Tag Archives: medical

Soapbox

Stemming the Cannabis Black Market

By Matthew Zandi
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On July 18, 2019, the Riverside County Sheriff’s Department in California served search warrants at 56 illegal cannabis cultivation sites. This operation was spearheaded by 390 law enforcement personnel, whose mission was to combat the ongoing problem of illegal cannabis cultivation sites throughout California.

The raids resulted in:

  • 47,939 marijuana plants confiscated
  • 2,132 pounds of processed cannabis
  • 47 tons of cannabis plants disposed
  • 2 Butane Honey Oil Labs located
  • 71 firearms
  • 49 arrests

The target of the operation was illegal cultivation sites. Individuals or licensed businesses with permits to grow cannabis legally were not affected.

Illegal cultivation is far from just a California problem. For example, if Oregon halted cannabis production today, the state would not experience a shortage as it has a six-year surplus.

The fear for investors and legal growers is that, if some growers turn to the black market to unload excess inventory, federal enforcement will come into play, which will set back the legal cannabis industry to the stone age. Oregon is currently making moves to limit licensure for legal production, but some active licenses may also need to be revoked, which would leave those licensees with vast investment losses. In other words, legalized cannabis’s massive economic market is not without financial problems of its own.

Don’t Make a Federal Case Out of It

Several states have legalized recreational cannabis with the intention of reimagining this vast underground market as an above-board business that bolsters the state’s economy via transparent dealings. To date, however, the federal government has refused to budge regarding cannabis’s status as an illegal Schedule 1 substance. This classification puts cannabis on a par with opioids. As such, those states that have legalized recreational cannabis are extremely motivated to keep these businesses on the up and up and not to pique federal interest.

Black Market Vulnerability

One of the tenets of legalizing cannabis is stemming the proliferation of black-market suppliers and minimizing the negative effects that the “war on drugs”has had in minority communities. These positive impetuses have yet to flourish. As a result of the illegal status of cannabis at the federal level, cannabis-legal states are forced to operate as islands.

Generally, taking legally purchased cannabis across state lines – from a legal to an illegal state – is illegal, and this is not only confusing but is also a recipe for complications. This leaves cannabis-legal states vulnerable to black market activity. These pockets of legal recreational cannabis that are popping up around the country loosen the constraints of the cannabis movement while the legality of this movement remains problematic. The results are an environment that’s extremely hospitable to black market activity.

Supply and Demand

The reality is that – due to supply and demand – cannabis costs about half as much in cannabis-legal states as it does in states in which it’s illegal. Black market growers in legal states destabilize the market. Those legit companies which remain above board, pay their taxes and jump through every legal hoop, cannot compete with black market interlopers who eschew such niceties.

The point made by detractors of legal cannabis isn’t lost on the rest of us – the black market is burgeoning.States that have legalized production have inadvertently made it easier for illegal producers to hide in plain sight, and the line between legal and illegal operations can become blurred. This creates new frustrations for law enforcement and naturally cuts into the legal cannabis trade. The situation has left some opponents to legalization demanding new crackdowns – others characterize such suggestions as amounting to a new war on drugs.

No Going Back

Detractors of legalized cannabis claim the somewhat chaotic effects related to the current patchwork approach to legalization are a result of opening the gates to legalization in the first place. However, putting the genie of legalized recreational cannabis back in the bottle simply isn’t feasible for operational, financial and political reasons. With the proliferation of attendant illegal operations, however, it is becoming more and more clear that leveling the playing field – via some form of federal legalization – is inevitable. The current state-by-state solution leaves too much wiggle room for the illegal transport of cannabis from those states with looser restrictions to those states with tighter protocols. If politics is choosing between the disastrous and the unpalatable, the billion-dollar cannabis conundrum is a great example. The question may no longer be should we legalize cannabis but, instead, how do we legalize cannabis.In other words, we need to find a path forward, and focusing only on the pitfalls that we’ve experienced so far isn’t going to get us where we need to be.

A Tale of Two Choices

The point made by detractors of legal cannabis isn’t lost on the rest of us – the black market is burgeoning. As such, we have an important decision to make. A blanket prohibition of cannabis may no longer be practicable, so we’re left to choose between legal and overt practices across the board or a hodgepodge of semilegal practices with covert ops in tow. Fostering illegal activity is rarely in our nation’s best interests, which leaves legalizing cannabis at the federal level as possibly the most practicable solution.

Protecting Public Health

As more states embrace the legalization of recreational cannabis, public health concerns remain an issue. Many of these illegal cultivators use chemicals that are banned in the United States and do not properly dispose of chemicals or waste products that destroy the environment, contaminate drinking water and have the potential to harm or even kill residents and domestic animals. Not only is this activity harmful, growers often steal electricity and water from surrounding residents.

Cobbling together a pastiche of laws, however, inevitably bolsters black market activity and does nothing to help protect public health. Even the staunchest proponents of legalizing cannabis don’t want minors involved in the equation. Additionally, few debate that unchecked usage is a healthy option. Quasi-legislation at the state level (and on a state-by-state basis), however, provides neither a check nor a balance.

Onward and Upward

The most likely next step for safeguarding public health, for stemming black-market activity, and for generating maximum revenues is toward thoughtful and comprehensive national legalization that comes sooner rather than later. In the meantime, law enforcement should protect the public, legal operations, investors, and the environment from the black market.


The opinions expressed are those of the author and do not necessarily reflect the views of Guidepost Solutions or its clients.

California Cannabis Business Conference

NCIA’s 3rd Annual California Cannabis Business Conference is the only industry trade show focusing solely on the California cannabis market. Join 3,000+ cannabis business leaders, policymakers, and entrepreneurs will convene to discuss California-specific regulations, market trends, policy, advocacy, and research

Driving Strategic Advantage for your Cannabusiness through Process Efficiency, Quality & Compliance

Cannabis Industry Journal is pleased to present this webinar sponsored by Rootstock. The cannabis industry is in the midst of huge industry growth along with equally huge operational, regulatory and supply chain challenges. Just trying to keep up takes valuable time away from actually managing and scaling your business.

During this webinar we will explore the market forces that continue to impact your cannabusiness and show how by automating processes, managing quality and compliance you can ease the burden of changing requirements to gain increased visibility into production, finance, and operations.

german flag

Does Germany Have a Gray Market Problem?

By Marguerite Arnold
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german flag

Tilray just did something very interesting. In addition to announcing that it was shipping product to German distributor Cannamedical via its Portuguese facility, it also announced that it had begun outdoor cultivation.

Groovy.tilray-logo

Even more intriguing: the company is claiming that somehow, via its proprietary technology (apparently), this kind of crop will be legit for distribution within the EU medical system.

There is only one problem with this. Outdoor growing does not sound remotely GMP-certified.

Here is the next bit of exciting news. Tilray, apparently, is not the only large Canadian cannabis company now operating in Europe that appears to be trying to get around GMP certifications for medical market penetration. Or appear oblivious to the distinctions in the international (and certainly European market).

german flag
Photo: Ian McWilliams, Flickr

And things are a bit smelly on that front, not only in Denmark post CannTrust, but in truth even in Germany, the supposed “Fort Knox” of regulatory consumer and pharmaceutical standards.

In fact, at least according to insiders, there is apparently quite a bit of gray market product sloshing around in the Teutonic medical market. Even though so far, at least not publicly punished for the same, nobody has been caught. Or at least publically reprimanded.

And who is on the hot seat at least according to most of the licensed if not just pre-licensed indie producers and distributors who were contacted for this story? Sure, there are dark horse “start-up” indie violators, but they are not the only problem. Many who talked to CIJ named big public Canadian companies too. And potentially Bedrocan beyond that.

Who Is Who And What Is What?

Part of the problem, beyond any kind of deliberate flouting of regulations on the part of many companies who are at least trying to understand them, is that global standards are different. “GMP certifications” of every country, even within a region like Europe, are in fact, not uniform. That is why, for example, the new EU-US MRA agreement had to be signed first regionally and then on a state-by-state level across the EU.

Beyond Germany of course, there are other problems that are coming to the fore.In the medical cannabis space, in particular, right now, that is causing problems simply because many with pharma experience are not hip to the many risks in the cannabis industry itself. On the Canadian, Australian and American side, there is also a lot of bad advice, in particular, coming from consultants who should know better.

To be properly EU and German GMP-certified, one of the required steps is to have German inspectors walk your production floor. It is also not good enough to have “pesticide-free” or national organic certification at the crop cultivation site, and add GMP cert at time of “processing.” That piece of misadvise has been showing up not only in Canada, but Australia too. And creates a nasty reality if not expensive retooling upon entering the legitimate market in Europe, for starters.

These Issues Affect Everyone In The Industry

German Parliament Building

In an environment where ex-im is the name of the game, and even the big guys are short of product, compliance is getting granular as smaller players step up to the plate – and many if not most hopeful Canadian producers (in particular) now looking to Europe for sales are not (yet) up to speed.

A big piece of the blame also lies in the lack of proper administration at the federal and state level too – even auf Deutschland. To get a distribution license, a company must actually get three licenses, although there are plenty in the market right now who begin to describe themselves as “distributors” with less than the required certs.

The lack of coordination and communication, including which certs to accept as equivalent and from where is creating a market where those who know how to game the system are.

For example, several people who contacted CIJ, claimed that uncertified product was making its way into Germany via Central and Latin America, through Canada, picking up “GMP cert” along the way. In other words, not actually GMP-certified but labelled fraudulently to make it appear that way.

The same claims were also made by those with on-the-ground industry knowledge in South Africa (Lesotho).

Beyond Germany of course, there are other problems that are coming to the fore. As CIJ recently learned, a firm authorized by the Dutch government to provide cannabis packaging, including for exports, was not GMP certified until July 2019 – meaning that all product they shipped internationally even within Europe before that date potentially has labelling issues. Cue domestic importers. If not regulators.

Grey Market Product Is Making Its Way In Through Official Channels

For those who are taking the time to actually get through the legal registration and licensing process, it is infuriating to see others who are apparently fairly flagrantly buying market position but are in no position to fulfil such obligations. It is even more infuriating for those who intend to meet the requirements of the regulations to realize that the vast amounts spent in consulting fees was actually money paid for inaccurate information.

And the only way ultimately the industry can combat that, is by standing up, as an industry, to face and address the problem.German distributors are so aware of the problem that they are starting to offer gap analysis and specific consulting services to help their import partners actually get compliant.

Government agencies also might be aware of the problems, but they have been reluctant to talk about the same. CIJ contacted both BfArM and the local Länderauthorities to ask about the outdoor grow in Portugal and the lack of GMP cert for a Dutch packager. After multiple run-arounds, including sending this reporter on a wild rabbit chase of federal and state agencies (who all directed us back to BfArm) and an implication by the press officer at BfArM that the foreign press was not used to talking to multiple sources, CIJ was redirected back to state authorities with a few more instructions on which bureau to contact. The state bureau (in Berlin) did not return comments to questions asked by email.

Here is the bottom line that CannTrust has helped expose this summer: the entire global cannabis industry is trying hard to legitimize. Not every company is shady, and there are many who are entering it now who are playing by the rules. But those who are hoping to exploit loopholes (including “name” if not “public” companies) are also clearly in the room.

And the only way ultimately the industry can combat that, is by standing up, as an industry, to face and address the problem.

Canopy_Growth_Corporation_logo

From CannTrust To Canopy: Is There A Connection To Current Cannabis Scandals?

By Marguerite Arnold
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Canopy_Growth_Corporation_logo

As Europe swooned under record-breaking heat this summer, the cannabis industry also found itself in a rather existential hot seat.

The complete meltdown at CannTrust has yet to reach a conclusion. Yes, a few  jobs have been lost. However, a greater question is in the room as criminal investigatory and financial regulatory agencies on both sides of the US-Canada border (plus in Europe) are getting involved.

As events have shown, there is a great, big, green elephant in the room that is now commanding attention. Beyond CannTrust, how widespread were these problematic practices? And who so far has watched, participated, if not profited, and so far, said nothing?

Who, What, Where?

The first name in the room? Canopy Growth.Canopy_Growth_Corporation_logo

Why the immediate association? Bruce Linton, according to news reports, was fired as CEO by his board the same day, July 3, 2019, that CannTrust received its first cease and desist notice from Health Canada.

Further, there is a remarkable similarity in not only problematic practices, but timing between the two companies. This may also indicate that Canopy’s board believed that Linton’s behaviour was uncomfortably close to executive misdeeds at CannTrust. Not to mention, this was not the first scandal that Linton had been anywhere close to around acquisition time. See the Mettrum pesticide debacle, that also broke right around the time Canopy purchased the company in late 2016 as well as the purchase of MedCann GmbH in Germany.

Reorg also appears to be underway in Europe as well. As of August, Paul Steckler has been brought in as “Managing Director Europe” and is now based in Frankfurt. Given the company’s history of “co-ceo’ing” Linton out the door, is more change to come?

What Went Down At Canopy?

Last year, Canopy announced its listing on the NYSE in May. To put this in context, this was two months after the first German cultivation bid went down to legal challenge. By August 15, 2018 with a new bid in the offing, the company had closed the second of its multi-billion dollar investments from Constellation.

Bruce Linton, former CEO of Canopy Growth
Photo: Youtube, TSX

Yet by late October, after Bruce Linton skipped a public markets conference in Frankfurt where many of the leading Canadian cannabis company execs showed up to lobby Jens Spahn (the health minister of Germany) about the bid if not matters relating to the Deutsche Börse, there were two ugly rumours afoot.

Video showing dead plants at Canopy’s BC facility surfaced. Worse, according to the chatter online at least, this was the second “crop failure” at the facility in British Columbia. Even more apparently damning? This all occurred during the same  time period that the second round of lawsuits against the reconstituted German cultivation bid surfaced.

Canopy in turn issued a statement that this destruction was not caused by company incompetence but rather a delay in licensing procedures from Health Canada. Despite lingering questions of course, about why a company would even start cultivation in an unlicensed space, not once but apparently twice.  And further, what was the real impact of the destruction on the company’s bottom line?

Seen within the context of other events, it certainly poses an interesting question, particularly, in hindsight.

Canopy, which made the finals in the first German cultivation bid, was dropped in the second round – and further, apparently right as the news hit about the BC facility. Further, no matter the real reason behind the same, Canopy clearly had an issue with accounting for crops right as Canadian recreational reform was coming online and right as the second German cultivation bid was delayed by further legal action last fall.

Has Nobody Seen This Coming?

In this case, the answer is that many people have seen the writing on the wall for some time. At least in Germany, the response in general has been caution. To put this in true international perspective, these events occurred against a backdrop of the first increase in product over the border with Holland via a first-of-its kind agreement between the German health ministry and Dutch authorities. Followed just before the CannTrust scandal hit, with the announcement that the amount would be raised a second time.

German health authorities, at least, seem doubtful that Canadian companies can provide enough regulated product. Even by import. The Deutsche Börse has put the entire public Canadian and American cannabis sector under special watch since last summer.

Common Territories

By the turn of 2019, Canopy had announced its expansion into the UK (after entering the Danish market itself early last year) and New York state.

And of course by April, the company unveiled plans to buy Acreage in the U.S.

Yet less than two weeks later, Canopy announced not new cultivation facilities in Europe, but plans to buy Bionorica, the established German manufacturer of dronabinol – the widely despised (at least by those who have only this option) synthetic that is in fact, prescribed to two thirds of Germany’s roughly 50,000 cannabis patients.

By August 2019, right after the Canopy Acreage deal was approved by shareholders, Canopy announced it had lost just over $1 billion in the last three months.

Or, to put this in perspective, 20% of the total investment from Constellation about one year ago.

What Happened At CannTrust And How Do Events Line Up?

The current scandal is not the first at CannTrust either. In November 2017, CannTrust was warned by Health Canada for changing its process for creating cannabis oil without submitting the required paperwork. By March of last year however, the company was able to successfully list on the Toronto stock exchange.

Peter Aceto arrived at CannTrust as the new CEO on October 1 last year along with new board member John Kaken at the end of the month. Several days later the company also announced that it too, like other major cannabis companies including Canopy, was talking to “beverage companies.” It was around this time that illegal growing at CannTrust apparently commenced. Six weeks later, the company announces its intent to also list on the NYSE. Two days later, both the CEO and chair of the board were notified of the grow and chose not to stop it.

Apparently, their decision was even unchanged after the video and resulting online outrage about the same over the destroyed crops at the Canopy facility in BC surfaced online.

On May 10, just over a week after the Bioronica purchase in Germany, the first inklings of a scandal began to hit CannTrust in Canada. A whisteblower inside the company quit after sending a mass email to all employees about his concerns. Four days later, the company announced the successful completion of their next round of financing, and further that they had raised 25.5 million more than they hoped.

Six weeks later, on June 14, Health Canada received its warning about discrepancies at CannTrust. The question is, why did it take so long?

Where Does This Get Interesting?

The strange thing about the comparisons between CannTrust and Canopy, beyond similarities of specific events and failings, is of course their timing. That also seems to have been apparent at least to board members at Canopy – if not a cause for alarm amongst shareholders themselves. One week after Health Canada received its complaint about CannTrust, shareholders voted to approve the Canopy-Acreage merger, on June 21.

Yet eight days after that, as Health Canada issued an order to cease distribution to CannTrust, the Canopy board fired Bruce Linton.

One day after that, the Danish recipient of CannTrust’s product, also announced that they were halting distribution in Europe. By the end of August, Danish authorities were raising alarms about yet another problem – namely that they do not trust CannTrust’s assurances about delivery of pesticide-free product.

Is this coincidence or something else?

If like Danish authorities did in late August 2019, calling for a systematic overhaul of their own budding cannabis ecosystem (where both Canadian companies operate), the patterns and similarities here may prove more than that. Sit tight for at least a fall of more questions, if not investigations.

Beyond one giant cannabis conspiracy theory, in other words, the problems, behaviour and response of top executives at some of the largest companies in the business appear to be generating widespread calls – from not only regulators, but from whistle blowers and management from within the industry itself – for some serious, regulatory and even internal company overhauls. Internationally.

And further on a fairly existential basis.


EDITOR’S NOTE: CIJ reached out to Canopy Growth’s European HQ for comment by email. None was returned.

Gaps in Standard Property Insurance Can be an Unknown Hazard for Cannabis Businesses

By Susan Preston, T.J. Frost
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Basic business liability coverage is not enough for those cultivating, selling and distributing cannabis. General liability, property and even commercial renter’s insurance policies all exclude aspects of cannabis operations, leading to significant gaps in coverage.

Unfortunately, many cannabis operations purchase traditional property policies, assuming they’re insured. Then, when a claim comes to light, they find out they’re not covered.Consider the following common exclusions that could lead to a costly business interruption – or worse

Although the production, sales and distribution of cannabis is legal in many U.S. states, it is still illegal federally. This disparity can cause confusion when it comes to insurance compliance. Cannabis companies will want to secure industry specific coverage for risks associated with property, business interruption, and auto as well as general liability.

Consider the following common exclusions that could lead to a costly business interruption – or worse – a shutdown of operations when not properly insured:

  • Property coverage does not cover crops. Cannabis crops require specific coverage for different growth stages, including seedling, living plant and fully harvested. The insurance industry has designed policies specifically for indoor crop coverage for cannabis operations. There is some market availability for normal insured perils such as fire and theft, to name a few. Work with your broker to review your property policy and any potential exclusions related to cannabis operations. There is currently not much availability for insurance for outdoor crop.
  • Auto policies exclude cannabis transport. Some states require separate permits for transportation. Review coverage options with a knowledgeable broker before moving forward with driver hiring. Implement driver training sessions on a regular basis, conduct background checks and review MVRs prior to hiring company drivers. Teach drivers how to handle accidents on the scene, including informing law enforcement of the cannabis cargo. Remember that transporting cannabis across state lines (even when legal in both states) is still illegal due to federal law.
  • Equipment damage and/or breakdown coverage may be excluded from property policies. Consider the expenses and potential loss of revenue due to mechanical or electrical breakdown of any type of equipment due to power surges, burnout, malfunctions and user error. Having the right equipment breakdown insurance will help you quickly get back into full operation, with minimal costs. Conduct an onsite risk assessment of your equipment to get a comprehensive picture of your risk exposure, and review current insurance policies to identify key exclusions. 

Organizations looking for cannabis business insurance are best off working with a qualified broker who is knowledgeable in the cannabis space.As the cannabis industry continues to expand, more and more insurance options have become available. And yet as with any fast-paced industry, not every option that appears legitimate is a good risk for your cannabis business.

Be a contentious insurance consumer. Review the policy closely for exclusions and coverage features so you understand the premium rates and limits of the policy.  Discuss with your broker the history of the carrier as to paying claims in a timely fashion.

Organizations looking for cannabis business insurance are best off working with a qualified broker who is knowledgeable in the cannabis space.

FDA

FDA Warning Letter to CBD Company Provides Many Lessons for Burgeoning Market

By Seth Mailhot, Emily Lyons, Steve Levine
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FDA

The U.S. Food and Drug Administration (FDA) issued a warning letter to Curaleaf Inc., a multi-billion-dollar market cap company that is publicly traded on the Canadian Securities Exchange. The FDA determined, based upon a review of the company’s website and social media accounts (Facebook and Twitter), that several of Curaleaf’s cannabidiol (CBD) products are misbranded and unapproved new drugs sold are in violation of the Federal Food, Drug, and Cosmetic Act(FD&C Act). The FDA also determined that Curaleaf’s “Bido CBD for Pets” products are unapproved new animal drugs that are unsafe and adulterated under the FD&C Act2. This action by FDA holds many lessons and cautions for companies already in or looking to break into the CBD market.

Unapproved New Human Drug Claims and Misbranding
The FDA identified a variety of statements in its review of the Curaleaf website and social media accounts that it said established the CBD Lotion, CBD Pain-Relief Patch, CBD Tincture, and CBD Disposable Vape Pen products as drugs. It is important to highlight that these claims were not made on the products’ label and, in some instances, referred to CBD generally. The FDA characterized these claims as demonstrating an intent to market the products for use in the diagnosis, cure, mitigation, treatment or prevention of disease, as well as to affect the structure or any function of the body. For example, FDA asserted that Curaleaf made a variety of drug and disease-related claims that its products or CBD in general could be used:

  • To treat chronic pain;
  • To reduce the symptoms of ADHD, anxiety, depression, post-traumatic stress disorder, and schizophrenia;
  • As a natural alternative to pharmaceutical-grade treatments for depression and anxiety;
  • To address eating disorders;
  • To reduce the severity of opioid-related withdrawal;
  • To deter heart disease;
  • As an effective treatment for Parkinson’s disease and Alzheimer’s; and
  • To kill breast cancer cells and counteract the spread of cancer.

The FDA stated that the Curaleaf products are not generally recognized as safe and effective for the uses described on their website and social media accounts and, therefore, the products are new drugs under the FD&C Act3. The FDA stated that, because the products have not received approval from the FDA, they may not be legally introduced or delivered for introduction into interstate commerce.

FDAlogoThe FDA further declared that the Curaleaf products are misbranded within the meaning the FD&C Act, because their labeling fails to bear adequate directions under which a layperson can use a drug safely and for the purpose for which it is intended. The FDA will frequently add this charge when citing a product marketed as an unapproved new drug. In its warning letter, the FDA noted that Curaleaf’s products are offered for conditions that are not inclined to self-diagnosis and treatment by individuals who are not medical professionals (e.g. Parkinson’s, Alzheimer’s, etc.). Therefore, the products would need to bear adequate directions for use, as well as obtain appropriate new drug approvals from FDA prior to being marketed as human drugs.

Unapproved Dietary Supplement Labeling 
The FDA further concluded that Curaleaf intended to market their CBD products as dietary supplements. For example, under the disclaimer section of the Curaleaf products the FDA noted that it says that “Cannabidiol (CBD) . . . is a dietary supplement.” However, the warning letter reiterated the FDA’s longstanding position that CBD products do not meet the definition of a dietary supplement because they contain an active ingredient in a drug product that has been the subject of public research and drug approval by FDA. While the warning letter states that FDA is not aware of any evidence that counters the agency’s position that CBD products are excluded from the definition of dietary supplement, Curaleaf may present the FDA with any evidence that is relevant to the issue.

Further, the FDA noted that the Curaleaf products do not meet the definition of dietary supplement because those products are not “intended for digestion”. The CBD Lotion and the CBD Pain-Relief Patch products’ labeling states that they are intended to be applied directly to the skin and body, while the CBD Disposable Vape Pen is intended for inhalation. In addition, the CBD Tincture products contain a “Suggested Use” section on labeling that includes both edible and topical uses. According to the FDA, the addition of the topical use to labeling established that the tincture products are not intended for ingestion and therefore do not meet the definition of a dietary supplement.

Unapproved New Animal Drugs 
The FDA also concluded that Curaleaf’s “Bido CBD for Pets” products are unapproved new animal drugs as statements on Curaleaf’s website show that the products are intended for use in the mitigation, treatment or prevention of diseases in animals. For example, the company’s website states that its products will decrease dog separation anxiety, distressed feelings, anxiety and seizures, as well as reducing or stunting the growth of cancer, relieve muscle spasms and treat arthritis issues. The FDA stated that the products are “new animal drugs” because they are not generally recognized among experts qualified by scientific training and experience as safe and effective for use under the conditions prescribed, recommended or suggested in the labeling. In order to be legally marketed, a new animal drug must have an approved new animal drug application, conditionally approved new animal drug application, or index listing. As these products are not approved or index-listed by the FDA, these products are considered unsafe and adulterated.

What This Means to You 
The FDA is paying close attention to companies marketing CBD products with unapproved drug claims for both human use and animal use. It is important for companies that currently market or are considering marketing CBD products to ensure that their marketing materials and labeling generally comply with FDA requirements and avoid making unapproved human or animal drug claims.  Additionally, it underscores the fact that FDA will review more than just the label of the product, and will scrutinize statements made about the product on the company’s website and social media accounts to determine the product’s intended use. Even though the FDA is in the process of determining how to regulate CBD products, the agency will not withhold enforcement actions against companies that make unapproved drug claims, particularly those that FDA believes will steer patients from receiving approved treatments.

The receipt of an FDA warning letter may also potentially result in class action lawsuits based on state consumer protection laws or lawsuits by competitors under the Lanham Act or state competition laws. While the FD&C Act does not include a private right of action, publicly issued warning letters may form the basis of a claim that statements are false and misleading and actionable under state or other federal laws.


References to the Federal Food, Drug, and Cosmetic Act (FD&C Act).

  1. Sections 502(f)(1), 505(a) and 301(d)
  2. Sections 501(a)(5) and 512(a)
  3. Section 201(p)

Denver Plans Crackdown on Contaminants

By Aaron G. Biros
No Comments

Earlier this month, Colorado cannabis producer Herbal Wellness LLC recalled dozens of batches of cannabis due to positive yeast and mold tests. The Colorado Department of Public Health and Environment (CDPHE) issued a health and safety advisory following the news of microbial contamination.

The Colorado Department of Revenue then identified batches of both medical and recreational cannabis produced by Herbal Wellness that were not even tested for microbial contaminants, which is a requirement for licensed producers in the state. Just a few days later, the Denver Department of Public Health & Environment (DDPHE) issued a bulletin announcing their plans to conduct random tests at dozens of dispensaries.

“In the coming weeks, the Denver Department of Public Health & Environment (DDPHE) will be conducting an assessment in approximately 25 retail marijuana stores to evaluate contaminants in products on store shelves,” reads the bulletin. “DDPHE has worked with epidemiological partners at Denver Public Heath to create the assessment methodology. Participating stores will be randomly identified for inclusion in the assessment.”

“Current METRC inventory lists for each store will be used to randomly identify samples of flower, trim/shake, and pre-rolls. Each sample will be tested for pesticides and total yeast and mold by a state- and ISO-certified marijuana testing facility. Results of their respective testing will be shared with each facility and will also be shared broadly within a write-up of results.”

The Fall of Farmako?

By Marguerite Arnold
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Chances are if you follow the European cannabis scene, particularly out of Germany, that you might have heard of a firm called Farmako. They have certainly, in the three quarters or so they have been in business, been given a lot of “good press.” They certainly worked hard to get into the headlines.

The problem is that no matter how scintillating initial claims were to many members of the media if not industry beyond, the bloom was quickly off the rose in the same circles. Since at least March, these grumbles have earned the company increasingly bad press. Industry insider complaints and background knowledge also began appearing in places like Manager (a top German business magazine), Vice and Business Insider Germany. Behind the headlines and insider quotes, however, quite a few people are admitting, even if off the record, that while initially impressive enough to be believed – at least on the surface – most of Farmako’s claims have panned out so far to be just hot air. And there have been a lot of them, not only from the sourcing perspective but also from the research, scientific development and certainly tech fronts.

The rebutting, editing and confronting of which has also set off a round of really bad press.

Live by the sword, die by the sword.

Further, apparently even the embarrassing fallout (and of course resulting reorganization) is not what it seems to be. Which of course has also been described so far publicly by the Frankfurt-based company itself, and Berlin-based tech funder, Heartbeat Labs. The former of which are so far unsuccessfully walking back just about every claim made over recent months. The latter of which has a great deal of embarrassing egg on its face on the compliance front.

When reached for comment by Cannabis Industry Journal, Heartbeat Labs responded via email that they had none.

While Farmako is struggling to regain the confidence of the industry if not regulators and appears to be trying to hang on to its distribution license, the story itself is also illustrative of many of the failings of the so-far establishing cannabis industry. In Germany and elsewhere. Coming as it does within the summer of scandal involving both larger companies and start-ups, bigger questions about industry practices, in general are in the room. If not the backgrounds of those boasting about “industry experience” (or even worse when caught, “oops I have none, really”). Highly stereotypical fixes so far have also not helped.

Everyone makes mistakes in a world where everything is new and one where the regulations are constantly changing. The problem with Farmako in particular, is that there were so many.All the bragging in the English and German language press had consequences.

The Story So Far

Farmako made headlines earlier this year when they issued a press release claiming that they had inked a deal to “import 50 tonnes of cannabis from Poland.” They further claimed, when contacted by CIJ that they stood by the story. At this point, their claims were clearly about a future delivery. However, Farmako CEO Niklas Kouparanis then embellished further on Bloomburg. Kouparanis claimed that they were already distributing product from Macedonia.

The reality of course was nothing of the sort. While Farmako was distributing product it had sourced from other places, no Macedonian product had ever crossed the border. But as May rolled into June, it was clear that there was something else afoot. All the bragging in the English and German language press had consequences. The German press had a field day with the storied and very colourful past of both Farmako founders. The regulatory agency, BfArM conducted an investigation. Kouparanis was out by the beginning of July.

Producers Do Not Trust Them

Cannabis industry insiders (both producers and distributors) who contacted CIJ about this story, but wished to remain off the record, confirmed that many producers who had initially heard of the firm in both Poland and Macedonia, in particular, were distancing themselves from Farmako. But the stories were not limited to Eastern Europe. In the UK, where Farmako had used a chunk of its investment from Heartbeat Labs to also open a London office, cannabis professionals expressed scepticism of almost all of the company’s claims including not just sourcing, but on the tech and R&D side. One senior executive in the Canadian industry said on deep background that he was tired of the lies from Diemer in particular, and never wanted to speak to anyone associated with the company ever again.

And clearly all was not well within Farmako itself, no matter the constant cheery optimism, if not “shucks we didn’t know” attitude of all involved when actually confronted or questioned about their behaviour – and or statements – particularly to the press.

What Has Been The Upshot To Date?

Kouparanis may be history but Diemer remains with the company. Although Heartbeat Labs claims this has nothing to do with the subsequent company re-org and Kouparanis’ departure, insiders in the industry claim otherwise. Further, several also suggested that any attempt on the part of Farmako to enter into contracts until July was fundamentally compromised by the actions of Farmako execs themselves.

Diemer certainly, has been remarkably candid at least in review about one aspect that most in the cannabis industry who have encountered him so far agree with. He has come clean in interviews that he knows very little about the legitimate cannabis industry. Perhaps that is also why he has continued to claim that there is no crisis at the company.

Both statements of course also raise questions about why he is still there.

The company is still in business although apparently finding it very difficult to source product.The appointment of a new CEO, Geschäftsfüherinen– a female and first head of any kind of cannaspecialist distribution company auf Deutsch, Katrin Eckmans is also interesting. Eckmans makes her apparent cannabis industry debute with a professional background that includes ex-im at Frankfurt airport, after the quick departure of Kouparanis. Particularly given that he co-founded the company with Diemer after leaving a year long stint at Cannamedical (the second indie cannabis specialty distributor in Germany, established in 2017 by David Henn). And she is apparently being hired for both complementary experience and her gender (which while refreshing in a still male dominated industry is widely also regarded as at this point fairly easy-to-spot window dressing conveniently proffered to regain confidence of investors if not customers in a gender-friendly twist when a company or organization hits an existential crisis).

Calling in even a highly competent if inexperienced in the cannabis niche woman, in other words, even in this industry, does not necessarily “fix” things. This goes from company culture to critical relationships within the industry (upon which distributors like Farmako depend on at this point).

For now, at least, Farmako, and its financier in Berlin appear to have deflected criticism of their efforts although those who have had interactions with the staff are placing bets on when the doors in both Germany and the UK will shutter.

Farmako’s detractors may yet also lose such wagers. The company is still in business although apparently finding it very difficult to source product. Not, in this case because they cannot find it – but rather because producers are flat out refusing to work with them.

In the meantime, particularly other German canna specialty distributors are taking a lesson from this story. If Farmako survives, in other words, it will do so by overtaking the competition that has sprung up all around them – which is not only unburdened by the baggage, but is also determined not to make the same mistakes.

UKflag

How Much Cannabis Astroturfing Is Afoot In The UK?

By Marguerite Arnold
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UKflag

Astroturfing is the practice, in political messaging and campaigns, of creating what seems to be a legitimate, grassroots inspired campaign that is actually bought and paid for by an industry lobby or other corporate interests.

It is also clear that this practice is now entering the cannabis space, certainly in the UK.

How and Where?

On August 1, the British Conservative Drug Policy Reform Group sent out a group email entitled “Strategic litigation on medical cannabis access in the UK.” The email, from the group’s senior communications manager, was to announce the kick-off of a crowdfunding campaign to defend a cannabis patient.

It’s beneficiary? A British female MS patient, Lezley Gibson, now facing prosecution for growing her own cannabis after being unable to afford what was on offer at her local pharmacy.

Here is the first flag: MS is the only condition for which Sativex (manufactured by British firm GW Pharma) is prescribed on label (in other words without special approvals).

The problem is that the NHS (along with most of the German statutory approvers) feels that Sativex is still too expensive and not effective enough. And that problem won’t be solved with either patient home grow access or a lawsuit to gain that right, but rather funded trials.

UKflagHowever, more disturbingly, the email referenced the supposed success of a similar legal tactic in Germany several years ago. This is to say it used a highly inaccurate analogy. In Germany, a male chronic pain patient sued the government for the right to grow his own cannabis. He won the right temporarily, but this was taken away from him after the law changed in March 2017. Now he, like every other cannabis patient in Germany, must get his cannabis from a pharmacy. German patients also must get their initial prescription approved by health insurers – which is for everyone – but particularly non MS patients – the biggest fight in the room right now on the topic of medical efficacy.

Further, the right to grow one’s own medical cannabis, no matter the condition suffered, has been removed from patients in every legal jurisdiction where there is no constitutional right to it first – namely patients sue for the same.

As such, it is entirely conceivable that as a “strategic” case, this is more likely to put pressure on the NHS to pay the sky-high price of Sativex for MS patients (which it has already refused to do) than create any other kind of access for anyone else.

When contacted by Cannabis Industry Journal, a CDPRG spokesperson said that the patient had given her support for the crowdfunding campaign and needed help.

piechart
Most German Patients Are Still Only Getting Dronabinol

However, there are other issues here. Namely that when selecting a strategic case (no matter how harsh this sounds to the individual patient), the entire discussion at this point – certainly from an efficacy point of view, might be better served with supporting the case of a patient who has less access because of either physical condition or economic status.

In fact, in Germany so far, thanks to the change in the law that the British group references, while there certainly are tens of thousands of cannabis patients at the moment (including many MS patients), the majority of them receive Dronabinol or Sativex. And all of them have to fight for medical access and approval from their insurers. That is of course, when they can find a doctor to prescribe in the first place. There are also estimates that there are close to a million patients in Germany who cannot get access, thanks to the change in the law created by one patient’s law suit.

Is this flavour of litigatious advocacy now afoot in the UK, in other words, the kind of lawsuit that is designed to benefit the industry more than patients looking for affordable, home-grown, if regulated product?

Astroturfing Cannabis Issues Under Brexit Colors?

No matter the real versus stated intent of the instigators of the Gibson case, or the eventual outcome of such litigation, there is no doubt that cannabis is being brought into larger political debates. And further, no surprise, “patient access” is an issue just as ripe for “issue manipulation” and astroturfing as anything else.

“Strategic” if not “crowdfunded” cause or tactical lawsuits are another form of this technique.

That foreign cannabis money is already in the room is also no surprise. The British press was alight with stories during June of the amount of money contributed to the CDPR Group from Canadian sources.

Seen within the context of Brexit itself, this is disturbing locally.There are other issues involved in this kind of challenge to the law.

Not to mention the fact that in May, none other than Arron Banks, the self-styled backer of the Leave Campaign, decided, suddenly, to throw his hat into the CBD oil ring on Twitter. Not to mention repeated the same information repeatedly, including his $4 million investment into the space during the following months so far. Plus, of course, wildly optimistic valuations of the U.S. market.

Suing For Patient Justice Or A Backdoor For Canadian and Other Corporate Interests?

There are other issues involved in this kind of challenge to the law.

The first is that in the British case this is actually not a constitutional case per se, but a human rights one. See the problems that those who are trying to define the British constitution right now on other matters (see Brexit) are running into.

The second is that while the patient in question in this case (Ms. Gibson) is undoubtedly relieved at the prospect of a legal defence for growing her own medication in the face of insurmountable cost, on the “positive” side, her case is unlikely to do much more than make impoverished patients fight NHS paperwork if they can find a doctor. See Germany, as a prime example.This lawsuit, in other words, no matter how it might get one woman out of a terrible legal situation, is not necessarily “pro-patient.”

But what it will do is something else. It may well remove the current widespread prohibition on the harvesting of cannabis flower in the UK. And while patients would face again being moved into the slow lane of NHS approvals (with lots of fights over efficacy looming and still unsolved), corporate growers and processors if not importers, already investing millions into such efforts across the UK and Ireland, benefit.

At the exclusion, also, as has been the case in Germany, of local producers who are not already large corporate interests or existing farms.

This lawsuit, in other words, no matter how it might get one woman out of a terrible legal situation, is not necessarily “pro-patient.” It also may well do everything to frustrate, slow down and further complicate medical access for those at the end of the chain, while only opening up “investment opportunities” for large companies and well-heeled interests who have nothing but profit, if not the destruction of the NHS in mind.