide if they choose to reschedule cannabis.

Out of all the quotes and statements flooding the cannabis media today, Rep. Earl Blumenauer (D-OR) best summarized the feelings shared by many folks in the industry: “This is a step in the right direction but it is not sufficient. I hope it is followed by more significant reforms. This is long overdue.”

Soapbox

Cannabis Industry Banks Still at Risk Without Passage of the Safe Banking Act

By Leslie Bocskor
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Here we are again, crossing our fingers, hoping that the Senate will approve the passage of the Secure and Fair Enforcement Banking Act (SAFE Banking Act). This Act would provide banks with regulatory protections, allowing them to offer critical financial services to cannabis businesses without risking the loss of their banking charter.

As the 2024 elections loom, the stakes have never been higher for passing the SAFE Banking Act.

Cannabis Legalization is On the Rise

As of August 2023, 40 states, four territories and the District of Columbia have legalized medical or adult use cannabis. While some states have moved more slowly, the entire West Coast (including Nevada and Colorado) has voted to pass laws allowing the sale and purchase of adult use cannabis. Most of the East Coast has followed suit; New York, Pennsylvania, New Jersey and Massachusetts have all voted to regulate cannabis. It has become evident that the majority of U.S. citizens are now comfortable with legalized cannabis (156 million people live in jurisdicitons that have legalized adult use).

Banking Roadblocks for the Cannabis Industry

Under current federal policy, banks and other large financial institutions face regulatory restrictions that make it challenging to provide the most basic services to local cannabis companies, regional cannabusinesses and MSOs (Multi-State Operators).

Federal anti-money laundering laws and related record-keeping regulations, such as the Bank Secrecy Act (BSA), have presented complex compliance protocols that prevent banks from meeting the business needs of local growers, manufacturers and dispensaries. Local cannabis business owners are therefore put in a difficult position, as they must balance daily business activity against the potential dangers of operating as a cash-only business.

How Would the SAFE Banking Act Help Banks Serve the Cannabis Industry?

The proposed SAFE Banking Act would protect banks from federal penalties for offering their services to cannabis businesses in states with regulated cannabis industries. Critically, the bill would shield banks from losing their deposit insurance. Without reform through the SAFE Banking Act, financial institutions will remain essentially prohibited from working directly with legal cannabis companies.

What Will It Take to Pass the SAFE Banking Act?

While the bill has successfully passed in the House of Representatives seven times, it has yet to pass in the Senate. Considering the current political climate, the clock is ticking to finally pass the SAFE Banking Act in the Senate.

Policymakers may need to introduce the Act as a stand-alone bill that outlines clear objectives and specifically addresses the issue from a public safety perspective. Cannabis is a hot-button issue, so adding additional legislation will muddy the water and make it easier for Senate members on the fence to vote against the bill.

Cannabis industry representatives and political allies must be strategic in navigating the bill’s potential passage and take the process step by step. First, the SAFE Banking Act must pass to allow cannabis businesses the opportunity to stabilize, grow and prosper. As the sector grows stronger and more accepted by mainstream America, more progressive bills can be introduced and will have a greater chance of successful passage in the House and Senate.

The SAFE Banking Act is an Issue of Public Safety

Every day the Senate chooses to sit on their hands, they put more Americans in harm’s way. This is unacceptable.

Because dispensaries and other cannabis businesses must process daily transactions without basic banking services, they often accumulate large amounts of cash. Dispensaries are, therefore, frequent targets for criminals. Even as the cannabis industry matures and contributes significant tax dollars to State coffers, banks and financial institutions have no choice but to sit with their hands tied, watching with horror as organized criminals literally take aim at dispensary staff.

The passage of the SAFE Banking Act is literally life and death for many cannabis industry employees. How many workers and customers must suffer harm before the Senate wakes up and passes this critical bill? Regardless of their stance on cannabis, members of the Senate must do their jobs, heed the will of the American people and pass the SAFE Banking Act to rectify this increasingly dangerous situation for the good of their constituents.

The CBD Regulatory Environment in Europe: Part 2

By Shelley Stark
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This is Part Two of a four-part series discussing European cannabis regulations. Click here for Part One. Part Two analyzes the differences between the UK, the EU and the US. Part Three, coming next week, dives into dosage, approvals and more. Stay tuned for more.

EU Regulatory Environment

We Europeans look with envy at the American market and wonder, why can’t we be more like that? The differences between the American market, the UK and the EU economic zone couldn’t be more different, but changes seem to be on the horizon. While both the UK and the EU apply the Novel Food law, implementation varies significantly.

In the EU, applications are submitted to the EU Commission, and approval can take up to nine months – just for approval of the application – not the testing that will follow. And while the application carries no fee, collecting the required data just to make the application can be expensive, and can run into six figures or higher. Once the application is approved, there may still be data gaps and uncertainties, with toxicology testing that can take years to complete, and ultimately must be approved and validated by EFSA (European Food Safety Authority). The required toxicology testing is where things get really expensive, with both the EIHA (European Industrial Hemp Association) and EFSA estimating costs around €3.5 million.

The EFSA’s Panel on Nutrition, Novel Foods and Food Allergens (NDA) has received 19 applications thus far for CBD as a novel food, with more in the pipeline. According to their website, NDA chair Prof. Dominique Turck reported that they “have identified several hazards related to CBD intake” and that many data gaps need filling before evaluations can go ahead. However, she concluded, “It is important to stress that we have not concluded that CBD is unsafe as food.”

As always, with food and drug reviews, it is up to the applicant to prove that a product is safe for human consumption. And for the EU Commission, EFSA is conclusive. And while initial testing is with animals, it also includes human testing, which helps explain the high cost.

At present, the EFSA has been unconvinced by the applications submitted so far, and seeks more data regarding the effect of CBD on the liver, gastrointestinal tract, endocrine system, nervous system and on people’s psychological well-being, as well as the impact on human reproduction.

Thus, in 2019, the EIHA formed a German corporation, the “EIHA projects GmbH”, formed for the purpose of pooling partners money to pay for the application and toxicity testing. The Novel Food applications (NFAs) for CBD isolate and synthetic CBD were submitted on November 4, 2022 and full spectrum will follow in April/May of 2023. It should be noted that the application for synthetic CBD has been completely dropped as no testing was ever preformed.

The applications must be reinforced by a series of tox studies under the auspices of the EFSA and for the UK, the FSA. The EFSA will start the risk assessment as soon as the suitability check is performed. The suitability check is a process performed by EFSA to make sure that they have enough data to perform the risk assessment. According to their webpage, the risk assessment can take nine months.

In the case of the application put forth by the EIHA projects GmbH, the CBD isolate dossier will be submitted to the EFSA in September and enter the risk assessment phase. In this phase, the EFSA will go over the data and can ask for more data, should they feel it necessary. They are allowed 9 months to complete this task and submit their recommendations to the EU commission for a 27-member vote, whereby the EIHA projects GmbH application will be valid and legally binding. The EIHA projects GmbH is expecting a validation during the course of 2024. This is a huge game changer!

The application for Full Spectrum distillate should be readied by the end of 2023, whereby the EFSA should be finished with the risk assessment near the end 2024. As Full Spectrum takes into account minor cannabinoid as well as limited THC, it is more complex. It should be noted, that testing full spectrum distillate with a 0.2% THC limit, tests the limit for how much THC can be ingested by humans without side effects. This study is unprecedented and might well have an enormous impact on the issue of THC and its possible future legalization. It is also costing a further one million euros to bring to fruition.

The UK Regulatory Approach

The UK Novel Food approach differs greatly from the EU’s, which has both strengths and weaknesses. What makes the UK CBD market so robust is that the FSA allows products to be sold as long as they were on the market prior to February 13, 2020 and are linked to applications submitted before March 31, 2021. As a result, the FSA was flooded with applications – many later denied on technical grounds, in great part because they didn’t meet these terms. Currently, some 11,000 products worth a projected 1 billion GBP in revenue remain on the FSA list, having passed pre-validation while the FSA awaits the final toxicology report. Only 400 CBD products have been culled from the list, but to date, not a single application has yet been approved. Pre-validation status is incumbent upon a toxicology report, and it remains to be seen how many companies are able to produce such a report.

Important to note is that due to Brexit, a UK validation when it does come, will not be valid in the EU, but products with an EU application accepted on the Union list will be valid in the UK.

UKflagStill with a projected 1 billion GBP at stake, it is easy to why UK CBD manufacturers work to appease the FSA despite the regulatory hurdles. By keeping the door open, the UK has managed to keep investors interested in the CBD market and the public safe from unmonitored products.

This is certainly not the case in the EU, where despite a smattering of products still ducking the authorities, the EU market remains thin by comparison. Their approach has stymied growth compared to the UK where robust Novel Food regulation is in place, but approached differently.

At present, a market comparison of the EU to the UK or North America seems bleak, at least for now, but following approval, future EU-wide distribution could be highly profitable. As we inch closer to a Novel Food listing, the European market may yet prove to be one of the largest markets for the safest CBD products in the world.

The American Market

Still, it is the American market that makes our mouth water; where oils, tinctures, candies, cakes, and drinks with every cannabinoid from CBD to Delta 9, Delta 8, and HHC are available and producers are on their way to becoming millionaires. With a market currently estimated at $6 billion, forecasts reach upwards of $16 billion by 2026.

FDAlogoAnd the health-related concerns, the testing requirements? Are these limited to the UK and the EU? Let’s take a closer look! A mood of caution is emerging in the American cannabis market, that includes producers and lawmakers alike, who are pushing for stricter laws and enforcement.

In America, the FDA (Food and Drug Administration) has alerted the public to CBD’s potential harmful side effects on their website and hope to force congress to deal with the issue.

Many of their concerns validate those of the FSA and the EFSA. For example: on their website the FDA makes a reference to only one CBD product that has been approved: a medicine called Epidiolex. The FDA cites the review of the Epidiolex’s application in 2018 when they identified certain safety risks, including potential for liver damage. The EFSA requires testing on the same issue.

Training, Education & Compliance: A Q&A with Chase Eastman, CEO of Rootwurks

By Cannabis Industry Journal Staff
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Founder and CEO Chase Eastman officially launched Rootwurks in January 2022. But the journey began years earlier, and passed through industries including food safety training and digital media and television. Rootwurks at its core is a training platform. The cannabis industry deals with an incredibly complex system of regulatory environments that vary widely from state to state.

Rootwurks is participating in the upcoming Seed to Sale Safety Workshop at the CQC on October 16. Click here to learn more.Making sense of different and evolving rules across this patchwork of regulations  is a very daunting practice that every cannabis company must undertake. Enter Rootwurks, which helps companies meet compliance demands while maintaining their quality standards across state lines and jurisdictions. 

We sat down with Chase to chat about his background, what he thinks of regulatory compliance in the industry, and how the future of training might mold the cannabis marketplace.

Cannabis Industry Journal: Can you tell us about your background? How did you get involved in the cannabis industry? 

Chase Eastman: Both of my parents were career entrepreneurs. At some level, I was always destined to give this a shot. As a teenager, I started working at Alchemy Studios, my father’s company, before it became the training company it is today – back then we were a small marketing studio that sold creative services & learning development to Fortune 500 companies. 

Chase Eastman, CEO of Rootwurks

About a decade later, I started working for a home shopping network and was instantly hooked on the fun, fast-paced environment of the marketplace. I eventually became head of the digital media department of the company, right about the time Groupon started making waves in 2012-2013.

At the home shopping network, content was key for sales. At the same time, learning platforms like Linda.com (LinkedIn Learning) & YouTube were exploding in popularity and my dad and I started having a lot of conversations about the role these new technologies would have on the adult learning landscape. I decided to go back to work with my father at Alchemy Systems, focusing on end-user learning content. 

Our specialty was the food manufacturing space, and we were constantly experimenting with different strategies for blended learning, mixed media formats, and adult learning. This focus on using technology to connect people to expertise is at the very core of what Rootwurks provides.

This was my 20-year journey to education and training, but my path to cannabis began at home, with my family as my mom battled cancer. Years earlier our neighbors and dear family friends encouraged my mom to try cannabis to treat the side effects of chemotherapy. 

With cannabis, my mom could cope better with the pain and nausea, helping her eat and build up her strength. I witnessed all of this first-hand and cannabis quickly found a special place in my heart as a life-changing medicine. 

My mother, father and I started to look for ways to use our expertise in training and compliance systems to help the cannabis industry ensure the safety and effectiveness of cannabis products. We quickly realized that the best way to help the industry is by making it easier for companies to deal with compliance demands and the frustrating lack of universal standards and consistency in cannabis.  

Food regulations are by no means simple. But cannabis is far more complex, especially for smaller companies that just want to grow weed and help people find the products that will work best for them.

CIJ: Alright so what is Rootwurks? Tell us about your company.

The Rootwurks Learning Experience Platform

Chase: Rootwurks is first and foremost a training platform where education and compliance meet.  

We believe that compliance adherence happens when people are doing what they should be doing when and where they need to do it. We also know that employees must have access to the information they need in real time, in a simple and easy-to-understand manner. 

The Rootwurks Learning Experience Platform is also a communication tool and learning aid devoted to our goal of connecting people with expertise. For specific use cases like sales training for budtenders, the authoring tool and templates make it very easy to disseminate communication or training on a wide scale. 

I like to talk about the Ebbinghaus Forgetting Curve – a theory that essentially says adults are forgetful AF and lose a lot of information very quickly if it isn’t reinforced. The Rootwurks platform contains built-in operational reinforcement tools that flow into auditing, verification & validation modules. All this information feeds into a corrective action engine helping companies develop and deploy  preventive actions. 

A checklist module in the Rootwurks training platform

The ecosystem is based on the premise of training and reinforcement. Checklist modules can be adjusted to create training that reinforces the quick, easily-digested micro learning models. Embedded videos in the modules can include checklists for employees to follow, or they can simply watch videos to reinforce learning at the end of a training module, for example. 

Employees can use the dashboard to instantly see all of their learning activity for the day. Companies can simultaneously use the platform for onboarding new hires while also providing ongoing education and training for longtime employees.  

Flexibility is at the core of the system. Cannabis regulations include a massive amount of unnecessary complexity and all of it varies from state to state. A large operator going into a multi-state phase will have different SOPs for each state, and must still maintain quality standards across every company location. This is why we built all of our programs as templates that customers can adjust to meet compliance guidelines in each and every state they operate. 

But this isn’t an “off-the-rack” platform. Companies can customize the system with their branding and training materials as they see fit. This solves the “blank screen paralysis” that companies face with training programs. 

Our goal is to remove these hurdles and help companies schedule, assign, and validate training.  

CIJ: In the food industry, the culture of safety and quality is such a standard practice. In your eyes, how does the cannabis industry compare and in what areas do you see a need for improvement? In other words, what are the biggest problems facing cannabis from a safety and quality perspective? 

Chase: In the food industry, there is an expectation that safety and quality is ingrained in daily operations. The food industry also knows full well the importance of having a proactive accountability culture in the workplace backed up by internal auditing. The FDA has partnered with the food industry to promote these principles for more than a decade – so we shouldn’t expect this to happen overnight in the cannabis industry.  

Audit insights can help train employees to maintain regulatory compliance

But the food industry had a decades-long headstart on the cannabis industry, during which they’ve pushed back on non-practical regulations and built partnerships with state regulatory bodies. 

In a lot of ways, time is the biggest thing that the cannabis industry needs. It needs time for industry to work in partnership with regulators to honor the intent of the rules, while still maintaining practicality. Succeeding as a cannabis business is tough even without factoring in these regulations, which throw all types of inefficiencies into the manufacturing and sales process.

It’s no wonder we’re dealing with so much confusion, with so many states having such different sets of regulations. We’re seeing all types of companies really struggle, because the current state of affairs is not as sustainable as they thought. 

We need to find ways to honor the fun, subversive, and life-enhancing aspects of cannabis culture while also building partnerships between the industry and regulators. It’s going to take time, but I’m confident we can get there. 

CIJ: How do you envision the future of education and compliance within the cannabis industry and where do you see this market going in the next ten years? 

Chase: The easy answer to that is the sky’s the limit. We timed the launch of Rootwurks right with a global recession at a time when the cannabis industry is facing unprecedented headwinds. We still need SAFE Banking to cross the finish line and full access to the financial system. There’s too much momentum behind cannabis and I think we’ve reached a tipping point.

Moving forward, I think the brands that succeed will be the ones that implement training and education programs and treat them as vital to their daily operations. 

The next 24-36 months won’t be easy. But we are learning so much as we go and we are not done figuring out all the different ways the plant can be utilized. The industry is only going in one direction and I’m thrilled that at Rootwurks, we can help more and more companies achieve their dreams in cannabis.

The CBD Regulatory Environment in Europe: Part 1

By Shelley Stark
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This is Part One of a four-part series discussing European cannabis regulations. Part One serves as an introduction. Part Two, coming next week, will analyze the differences between the UK, the EU and the US. Stay tuned for more.

As I walk through any European cannabis expo – events like Cultiva Hanfexpo, Cannafest Prague or Spannabis – it is easy to be struck by the differences to those in the U.S. First, there are no THC products, nor are there any CBD food products such as drinks or confectionaries. This is because of the EU Novel Food regulations: “which applies to any food stuffs not commonly used for human consumption before 15 May, 1997.”

As a result, American CBD manufacturers – with virtually no regulation of cannabinoid infused products – have an enormous advantage. In the EU, any “novel food” must be tested and proven to be safe for human consumption.

Still, hemp was not always considered “novel.” In 1997, hemp plant products were considered outside the scope of the regulations EC 258/97.” And more specifically, “that hemp flowers … are considered to be food ingredients” (e. g. used for the production of beer-like beverages). Hence, not ‘novel.’

european union statesSo, right until the end of 2018, nature more or less aligned with the legal establishment, and many products made it safely to market because extracts of cannabidiol (CBD) were considered ‘novel’ only if the levels of CBD were “higher than the CBD levels in the source of the plant itself: Cannabis sativa L.”

However, in January 2019, the catalogue entries for “Cannabis sativa L.” were updated, such that even a naturally occurring level of cannabinoids are now excluded. For the industry, this was a frustrating turn of events, affecting any and all food products to which CBD might be added – confectioneries such as gummies, brownies or cakes, but also includes oils and tinctures containing CBD extracts and other cannabinoids.

Technically, all products on the EU market containing natural CBD or an isolate or distillate are illegal. So, the industry has been playing a cat and mouse game, where consumer labels display vague information or simply state ‘not for human consumption’. The result is a well-developed gray market, that hinges on benign authorities in your jurisdiction.

Sometimes, a producer is able to convince authorities that their product is allowed under Article 4 submission, whereby the producer claims that any CBD content in the food is naturally occurring and a traditional food.

Article 4 is a provision of the Novel Food Regulation (EU) 2015/2283 that allows an operator to check with the national authority on the status of a particular food before bringing the product to market. In the framework of this EU regulation, the operator checks whether the food is traditional or novel. If the food is considered traditional, then the food can be placed on the market immediately. But, if it is novel, it requires a Novel Food authorization.

Good news emerged on June 2, 2023, where in the EU, it has been agreed that once again, hemp leaves are considered a traditional food and are no longer considered Novel. Hemp leaves and tea can be marketed in the EU without further hurdles, but this does not include extracts.

In the case of extracts, CBD isolate and distillate are Novel, not traditional, and a firm must provide toxicology reporting. Both EU and UK law provides that any product containing a CBD extract placed on the market falls under the Novel Food regulations. Ultimately, tests must verify with a high degree of certainty whether CBD is safe to ingest in any amount. And how much is safe before changes occur to internal organs such as the liver or reproductive systems. The FSA will verify results in the UK, while the EFSA is responsible for the EU. 

In the EU, the EFSA will send their final recommendation to the EU commission for approval, where after a 27-member vote, the item will be added to the Novel Food Catalogue. Approval at the individual state level, is next to impossible to acquire, for example, Austrian law states: “Oils/extracts containing cannabinoids placed on the market as such or in foods are considered novel foods and must be authorized in the EU.” No such approval is currently available. Placing it on the market is therefore not permitted.

No ambiguity there!

Some EU countries, such as Greece for example, appear more lenient and others not, but it is retail that is first in line for fines if an investigative authority walks in the door. The situation is certainly nerve-wracking, and having suffered through several of these AGES investigations, I closed my store as a result. Others have had similar experiences. One large retail chain owner reported that he fears the check by the authorities, as each one leads to a fine of some sort, or the demand to remove products. Without notice, he says, the health authorities could decide on even harsher punishments such as larger fines or even removing his business license. Then what, he wonders?

Cannabis Social Equity: Paving the Path for Inclusive Economic Opportunities

By Annu Khot
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The cannabis industry isn’t a level playing field. It’s disheartening to say. But as someone who has been building a soon-to-open dispensary for the last three years, I’ve experienced this lack of equity firsthand.

It starts with the industry’s foundation. We’re in an era where anyone can start a business. Create a logo, launch a website and upload promotional content on social media. A few clicks and…boom, you’re a business owner. Lovely, but absolutely not the case for the cannabis industry.

Getting started is no easy feat.

Budding cannabis entrepreneurs (pun very much intended) need a ton of capital in order to get started. And as cannabis isn’t federally legalized, entrepreneurs don’t have access to traditional banking loans. They either need to fund their cannabis venture with their life savings or turn to family, friends and their community to fundraise. Unfortunately, not everyone has such privilege or access. This reality contributes to the industry’s unequal playing field – and due to a lack of legalization, shows no signs of letting up.

Jessica Gonzalez

Jessica Gonzalez, a Jersey City-based attorney and cannabis advocate, spoke to this challenge in a recent NJBiz interview. “It’s extremely expensive to enter and survive in this industry, and given the limited capital options, you are forced to seek private investors – which opens a whole can of racial and gender bias. The need to stay capitalized, coupled with constantly changing regulatory environments, expensive service professionals, lack of real estate, a social stigma and IRS tax code 280E, creates high barriers to entry and high survival barriers.”

As Gonzales notes, funding is just one piece of the puzzle. Once you’ve secured said funding and have decided to start a cannabis venture, you’re navigating a minefield of ever-changing regulations. This demands the help of pricey service professionals–attorneys, operators, marketers and more–who remain abreast of current laws and have the subject matter expertise to properly guide you.

The issues with the cannabis industry are clear – funding is difficult to secure, marketing is nearly impossible and pricey consultants are table stakes. On the bright side, operating in cannabis isn’t all doom and gloom. Solutions are ahead–and they’ve been baked into the operating strategy of many fantastic, social-equity led dispensaries, includingSocíale, the soon-to-open Park Ridge, IL dispensary. While getting started is no easy feat, as leaders, we should each take it upon ourselves to empower those wanting to work with this life-changing plant by developing an industry that’s ripe with endless opportunities.

Economically empowering employees should remain top-of-mind.

The lack of equitable wealth creation in the cannabis industry bolsters its inaccessibility. It’s unfair that if a dispensary or cannabis business succeeds, only the entrepreneur wins financially. Yes, employees may get a small discretionary bonus at the end of the year – but they’re not woven into the fabric of the business’s profitability. Employees – and those earlier in the value chain, like growers – are left out in the cold, while dispensary owners seek to profit immensely.

Personally, when I started in the cannabis industry, I thought this dichotomy was blatantly unfair – and vowed to be a powerful force in changing that. At Socíale, profit sharing is a part of our DNA. Employees will take part in dispensary profits from the day they start. This way, everyone wins–and if employees decide to start a cannabis venture of their own, that ambition is more in reach. This is a massive piece of what the cannabis industry preaches when it has conversations surrounding social equity. It’s time the industry and its leaders back up this ideology with a plan of action. Embracing the concept of ownership not only among founders and senior leaders, but among employees at all levels, can provide a valuable taste of entrepreneurship. Situations like these often empower employees economically to create lasting changes for not just the company they’re working for, but for themselves and their families at home.

Social equity license holders should pay it forward. 

Social equity dispensaries should embrace the pay-it-forward mentality among the communities of which they serve, especially those disproportionately impacted by the War on Drugs. It’s unfortunate to see dispensaries falsely advertise with a “social equity” label, merely for the vanity of it all.

Socíale is beholden to certain promises we made to the state of Illinois, who granted us our social equity license. This includes employing people from under-represented communities and advocating for cannabis social justice – two causes that we’re deeply committed to. As we look to shape the future, let’s remain hopeful about what it holds. Collaboration over competition needs to be the motto. If we all partner together to think beyond profits and aim to better the greater cannabis community, we’ll all be better off.

Trenton Makes The World Takes: A Q&A with Tahir Johnson, CEO of Simply Pure Trenton

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Tahir Johnson is the founder and CEO of Simply Pure Trenton, the first black-owned social equity dispensary to receive a license in New Jersey. He’s a well-known cannabis advocate who’s held leadership roles at the Marijuana Policy Project, the National Cannabis Industry Association (NCIA) and the United States Cannabis Council. Tahir was born and raised in Trenton, New Jersey, so coming full circle and starting a dispensary in his hometown is something truly special.

From growing up in New Jersey to graduating from Howard University, working in finance and wealth management at companies like Morgan Stanley, to finally launching a business back in his hometown, he embodies the Trenton success story.

Tahir is speaking at the upcoming Cannabis Quality Conference in Parsippany, New Jersey on October 18. Ahead of his presentation there, we caught up with Tahir to learn a little more about his background, his thoughts on social equity and some advice he could offer to other minority cannabis entrepreneurs.

Cannabis Industry Journal: Tell us a little about yourself – what’s your story?  

Tahir Johnson, Founder & CEO of Simply Pure Trenton

Tahir Johnson: My name’s Tahir Johnson and I am the founder and CEO of simply pure Trenton. I was born and raised here in Trenton. I am a Howard University alumnus. I’ve spent most of the past few years of my life in the DC Maryland area. I came home to apply for the licenses and thankfully won them. I am one of the first 11 dispensary licenses to be issued last year. I licensed the brand from my good friend, Wanda James, who is the founder of the original Simply Pure back in Denver, Colorado. She started the very first black-owned dispensary in the country. I am excited to be carrying this legacy.

Before cannabis, I spent most of my career working in finance. I came into the industry in 2019 and started out as a budtender after quitting my job in finance, starting to work at a dispensary. I began working in advocacy, joining the NCIA in 2019 then went on to the Marijuana Policy Project and the US Cannabis council in 2021, where I was up until I started this dispensary. It’s been amazing being back home and close to the family after being away for 22 years. I am just really excited that I am on track to open the first black-owned social equity dispensary in the state of New Jersey.

CIJ: Tell us about Simply Pure. How did you start this dispensary and how did you meet Wanda?  

Tahir: So, I met Wanda back in 2019, back when I was with NCIA. Initially, it was never about opening a dispensary or anything back then. I was just building a network and finding like-minded minority folks in the business for possible future collaboration. You know, Wanda, I think of her as an OG. She’s been a friend and mentor from Day 1. So, when I initially wanted to apply for a license in New Jersey, I knew that Wanda wanted to grow and take her business outside of Denver. I went to her and asked possibly about partnering, seeing if she wanted to do this with me. She thankfully agreed to it and the rest is history.

Tahir Johnson (left), Wanda James (center) and John Dockery (right)

CIJ: Could you give us a timeline of how Simply Pure Trenton got started? Where are y’all at right now and what sort of roadblocks have you had to overcome?

Tahir: Sure, So I got the conditional license in May of last year, then I got the annual license in April of this year. Early on, hurdles were definitely access to capital. Thankfully, me being one of the first licensees and I think my background and network helped me get access to the money. The biggest barrier, when you look at getting a license, there are so many moving parts. Getting the license is just one small piece of it. Then getting local approval is another obstacle. But man, getting the building permits has been one of the biggest roadblocks I’ve ever faced. If somebody asks me what my biggest roadblock was, it’s building permits. Because in New Jersey, you have to get approval from multiple different outside agencies that really have nothing to do with building or cannabis ore anything. The latest approval we’re waiting on is from the Raritan and Delaware Canal Commission and I’m wondering what the hell does that have to do with building out the interior of my space? You know what I mean, it’s just a lot of red tape and diplomacy that I have to go through. A lot of it is very unexpected!

CIJ: Alright switching gears a little bit here. How would you define social equity in the cannabis industry’s current climate and where we’re at today? What does economic empowerment mean to you?

Tahir: I would say first that social equity in cannabis specifically is the idea that people who have been the most impacted by the war on drugs should have the opportunity be a part of the industry. And that’s super important because we’re building a completely new industry and one that’s doing billions of dollars in sales. In my opinion, when we say people who have been most impacted by the war on drugs, those are by and large the black, indigenous and Latino populations. So, it’s been black and brown folks that have been largely affected by the war on drugs. If we’re going to have a new legal system, those same people who were 4x more likely to be arrested for cannabis should at least get the opportunity in ownership of this new industry.

A rendering of the Simply Pure dispensary storefront

Economic empowerment is one of the biggest parts of social equity. It’s actually what drew me to cannabis in the first place. When you look at the opportunities in cannabis, it’s a business that’s hard to get into, but It’s a lot harder to do if you have a lack of access to capital. Drawing from my career in finance, when you look at black communities, we have 1/10 of the wealth of our white counterparts. Looking at such a cash-oriented business where you can’t just get a normal business loan from a bank, you have to have personal wealth and access to venture capital or private equity. Well, our communities have less access to that because of our background, our networks and upbringings. So social equity is the idea that there should be some support systems in place, some help in bringing opportunities of the cannabis industry to us.

One part of that is licensing and giving us access to the licensing process. Another part of this issue that is being administered more recently is actually making sure that wealth is distributed through programs and policies. Not everyone may want to start a dispensary like me, but they were still severely impacted by the war on drugs. Seeing money from the tax dollars generated by the cannabis industry now going back to the communities to fund rebuilding and revitalizing projects is great. It really comes down to leveling the playing field to create those opportunities for people that should have them.Tahir Johnson will be presenting at the upcoming Cannabis Quality Conference in Parsippany, New Jersey, October 16-18. Click here to learn more.

CIJ: What does community mean to you? How does your business fit into and support the Trenton and larger NJ cannabis community?

Tahir: For me, one of the biggest things I’m proud of growing up in Trenton is that sign on the bridge, “Trenton Makes, The World Takes.” Growing up, this area was an industrial town. Both of my grandparents had good factory jobs and were able to support a family, but a lot of that has left the city over the years, leaving it economically depressed. I’ve been pulled over, arrested, we’ve had family members locked up all just because of cannabis. So the idea that now, through cannabis, to be able to have an opportunity to build something positive in our community, to create jobs and wealth in our community, giving back in this same place is wonderful. I think of this as the economy and opportunity of the future. In New Jersey specifically, the state has one of the biggest racial disparities on arrests. A lot of that is due to cannabis. I remember growing up, every time we get pulled over, you know we’re getting searched. There’s been real life situations, where there was a seed or a roach in the car and we’d have to decide who’s going to jail today just because of a roach. You know, how many people’s lives have been impacted and changed just because of a cannabis arrest? Now, looking at New Jersey and this ability to right those wrongs, it’s really a beautiful opportunity.

When I talk about my community, the way that I’ve been able to inspire people and make our community proud has been the biggest thing for me. For us, we haven’t seen a lot of people make it and get to achieve success. So, to be able to have this opportunity and to be from here actually doing this is one of my biggest motivators, showing people from my community and from across the state that we can be successful in business. We often hear how difficult it can be and how making it in business seems like mission impossible to so many, being able to achieve that mission and give some hope and inspiration to people where I come from is truly special.

CIJ: If you could give yourself advice ten years ago, what would it be? What advice would you offer to other BIPOC entrepreneurs trying to make it in the cannabis industry?

Tahir: Let’s see where I was ten years ago. I would say just always continue to keep the hope and keep the faith. Stuff gets tough, but as long as you keep the vision and the path, it’s going to be okay. What I would say to other cannabis entrepreneurs is largely the same thing. This is hard as fuck. It is very hard. No matter how many times you get knocked down, you have to get back up. Don’t believe the hype. Don’t let anybody make you believe that you can’t do it because you can. It takes believing in yourself, even if people don’t believe.

This would be something that if you are a minority entrepreneur, this is really true. You really do have to be better and stronger. Educate yourself. Take the time to network with people that look like you and don’t. First you want to build a team and a support system. You also want to be able to build. Some of your allies that can help support you, they might not come from your same community or background. I wouldn’t be here if it wasn’t for a lot of very diverse people that believed in me. Work hard, network, believe in yourself because nobody else is going to believe in you. Put in the work and that’ll bring success to anything you want to do.

Tahir Johnson (left) with John Dockery (right)

CIJ: Any final thoughts you want to share with our readers?

Tahir: Yea, so in addition to me winning my licenses, my close childhood friend, John Dockery, will be opening another Simply Pure location in downtown Trenton too, which is really exciting. I am really looking forward to getting to the finish line with all of this and being able to open. I think one of the biggest things I’d like to add is that there are so many people depending on us for this, so many jobs on the line, the community I am waiting to serve, all of these things and we’re encountering delays that are typical of this industry with the long road from getting licensed to opening and operating. A lot of people are expecting us to be open and we’ve encountered some slight delays, but we’re excited to be opening soon and expect that to happen no later than October.

Is the Cannabis Industry Sitting On An Untouched Gold Mine Of Innovation?

By Pam Chmiel
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Universities across the country are working in all areas of research and development to advance cannabis cultivation, medicine, drug delivery and technology. But these innovations are collecting dust because the universities are not in the business of commercializing products in the marketplace.

In 1980, the federal government passed a law that said universities that receive federal funding, which most of them do, will have the option to own whatever intellectual property or invention they develop from that federal funding. Initially, universities resisted the idea feeling they were selling their souls to the private sector and corporate America. But opinions have changed, and the marriage between universities and industries is a common and rewarding business strategy for both sides.

I interviewed Lance Anderson, a partner at the law firm Dickinson Wright who is uniquely positioned to play matchmaker to research universities, entrepreneurs and VCs to help them uncover cannabis innovations and create partnerships. Lance is also educated in life sciences, including proprietary plants, genetics and plant-derived products, and served as in-house counsel and lead IP attorney for a large public research university system and an early-stage venture capital company.

Pam Chmiel: What led you to play matchmaker to universities and cannabis businesses?

Lance Anderson: I learned that universities are interested in commercially benefiting from some of their innovations when I worked in the technology commercialization office at Texas Tech University right out of law school.

The concept of “technology transfer for commercialization” already exists in universities and presents a vast opportunity for cannabis businesses to commercialize their innovations.

Lance Anderson, an attorney at Dickinson Wright

“Technology Transfer” agreements refer to moving technology, knowledge or innovations from one organization, such as a research university, to another entity, such as a cannabis company, through licensing agreements that grant permission to use intellectual property (IP), patents or proprietary technology for commercial purposes.

Even though legalization is sweeping the country, I’m finding that academic institutions and their administrators are concerned they will lose all federal funding and are hesitant to take the chance on a cannabis research project. They are still getting comfortable with the opportunities to work with the industry, and the farm bill act of 2018 gave them the push to do so.

And why not tap into these universities, which receive millions and millions of dollars in funding? You’re not out a lot if you properly structure your relationship with them. You do not have to pay them millions and millions of dollars to get this technology. Knowing what the university wants and how to structure that relationship is key.

Pam: What are some of the benefits a business can gain by forging a partnership with a university?

Lance:

  1. Cannabis companies benefit by gaining access to cutting-edge research, expertise and resources that can accelerate and elevate their product development and market entry.
  2. The association with academic institutions can help build trust among consumers, investors, and lawmakers.
  3. Working with university research students may create a pipeline of qualified employees who may want to work for the company.
  4. Submitting a joint proposal with a university seeking government grants may lead to additional funding for the research project.

Pam: What types of partnerships do you currently see in development?

Lance: Pharmaceutical companies have collaborated with research universities for years on drug development and undoubtedly have their eye on the cannabis industry. Federal agencies like the USDA lean on academic partnerships to develop unique plant traits to improve crop production. You’ve got institutions developing new mind-blowing genetics, like polyploid species, that allow you to fine-tune the plant traits you’re interested in. There are always advances going on.

Clemson and Cornell Universities are leading the charge in cultivation by partnering with farms to develop techniques to grow better crops and increase profitability. And interestingly, many of the land grant institutions that receive federal grants, like Mississippi State, Michigan State and Texas A&M, are now diving into plant trait development. And it’s not unrealistic to think they will transition into plant-touching technologies ripe for the cannabis industry to come in and run with it from there.

“Researchers are now getting more access to cannabis strains that are more like what we’re seeing on the market, but it’s still not where we need to be”

But the research desperately needed to move the industry forward is medical research because lawmakers want proof that cannabis has medicinal benefits before they are confident in pushing for legalization. Unfortunately, the US government has been part of the problem in making it hard to conduct research, whether clinical trials, clinical research or simple preclinical studies on cannabis. Until recently, the University of Mississippi was the only university allowed to cultivate for research. So the researchers are now getting more access to cannabis strains that are more like what we’re seeing on the market, but it’s still not where we need to be. Not even close.

Academic partnerships are not a new concept, but the cannabis industry has yet to embrace it fully. Opportunities are beginning to develop where government agencies will participate and or fund the work in cannabis from the university standpoint. The National Institute of Health has a program that’s getting kicked off for cannabis research. And they all understand and recognize that the fact we don’t have enough clinical data available is a major hindrance to the advancement of this industry.

Pam: What is legally involved in a technology transfer partnership?

Lance: Collaboration between cannabis companies and research universities can take various forms, such as research partnerships, sponsored research agreements, joint ventures, or licensing arrangements. The specific model depends on the goals, resources, and intellectual property involved in the collaboration. An attorney can structure an agreement in a manner that lets everyone slowly advance into the relationship and get satisfied with the milestones they want and at which point this thing begins to take shape.

“Opportunities are beginning to develop where government agencies will participate and or fund the work in cannabis from the university standpoint.”

Cannabis businesses are no strangers to utilizing multiple entities in their corporate structuring. They may have a holding company that owns the real estate, a staffing company that manages the HR for the flower-touching operations, and another that holds the intellectual property. You’re seeing an entire industry familiar with IP licensing for the first time in a long time, and universities want in by licensing their intellectual property.

The university may require a licensee to have a product in the marketplace and a first sale within two years. So that introduces the concept of perishable intellectual property rights where you can default or don’t meet the licensing requirements. That perishable concept sometimes makes it hard to raise money because the investors prefer a guarantee that you have the license and will not default.

The takeaway is universities are thirsty for partnering and looking for strategic initiatives. Universities have access to patient populations, and the cannabis industry has the business know-how to take their innovations to market. It will take some culturing of both sides to understand the opportunities. But once everyone’s on the same page, the deals will look like the licenses and joint venture deals we see now with multi-state operators.

Pam: Lance, do you have any closing thoughts for our audience?

Lance: I’ve thought about this potential synergy for years as I’ve watched these two areas I practice in often. Academic partnerships are the catalyst to move the cannabis industry forward and are right in front of us. The time is now, and I’d love to be there.