Tag Archives: market

July 28, 2022

An Interview with Würk CEO & Chairman, Scott Kenyon

By Aaron Green

The cannabis industry operates in a legal gray area between federal restrictions and state legalization in a constantly changing regulatory environment. Maintaining payroll and HR compliance is a burden cannabis companies face that grows exponentially with geographic expansion of the workforce.

Würk allows cannabis companies to manage payroll, human resources, timekeeping, scheduling and tax compliance, minimizing compliance risks in the ever-changing cannabis regulatory environment. The company uses its expertise and trusted partnerships to provide guidance on 280E tax law, accounting and banking. Its platform is designed to scale nationally with the growth of the industry while incorporating the local laws and regulations unique to individual states. Their clients include Cresco Labs, Canndescent and NUG.

We caught up with Scott Kenyon to ask about Würk’s approach to human capital management, challenges facing cannabis businesses and industry trends. Scott sat on the Board of Würk before becoming its CEO and chairman. Prior to Würk, Scott held leadership roles at Dell and Phunware.

Aaron Green: How did you get involved in the cannabis industry?

Scott Kenyon: My wife and I were early investors in a few companies in Colorado and Nevada. From early on (this was back in 2015) we learned the hard way of cannabis and how difficult it is to run these businesses, especially in those early days. We’ve progressed a ton over the years, but it’s still very difficult to run cannabis businesses.

I joined Würk about five years ago as a board member. I came on as CEO at the beginning of 2021 after our founder and previous CEO Keegan Peterson, who was an early trailblazer in the industry, passed away. So, I’ve been CEO at Würk for about 18 months.

Green: Tell me about Würk and the main problems you’re trying to solve.

Kenyon: Early on we were focused on establishing getting out of the cash business for these cannabis companies. Allowing them to pay payroll, taxes and be tax compliant electronically was a huge early advantage for us as a company. Now, fast forward seven years later and a lot of different banks (credit unions) are in the industry and that is allowing people to move money. So, that’s not as big of an advantage for us anymore, but early on that was huge.

Our advantage now is the scars on our back, for lack of a better phrase, from what we’ve gone through over the last seven years. We anticipate. We prevent. And most importantly we’ve seen all those problems for our customers. Last year, a big thing of mine was being “Smokey the Bear.” We want everybody to be Smokey the Bear: prevent fires and prevent issues for our customers. When I came in, we were the world’s best firefighters. I didn’t want that title. I wanted to prevent issues for our customers. That takes you from being a vendor to a partner.

If you look at it, on our platform we have 80% of the enterprise cannabis market, about 60% of the mid-market and then low single digits in the small business space. We have that market share because we provide invaluable experience and guidance to our customers. The biggest MSOs have different challenges from a “Joseph and Scott” dispensary, or a “Mary and Jane” grow facility. We’re able to adapt to all those different segments.

At the core of our product, we offer payroll services and what we call HCM – human capital management. That’s everything from scheduling, applicant tracking systems processing and paying your payroll taxes. So, we have the full gamut of product offerings that any type of HCM or HRIS software system does, whether you’re outside of cannabis or inside of cannabis, we’re offering the same thing.

Green: How does Würk differ from say a Professional Employer Organization (PEO)?

Kenyon: We aren’t a PEO. We don’t manage employees. At a high-level, a PEO is basically managing HR for these companies. Our platform enables HR professionals to go out there and do that. PEOs are more popular down in the small business space, because people are not at the scale to hire an HR team. We’re similar in that we’re processing payroll and have all the software that these companies need, but we’re different in that we’re not running their HR for them.

Green: How do you work benefits into the mix?

Kenyon: We leave it to the client, and we integrate their benefits provider into our platform so it’s an easy one-stop shop. We have single sign-on for a lot of our integrations. For the HR organizations, we want them to log into our platform and everything they need will be there.

Green: How is SAFE banking going to affect the HR industry in cannabis?

Kenyon: It’s going to be great for the industry, obviously. For HR specifically, it’s going to bring in more providers of payroll and more competitors for us for sure. But also it’s going to bring in more providers of services that can come in and offer that right now because of the federal illegalization.

Green: How does 280E affect your business and your customers?

Kenyon: We don’t guide people around 280E because that’s a tax specific matter. We refer them to their tax experts. We process payroll tax, which is different than what 280E affects. I think 280E was a big challenge, it’s still a big challenge, but that’s mostly because people didn’t really understand it. I think 280E was a problem five to seven years ago. In the last two years most companies are very familiar with it. That doesn’t mean 280E is the right thing. I think 280E is an awful thing. And while I think I hope SAFE banking is the first thing to fall legislatively, I think 280E has a good chance of getting across first.

On any given day my opinion on which will go first changes. I just want something to get across the line.

Green: What are some unemployment and payroll challenges your customers face?

Kenyon: We really watch unemployment changes and changes in job descriptions or job codes. For example, if an unemployment rate changed, and that unemployed person moved to a different place, which happened a lot during COVID, that company needed to report that and they needed to collect the appropriate charges or taxes there.

Green: What geographies are you in right now?

Kenyon: As of January 1, we had people on our platform in 46 states and just under 600 different jurisdictions. So, even though cannabis isn’t legal in all those states, big companies have employees across the United States.

Green: How do you help your users manage compliance across multiple jurisdictions? That must be a complex undertaking.

Kenyon: Our platform automatically plugs into the states that have electronic notifications around laws, which most states do. In our tax department, we have certain group members that are experts, let’s say, in the west coast. So, we assign people to certain regions to ensure that they have the best knowledge.

From our support piece, where a lot of our customers come in, somebody might say, “Hey, I have a unique question for Utah” and we’ll say we have a person that is specialized in Utah, but we don’t force them there, we just give them the option. But in our tax queue, we actually direct the customer like, “Hey, here’s a Massachusetts Question, so that goes to a particular person because they are our Massachusetts expert.”

Green: How do you deal with timekeeping issues like overtime?

Kenyon: Well, our system does that automatically. Let’s say they’re working overtime in a state that’s difficult to keep time for like California. In the state of California, if they’re working overtime on a Saturday or Sunday or a holiday, that’s a whole different calculation than working longer on a Thursday night. So, our platform is made to automatically calculate that for our customers. There’s no manual adjustments or coaching happening there. We just follow the state law based on where the employees are.

Green: Are you seeing any unionization of employees within the cannabis industry?

Kenyon: There’s unionization in many of our states, I don’t know the exact number, but California being the biggest, there’s a lot of union representation. Illinois is probably the second biggest union state on our platform. I’m assuming New York will be once it becomes adult use.

Green: How does Würk approach cybersecurity?

“Cannabis customers don’t want to buy on the illicit market. They want to buy from a trusted source. It just takes time to make that happen.”Kenyon: Well, we approach it very seriously and I recommend everybody take cybersecurity seriously. We test our internal systems regularly. We test our employees through phishing scams. And we’re always just trying to educate our team on the risk that we have.

I can’t share specifically the prevention steps that we’re taking, but I can tell you we partner with some of the biggest experts and make sure that we’re following everything that they’re recommending. More importantly, we’re testing for human failures, because where most failures happen is with people.

Green: What trends are you following in the industry right now?

Kenyon: Any type of activity in Congress is going to be huge for this industry. So that’s something I always keep abreast of. The next thing that comes down the line which is tied to that is interstate commerce: How is interstate commerce going to really come into play? And how does that change this industry?

Within the industry, the big question is how do we combat the illicit market? Over the last five years, I’ve heard all kinds of different ideas. But in the end, I think we have to out-innovate the illicit market, and that’s what I’m most excited about.

There are new product categories, beverage being one that is starting to gain traction. How are these new products and new variations of the cannabis plant able to treat and help people in ways that we’ve never thought of? That’s part of out-innovation. I was reading an article today about new terpenes that were discovered and how 100 products could come from each one of those new terpenes. I think we’re just still at the tip of the iceberg of product innovation.

How do we fight the illicit market? I think that is just through coming up with new products that treat different illnesses and ailments, that allow customers to get away from pharmaceuticals. Cannabis customers don’t want to buy on the illicit market. They want to buy from a trusted source. It just takes time to make that happen. They’re not going to do it when there’s a huge price difference, but they will do it when there’s a huge product difference. And right now, our products are very similar to what you can find on the illicit market. You can find vapes, you can find gummies, you can find all that in the illicit market. We’ve got to out-innovate the illicit market.

Green: What in your personal life are you most interested in learning about?

Kenyon: I am the father of two teenagers right now and I really like to learn how to be a better parent to them because it’s really frickin’ tough!

Green: Great, that concludes the interview!

Kenyon: Thanks, Aaron.

July 22, 2022

Don’t Go Down with the Ship: How to Create a Cash Influx for Your Cannabis Business During Hard Times

By Adam Benko, Brian Mayfield

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It takes a lot to hack it in the wild world of cannabis.

To dip your toes in this game and open your own business, it could cost you between a quarter to three-quarters of a million dollars after licensure and other start-up expenses – and the battle doesn’t end there. Recent data supports that the turnover rate for the cannabis industry at large is extremely high when compared to other industries, coming in at a whopping 40-60% within the first 2 months.

Oh, and let’s not forget: we’re not living in the easiest of times in general. The Bureau of Labor Statistics now reports that inflation has hit 9.1 percent, the highest ever recorded level of inflation since records began. We know that people are struggling all over the place – and those struggles are even more amplified for cannabis operators and business owners. It’s no secret that amid these struggles, many legacy operators, MSOs and mom-and-pop brands alike are making the tough decision to take on costly loans, seek funding or even ultimately close their doors.

Every time a customer abandons their cart, your business is leaving money on the table.

But, in times like these, you have to remember what brought you to the table to begin with. The cannabis industry is still projected to hit a valuation of over $33B by the end of 2022 and despite the blood in the water that we’ve seen lately, operators of all sizes are still getting wins and making a profit. So, do you throw the towel in and give up on your dreams? Should you just accept that all hope is lost?

Absolutely not.

If you’re a cannabis operator who is struggling, you aren’t alone – and more importantly, you aren’t out of options yet. Not ready to go down with the ship just yet? We didn’t think so.

Here are five, expert-approved tips to create an influx of cash for your cannabis business without significantly increasing spending:

‘Trim the Fat’ of Your Business by Cutting Lean Costs

While it may seem obvious, many cannabis operators forget that “nice to have” is not the same thing as a “must have” when it comes to keeping your doors open and your bottom line healthy. Take an eagle-eyed second look at your budget and cut back as much as possible on areas that aren’t boosting revenue. Reconsider the “extras” – like software solutions, hiring non-essential staff and slow-moving inventory – and focus your attention on the products that contribute the most to your bottom line.

Make Your Customers a Priority

Focus your attention on the products that contribute the most to your bottom line.

One of the biggest mistakes that cannabis brands make is throwing so much of their marketing budget into getting new customers through the door while neglecting to show existing customers the attention they deserve for their loyalty. In today’s market, cannabis consumers have more options than ever. Why should they keep choosing you? Happy customers are customers that will weather the storm with you. Honing in on targeted ads and marketing efforts geared toward existing customers, in combination with loyalty perks, VIP deals and more is a great way to ensure your business is truly unforgettable in the eyes of the customers that keep your doors open. Looking for an extra leg up? Here’s an insider pro tip: refer-a-friend programs are a great way to get the best of both worlds and help those marketing dollars stretch a little further.

SOS: Save Our Shopping Carts

Shopping cart abandonment is a serious problem for cannabis retailers – and it happens all the time. For mobile users, it can creep as high as 85%. Shopping cart abandonment happens when a potential customer visits your site, builds an order in the cart and then either forgets to check out or chose not to execute the purchase. Every time a customer abandons their cart, your business is leaving money on the table. Fight back against shopping cart abandonment by providing clear calls to action through the shopping and checkout process and targeting customers with emails or SMS messages that include discount offers or reminders to check out.

Pump Up Your Payment Solutions

It’s like Canadian rapper and singer-songwriter, Drake, said in his hit song, “Omerta”, “I don’t carry cash ‘cause the money is digital.”

Payment providers often give back a portion of transaction fees to business owners.

Let’s be honest, it’s 2022 – not a lot of people love carrying around cash. If your cannabis business is cash-only, you could be missing out on extra revenue from card and mobile payment-loving customers. On average, mobile payment users, on average, spend approximately twice as much through all digital channels as those not using mobile payments. Cash-only retailers also miss out on upsell opportunities by limiting themselves – let’s say a customer comes in with $40 in cash, they won’t be able to pick up that extra pack of cones or the grinder they were eyeing up at the checkout if they’re limited to cash-only transactions.

In addition, retailers who patronize payment solutions via debit card providers or online ACH can benefit from payment kickbacks as an additional stream of income, as these payment providers often give back a portion of transaction fees to business owners.

Don’t Forget About Employee Retention Credit (ERC)

If you haven’t heard of ERC – you could be leaving as much as $26,000 per employee on the table. Many cannabis business owners would be surprised to learn that they can still take advantage of the employee retention credit program that started during the pandemic.

The program was launched in March 2020 as a way to help offset the financial struggles of business owners during COVID-19. But, even this year, cannabis business owners can seek cash relief through ERC – employers can retroactively claim the ERC based on financial struggles they experienced during 2020 and the first three quarters of 2021.

Started your cannabis business after February 2020? You still may qualify under specific ERC provisions that can provide up to $100,000 in refundable credits.

At MJstack, we understand the trials and tribulations that cannabis professionals go through every day because we’re right here working alongside you.

Our team of professionals is familiar with cannabis and what it takes to make the cut in this world. Ready to boost your business and safeguard your investments against whatever comes next? Contact us today to learn more and book your FREE consultation.

July 21, 2022

Senators Introduce Cannabis Administration and Opportunity Act

By Cannabis Industry Journal Staff

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Senate Majority Leader Chuck Shumer (D-NY), Sen. Cory Booker (D-NJ) and Sen. Ron Wyden (D-OR) introduced the Cannabis Administration and Opportunity Act (CAOA), a bill that seeks to decriminalize cannabis and end prohibition as we know it. About a year ago, the same lawmakers held a press conference where they unveiled their first draft of the CAOA, calling on the public for comments and input.

In that press conference last year, Sen. Booker emphasized the need to address social equity and restorative justice, laying out the foundation for what would soon be called the most comprehensive piece of cannabis legislation so far.

According to the Minority Cannabis Business Association (MCBA), the bill succeeds in doing that, offering a number of provisions that would help those most impacted by cannabis prohibition, offer funding for equity programs, support for minorities in the cannabis market and more. “The CAO Act represents a giant leap forward in federal cannabis policy by outlining the most meaningful solutions to address issues facing minority cannabis businesses we’ve seen in a federal legalization bill to-date,” says Kaliko Castille, president of MCBA.

Notable provisions in the bill also include:

Removes cannabis from the Controlled Substances Act scheduling entirely.
Allows states to implement their own policies without the federal government interfering.
Allows cannabis businesses access to financial services, removes the threat of 280E tax code impacting normal business deductions.
Regulatory responsibility would fall under the authority of the Alcohol and Tobacco Tax and Trade Bureau (TTB), the Food and Drug Administration (FDA).
Immediate expungement for prior cannabis convictions and cancellation of any sentencing for those incarcerated for cannabis.
Raise allowable THC content in hemp from 0.3% to 0.7%.
Sets up a pilot program with the Small Business Administration (SBA) for minority-owned and economically disadvantaged cannabis businesses.
High taxes: Up to a 25% federal excise tax on top of state cannabis taxes.

July 20, 2022

AOAC Accreditation: Why Third-Party Approval Matters More Than Ever

By Anthony Repay

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When people have to make important decisions, we often consult a third party to increase our knowledge and confidence in a product. For instance, when choosing a car, an individual may weigh heavily on safety ratings and other awards from organizations such as Consumer Reports. These awards are often boasted and a heavy focus in car commercials because it tells the consumer that a third party has deemed their car valuable to own. For more than 100 years, the Association of Official Agricultural Chemists (AOAC® International) has operated in this exact manner, and has set the bar and guidelines for testing in the cannabis industry through its special program called the Cannabis Analytical Science Program, also known as CASP.

The CASP program is designed to develop standards and validation guidance to evaluate testing methods, as well as the methods’ ability to detect the target organism or compound on the cannabis matrix. With the addition of new states permitting the legal sale of both medical and adult use cannabis and no federal governing body overseeing testing regulations, the value of AOAC cannot be understated, as these guidelines allow cannabis testing laboratories to have their own third-party reference to look to when choosing a compliant testing method to implement in their laboratory.

AOAC was founded in 1884 by the US government as the standard setting body in the country and, in 1991, became an independent association known as AOAC International, with a goal of building a reputation as an international, consensus-based standard-setting body and a conformity assessment organization in analytical sciences. As an independent third-party resource, AOAC has the Performance Tested Methods^’ (PTM) and Official Methods of Analysis^SM (OMA) programs for certification of analytical testing methods in both biology and chemistry.

If analytical methods, including proprietary test kits, are deemed acceptable, AOAC provides approved certification, their seal of approval that the method works as designed. Though multiple factors are considered to determine if AOAC approval is given; accuracy and precision of the method are among the most important. For example, when validating a cannabis method for microbiology, AOAC will contract an independent testing facility to conduct a series of tests with known spiked samples to measure the recovery limit of the target microorganism. This allows the organization to determine if the method is sensitive enough to be named an AOAC-approved method through either the PTM or OMA conformity programs. Another way of ensuring the validity of results is by conducting an inclusivity and exclusivity study on a method. In this type of experiment, target organisms are tested while also spiking with non-target organisms to see if there will be a high rate of false positives.

In cannabis, discussions have grown surrounding testing of four strains of Aspergillus, which are A. terreus, A. flavus, A. fumigatus and A. niger. By spiking cannabis with one of the four Aspergillus strains and on a separate sample with a non-target Aspergillus strain such as A. clavatus, it ensures that only the target strains are being recognized and recorded on the method being tested.

This methodology limits the likelihood of unconfirmed positives occurring, ensuring the validity of the results. Of course, when a method is undergoing an actual AOAC evaluation for approval, the testing requirements for both the sensitivity and inclusivity/exclusivity experiments are much more thorough than the explanation above.

Regardless of which AOAC-approved method you select, you can feel confident that most of the “heavy-lifting” is done and that the method is accurate and precise enough to implement in a cannabis testing facility. In turn, the cannabis testing laboratory then only needs to complete their own internal method verification to ensure the method works with their processes, people, environment and product, but on a much smaller scale and aligns with state regulations.

On a consumer safety level, AOAC-approved methods are designed to keep cannabis consumers safe. Whether they are an adult using cannabis or medicinal cannabis patient, the product that is being sold should be held to the highest safety standards. By having a laboratory that is utilizing an independently approved AOAC method, an additional layer of confidence is achieved that the product being consumed is safe. This ultimately limits the number of costly recalls from dispensaries and minimizes risk to consumers. At the end of the day, cannabis testing laboratories want to keep the public safe and it is our job to do so. This means implementing these independently approved methods from agencies such as AOAC at various touch points in the seed to sale cycle to ensure the data is validated and reliable.

Overall, just as it is equally important to get a non-biased and reputable third-party approach to your automobile search, a scientist that is responsible for choosing methods in their cannabis compliance laboratory should also consider these third-party approvals. As a scientist, the goal every day is to report accurate data to help the client and the consumer equally. The cannabis compliance laboratories are the last line of defense in preventing harmful or contaminated products from getting into the marketplace and any extra assurance we have with our testing methodology is always encouraged. Ultimately, AOAC’s work is important and their standard of quality and safety is a must-have in the cannabis laboratory.

July 20, 2022

Cannabis Receiverships: A Viable Alternative to Bankruptcy

By Oren Bitan

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Doing business in California’s legal cannabis industry remains a risky endeavor. The majority of the industry is still unlicensed, tax rates at the state and local levels are high (notwithstanding a recent reprieve from California’s cultivation tax) and there are not enough licenses to meet geographic demand throughout the state. Outside financing remains difficult to secure for equipment, tenant improvements, account receivables and working capital because, under the federal Controlled Substances Act (CSA), cannabis remains a Schedule I narcotic. Therefore, entrepreneurs, investors and lenders who have stakes in state-sanctioned cannabis enterprises expect to see returns that justify the higher level of risk, which places additional financial pressure on cannabis businesses. In addition to the industry specific challenges, the United States economy is on the verge of a recession that may further hamper the industry notwithstanding the industry’s resiliency during the pandemic when it was deemed to be an “essential” industry that benefited from consumer spending of stimulus monies.

These outside pressures increasingly lead to ownership disputes and creditor defaults that result in litigation and the need for restructuring. In some instances, business partners cannot agree about control and finances of the licensed businesses and in other instances unpaid creditors file suit to enforce their interest in a company’s assets. And sometimes a local municipality discovers wrongdoing by an operator and initiates a health and safety lawsuit to cease the illegal condition.

Bankruptcy reorganization is an option typically utilized by struggling businesses to shed or restructure debt. Cannabis businesses, however, cannot take advantage of bankruptcy remedies because bankruptcy is a product of federal law and federal law still prohibits the sale of cannabis.

As a result, stakeholders in legal California cannabis enterprises must consider alternatives to bankruptcy to collect what they can on their loans and investments in the event the enterprise becomes insolvent or requires restructuring. A well-established alternative to bankruptcy is a state court remedy – the appointment of a receiver over the assets of a business or over the entire business operations. Through the receivership process, stakeholders may obtain many of the same protections available to them through bankruptcy

A. Federal Illegality Bars Access to Bankruptcy Protection

Over the past ten years, bankruptcy courts have routinely prohibited licensed cannabis businesses from seeking bankruptcy protection because cannabis remains illegal at the federal level under the Controlled Substances Act (CSA). Bankruptcy trustees are typically charged with managing and operating property in the same manner that the owner would be bound to do if in possession thereof. Because cannabis remains illegal at the federal level, trustees are not able to manage and operate licensed cannabis businesses.

B. Receivership as an Alternative to Bankruptcy

Under California law, a receiver is a neutral agent of the court appointed to preserve, control, manage and ultimately dispose of property that is subject to the litigation before the court.¹ The receiver, therefore, holds property for the court, not the parties to the litigation.

Appointment of a receiver is a statutory provisional remedy. Other than corporate dissolutions under Code of Civil Procedure section 565, the law does not have a specific cause of action to appoint a receiver. Thus, the proponent of a receiver must have a valid cause of action in an underlying lawsuit.

1. The Appointment of a Receiver

The appointment of a receiver rests within the trial court’s discretion. Code of Civil Procedure section 564 contains the broadest statutory authority to appoint a receiver. Subdivision (b), details twelve possible situations in which a receiver may be appointed, most of which are beyond the scope of this article. The most common of these is a lender’s request to appoint a receiver when a borrower defaults on a loan and the lender seeks the appointment of a receiver over its collateral. The statute, however, clarifies that the situations listed in the statute are not exclusive: a court may appoint a receiver “[i]n all other cases where necessary to preserve the property or rights of any party.”

The receiver’s powers are limited by the statute under which the court appointed the receiver and those conferred by the court. The appointment order should, therefore, detail the duties the receiver owes to the court, and actions that the court authorizes the receiver to take to perform those tasks. The order should also specify the property that will be part of the receivership estate.

2. The Receiver’s Powers

The receiver has general statutory powers.² The statutory powers include (i) commencing or defending litigation; (ii) taking and possessing property of the receivership estate, (iii) receiving rent, collecting debts, and making transfers, and (iv) acting in accordance with the court’s instruction with respect to the property.³ But the court’s authorization is necessary to sue the receiver and for the receiver to commence litigation.⁴ In the foregoing scenarios, the receiver is immunized personally from tort liability, but not in his or her official capacity as receiver.⁵

In addition to taking possession of property, the receiver may dispose of receivership property with the court’s approval.⁶ If the receiver is an equity receiver, the receiver may take possession and satisfy creditors from all the debtor’s assets.⁷

The court may further authorize the receiver to issue “certificates of indebtedness” to raise money to administer the receivership estate.⁸ This device permits the receiver to provide liquidity to the estate and gives the certificate holder an interest-bearing priority claim against the receivership estate.

3. Liquidating Cannabis Assets Through a Court Appointed Receiver

After the court appoints the receiver, the receiver should have sufficient powers to, among other things: (i) take over the management of the company; (ii) open bank accounts; (iii) borrow money by issuing receivership certificates; (iv) manage all of the company’s property; (v) hire counsel and other professionals; and (vi) sell the receivership estate’s assets for the benefit of the creditors. To maximize repayment to the creditors, the receiver may hold an auction to sell the assets and assist in facilitating the cancellation of company’s state license while the buyer of the assets secures its state license after the local license is transferred.

State cannabis licenses may not be sold or transferred.⁹ Yet, to maximize recovery for the creditors, the receiver may need to participate in the regulatory process to maintain a license during the pendency of the receivership and to assist in the amendment of a license while a prospective buyer seeks to obtain its own license. To do so, the receiver will first need to qualify as a licensee under state law to join as a licensee on the license and further the licensee as a going concern. Next, the principals of the prospective buyer will themselves need to qualify as licensees under the license. Then, once the sale of the company’s assets (including any interest in the license) to the buyer closes, the receiver and the company’s original owners will terminate their capacities as licensees of the license, leaving only the new owners as licensees. Thus, the proposed order should be written with attention to ensure the receiver has powers to further the foregoing and not diminish the value of the receivership estate.

After the conclusion of the sale of all assets, the receiver will need to obtain a discharge from the court of his or her duties as receiver. The receiver may do so by the parties’ stipulation or by motion. Together with the request for a discharge, the receiver should seek approval to pay: (i) any lenders to the receivership estate; (ii) professionals that the receiver hired; and (iii) him or herself for his or her services. Upon the court’s approval, the receivership will be terminated.

The conflict between federal and California law regarding cannabis continues to be an impediment for stakeholders in California’s cannabis market. Because of this conflict, stakeholders in California’s legal cannabis market lack access to vital traditional institutions, such as bankruptcy remedies. As a result, stakeholders must be prepared to consider alternatives such as a court appointed receiver, which can be a useful alternative to both secured creditors and unsecured creditors. Stakeholders who pursue a court appointed receiver will benefit from a long-established body of law and experienced professionals.

References

Cal. Rules of Ct., r. 3.1179(a).
Cal. Civ. Proc. Code §§ 568-570.
Free Gold Mining Co. v. Spiers, 136 Cal. 484, 486 (1902); Steinberg v. Goldstein, 129 Cal. App. 2d 682, 685 (1954).
Vitug v. Griffin, 214 Cal. App. 3d 488, 493 (1989).
Chiesur v. Superior Court, 76 Cal. App. 2d 198, 201 (1946).
Helvey v. U.S. Bldg. & Loan Ass’n, 81 Cal. App. 2d 647, 650 (1947).
Turner v. Superior Court, 72 Cal. App. 3d 804, 812 (1977).
Cal. Civ. Proc. Code § 568.
See e.g., Cal. Code Regs. tit. 16, § 5023(c).

July 18, 2022

From Factory to Flower – 4 GMP Insights for the Grow House

By Tom Blaine

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At first glance, the layout of a grow room and a factory production line might seem to have little in common. But whether a facility is producing plants or parts, adopting good manufacturing practices (GMP) can benefit plant quality, harvest consistency and production economics.

What is GMP?

Simply defined, GMP refers to a production system made up of processes, standards and safeguards designed to consistently meet a defined quality standard. In the grow house, establishing, documenting and implementing GMPs can help guard against problems ranging from plant contamination to inconsistent harvests. GMPs can be organized into five key categories, each which contribute to cultivation:

People: The people working in the grow house understand their responsibilities
Processes: Production processes are clearly documented and consistent across harvests
Procedures: Guidelines are documented and communicated to all employees
Premises: Grow rooms and equipment are clean and maintained
Products: Materials used in cultivation (fertilizers, lighting, growing media, etc.) are assessed

Optimizing each of these five P’s in production can help cultivators protect their business and their margins even as flower prices in both legacy and emerging states continue to trend downward. Below, we look at four GMP insights that can help cultivators coordinate the five Ps to achieve quality, consistency and economic objectives harvest after harvest, without massive investments in capital, even during turbulent market conditions.

#1 Know your numbers and their value

Avoid the temptation to lump production costs into very broad categories, i.e., “cost of goods.” Understanding the exact cost of all inputs that go into a grow is a precedent to cost-effective production. The price of the plant material, energy consumed, labor, nutrients, fertigation and other inputs involved in the grow should be calculated to determine the actual cost of a grow room. If rooms are set up consistently, you can multiply to get an aggregate production cost across the facility.

Look beyond the price tag when calculating costs and consider the value each input brings to the grow. Nutrition is a good example. Understanding the concentration of specific nutrients in a product can be a better way of evaluating its value than simply looking at the cost of the goods. And consider whether added nutrients are actually adding value to the product produced. More isn’t always more. In most cases, simple salts will supply the plant with what it needs to grow.

Growing media is another opportunity to evaluate the cost/benefit of cultivation inputs. How much yield can be achieved with a particular medium compared to a different choice? For example, a bag of coco may initially appear to be the low-cost choice for cultivation. Upon a deeper evaluation, though, the cost per plant of coco is generally higher when you factor in the amount of media used for each plant (and that doesn’t even factor in the labor to fill the pots).

# 2 Reduce time waste

Among the various inputs in each growing cycle, labor represents a significant cost. Are labor hours being put to the best use and not wasted? American industrialist and innovator in mass production Henry Ford stated, “Time waste differs from material waste in that there can be no salvage. The easiest of all wastes and the hardest to correct is the waste of time, because wasted time does not litter the floor like wasted material.”

One way to see the cost of wasted labor dollars is to set up a camera and record a day of activity in the grow room during each step of a grow cycle. Or simply observe the responsibilities that are requiring workers’ time on a typical day. Watching employees’ work in the grow room may reveal how a room’s set-up is contributing to or hindering production. Are employees spending their time on tactics that add value or are they being slowed down by manual processes, such as filling containers, watering and relocating plants in the facility? Are there steps and process that could be automated, such as fertigation? Seeing how employees’ time is being used can identify opportunities to direct efforts toward functions that add value or cut costs. What would be the economic benefit of reducing a half-day of set-up time in the grow house or automating some processes?

Beyond better allocation of human capital, understanding how time is used in the growing operation can suggest changes to materials used in the grow. For example, selecting a growing media that comes in plugs and blocks with pre-drilled holes for efficiently dropping in new plants can reduce time spent filling pots or configuring containers. Automating functions like fertigation and watering can not only reduce labor time but increase the precision of delivery when it comes to water and nutrients.

#3 Introduce incremental improvements

Many manufacturers rely on pilot plants to mitigate risk before process scale-up takes place across an enterprise. The same approach can benefit the grow house. Resist the temptation to overhaul the system and instead focus on introducing one change at a time. This disciplined approach will allow you to evaluate if a change is actually delivering value and should be applied more broadly. The wisdom of a cautious approach to improvements is reflected in a quote by innovation magnate Steve Jobs, co-founder of Apple. Observing that not every innovation will be a win, Jobs stated, “Sometimes when you innovate you make mistakes. It is best to admit them quickly and get on with improving your other innovations.”

When introducing a new element into the grow, pilot it in one “sample” area before adding it to the entire operation. Then give the innovation time to be evaluated before deploying it more widely. This measured approach can help reduce the risk that accompanies making a change to processes and will allow you to evaluate the relative benefit of any change or innovation. And as changes are introduced one at a time, it is easier to determine which changes are contributing value.

#4 Satisfy the market, not just the spec

Regulatory bodies set the compliance criteria for purity or quality standards in manufacturing, but the ultimate mark of approval is awarded by customers in the marketplace. A harvest may meet all of the quality specs, but if customers don’t want to buy it, achieving GMP metrics is a moot effort. The marketplace will always have the final say on a product’s commercial viability.

Understand what the market wants and be able to replicate it consistently harvest after harvest. Manufacturing a product that meets the market’s desired performance attributes is essential to sustaining and growing operations. Production quality is only as good as the last harvest and any degradation in product quality will diminish buyers’ trust. History shows that the challenge of achieving consistent production quality and reliability isn’t just a problem for cultivators. Among several factors that doomed the short-lived Edsel sedan introduced in 1957 were problems arising from assembly workers having to use different tools and techniques. A lack of consistency in producing cars or cultivars can turn off customers and profitability.

A tension exists between achieving production consistency and the opportunity to introduce changes that improve the grow. By integrating improvements into the production system one measured change at a time, cultivators can assess which improvements to continue and what needs to be tweaked. But as manufacturing has long demonstrated, continuous improvement is an ongoing journey.

As cultivators consider the 5 Ps of people, processes, procedures, premises and products, applying these four GMP insights can help growers in emerging and legacy markets navigate changing market conditions and drive continuous improvement.

July 18, 2022

Risk Management Considerations for Cannabis Retailers in New Jersey

By Eric Schneider

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Despite the US making cannabis regulations challenging to navigate, the industry is snowballing toward profitability. New Jersey legalized adult use cannabis on April 21 this year. One month earlier, The Garden State began accepting applications for Class 5: Retailers, Dispensing and Delivery.

Although New Jersey isn’t shy about its licensing requirements and standards, many people want to know how retailers can stay in the game for the long run. So, let’s talk about risk management considerations New Jersey retailers need to know.

Top Risks Cannabis Retailers Face in New Jersey

Regardless of what kind of retailer you operate —medical or adult use — it’s critical to know what you’re up against. The following are the most common risks we’ve watched cannabis retailers face daily in New Jersey, making a customized risk management strategy necessary.

Theft

Like other retailers, New Jersey cannabis retailers are vulnerable to theft. Unfortunately, theft can come from various angles, such as in-store, in-transit and insider crime. Besides cannabis retailers typically having a well-stocked inventory, it’s not uncommon for them to have more cash on hand than most other businesses.

Although the SAFE Banking Act could positively impact the cannabis industry, it’s in a notorious stall yet again. Briefly, the SAFE Banking Act would no longer allow financial institutions, such as banks and credit card companies, to refuse to do business with cannabis companies. However, cannabis retailers must operate in a cash-only environment, for now, forcing them to make bank runs multiple times a day. We probably don’t have to explain how enticing a significant inventory and fat bank bags look to criminals.

Cybersecurity

Since the onset of the global health crisis, the cyber liability landscape has nearly spun into a death spiral. In other words, cybercriminals sat on the edge of their seats during the pandemic, waiting to pounce on anything that looked slightly vulnerable. Remote workers, small businesses, and emerging industries were hard-hit.

It’s no surprise that New Jersey cannabis retailers face many cybersecurity risks through their point of sale (POS) systems. Additionally, retailers often gather and store personal information, such as email addresses, credit card numbers, shipping addresses, etc. Hackers and cybercriminals gravitate to this vital data rapidly.

Property Damage

In addition to the risk of theft, as mentioned above, cannabis retailers must protect their property from losses. Without adequate protection, damage to equipment or buildings could add up to high out-of-pocket costs. Consider the damage a weekend office fire or late-night vandalism would cause. If property damage occurs, retailers must figure out how to sustain business operations while recovering from the loss simultaneously. As a result, New Jersey retailers must protect their property and maintain business continuity.

How to Customize a Risk Management Strategy

Watch or listen to any news reports and there’s a decent chance that you’ll feel some slight sense of doom and gloom. And sure, a lot is going wrong in our world; however, that doesn’t need to impact how you perceive your businesses. Instead of casting a massive net over every possible risk that you can imagine, we recommend trying the following 5-step approach. Here’s the gist:

Identify: Pinpoint high-level risks that are specific to the cannabis industry. Then, let the process trickle down to focus on company-specific exposures.
Analyze: Determine how badly a particular risk could harm your retail company. How much will this hurt should the “what-ifs” play out?
Evaluate: Categorize risks according to how risk tolerant your company is. Will you avoid, transfer, mitigate or accept the risk?
Track: Use your history or the stats from a similar retailer to map out how you’ve handled the risk over time. Older retailers have an advantage over younger retailers, of course, but you can still get a feel for your risk management style.
Treat: Make good on your evaluation promises by avoiding, transferring, mitigating, or accepting the various risks you identified.

Recommended Insurance for New Jersey Retailers

Sales totals in the first month of New Jersey’s adult use market

The New Jersey Cannabis Regulatory Commission issued detailed requirements for new cannabis businesses. That said, part of the application requirements considered is the plan for companies to obtain liability insurance. Many new retailers opted for a “letter of commitment” as opposed to a certificate of insurance (COI), stating their plans for obtaining the following coverages:

Commercial general liability: Protects cannabis companies against basic business risks.
Product liability: Protects against claims alleging your product or service caused injury or damage.
Property: Reimburses cannabis companies for direct property losses.
Workers’ compensation: Covers employees if they are injured on the job and can no longer work.

In addition to the required insurance coverages, we recommend New Jersey retailers customize their risk management package with these policies:

Crime: Protects your cannabis company against specific money theft crimes.
Cyber: Protects your cannabis company against damages from specific electronic activities.
Directors & officers: Protects corporate directors’ and officers’ personal assets if they are sued.
Employment practices liability: Protects cannabis companies against employment-related lawsuits.
Professional liability: Protects cannabis companies against lawsuits of inferior work or service.

With more states in the US entering the marketplace soon, New Jersey is doing its fair share of the heavy lifting by spearheading the onboarding process. Remember, doing your due diligence at the start pays off in the long run — New Jersey retailers are proving that. Consider teaming with a commercial insurance broker calibrated to the cannabis industry, so you get the most out of your broker, marketplace and the cannabis industry as a whole.

July 14, 2022

Starting a Cannabis Extraction Lab? Here Are Some Key Considerations

By Martha Hernández

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Cannabis sativa contains over 500 different bioactive compounds that can be separated through an extraction process. This is carried out in an extraction lab and the end result is the production of cannabis extracts with a high concentration of specific cannabinoids (such as THC or CBD) with up to 99% purity levels. Cannabis can get easily contaminated with pesticides, heavy metals, residual solvents or other contaminants and thereby pose a risk to the health and safety of consumers. In-house testing allows manufacturers to ensure that the cannabis products they put out to the market are not only potent but also are free of all sorts of contaminants.

The cannabis extraction market worldwide was valued at $9.7 billion in 2020. According to data from Grandview Research, the market size is expected to hit $23.7 billion by 2027, growing at a CAGR of 16.6%. While setting up a cannabis extraction facility can be cost-intensive at the start, the running costs are minimal, making this a profitable venture in the long run. However, you will need to consider these 7 important factors.

1. Location

7 Important Factors to Consider When Setting Up a Cannabis Extraction Facility — A schematic representation of the 7 important factors to consider when setting up a cannabis extraction facility (Figure courtesy of CloudLIMS)

Cannabis is a highly regulated industry, regardless of the country. In the U.S, it is illegal at the federal level, and therefore there’s a need for judicious selection of location to avoid run-ins with the federal government. If you are in the U.S, you will need to check the specific laws in your state. These rules dictate how close an extraction facility can be to a daycare facility, children’s park, school, residential areas, etc. The rules may also spell out how many cannabis facilities can be located in one area and how close to each other they can be. At the end of the day, you also want to ensure that the location that you settle for is readily accessible, secure and close to resources.

2. Regulatory Compliance

A cannabis extraction facility needs to meet regulations that apply to the manufacturing and production of consumable goods to ensure that the safety of workers and end consumers is guaranteed. Here are a few that are of priority:

current Good Manufacturing Practices (cGMP): The CGMP is a regulatory standard enforced by the FDA. It defines the creation, implementation and monitoring of manufacturing processes to meet the quality and safety threshold. It requires manufacturers to use technology and have systems in place to ensure product safety and effectiveness. Cannabis extraction facilities should be GMP certified for operational standardization and for performing transnational business.

National Fire Protection Association (NFPA): Extraction labs use flammable materials which can easily trigger fires. NFPA, which is a non-profit organization, has created standards and codes to minimize injuries, death, and economic losses attributable to fire accidents. The standard describes how labs should be set up and how flammable liquids should be stored and transported to prevent accidental fires.

Local Fire Codes: These are a set of codes/requirements that must be adhered to in all commercial and industrial buildings to prevent fires. They include the availability and proper use of the following:

Fire extinguishers
Extension cords
Smoke detectors
Fire exits
Fire signage
Fire assembly points
Sprinkler heads and pipes
Fire alarms

Here are some important fire codes that should be followed in a cannabis extraction facility:

NFPA 1: The Fire Code Handbook
NFPA 30: The National Code for Flammable and Combustible Liquids
NFPA 45: Fire Protection for Labs Using Chemicals
NFPA 70: The National Electrical Code
NFPA 58: The Liquid Petroleum Gas Code

Occupational Standards for Health and Safety (OSHA): Cannabis extraction facilities are compelled by federal law to comply with OSHA requirements for occupational health and safety, and specifically regarding biological and chemical compounds that lab staff may come into contact with during their work. OSHA standard 29CFR1910.1200 requires labs to have a written hazard safety standard for all chemicals, and the standard should be accessible to all employees at all times. Labs are required to have an inventory of all hazardous chemicals with associated details recorded in a Safety Data Sheet (SDS).

3. Staff Management

Lab staff need to train on all hazards in the facility and be given first aid measures in case of an accident. The staff will need to sign that they have received training on the same.

4. Waste Management

Cannabis waste in an extraction facility includes plant trimmings, leftover extraction chemicals, disposed of samples and other debris left behind. Waste needs to be segregated according to hazardous or non-hazardous categories and disposed of accordingly. The lab needs to put measures in place for proper waste segregation so that the waste does not get mixed.

5. Worker Safety

Worker safety in an extraction facility is of paramount importance and should be based on the kinds of risks that each staff gets exposed to in the line of duty. This makes it necessary to have a Job Hazard Analysis (JHA) to assess hazards and put measures in place to avert accidents and injuries.

Laboratory Software for CBD/THC laboratories — A laboratory software for CBD/THC laboratories to schedule staff training and manage staff competency (Figure courtesy of CloudLIMS)

6. Equipment Selection and Management

Cannabis extraction equipment can cost anywhere between $5,000 to $100,000, depending on the type and scale of extraction. When choosing the equipment, you need to factor in the cost efficiency, output, and the final product. All equipment used in an extraction lab should be Underwriters Laboratories Listed (UL-Listed). The equipment also needs to undergo regular maintenance to ensure maximum efficiency and productivity, and to prevent accidents and minimize wear and tear. National Recognized Testing Laboratory (NRTL) certification is necessary to achieve this.

7. Supply Chain Management

Supply chain management refers to the strict monitoring of the entire workflow to ensure effectiveness, eliminate wastage, and boost productivity and profitability. This means tracking raw materials from the time they are received by the extraction facility to when they are released as cannabis extracts. A Laboratory Information Management System (LIMS) comes in handy to support supply chain management in an extraction facility.

Role of a LIMS in Setting Up a Cannabis Extraction Facility

A laboratory software for CBD/THC laboratories, also known as a Laboratory Information Management System (LIMS), helps automate workflows, and thereby improve efficiency and productivity in an extraction facility. A laboratory software for CBD/THC laboratories streamlines in-house testing processes and guarantees that the final extracts produced are potent and free of impurities. A LIMS also comes in handy in managing Standard Operating Procedures (SOPs) and human resources, tracking samples and lab inventory, scheduling equipment calibration and maintenance, and ensuring compliance with the necessary regulations.

When setting up a cannabis extraction facility, sufficient time needs to be allocated to the planning to ensure all-important considerations are in place. This starts with finding an ideal and compliant location, ensuring regulatory compliance, ensuring worker safety, efficiently managing staff, inventory, and waste, and the careful selection of equipment. A laboratory software for CBD/THC laboratories ties these factors together to ensure a smooth workflow and maximum productivity of the facility.

July 12, 2022

Innovating Edibles: A Q&A with Coda Signature Co-Founder Lauren Gockley

By Cannabis Industry Journal Staff

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Coda Signature is a leading cannabis edibles company that has won countless awards for their creations. Founded in 2015 in Trinidad, Colorado, a small town just north of the New Mexico border, the women-led company has since become a fixture of the infused products market. Coda Signature prides itself on its innovative lens, focusing on what consumers want and framing their products around a luxury experience.

Lauren Gockley co-founded the brand in 2015 after a 20-year culinary career that started with professional training in France, working in Michelin-starred restaurants and Parisian pastry shops. They launched their first line of products in March of 2016 and three weeks later, the awards started coming in. Today, the company is a leader in the cannabis industry and constantly raising the bar. Last year they rolled out products with nanoemulsions, offering fast-acting edibles with a shortened onset time. In May of this year, Coda Signature debuted their low dose Fruit Notes, their foray into microdose formulations.

We caught up with Lauren Gockley to see what inspires her, hear the story of how the business came to be and get some insights on what’s next for the cannabis space.

Cannabis Industry Journal: I saw that you have a culinary background. Can you tell me about your background and how you got involved in the cannabis industry?

Lauren Gockley: I have been working in the culinary world for almost 20 years. I have been blessed to have a wealth of different experiences from my professional training in France at Valrhona’s L’Ecole Du Grand Chocolat and the Parisian pastry shops of Pierre Hermé, to the fine dining restaurants of Jean-Georges Vongerichten and Thomas Keller. I also spent several years as a raw vegan chocolatier where I gained a totally new understanding of chocolate and flavor creation using unconventional ingredients.

The transition into cannabis was an unexpected turn in my culinary career, especially considering the level of acceptance of cannabis in its early legalization period. I had been living in New York for almost eight years. I was working two jobs and trying to start a chocolate business. One night, my partner (and fellow co-founder), Brien Sauchelli, brought over a cannabis chocolate bar. At the time, I was not terribly familiar with cannabis edibles, but I sure was familiar with chocolate! I tasted the chocolate bar, and thought, “this tastes pretty good, but what if I could do it better?” The idea of elevating the cannabis edibles experience to the same caliber of excellence that we revere food made so much sense.

CIJ: Tell us how you co-founded and started Coda Signature. I’d like to hear the origin story

Lauren: Well, like so many cannapreneurs, I started in my kitchen with a crockpot, a Ziploc bag of trim and a massive amount of research. Fast-forward a few months to March 2015, and my partner and I are traveling across the country to Trinidad, Colorado—the new home of Coda Signature. Once unpacked, we dedicated almost a full year to product development, raw material sourcing, packaging design, facility construction, and most importantly we defined the mission, vision and core values of Coda Signature. One of our most significant core values is legacy. This was not meant to be an aspirational statement about the impact we hoped to have many years into the future, but rather an opportunity for us in every moment to ask, “What will my legacy be today?” We launched our first products in March of 2016. Three weeks later, we won the High Times Cannabis Cup for Best Edible with our Crescendo truffle collection.

CIJ: Your job title is Chief Innovation Officer – How is your company innovating the cannabis product space? What does your day-to-day look like?

Lauren: When it comes to innovation, we have identified four key areas of focus for Coda Signature products:

1) Flavor. We are leaning into our brand legacy of bold flavors and aromas, quality ingredients and impeccable craftsmanship. This legacy is reinforced by industry data. According to BDSA Trending Consumer Insights, flavor is the No. 1 driver of consumer purchase decisions, and second is brand loyalty.

2) Microdosing. According to BDSA Consumer Research, 73% of adults nationwide are now “bought in” to consuming cannabis. Understanding that much of this population is still getting acquainted with cannabis-infused products, we believe strongly that microdosed products are an essential factor for safe and customized experiences. We are one of the few infused products companies to defy the industry “standard serving size” with our new 1mg THC Fruit Notes.

3) Minor cannabinoids. We define the Coda experience through the integration of minor cannabinoids such as CBN, CBG, CBC and most recently THCV. This is no longer a market solely driven by milligrams of THC per dollar. Products innovating with minor cannabinoids are rapidly taking top-selling positions in both brand share and the market as a whole.

4) Fast-acting. After two years of intense R&D, Coda launched our first “Fast Acting” products in Q3 of 2021. “Fast Acting” decreases not only the onset time from 1-2 hours to 15-20 minutes, but also shortens the overall duration. This technology is a strong example of the incredible innovation redefining the cannabis edibles experience.

To answer your second question: My day-to-day is a blend of hands-on product creation; ongoing research into industry trends and new technologies; working with my colleagues in operations, quality and compliance to ensure our systems and procedures continue to deliver safe and consistent products; brand development and expansion; and of course, eating a lot of chocolate! The past few weeks have been particularly exciting for me as I have been back in the kitchen revitalizing our signature truffles that will be returning this holiday season.

CIJ: Where do you think cannabis will innovate next? What excites you about the future of product innovation in this market?

Lauren: Innovation in the cannabis industry can be particularly challenging due to the ongoing legalization limitations. However, like most life forms in nature, it is through limitations that we adapt, grow stronger and defy expectations. The fact that 73% of adults nationwide are open to the idea of cannabis means that we are just scratching the surface of innovation with this incredibly powerful plant.

Post-pandemic, I think a lot about our social habits. As a chef, there is a level of social intimacy I identify with food that I feel is not fully present in cannabis. I get very excited about the opportunities for more open cannabis consumption and how that will elevate and inspire the Coda product experience.

July 11, 2022

The Man Behind MXXN: An Interview with CEO and Founder Darnell Smith

By Aaron Green

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Hangovers are one of the aftereffects often experienced with spirits. Who doesn’t love a good martini or a refreshing margarita? One company is on a mission bring the flavor profile and buzz of spirited drinks without the negative consequences.

Like this article and want to see more? Subscribe to our free newsletter hereMXXN is a California-based cannabis infused beverage manufacturer specializing in 1:1 non-alcoholic replacements for everyone’s favorite spirits, enhanced with a touch of cannabis. By combining new technology in cannabis oil nano emulsions and alt-alcohol, MXXN is able to create flavor matching spirits sold by the 750 mL bottle. MXXN recently launched with three product SKUs including London Dry (gin), Jalisco Agave (tequila) and Kentucky Oak (bourbon) with a rum replacement due to launch soon.

We caught up with Darnell Smith, founder & CEO of MXXN, to ask about the technology going into infused non-alcoholic spirits, regulatory challenges and more. Prior to MXXN, Darnell was a spirits industry veteran, having worked with companies including Diageo, Pernod-Ricard and Bacardi.

Aaron Green: Darnell, nice to meet you. How did you get involved in the cannabis industry?

Darnell Smith: For me, it wasn’t something that was premeditated, in a sense. I had always been a cannabis user in my adult life. I played Division I sports. Cannabis replaced a lot of painkillers and medications that I probably would have had to take just to cope with athletic injuries. That’s how I got introduced to cannabis. And there is the recreational use of it as well.

To get to the origin story of MXXN, I spent a large part of my career working in spirits, namely, on the innovation and commercialization side of bringing new products to market under very well-known trademarks for large multinational companies. A few years into it, my liver was kind of at a point where it was like, “It’s gonna be you or me here, buddy.” So, I made the decision to start making – this is 15 years ago, in New York – a tincture where I would just heat up flower and decarb it and soak it in a high proof spirit. I would cover it for 30 days then strain it and have my tincture.

I’d be the guy in the bar, that would say “Hey, can I get a tonic and lime?” and I would put three drops of my tincture in there, and I would session cocktails along with everyone else. Next day at work, I’m the guy that’s bright-eyed and bushy-tailed and everyone else is kind of feeling a little bit weathered by that alcohol.

Innovation is usually born out of a personal need and that’s the same way here. So, fast forward 15 years and the technology has finally caught up. The rise of non-alcoholic spirits, the rise of cannabis and water-soluble emulsification, those two things combined really made the light bulb go off and say now is the time to offer this product. I feel like MXXN has a very specific place in our consumption of beverages and can fill a unique need that I think is rising.

Green: I’m interested in learning about the technology and the product. We can start with the technology that went into the product development process. I’ll go on to product next.

Smith: From a technical standpoint, up until a few years ago, the way that edibles were made was basically like raw extraction. There was very little ability to be precise about dosage. It was like trying to throw softballs through a chain-link fence. Non-uniformity made it very hard to say, “Here’s how this is going to affect you.” Fast forward and companies like Vertosa and Source have perfected this kind of nano-emulsion technology, which is basically water-suspended cannabis that can uniformly be used in food, beverage and cosmetic applications. And it’s akin to trying to throw sand through a chain-link fence. It’s just much smaller. It can remain more uniform, and thereby be more predictable in terms of dosage and effect.

So, that technology made it possible for us to then combine it with another wave that’s happening, which in the spirits industry is called alt-alcohol. What we do is distill all the flavor essences of well-known spirits and skip the alcohol. We then add the emulsified cannabis in place of the alcohol. And so with that, we offer a new kind of experience which is basically all the buzz but none of the booze. That’s really where technology-wise things have evolved. The rise of the non-alcoholic spirits and then the rise of being able to do water-soluble compatible cannabinoid emulsions.

Green: Are you selling this then as packaged goods or are you selling it as bladders similar to Coca-Cola in a bar setting?

Smith: This is a CPG packaged product and it really is analogous to a 750 ML spirits bottle similar to Tito’s or Grey Goose. The form factor is the same as spirits bottles, same 750 ML bottle. It doses just like a spirit would. Standard spirit pour is an ounce and a half. For us, an ounce and a half shot has six milligrams of THC.

For the average consumer, you can session cocktails and we give you the option to dose between two and six milligrams between a half ounce and an ounce and a half pour. So, it’s very analogous to what people are experienced in when it comes to spirits from the bottle to the dosage and to the actual recipes. We pride ourselves on being able to demystify something that has been a little bit complex in terms of making cannabis-infused cocktails. We are sticking close to what people are familiar with. People have a lot of experience with tequila or gin or bourbon and so we wanted to stay very familiar but also give people a chance to make the same recipes but sans alcohol.

Green: What kind of flavor profiles are you launching with?

Smith: We’re launching with three SKUs. Our first is London Dry, which is our take on a gin and that one has cucumber, juniper, coriander, and a nice peppery finish. We have Jalisco Agave, which is our take on a tequila or Mezcal. You have notes of agave, flint, salt, oak, and vanilla. And then the last one is Kentucky Oak, which is our version of a bourbon or whiskey. There you have charred oak, vanilla, and other flavor components that make up what bourbon is.

Now we have a rum in development that’s nearing the end of a robust R&D pipeline. We have some other options like ready-to-drink cocktails made with MXXN to more high-dose products for what we consider the “legacy consumer” who is maybe more medically inclined in the hopes of being able to give people more options when it comes to consumption of flavored spirits.

Green: On the cannabis side, with the infusions that you’re doing, is it pure THC or are you doing full spectrum?

Smith: Yes, full-spectrum cannabinoid. You’ll notice some beverage brands have what we consider a hybrid, some THC and some CBD. For us, and for the effects that we wanted to have the product to have we stuck with a THC-forward blend. There is a trace of CBD in there, but we don’t even claim it. It’s not something that we go forward with. Our emulsion is THC-based.

Green: Where are you at today in terms of the launch and presence?

Smith: We just finished a pilot test here in California. We started late-January, early-February and we’ve been selling direct-to-consumer. Just order and you can have it at your door in 24 hours for about 85% of the state. We’ve blown through our entire pilot run. Now we are entering into what we consider our launch phase which will be available in select retailers late-July. We are gearing up for our next big production run here in mid-July. We are basically all systems go.

At the same time, we’re exploring multi-state expansion. We have a lot of interest in states like Colorado, Nevada, Arizona and we’re having constant conversations with partners in those states to help bring the product to market.

Green: Have you looked at lounges?

Smith: Lounges have been our biggest traction as we start the retail rollout. We literally just started the dispensary piece of what we’re doing last month. And this is by design. First, we wanted to go direct-to-consumers for proof of concept to make sure we weren’t, you know, saying the story to ourselves. I think just by the performance of the pilot run and direct-to-consumer sales, we proved okay, this is a viable concept.

So as we go out, our number one targets are obviously establishments that also are connected to or have connections with a consumption lounge. There aren’t a ton at this point. They’re still kind of proliferating. But I will tell you the moment we walk into one of these accounts is like a no-brainer because it allows this account to offer a whole new experience. When it comes to consumption lounges in terms of great cocktails you already know: gin and tonics, margaritas, paloma, with no real education required on the part of who’s ever going to be serving. We basically take 20 retailers a month in chunks and so far of the 15-20 that we’ve done, four or five of them have consumption lounges and you’ll see it in those very soon.

Green: Are there any challenges there with dosing in a lounge where the onus is on the operator to dose? How do the regulations work there?

Smith: It’s similar to alcohol, right? As an establishment, you have a responsibility to kind of pay attention to what’s happening as the consumer is consuming. Typically, most of the legislation that was written is for an inhaled consumption lounge. Ingestibles weren’t necessarily considered heavily when it came to legislation. What we tell folks is you have the same responsibilities you would if you were a bartender. Our recommended pour in consumption lounges is a lighter dose. This way, the customer has a chance to start low and go slow, and really recognize how it’s going to affect them.

Legally, there is no firm guidance on what overconsumption looks like for the typical consumer. So, we tell folks you have to kind of get a feel for who the consumer is. If they’re curious person who doesn’t have a lot of experience with cannabis, we typically recommend not to exceed a five-milligram serve per sitting until you figure out how it’s going to affect them. However, if you have very high dose legacy consumers, who buy and drink these 100-milligram single-serve bottles it’s a different story. You kind of need to gauge that from consumer to consumer, and what their tolerance level is. A lot of onus is on the consumption lounge. And I think that’s why they’ve kind of been slow to really roll out how they deal with beverages, because it’s just a different beast. It’s absorbed differently by the body from inhalable products

Green: What trends are you looking at in the industry?

Smith: I love seeing more food-based options. Edibles to this point have been mostly candies and gummies and I see the trend going to more high-end, curated food selections. I think that’s super interesting. The condiments that go into cooking is a category that I’m keeping an eye on. I came across a THC and CBD-infused Siracha sauce the other day and I was like, “wow, this is fantastic!”

MXXN logo

In the beverage space, there continues to be innovation, which we are on the forefront of. There’s a point of saturation that’s going to come for how many seltzers can exist in the market at the same time. And I think we’re kind of reaching that point. So, it’s going to be incumbent upon the beverage space to continue to innovate.

I’m also watching where things go with hemp-derived THC, the Delta-8s and those things and how is that going to be dealt with when it comes to the legal market. I think you see varying ways that it’s being dealt with across states. That’s a trend I’m certainly keeping an eye on as things continue to roll out across the country.

Green: What, in your personal life or in cannabis are you most interested in learning about?

Smith: Given where the world is today, I feel like we all live in this “OR” mindset. It’s either you OR me, it’s either this OR that. And I think you can see with some of the more recent political things that have happened, it’s this ideology of like, trying to force your beliefs on someone else. For me, it’s more about like, how can we learn to live more in the “AND” right? You can have this AND this and they can coexist, and they don’t have to be in competition. In my personal life, that’s where a lot of my energy is going. How do I spread that thought of getting out of this living in OR. We must move to this kind of mindset of AND. How can we be accommodating for a bunch of different beliefs, a bunch of different approaches? It causes so much friction when we try to impose beliefs on others that may not share the same beliefs.

I am thinking about how I can apply that to the cannabis industry as well. In terms of federal legalization versus state, where can we find that the happy ground? If we think about going across state lines, that’s effectively building a whole other business in the state, and in virtually no other industry does that exist. I can tell you economically this country could use infusion of cannabis to be more freely available. So those are the types of things that keep me moving these days. I’ve had a lot of success in my past and so for me, it’s less about financial achievements, and it’s more about how we can help move folks to this is AND mentality and not everything has to be OR.

Green: Great. That concludes the interview.