By Jill Ellsworth MS, RDN, Tess Eidem, Ph.D. No Comments
As an emerging field in cannabis, contaminant testing remains a gray area for many businesses. The vast differences in state-by-state regulations, along with the frequent changes of previously established rules make testing a difficult, time-consuming process. But at its core, the science and reasoning behind why we test cannabis is very clear – consumer safety and quality assurance are key factors in any legal, consumer market. The implications of federal legalization make cannabis testing even more important to the future of the cannabis supply chain. Understanding the types of contaminants, their sources and how to prevent them is essential to avoiding failures, recalls and risking consumer safety.
When talking about cannabis contaminant testing there are four groups of contaminants: pesticides, heavy metals, foreign materials and microbes. The microbes found on cannabis include plant pathogens, post-harvest spoiling microbes, allergens, toxin release and human pathogens. While all of these can be lurking on the surface of cannabis, the specific types that are tested for in each state vary widely. Understanding the full scope of contaminants and looking beyond state-specific compliance requirements, cultivators will be able to prevent these detrimental risks and prepare their business for the future.
Environmental controls are essential to monitor and regulate temperature and humidity
Beyond just the health of the plant, both medical patients and adult use consumers can be adversely affected by microbial contaminants. To immunocompromised patients, Aspergillus can be life-threatening and both adult use and medical consumers are susceptible to allergic reactions to moldy flower. But Aspergillus is just one of the many contaminants that are invisible to the human eye and can live on the plant’s surface. Several states have intensive testing regulations when it comes to the full breadth of possible harmful contaminants. Nevada, for example, has strict microbial testing requirements and, in addition to Aspergillus, the state tests for Salmonella, STEC, Enterobacteriaceae, coliforms and total yeast and mold. Over 15 states test for total yeast and mold and the thresholds vary from allowing less than 100,000 colony forming units to allowing less than 1,000 colony forming units. These microbes are not uncommon appearances on cannabis – in fact, they are ever-present – so understanding them as a whole, beyond regulatory standards is a certain way to future-proof a business. With such vast differences in accepted levels of contamination per state, the best preparation for the future and regulations coming down the pipeline is understanding contamination, addressing it at its source and harvesting disease-free cannabis.
The risk of contamination is present at every stage of the cultivation process and encompasses agricultural practices, manufacturing processes and their intersection. From cultivation to manufacturing, there are factors that can introduce contamination throughout the supply chain. A quality control infrastructure should be employed in a facility and checkpoints within the process to ensure aseptic operations.
Microbial monitoring methods can include frequent/consistent testing
Cultivators should test their raw materials, including growing substrates and nutrient water to ensure it is free of microbial contamination. Air quality plays an important role in the cultivation and post-harvest processes, especially with mold contamination. Environmental controls are essential to monitor and regulate temperature and humidity and ensure unwanted microbes cannot thrive and decrease the value of the product or make it unsafe for worker handling or consumers. Developing SOPs to validate contact surfaces are clean, using proper PPE and optimizing worker flow can all help to prevent cross-contamination and are part of larger quality assurance measures to prevent microbes from spreading across cultivars and harvests.
Methods of microbial examination include air quality surveillance, ATP surface and water monitoring, raw materials testing, and species identification. Keeping control of the environment that product is coming into contact with and employing best practices throughout will minimize the amount of contamination that is present before testing. The solution to avoiding worst case scenarios following an aseptic, quality controlled process is utilizing a safe, post-harvest kill-step, much like the methods used in the food and beverage industries with the oversight of the FDA.
The goal of the grower should be to grow clean and stay clean throughout the shelf life of the product. In order to do this, it is essential to understand the critical control points within the cultivation and post-harvest processes and implement proper kill-steps. However, if a product is heavily bio-burdened, there are methods to recover contaminated product including decontamination, remediation and destroying the product. These measures come with their own strengths and weaknesses and cannot replace the quality assurance programs developed by the manufacturer.
With more and more states fully legalizing cannabis for medical and adult use, regulation has become a hot topic for the industry – and it won’t be going away anytime soon. The markets for virtually all cannabis uses (with the exception of industrial hemp, under the Farm Bill) have manifested at the state level without the benefit of federal oversight. One of the biggest consequences of state-based programs has been striking inconsistencies in assuring public safety through the establishment of testing requirements and the licensing of third-party, independent testing laboratories. Establishing legal cannabis programs on a state-by-state basis has been from the ground up. While some states have done a better job than others, it has not been an easy process; one that typically involves adjusting to yearly legislative changes. Third-party independent cannabis testing labs seem like a logical arrangement for public safety and defensibility at the state level given the illegal federal status of cannabis, and while this arrangement has undoubtedly prevented tainted cannabis flower, extracts and products from ending up on dispensary shelves, many caveats from this arrangement have emerged, including fraud.
While most states do require ISO 17025:2017 accreditation, no uniform testing methods nor uniform contaminant testing requirements exist, and they vary considerably. We see this in several examples including the list of pesticides required for screening varying from none to over 66, screening for microbial contaminants varies from a simple presence/absence test for two human pathogens to quantitative enumeration across several enteric and fungal categories and, finally, some states adhere to the American Herbal Pharmacopeia heavy metal limits for herbs, while other states have adopted the more appropriate US Pharmacopeia inhalation limits. Some states require rigorous demonstration of method validation before licensing, while other states hand out preliminary licenses prior to submission and review of validation data packages for each analyte category.
Fraud in laboratory testing facilities is well known in the clinical setting, especially where lucrative Medicare or commercial insurance claims tempt less than honest laboratory managers to falsify results or add tests that were not ordered by a physician costing taxpayers billions of dollars annually. Fraud within cannabis testing labs is not instigated by large insurance payouts but rather by survival within individual markets where competition for clients can be fierce. Cannabis testing fraud ranges from outright collusion of testing labs with growers and producers demanding certificates of analysis (CoAs) with specific, inflated THC numbers to a testing lab handing out sweeping passing marks for contaminants in an attempt to keep clients or steal clients away from a reputable lab not willing to inflate cannabinoid values or pass on the presence of, say, chlorpyrifos, a highly toxic organophosphate pesticide, in extracts or lead in outdoor-grown hemp.
Cannabis testing labs have had little power to influence state legislators or regulators to improve industry oversight and combat fraud. From the outset of a state cannabis program, the growers and producers are placed in the driver seat. They generate the products that end up in dispensaries and generate sales that create the tax revenue that propels the industry forward. A consequence of this hierarchical arrangement has let the growers decide that the concentration of THC equates with value. This translates to the higher the THC concentration, the higher the price both wholesale and retail. Sadly, this also has been taken to mean better products yet with zero medical justification since we know virtually nothing about THC dosing, save for how our endocannabinoid system functions, which is at the nanomolar range. Now the entire cannabis industry is stuck with this unsubstantiated marketing ploy around THC that no one can now seem to escape. It is as if cigarette makers had decided early on to market their brands by how much nicotine each cigarette contained. You can see how this would have quickly led to toxic levels of nicotine.
Where do we go from here? Placing THC content as the primary valuation of cannabis is not an easy problem to solve, as there is little incentive for change. Fraudulent labs provide higher THC numbers, which increases dollars to the growers/producers and state tax coffers fill up. It’s a multi-point problem that will require a multi-point solution:
State regulators could move the focus away from THC by placing limits on the concentration of THC in products, increasing oversight of cannabis testing labs, and requiring unscheduled round-robin testing and annual review of validation data packages.
Growers and producers could place a higher emphasis on public safety and education.
Ultimately, the solution lies with the cannabis consumer through education and awareness. Cannabis end-users need to familiarize themselves with the testing regulations in their state and understand that higher THC numbers does not mean a better or more effective product. Cannabis consumers also need to understand the product on the market may or may not be tested for microbiological contaminants protecting them from pathogens. In many instances, they are paying for higher THC numbers that are not reflected in the product they just purchased.
Until cannabis is federally legalized and therefore given federal oversight, piecemeal, state-by-state regulation is going to continue. How that regulation protects the American consumer is up to the work of the industry and what we continue to prioritize.
Progress and history are being made in New York for adult use cannabis. Recently, Governor Hochul signed an amendment to New York State Cannabis Law which permits the Office of Cannabis Management (OCM) to award conditional licenses to certain adult use cultivators and processors, allowing hemp farmers in New York to grow cannabis in the 2022 growing season. And now, the application period to obtain a conditional license is officially open and available for qualified candidates. New York is moving full speed ahead in the hopes of creating one of the most inclusive adult-use cannabis industries in the nation.
What Does a Conditional License Mean?
With this legislation, New York State is creating a new conditional adult use cannabis cultivator license, allowing hemp farmers to grow cannabis in the 2022 growing season – helping to fast-track the state’s adult-use cannabis program. Under the law, conditionally licensed cannabis farmers must meet certain requirements, including safe, sustainable and environmentally friendly cultivation practices.
Highlights of the Bill & Legislation
Industrial Hemp First
To qualify for an adult use cannabis conditional cultivator license, only companies and individuals currently licensed with the state for cultivation or processing of industrial hemp can apply for the conditional licenses. Applicants must have been an authorized industrial hemp research partner for the Department of Agriculture and Markets, and industrial hemp cultivators must have grown and harvested the crop during at least two of the past four years.
Growing Locations
Licensed cultivators will be authorized to grow indoors, outdoors, or a combination of both, subject to space and lighting limitations in the law. With a conditional adult use cannabis cultivation license, farmers can grow outdoors or in a greenhouse for up to two years from the issuance of the license. It also allows them to manufacture and distribute cannabis flower products without holding an adult use processor or distributor license, until June 1, 2023.
Expanding Abilities with License
Conditional licensees will have temporary authority to conduct additional activities not included in their license. Cultivators are allowed to both minimally process and distribute flower, and processors can distribute their products.
Requirements of Conditional License
Hemp farmers in New York could be licensed to grow cannabis for the 2022 growing season.
As listed in the bill, conditional licensees must abide by all regulations, including those issued after receipt of the license. Applicants must also participate in a soon to-be-developed mentoring program for individuals interested in joining the industry through the social equity component of the Marijuana Regulation & Taxation Act, as well as actively participate in an environmental sustainability program. And lastly, applicants must begin operations within six months of receiving their license, and grant OCM employees’ access to the premises for inspections to ensure all rules are being followed.
Future Outlook on Cannabis Industry in New York
With the opening of the application portal for conditional licenses, this advances the Governor’s first-in-the-nation Seeding Opportunity Initiative, which positions individuals with prior cannabis-related criminal offenses to make the first adult use cannabis sales with products grown by New York hemp farmers. While this news is a positive step, there remain many unknowns about how the conditional licensing process will unfold. Applications can be filed with the OCM for Conditional Cultivator Licenses through June 30, 2022, with a $2,000 non-refundable application and licensing fee. For hopeful applicants, gathering a team of professional advisors to plan for the application process and operating an adult-use business is essential. Consulting with an accounting team or financial advisors from a tax standpoint, will be critical to establish systems and controls to maintain separate accounting records for your industrial hemp and adult use activities.
According to a press release published last week, Cresco Labs has come to an agreement with Columbia Care Inc. to acquire the company. The $2 billion deal, expected to close in the fourth quarter of 2022, will create the largest multi-state operator (MSO) in the country by pro-forma revenue.
Cresco Labs is already one of the country’s largest MSOs with roots in Illinois. With a footprint covering a lot of the United States, their brands include Cresco, High Supply, Mindy’s Edibles, Good News, Remedi, Wonder Wellness Co. and FloraCal Farms.
Columbia Care is also one of the largest cannabis companies in the US, with licenses in 18 jurisdictions and the EU. They currently operate 99 dispensaries and 32 cultivation and manufacturing facilities. Their brands include Seed & Strain, Triple Seven, gLeaf, Classix, Press, Amber and Platinum Label CBD.
Under the agreement, shareholders with Columbia Care will receive 0.5579 of subordinate voting share in Cresco for each common share they hold. Columbia Care shareholders will hold approximately 35% of the pro forma Cresco Labs Shares once the deal goes into effect.
Coming out of the deal, Cresco’s total revenue will hit $1.4 billion, making it the largest MSO in the country. Their footprint will reach 130 retail dispensaries across 18 different markets. The companies already have the largest market share in Illinois, Pennsylvania, Colorado and Virginia and are of the top three market shares in New York, New Jersey and Florida, which gives them unique opportunities to capitalize on emerging adult use markets.
Charles Bachtell, CEO of Cresco Labs, says the deal is very complementary and they are excited about long-term growth and diversification. “This acquisition brings together two of the leading operators in the industry, pairing a leading footprint with proven operational, brand and competitive excellence,” says Bachtell. “The combination of Cresco Labs and Columbia Care accelerates our journey to become the leader in cannabis in a way no other potential transaction could. We look forward to welcoming the incredible Columbia Care team to the Cresco Labs family. I couldn’t be more excited about this enhanced platform and how it furthers the Cresco Labs Vision – to be the most important and impactful company in cannabis.”
On-demand cannabis delivery services are a rapidly growing part of the industry. Having a delivery option available for your dispensary’s patient population is a critical component of your service offering. This is especially true when considering medical cannabis patients who might have conditions that hinder their mobility or patients who just prefer the anonymity or convenience of delivery rather than visiting a dispensary.
So I ask you – why don’t you have a delivery service option available for your dispensary?
While there are several models for cannabis delivery, depending on the state you live in, the biggest challenge dispensary owners face is ensuring that their delivery service continues to meet all compliance standards.
Beware, one misstep in your delivery process could mean serious implications for your dispensary and you – including being shut down.
Keep reading to learn how you can provide your customers and patients with a delivery service while remaining compliant with your state’s rules and regulations.
How to Keep Your Cannabis Delivery Service Compliant
Part of keeping your cannabis delivery service compliant is understanding how to start a delivery service from the ground up. Keep in mind that the costs will vary depending on how you structure your company. Things to think about – insurance, technology, merchant processing, driver recruiting and whether or not your drivers will be independent contractors or employees.
Some states require a retailer’s license while others require a specific deliver license
Additionally, you will have to consider the regulations that are standard in your state.
For instance, if you don’t do your research, you won’t know whether or not you need two drivers in the car, whether or not you need a lockbox, or if you’re required to have handhelds for payment. Other requirements will depend on the state in which you live.
Here are the most important things you’ll need to do to get started:
Do Your Homework
The first thing you need to do to ensure that your service is compliant is research your state’s delivery protocol. That means obtaining the proper licensing or certifications necessary to move cannabis products from one place to another.
It should be noted that in some states, like Washington, cannabis delivery providers must also obtain a retailer’s license. You’ll also need to determine whether your state allows delivery for only medical cannabis or both medical and recreational.
Please keep in mind the following – cannabis is not federally recognized as legal. Therefore, the only deliveries you can make are intrastate deliveries.
In some states you’re required to have handhelds for payment.
Lastly, you’ll need to pay close attention to how you can advertise your cannabis delivery service. The guidelines vary from state to state, and they typically include regulations for content, imaging and location.
Is Owning a Delivery Service Right for You?
Delivery, in general, is not easy. The delivery business is difficult to integrate into the highly regulated cannabis market; it becomes extraordinarily difficult to manage.
It’s great to have a delivery service, but are you a good salesperson? Do you understand marketing, positioning and messaging? Have you ever written SOPs or standard operating procedures? There are so many questions to ask yourself when you want to own a business.
Consider Working With Logistics Experts
While it may be tempting to create an in-house delivery service all on your own, think twice.
It’s best to partner with a third-party logistics partner, like Scarlet Express. These partners are experts in cannabis delivery services and will arm you with everything you need to be successful.
Most cannabis logistics companies can also scale right along with your business, so you don’t have to worry about “outgrowing” their services.
As a new or small dispensary owner, taking on the challenges of cannabis delivery can be incredibly difficult but not impossible when you work with a company that has tried and true systems in place. Lots of things to consider, seek out experts – like Scarlet Express.
The agenda features breakout sessions, keynotes and panel discussions that will help attendees better understand the cannabis markets in the region and provide insights on best practices and business strategies. The conference will begin with a keynote presentation, then a panel on The Future of East Coast Cannabis: Social Equity, Justice & Legalization. Following that will be a panel on The Standardization State of the Union: Science-Based Resources for Driving Cannabis Safety with an overview of the New Jersey cannabis marketplace to end the first day.
The second day will kick off with a Keynote titled Centering Equity in Cannabis Policy, Quality & Business with Toi Hutchinson, President & CEO at Marijuana Policy Project. Other agenda highlights include:
The State of the State: An Update on New Jersey Legalization by Steven M. Schain, Esquire, Attorney at Smart-Counsel, LLC
Tri-State Cannabis: Pro Tips for Winning Applications by Sumer Thomas, Director of Regulatory Affairs and Russ Hudson, Project Manager at Canna Advisors
Navigating Cannabis Testing Regulations for Multi-State Operations by Michael Kahn, President & Founder of MCR Labs
Keynote by Edmund DeVeaux, President of the New Jersey Cannabusiness Association
A Guide to Infusion Technology | Design Experiences that Inspire and Innovate with Cannabis Ingredients by Austin Stevenson, Chief Innovation Officer at Vertosa
Valuable Analysis Ahead of Asset Acquisition by Matthew Anderson, CEO of Vanguard Scientific
Registration options are available for in-person, virtual and hybrid attendance.
Cannabis industry professionals also interested in the food industry can attend the Food Safety Consortium, which begins on Wednesday, October 19 – Friday, October 21. The program features panel discussions and breakout sessions that encourage dialogue among mid-to-senior-level food safety professionals. The Food Safety Consortium kicks off with an FDA Keynote and Town Hall, followed by a panel on the State of the Food Safety Industry and where it is going, led by Darin Detwiler of Northeastern University.
About Cannabis Industry Journal
Cannabis Industry Journal is a digital media community for cannabis industry professionals. We inform, educate and connect cannabis growers, extractors, processors, infused products manufacturers, dispensaries, laboratories, suppliers, vendors and regulators with original, in-depth features and reports, curated industry news and user-contributed content, and live and virtual events that offer knowledge, perspectives, strategies and resources to facilitate an informed, legalized and safe cannabis marketplace.
About the Cannabis Quality Conference & Expo
The Cannabis Quality Conference & Expo is an educational and networking event for the cannabis industry that has cannabis safety, quality and regulatory compliance as the foundation of the educational content of the program. With a unique focus on science, technology, safety and compliance, the “CQC” enables attendees to engage in conversations that are critical for advancing careers and organizations alike. Delegates visit with exhibitors to learn about cutting-edge solutions, explore three high-level educational tracks for learning valuable industry trends, and network with industry executives to find solutions to improve quality, efficiency and cost effectiveness in the evolving cannabis industry.
By Abraham Finberg, Simon Menkes, Rachel Wright 1 Comment
New York is embarking on a great social undertaking. In awarding its adult-use cannabis licenses, under the plan laid out by Gov. Kathy Hochul on March 10, the state is attempting to right generations of wrongs caused by the war on cannabis. The wrongs are numerous and include mass incarceration and complex generational trauma, prevention of access to housing and employment and the forming of an illicit market – all of which have had a disproportionate impact on African-American and Latinx communities.1
In addition to generating significant revenue for the state, New York hopes to make substantial investments in the communities and people most affected by cannabis criminalization and address the collateral consequences of that criminalization, reduce the illicit market for cannabis and illegal drugs, end the racially disparate impact of existing cannabis laws and strengthen New York’s agriculture sector.2
50% of All Licenses Will Be Social Equity
To accomplish these lofty aims, the state’s goal is to award 50% of adult-use cannabis licenses to social and economic equity applicants – and these licenses will be the first issued.3,4 The state’s entire focus is on this social equity licensing program; issues regarding non-social equity licenses are not being addressed at this time.
No one knows yet how many licenses will be issued. There are currently only 38 medical licenses in the state, although everyone expects the number of adult-use licenses to be significantly higher. (These medical licenses serve around 140,000 patients with sales in 2021 of around $300 million.)
The First 100 to 200 Licenses
Chris Alexander, executive director of the state’s Office of Cannabis Management, says he expected between 100 and 200 licenses to go first to people who were convicted of a cannabis-related offense before the drug was legalized, or those who have “a parent, guardian, child, spouse, or dependent” with a cannabis conviction. Alexander also said his office would evaluate applicants on their business plans and experience in retail.5
What’s the Timeline?
In a recent Q&A interview, Tremaine Wright, chair of New York’s newly-formed Cannabis Control Board (CCB), which will be overseeing the licensing process, stated: “We are setting up a system soup-to-nuts … [final] regulations for the state’s marijuana startups will be issued by the Cannabis Control Board this winter [2022] or early spring [2023] … recreational dispensaries should be licensed to operate by summer 2023.”6
Whom Is New York Looking For?
New York has defined social equity applicants as being:
Individuals from communities disproportionately impacted by the enforcement of cannabis prohibition
Minority-owned businesses
Women-owned businesses
Minority and women-owned businesses
Distressed farmers
Service-disabled veterans.7
Extra priority will be given to an applicant who:
Is a member of a community disproportionately impacted by the enforcement of cannabis prohibition
Has an income lower than 80% of the median income of the county in which the applicant resides
Was either: (a) convicted of a cannabis-related offense prior to the effective date of the N.Y. Cannabis Law; (b) or had a parent, guardian, child, spouse or dependent; or was a dependent of an individual who was convicted of a cannabis-related offence prior to the effective date of the N.Y. Cannabis Law.8
Social Equity Licenses Come With Strings Attached
Social equity licenses cannot be transferred or sold within the first three years of issue. An exception will be made if the license is transferred or sold to another qualified social and economic equity applicant, but this must first be approved in writing by the CCB.9
Types of Licenses
While most people appear to be interested in a cannabis dispensary or lounge license, there will be nine types of licenses available: cultivator, nursery, processor, distributor, retail-dispensary, delivery, on-site consumption, adult-use cooperative and microbusiness.
“I don’t hear many people [talking about] processing and manufacturing,” says CCB chair Wright. She noted that processor licenses cover the production of edibles like candy and baked goods, which create a good opportunity to establish a brand.10
CCB Priorities
Wright also noted delivery companies would likely be capped at 25 employees in order to prevent behemoths like Uber from entering the market. “We’re trying to focus on not creating a space where monopolies can take over and kill all our small businesses,” Wright says.11
License Application Costs
The cost for an adult-use cannabis license in New York is still unknown, so the experts are looking at the cost for a medical cannabis license as the baseline, with a greater cost likely for adult-use. Each applicant was required to submit two fees with its medicinal application: a non-refundable application fee in the amount of $10,000 and a registration fee in the amount of $200,000. The $200,000 registration fee was refunded to the applicant only if the applicant was not issued a registration.12
The Marijuana Regulation and Taxation Act (MRTA) states, however, that fees may be waived for social equity applicants.13
Funding Assistance for License Applicants
Because of the requirement that each applicant be from one or more of the social equity classes, it is quite likely many of the applicants will lack the necessary funding to open a cannabis business currently.
New York Governor Kathy Hochul
On January 5, 2022, Gov. Hochul pledged to commit $200 million to support social equity applicants in building adult-use cannabis businesses. New York’s Office of Cannabis management expects that around $50 million of the fund will be raised from registered organizations licensed to operate medical cannabis businesses in NY and that $150 million will be raised from private investors.14
Wright commented, however, that those loans aren’t guaranteed to be available for the first round of licensing because the money to fund them will largely come from tax revenue generated by the industry. “[The Office of Cannabis Management] is not going to be able to right all the wrongs of the financial services industry,” she added.15
This lack of capital will offer opportunities to those who might want to invest with a social equity license applicant.
Requirements for Those Who Invest With Social Equity Applicants
Any person or entity investing with a social equity applicant must keep in mind the State’s following requirements:
Any entity applying for a New York cannabis license will need to be owned at least 51% by a social equity class applicant.
That ownership must be “real, substantial, and continuing.”
The social equity applicant must have and exercise the authority to control independently the day-to-day business decisions of the enterprise.
The individual or entity seeking the license must be authorized to do business in the state and be independently owned and operated.
The individual or entity must be a small business.16
Business Experience & Labor Union Representation Needed
The state is also looking for applicants with previous successful business experience and competency, and preference will be given to those who can demonstrate such experience.17
Additionally, the state would like to see that the applicant “has entered into [an] … agreement with a bona-fide labor organization that is actively engaged in representing or attempting to represent the applicant’s employees, and the maintenance of such [an] agreement shall be an ongoing material condition of licensure.18
New York’s Careful Approach
New York has moved slowly and thoughtfully in getting into the recreational cannabis market. Its leaders have studied the experiences of other states, noting complications and pitfalls that have arisen in such states as California, where small cannabis operators have been squeezed out and a large illicit market has grown to dwarf the tax-paying legal sector.
By opening up New York’s initial adult-use licenses to small, social equity applicants and requiring they have solid business experience, New York is hoping to give awardees a foothold in the cannabis market, enabling them to flourish and build strong roots before the onslaught of sophisticated, multi-state cannabis operators enter the fray.
Additional Keys to a Successful Application
New York City Image: Rodrigo Paredes, Flickr
Beyond fulfilling the ingredients of the social equity applicant “recipe” outlined above, the key to a successful application will come down to the perception it gives the Cannabis Control Board of the applicant’s commitment to the state’s mission. In other words, how committed is the applicant to using his or her license and business to attempt to right some of the social wrongs perpetrated by the state and federal war on cannabis?
In addition to having an owner-applicant from a social equity class, the MRTA gives other clues of steps applicants can take (and discuss in their application) which could put them ahead of the competition in obtaining licensure.
The MRTA suggests the applicant demonstrate that they will “contribute to communities and people disproportionately harmed by enforcement of cannabis laws … and report these contributions to the board.”19
The MRTA asks each applicant to submit documentation of the racial, ethnic and gender diversity of the applicant’s employees and owners. In addition, the MRTA suggests each applicant consult with the CCB’s Chief Equity Officer and Executive Director “to create a social responsibility framework agreement that fosters racial, ethnic, and gender diversity in their workplace.”20
New York is serious about its mission to use the legalization of cannabis to right some of the social wrongs of the past. An applicant’s dedication to this mission, as evidenced by a well-crafted application that emphasizes these values, may be the deciding factor on whether that applicant is rewarded with one of the state’s “Golden Tickets”. With a population of 20.2 million citizens, New York will be the second largest adult use cannabis marketplace behind California. Initial access to such a valuable and important market is worth the commitment of resources to creating not only a well-crafted application, but a well-crafted management team and business as well.
References
New York Consolidated Laws, N.Y. Cannabis Law § 2, added by New York Laws 2021, ch. 92, Sec. 2 (eff. 3/31/2021) [hereinafter, N.Y. Cannabis Law].
A new ASTM International standard seeks to create an internationally recognized symbol that indicates a product contains intoxicating cannabinoids. The cannabis technical committee at ASTM, D37, developed the standard for the International Intoxicating Cannabinoid Product Symbol (IICPS).
The International Intoxicating Cannabinoid Product Symbol (IICPS)
The standard is labeled D8441/D8441M and is supposed to be used with all finished consumer use products, including topical use, ingestion and inhalation. ASTM International members David L. Nathan, M.D. and Eli Nathan designed the symbol with a group of volunteers from the D37 led by Martha Bajec, PhD of HCD Research. The symbol was concurrently developed by Doctors for Cannabis Regulation (DFCR) and Subcommittee D37.04 on Cannabis Processing and Handling. The symbol is designed “to create a truly universal cannabinoid product symbol, mindful of its importance as a means to communicating to adults and children the need for caution with products containing cannabinoids,” says Dr. Nathan. “The symbol has the potential to facilitate a spirit of collaboration among experts, regulators, and all other stakeholders in the cannabis industry.”
Darwin Millard, subcommittee vicechair for ASTM D37.04 and subcommittee co-chair for ASTM D37.07, says this is perhaps one of the most important standards to come out of the committee. “It serves to establish a harmonized warning symbol that is truly international,” says Millard. “It is not intended to replace symbols that have already been established, rather it is intended to be used by marketplaces that have yet to establish a symbol.” As more and more marketplaces adopt the symbol, the hope is that markets with their own symbol will harmonize with the ASTM symbol over time.
Millard says the symbol uses the ISO standard warning triangle, the ANSI standard warning orange/yellow and defines a standardized icon for cannabinoids, the leaf. “There are a number of cannabinoids that are intoxicating, not just delta-9-THC, therefore the symbol is designed to be used to identify any cannabinoid that can be classified as intoxicating,” says Millard. “The symbol doesn’t care if the cannabinoid is naturally derived, isolated and purified, synthesized by yeast or created in a lab; if it is ‘intoxicating’ and a ‘cannabinoid’ the symbol can be used to identify a consumer product containing it. ‘Intoxicating’ was used over ‘inebriating’ or ‘psychoactive’ since neither term is correct. Impairing was recently used by Washington State and might be worth considering down the road.”
The IICPS became the official symbol for the state of Montana as of January 1st. New Jersey and Vermont have also incorporated the IICPS design into their state symbols, already making it the most widely adopted cannabis product symbol in fully legalized states. Alaska and other states are currently discussing use of the symbol as well.
If you are interested in contributing to the development of this and other D37 standards, you are encouraged to join the committee. In addition, they will be hosting a free webinar on June 1 to discuss the development of the international symbol, how to use it and how the marketplace and consumers will benefit from it.
Cannabis continues to be a hot sector across the United States; buoyed by its ‘Essential Business’ status during the pandemic, a surge of plant touching and ancillary service providers have set up shop in the past 12 months to capture a share of this burgeoning growth. The cannabis industry is currently the leading job creator in the country, employing almost 430,000 workers according to a recent report from Leafly. Estimates on the overall size of the industry vary depending on the source, but projections of over $100bn in value by 2030 are not uncommon, while M&A activity continues to gather pace after a downturn in 2019. Clearly, investors and the public are bullish on the industry as a segment, with further state legislation to expand the number of adult use and medical markets to come. So why is the directors & officers (D&O) and management liability insurance market not embracing this growth industry?
At its core, a good D&O policy will protect the individual directors, officers and executive teams of companies, including their personal assets, in the event of suits and allegations filed based on their running and oversight of their business. For private companies, this also extends to balance sheet protection and coverage for the entity; for public companies, coverage for securities suits and claims.
The cannabis industry, despite the macro factors propelling its growth, faces numerous challenges when trying to procure D&O insurance. Very few D&O and management liability carriers are willing to entertain cannabis and related risks; even fewer are specialty underwriters willing to provide meaningful, expert coverage which truly addresses the exposures faced by executives and operators in the cannabis industry.
Cannabis D&O premiums can cause sticker shock, typically priced 4 to 10 times higher than non-cannabis businesses. Some operators have an air of invincibility and forego the purchase, believing it is not worth the cost. Meanwhile, the ability to attract and retain talented executives and directors away from other industries typically depends on having this coverage purchased and in place. Yet the outlay can be a burden in an industry which already faces fierce competition for market share, and a disparate tax treatment at a state and federal level.“The value of a D&O policy cannot be overstated.”
Even those carriers and underwriters who do entertain cannabis risks are constantly evaluating the nuances of the space: an ever changing complex state regulatory environment; the relative immaturity of the industry and the hyper-focus on growth; the lack of standardized valuation and accounting; the lack of access to institutional financing; the continued uncertainty of insolvency or restructuring in lieu of federal bankruptcy protections for plant touching companies; the operating inefficiencies for MSOs across state lines and the lack of interstate commerce; in short, the cannabis industry certainly poses its own unique and evolving risks for D&O insurers.
Ultimately the market will continue to evolve for cannabis insureds, as the data matures and the regulatory landscape become clearer. The value of a D&O policy cannot be overstated. Most public companies purchase D&O as a matter of course, but even for private cannabis companies, the right coverage is invaluable. Not having the protection afforded by a D&O policy can be ruinous for a cannabis operator, particularly in a niche area where defending claims and circumstances is complex, time consuming and ultimately expensive – typically much more so than the upfront cost of the D&O policy.
Partnering with the right broker who specializes in both management liability and cannabis is step one to getting the best value coverage. Step two is securing a policy from a dedicated market with underwriters who truly understand the cannabis space and tailor coverage to protect the executives, boards and companies that are driving this exciting growth industry.
By Michael Bronstein, Seth A. Goldberg No Comments
Even if you don’t know much about cannabis pop culture, people are probably familiar with the phrase, “puff, puff, pass.”’But what if the future of cannabis is really more like “sip, sip, sip“? That’s what has everyone from the largest cannabis companies to the most mainstream beverage companies buzzing.
Soft drinks, beer, juice, tea, coffee and bottled waters are major categories of the beverage industry, valued at approximately $1.5 trillion globally and $150 billion in the U.S. It’s no secret beverage companies have long eyed the next big growth opportunity in the cannabis market. Beverage makers, large and small, are now experimenting ‒ some even bringing to market ‒ cannabis-infused drinks in each of these categories.
Pepsi Co. created a hemp-infused energy drink; Canopy Growth introduced a top selling CBD drink, Quatreau, and the company is backed by beverage industry leader Constellation Brands. Meanwhile, Molson Coors revealed a cannabis-infused beverage line with Truss, and Boston Beer developed cannabis-infused beverages in Canada. Jones Soda recently announced its launch of a line of cannabis-infused sodas under the name Mary Jones. These are just a few of the major beverage industry names adding cannabis drinks to their product lines.
That’s not to mention the established cannabis beverage brands and market leaders such as BellRock Brands, Keef, Evergreen Herbal, CannaCraft and CANN, or infusion technologies companies like Vertosa and mainstream beverage packagers such as Zukerman Honickman.
Quatreau CBD infused sparkling water
When will you be able to go to a bar, restaurant, concert venue or lounge and drink your cannabis? Maybe sooner than you think.
Right now, several states are formulating plans to launch adult-use markets, with New York and New Jersey figuring prominently. And with more mature state markets contemplating venues such as lounges, many are pushing for expanded access to beverages. Internationally, Canadian regulators have taken notice of the segment and recently issued regulations on cannabis beverages.
It’s the mainstreaming of cannabis.
Companies are betting big that consumers who choose not to consume cannabis because of perceived social stigmas or fear of getting “too high” from highly concentrated THC products, or who simply don’t want to smoke or vape a product, can find an alternative in cannabis beverages. Cannabis beverages offer consumers an option to microdose and are often more socially acceptable and user-friendly ways to consume cannabis.
It makes sense given larger trends. Consumers who are health-conscious are less likely to smoke anything, let alone cannabis, and are looking for alternatives in their lifestyle choices ‒ and for a relatable product experience that doesn’t ruin the next day.
Think of it this way: Cannabis beverages are to high-THC cannabis products such as vapes, butter and shatter what beer and wine are to high-proof alcohol products such as tequila, vodka and gin. Consequently, just as the lower alcohol content of beer and wine makes those drinks more appealing to more people for more situations, cannabis drinks can reach a larger consumer base than traditional cannabis products.
However, for cannabis beverages to meet their growth potential, a number of things need to happen according to industry experts.
The Veryvell beverage product line
First is the harmonization of state requirements on labeling, testing and packaging and the regulatory acceptance of beverages as a form factor play a role. If regulations are not harmonized, it will impact the cannabis beverage companies’ ability to scale. Second, cannabis beverages need their own separate regulations. Too often, cannabis beverages are shoe-horned into edibles when they are different and distinct product offerings. Third, opportunities for on-site consumption are critical to mainstreaming cannabis beverages.
And, cannabis is still federally illegal. Therefore, many beverage giants are approaching and entering the industry cautiously. Alcohol companies have largely been quicker to jump into the fray than traditional, nonalcoholic beverage brands. It is illegal to combine alcohol and cannabis in the United States, however, so the cannabis-infused market consists of water-based drinks.
Due to national prohibition, beverage companies bringing cannabis into their portfolio are largely operating under state-by-state laws and a varied regulatory environment – catering to states with adult-use cannabis programs. This patchwork of regulation impacts business operations from advertising and marketing to packaging, labeling and even dosing instructions. For most companies, the cost of doing business increases in this operating environment as laws vary across state lines.
happie cannabis infused beverages
When federal prohibition ends, a policy priority for the industry and regulators will be to reconcile the regulatory environments and state-by-state differences. We’re also likely to see the industry come together and advocate for responsible consumption, standard policies and best practices. Expect massive public service campaigns and industry and trade groups coming together to educate the public and policymakers on smart, responsible use of infused cannabis beverages.
Today’s federal cannabis prohibition is also why some manufacturers are embracing CBD-only drinks. Sales of CBD drinks (federally legal as they are derived from hemp versus the psychoactive component of THC) are expected to hit $2.5 billion and are available in places where cannabis is not legal yet.
Meanwhile, THC-infused beverages will account for $1 billion in U.S. sales by 2025, according to Brightfield Group. While not a huge part of the pie in relation to the $24 billion cannabis industry, cannabis infused beverages are one of the fastest growing segments.
So don’t be surprised if sometime soon you see a cannabis drink for sale. Companies are betting big and it might just be time to imbibe.
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