MasterPlans, a business planning firm based in Portland, Oregon, has more than 13 years of experience in the emerging cannabis industry. The firm has worked to develop financial models and business plans for new and existing companies that are looking to secure funding, grow partnerships, and manage their long-term strategies for success. They have created business plans for more than 100 companies at every level of the market, from cultivators to dispensaries, to businesses in packaging, security and tourism. They work with nonprofit ventures, investor propositions, commercial lending and self-funded companies.
“We know how difficult it is to launch a business in the cannabis industry, because we work with businesses in this field every day,” says Mike McCulley, VP of Sales at MasterPlans. Cannabis Industry Journal spoke with McCulley to learn more about some of the challenges that marijuana businesses face.
MasterPlans Cannabis Business Plans
Cannabis Industry Journal: What are some of the biggest hurdles in launching a new grow operation?
Mike McCulley: Many of our cultivation clients say that the largest hurdle they face is in identifying the ideal location for their business. Grow operations need to factor in a wide range of concerns including cost, zoning, security, soil viability (for outdoor operations), energy costs (especially for indoor operations), and proximity to schools and similar buildings. Location can really make or break the success of any grow operation, and this is often the single largest cost incurred when launching this kind of business.
CIJ: What are some key ingredients in a successful marijuana business plan?
McCulley: It probably goes without saying that a successful business plan for a company in the marijuana field first has to execute all of the elements that every business plan needs to include: Detailed financial projections, accurate market analysis, [and] a comprehensive overview of strategies and goals. Marijuana business plans in particular need to also address the key issues and challenges that are unique to operators in this industry. How will your company be impacted by state-level regulations, and how will your operational model address those? What steps will you take to ensure the security of your product? How will you accommodate the complicated issue of accounting while federal regulations are still impacting the way marijuana companies manage their banking? These issues should be acknowledged and addressed if you hope for your plan to be compelling.
CIJ: With the growing schism between recreational and medical markets, how do you determine your target market and meet those customers’ needs?
McCulley: Determining a target market can be difficult before launching operations, but it’s not impossible. A key tool to help work through this question is up-to-date census information or demographics for the area in which your company is serving. Recreational markets provide a much broader audience to become potential clients, but medical markets can also offer lucrative opportunities if an operator can launch in an area with a high concentration of eligible patients. Accurate market data plays a key role in this process, and close analysis of that data can help operators determine their best course of action.
Laboratory testing is an integral part of the cannabis industry for the same reasons it is important in the food industry. To ensure the consumer is ingesting a safe product, accurate testing should be required for microbials, pathogens, pesticides, heavy metals, and perhaps most importantly dosage. Unfortunately, however, the problem is that testing requirements are not quite there yet in the handful of states that have legalized marijuana for recreational or medical purposes. This creates a degree of uncertainty in the marketplace, which is detrimental to the growth of the industry as a whole.
Cannabis samples are liquified in strong acid in a pressurized microwave prior to evaluation for heavy metal content. Image courtesy of Digipath, Inc.
Lauren Finesilver, Executive Chef at Sweet Grass Kitchen, sits on a counsel for compliance with C4 (Colorado Cannabis Chamber of Commerce). Finesilver believes “We are a food manufacturer first and foremost so we need to ensure we sell a final product that is safe for the public and [one] that consumers know is coming from a responsible manufacturer.” Ahead of marijuana rule changes that are soon to come, Colorado’s Marijuana Enforcement Division (MED) announced five new rulemaking working groups, one of which will address testing, packaging, and labeling.
Some states, including Colorado and Nevada, have made impressive strides in implementing proper testing regulations.
“Nevada has done a really good job from the start in designing a program where they have at least addressed some of the issues with product quality including testing, labeling, and potency requirements,” says Tobias Paquet, Chief Scientific Officer of C3 Labs, LLC (Cannabis Chemistry Consulting).
Paquet, who previously worked at Waters Corporation as a field chemistry specialist, cites potential contamination at almost every step of the cannabis supply chain from seed to sale. “Some of the biggest concerns with contamination during cultivation or extraction are pesticides, heavy metals, and microbial contamination,” he says, adding that he is most concerned about two microbial carcinogens—mycotoxin and aflatoxins.
“We aim to provide reliable and consistent labeling that is accurate and reflects the contents of that product,” says Paquet. “This comes with a validated method on qualified instruments and laboratory accreditation.”
Determining the moisture content in a dried cannabis sample for adjusting potency numbers and checking for appropriate curing. Image courtesy of Digipath, Inc.
Much like the food industry, accurate testing across the board is needed for consumers to feel safe ingesting edibles containing marijuana. Laboratories that operate in states where marijuana is already legal need to utilize good laboratory practices and standards to ensure consistency.
“We have been working to create an accreditation process that is accepted on a national level,” says Roger Brauninger, biosafety program manager at the American Association for Laboratory Accreditation (A2LA). “Without firm state laboratory accreditation regulatory requirements in place, the possibility exists that people may shop laboratories to get the results they want. So if applied across the board, ISO 17025 accreditation would help reduce that, thereby helping to create greater consistency of tests results between laboratories, ultimately helping to reduce marketplace confusion.”
The cannabis industry has the momentum to become a safe and regulated marketplace as state reforms continue, with testing and analytics acting as the wind behind its sails.
Matt Karnes, founder and managing partner of GreenWave Advisors, LLC, suggests that by 2020, assuming full legalization occurs in all 50 states and D.C., the lab testing industry could easily reach $850 million (this figure includes testing, data analytics and consulting services). The firm provides an analysis of each state’s potential market size which is predicated on its U.S. retail marijuana forecast of $35 billion (again, assuming full legalization by 2020). Karnes was recently cited in a Forbes article suggesting that cannabis testing is one of a handful of top new technology investment opportunities.
Karnes’ predictions echo that of many when discussing the cannabis analytics space. “More states are becoming focused on standardized laboratory testing requirements,” he says. “There is really no consistency, which is something that needs to be worked out.”
While a handful of states work toward achieving good laboratory standards, players in the cannabis industry, including laboratories, dispensaries, and cultivators, continue to self-regulate when it comes to safety and quality.
CannabisIndustryJournal.com, our newest publication, will be launched in late September. CannabisIndustryJournal.com will educate the marketplace covering news, technology, business trends, safety, quality, and the regulatory environment, aiding in the advancement of an informed and safe market for the global cannabis industry. Stay tuned for more!
Ahead of the launch of our newest publication, CannabisIndustryJournal.com, I interviewed Stephen Goldner, President of Regulatory Affairs Associates, regarding the possibility of federal oversight in the cannabis industry, namely direct FDA involvement via regulations.
With experience as a forensic toxicologist and attorney, Stephen Goldner has worked over 35 years as a regulatory professional in the healthcare space. He has contributed to the approval of 230 drugs and medical devices serving as an FDA advisor. Steve is credited with the development of the liquid dose form of methadone and various screening tests for drug abuse.
We discussed the current regulatory frameworks in place for legal marijuana in the United States and found that there are some gaps in understanding when it comes to regulating the plant. Here is a snapshot of our conversation discussing federal involvement in the cannabis industry:
Food Safety Tech: Are state governments and marijuana businesses working jointly to handle the regulatory framework succeeding? Can you see, in the handful of states that have already legalized marijuana, a need for FDA regulatory guidance?
Steve Goldner: To many people’s surprise, the states that have legalized marijuana are doing very well setting up a regulatory framework. Plus, the legitimate operations really want to succeed in business and provide safe and effective recreational and drug products. I’m surprised to hear myself say it, but FDA might be best served if it stayed out of this issue for a while.
FST: What are some reasons why the FDA might want to get involved in the cannabis industry?
Steve: Certainly if there were reports of injuries, but so far the marijuana products seem to be much less hazardous than other common recreational substances like beer and wine. But FDA also gets involved when there are outrageous claims that products cure diseases like cancer. I expect FDA will act against cannabis distributors who make those claims, even if they only distribute their marijuana within one state.
FST: What are some reasons why the FDA might want to let this social experiment run a little longer?
Steve: Thousands of people have gone to jail or otherwise had their life ruined because of small amounts of this product being used or being sold. If it turns out, as the data appears to show, that marijuana is not a ‘gateway drug’ to other drugs, and it’s use is fairly harmless, then FDA stepping in will probably just send most of the users and growers into the black market and then nothing will have been gained.
FST: What actions might you suggest the FDA take in the near future as more states continue to legalize marijuana?
Steve: Great question! FDA is excellent at monitoring data, along with the CDC. If FDA sees a real health hazard problem, it can convene a panel of experts to offer solutions. And then monitor the situation to see if growers and producers of marijuana edibles can adopt those solutions into their business practices.
Ahead of a number of state reforms and initiatives to legalize the recreational use and sale of the plant in 2016, The New York Timespublished an op-ed by The Editorial Board in favor of removing marijuana from the Controlled Substances Act. While Goldner, along with many others, believe that states are making great strides with regulatory measures, The New York Times believes “State legalization efforts are not uniformly well thought out, which is another reason for Congress and the president to act.”
With the 2016 elections fast approaching, we hope to see major changes coming soon in the federal government’s position on marijuana.
We want to hear your thoughts! Do you think the federal government should step up their involvement? What actions or inactions would you like to see the federal government take? Do you think the FDA should chime in? Post your questions or thoughts in the comments section below.
With cannabis-infused edibles gaining a bigger market share in 2014 (See the marijuana edibles regulatory update here), it comes as no surprise that cannabis-infused beverages are growing in popularity. Some of these beverage manufacturers operate in a very interesting legal environment because of the differentiation between compounds found in hemp and marijuana, two different varieties of cannabis.
“Under federal legislation, there is an exemption for hemp and as long as we process our CBD (Cannabidiol) molecules from the hemp plant, we are allowed to sell our products federally,” says Chris Bunka, CEO of Lexaria, a company that makes a hemp-infused tea.
Lexaria’s ViPova black tea infused with CBD oil made from industrial hemp
A number of scientific research studies have suggested that the compound CBD has medical properties that can help mitigate symptoms like inflammation, anxiety, chronic pain, and much more.
Because of the federal exemption for hemp, Lexaria can enjoy interstate commerce and other freedoms that manufacturers using marijuana flowers do not, such as access to banking services. Dried marijuana flowers contain the psychoactive compound, Tetrahydrocannabinol (THC). This compound is responsible for the regulatory and legal schism between the states that have legalized marijuana and the federal government, which still considers it to be a Schedule I narcotic.
Much unlike a number of marijuana edibles manufacturers operating in states where marijuana is currently legal, hemp-infused beverage manufacturers operate in full FDA compliance.
Michael Christopher, founder of Loft Tea, is working with a laboratory and bottler that are both 100% FDA compliant. “We definitely operate up to and abide by all FDA best practices with our laboratory and as far as producing and handling material we use best manufacturing practices and processes,” says Christopher.
“We have to partner with a bottler and laboratory who have the reputation to build trust with our brand as an industry leader in safety and quality,” says Christopher. “Until the FDA gives us complete guidelines on cannabis-infused products, we will continue to operate above and beyond best manufacturing practices with our infusions.”
Because these manufacturers view their hemp tea as a health and wellness product, it is only a matter of time before we see these types of products lining the shelves of health-food stores nationally. However, before this happens, an FDA regulatory framework specific to hemp-infused products is needed to address this growing industry.
“The hemp infusion industry has a lot of opportunity when presented in the right framework,” Christopher says. “There is still education needed in the marketplace to get it to the point where it will be on the shelves in stores like Whole Foods.”
Until that time comes, expect to see a steady growth of interest and inquiry from consumers, manufacturers, and regulators alike in the cannabis industry, whether federally legal or not.
A lot has changed since last year’s article, “Marijuana Edibles: A Regulatory Nightmare.” Marijuana has since catapulted into mainstream thinking via activism, state decriminalization, and medical reforms while investors and banks are beginning to trust the market more, further legitimizing the nascent industry. According to an article from the Washington Post, Colorado’s legal marijuana industry reached $700 million in 2014 and is expected to grow to $1 billion by 2016.
Innovators are beginning to analyze trends on a national level, looking toward federal rescheduling of the drug as a catalyst for more state reforms and wider legalization measures. Federal legalization is in the back of many minds, as the introduction of pivotal state and federal legislative reforms promises more access to banking services, medical research, and more state independence.
While a black market mentality remains prevalent, widespread state reforms, increased venture capital investment, and further legitimization of an industry with less barriers of entry have fostered a perceived reduction in risk. States like Oregon, Washington, and Colorado that have already legalized marijuana for recreational and medical sales are beginning to implement strict packaging rules, requirements for traceability, QA programs, testing and laboratory monitoring requirements, and other regulations that would suggest FDA oversight down the road.
Dried marijuana buds curing with RFID tags as part of the traceability system of BiotrackTHC
State regulatory bodies such as the Colorado Marijuana Enforcement Division (MED) have matured and expanded their oversight to include certifications and requirements for lab testing and analysis. Marijuana testing facilities can now be certified by the MED to test for residual solvents, poisons or toxins, harmful chemicals, dangerous molds, mildew or filth, harmful microbials such as E. coli or Salmonella, pesticides, and THC levels and Cannabinoid potency.
According to an article from theCannabist.com, edible marijuana took 45% of the market share in 2014 and continues to grow, proving that food manufacturers and processors will gain a bigger share of the market.
BioTrackTHC develops a seed-to-sale traceability system that is the state-mandated reporting system used by any business that touches the plant in compliance with Washington’s i502 regulations (The company also won the contract bid for New Mexico’s and New York’s state-run traceability systems). “From day one, all retail products under i502, including infused edibles, must have laboratory-submitted passing test results and data in the traceability system before it can be unlocked for shipment to retailers,” says Patrick Vo, CEO of BioTrackTHC.
RFID tags on drying marijuana flowers, from BioTrackTHC
Regulations, especially those addressing traceability, are crucial for advancing the industry and fighting the black market, performing recalls, and improving product quality and safety. Vo adds, “As more states adopt a centralized traceability system, food safety will improve as we see the industry grow.”
“Most of the marijuana edibles producers we advise are working comfortably within their state health department regulations versus a year ago when they were struggling to implement routine compliance,” says Stephen Goldner, CEO of Regulatory Affairs Associates. “But there is a long way to go to make this new marketplace meet the standards routinely met by US food producers in other markets such as nutritional supplements and medical foods.”
Many edible producers are sadly mistaken to ignore FDA labeling and production regulations just because the producer only ships within their own state, according to Goldner. “Whenever FDA has found label or food safety violations of products, whether they are food, drugs or any other product, it has always acted quickly to seize the product, inspect the producer and insist that violative labeling or production practices be remedied,” he says, adding that it won’t be surprising to see FDA start to “seize marijuana-infused food products that make drug claims, especially from the leading current producers” as a way for the agency to insert itself into the inspection and compliance process. “These companies need to have FDA food GMP’s solidly in place and properly documented,” says Goldner.
“Those who have experienced the most consistent and long term success in this industry are those who play above board, those who take the extra effort and make the investment in effort, time, and money to treat their business as if it was already federally legal and had to adhere to standards that other industries must follow,” says Vo. He agrees with the view held by many that long term planning is vital in this industry. “Those who have implemented best practices, QA programs, and traceability software will succeed in the long run, and the bad actors will eventually, by their own poor practices, be filtered out by regulatory and market forces.”
In the near future, the industry will look to other states in regulatory experiments on opposite sides of the spectrum. “New York, which legalized medical marijuana in 2014, is handing out 5 licenses to operate 4 dispensaries each, and allowing licensees to have a grow facility to supply their respective dispensaries. The Commissioner of the New York State Department of Health will have authority on licensing, testing, and medical requirements for patients seeking treatment with medical marijuana,” says R. David Marquez, who operates a Long Island law firm focusing on the cannabis industry.
New York is implementing very strict rules regarding cultivating and processing the plant. California, on the other side of the spectrum, already operates a somewhat loosely regulated medical marijuana market and has been doing so since 1996. The bill to legalize marijuana recreationally in the state is widely expected to pass vote and be implemented in 2016. This would open up an enormous market potential and contribute to the growth of the industry on a national level.
Because marijuana edibles are theoretically both a food and a drug, it is only appropriate that the FDA should look to regulate the industry in the future. In the meantime “Those who have invested the time and money in staying compliant now will be far ahead of the game tomorrow,” says Patrick Vo, who is looking toward federal legalization.
It seems that manufacturers and processors at the forefront of quality and safety testing will succeed in the long run.
Footnote: This is a regulatory update on the cannabis industry with an emphasis on edible marijuana. CannabisIndustryJournal.com, the newest publication, will be launched in September of this year. CannabisIndustryJournal.com will educate the marketplace covering news, technology, business trends, safety, quality, and the regulatory environment, aiding in the advancement of an informed and safe market for the global cannabis industry. Stay tuned for more!
With an estimated 8 million to 12 million servings of edible marijuana already sold in Colorado, there is cause for concern over food safety testing, and how manufacturers will tackle challenges like regulatory compliance and quality assurance.
When Colorado made history this year by legalizing recreational marijuana use, lawmakers were tasked with creating a regulatory framework for the production, sale, and use of the previously illegal substance. While Colorado has addressed issues such as taxation and cultivation of the plant, the state has struggled to provide clear guidelines for food safety, testing, and lab certification regarding marijuana edibles, causing difficulties for regulators and manufacturers alike.
Federally, USDA and FDA are reluctant to regulate the nascent industry because marijuana is still considered a Schedule I narcotic by the DEA. The Colorado Department of Public Health and Environment is unwilling to regulate marijuana edibles out of fear of jeopardizing their federal funding.
In lieu of the Department of Public Health and Environment’s oversight, the state allows the Marijuana Enforcement Division, under the Department of Revenue, to handle food safety and lab certification. It appears this regulatory agency may be in over its head as concerns grow over potency testing and labeling in the wake of two deaths allegedly involving the overconsumption of marijuana edibles. Adding insult to injury, the Denver Department of Environmental Health cited 58 violations at 24 edible marijuana establishments this past month.
Still, with an estimated 8 million to 12 million servings of edible marijuana already sold in Colorado, there is an immediate cause for concern in food safety testing. As the edible marijuana industry grows, so do worries over how manufacturers will tackle challenges like regulatory compliance and quality assurance.
Ben Pascal, Co-Founder and Chief Business Officer of Invisible Sentinel, feels that there is a lot more the government should be doing right now. “This is a growing trend that will continue in the United States; these products will continue to gain market share and there should be some sort of guidance on how and when to regulate the safety of these products,” explains Pascal.
Invisible Sentinel’s rapid molecular diagnostics product, Veriflow, can help address some the concerns around risk in conducting testing for marijuana edibles,” says Ben Pascal.
With a rapidly growing industry, more producers of pot edibles are finding it harder to meet regulatory compliance goals. “Larger accredited labs in the US find that there is risk in conducting testing for marijuana edibles,” says Pascal. He believes that Invisible Sentinel’s rapid molecular diagnostics product,Veriflow, can help solve some of these issues.
“We make molecular testing more accessible with low cost, ease of use, robust technology, and the ability to bring all of this testing in-house, helping to eliminate risk factors for clients,” describes Pascal. While Veriflow has the capability to alleviate some quality assurance worries, Pascal points to the lack of regulatory oversight as the main issue.
“If you are not going to be regulated by the federal government, holding you to a safety standard, then smaller groups will not make the proper investments to ensure the safety of their product,” Pascal explains. “It is not about cost, it is about the lack of education and knowledge surrounding the implications of food safety issues in this industry.”
After some of these smaller regulatory hurdles are cleared within the state, then we can start to look toward future food safety standards in the marijuana edibles industry on a national level. Colorado’s experiment in legalization foreshadows some of the issues we will face when marijuana is accepted at a federal level.
As this trend continues, we should act preemptively to alleviate regulatory headaches before they are exacerbated, Pascal adds. The nation’s agencies need to be ready to embrace the legalization of marijuana and related food products in order to prevent real safety issues from surfacing.
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