I have heard everything from “No one in their right mind would spend the energy in Europe when the U.S. has the most developed infrastructure in the world and $13 billion in sales” to “Is it even legal there?”. And yes, when you come from the West Coast cannabis world, it’s hard to imagine anywhere else but the West Coast of the U.S.A.
Europe has taken an infrastructural leap forward by starting off the pharmaceutical, medical and GMP supplements path. As an American-European from the West Coast cannabis world, remembering how the U.S. started/progressed, remaining patient and stretching the grey matter crossing the thresholds of pharmaceutical manufacturing, is serious.
Costs to Do Business
Which country you choose to begin operations in decides if cannabis is more or less expensive cap-x and opp-x to the U.S. And don’t forget the Euro conversion. Clearly, working near main cities like Berlin and Geneva will be expensive both for land and competition for talented staff. I chose Portugal, which greatly reminds me in terms of geography to a mini-California on the coast of Europe. Portugal also boasts the most progressive cannabis rules and is home to large cannabis producers like Tilray and Clever Leaves paving the way in the EU market. Greece is also one of our top locations, due to being cannabis friendly and another coastal country with great talent and reasonable costs to live and operate.
Excitement
The coast of Portugal
All of Europe is buzzing with cannabis. Somai Pharmaceuticals tracks over 387 star-ups in cannabis around Europe, South America, Australia and Asia. The excitement when Colorado first announced cannabis legalization in 2014 is the same feeling in Europe now. Most groups are collaborative yet guarded at the same time with the uncertainty of how EU cannabis plays out. Patient demand exists, and similar government wills are at play, but all in the direct backyard of big pharma.
Right now you see huge companies that will always exist and small companies that will always be a part of competition. It’s likely that Europe will shake out to be 30% large to medium company mix and 70% medium to small companies. So, the feeling of room for everyone exists there. This is not surprising considering the legal market in the world is $17B in sales while the illegal market is estimated at ten times that market. And new demographics from around the world are opening up to cannabis for pain relief, sleep and other ailments for new age groups.
Brand New Infrastructure
Member states of the European Union
Conforming to standard guidelines like pharmaceutical manufacturing, GMP supplement manufacturing and GACP farming is just plain normal. U.S. state-by-state expansions really missed the boat on this, and state rules without federal guidelines aren’t good for businesses left guessing or consumers. Eventually, with federal legalization, some infrastructure rebuilding will be needed to conform to standard procedures. I am unsure if the systems are even capable of handling tens of thousands of operating facilities with or without regulation, but starting off at the highest level of pharmaceutical grade is a good way to build consumer and regulator confidence. Learning pharmaceutical and supplement GMP manufacturing is a precise and studied endeavor coming from the U.S. cannabis market. The US hemp industry is embracing this on a supplement level. I now curl up to online courses and formulation books.
In time, all of Europe’s 741 million population will have access to cannabis related products. With standardized processes, new infrastructures and good-old fashioned entrepreneur energy Europe will be a massive market. Sure, the early adopters will need to struggle through regulations and rule creation, but the lifestyle in Southern Europe is the envy of West Coast USA, where laid-back lifestyle and organic food is the minimum standard.
In a press release sent out this week, Trichome Analytical, based in Mount Laurel, New Jersey, announced two new developments for their business: They have achieved ISO 17025:2017 accreditation and they are officially registered with the DEA for hemp compliance testing.
The press release also mentions their collaboration with Shimadzu, who supplies 80% of the lab’s equipment and supports the Trichome’s operations with technical guidance.
For the hemp industry, pre-harvest testing for THC levels is a requirement and labs are required to get registered with the DEA in order to perform that testing.
These announcements are somewhat timely, given the results of the election. Voters in New Jersey approved adult use cannabis legalization just last week.
In a press release published last week, Shimadzu Scientific Instruments announced a partnership with MoCann Testing, a division of EKG Labs. MoCann Testing is the first state-certified medical cannabis testing lab in Missori.
It sounds like the partnership involves Shimadzu supplying MoCann with instruments and supporting their testing efforts with training, method development and maintenance, though the press release does not mention any details.
“We are excited to support MoCann’s mission to help individuals across the state of Missouri have access to safe medical marijuana through accurate sample testing and quality results,” says Bob Clifford, Ph.D., general manager of marketing at Shimadzu. “Because selecting the right analytical solutions is a critical investment, we provide more than just advanced instrumentation and software. We assist with method development, instrument training and maintenance that keep systems operating at the highest level.”
MoCann Testing is certified by Missouri, accredited to ISO 17025 and they offer the full gamut of testing services for growers and manufacturers in Missouri.
Cannabis reform is proceeding globally right now in some interesting places, and in an oddly syncopated schedule yet again.
Namely, in the last few weeks, change has been moving forward not only in the U.S., but Europe too. That this effort in the EU came literally weeks before the American presidential election where as of now, no matter who will occupy the White House, even more states move into the adult use camp is also surely no accident. Particularly given the results.
In South Dakota’s case, voters agreed to legalize both a medical and recreational market in a single election. In New Jersey, the referendum that passed authorized a market that is moving quickly to get implemented. This is equally intriguing. Namely that to the average person right now, no matter where they are, the continued delays and gridlock to get going, no matter the problems along the way, are increasingly unpopular politically. That too, is showing up at the ballot box.
Indeed, cannabis reform is now absolutely one of the most pressing and yet unaddressed issues in several countries at present. See New Zealand (where the voter mandate for adult use reform failed during their Presidential election last week).
Europe Seems To Be Following New Zealand’s Caution As Germany Delays Further Reform But…
Last week, a proposal on adult use cannabis reform failed in the German Bundestag (Parliament). With the exception of the far right Alternativ für Deutschland (AfD), every other political party agrees that there needs to be forward motion on the topic, but nobody seems to want to fully address it. This is no surprise. Indeed, the recent appointment of a former German minister last month to a Swiss cannabis company seems, certainly in retrospect, to presage the same. As well as the many protest votes on the topic emanating from Berlin, one way or the other.
However, in the aftermath of what is expected to be a widely influential medical case here (namely the regional approvers may not interfere with a doctor’s right to prescribe to qualified patients), it may be that the government wants more time to grow its medical program while Denmark, Holland and Luxembourg (if not Spain) figure out the logistics on the ground.
French medical trials expected to begin Q2 of 2021
Given that France has finally committed to a national medical trial to begin no later than the second quarter of next year, and further one where it punts the majority of the cost onto the industry itself, this would create a solid “medical cannabis” bloc in Europe’s most affluent states. Not to mention the first real, nationally authorized patient trial in Europe that is not commercial.
But even this is not the whole story. While dickering about the certifications and scheduling of the plant go on now at the highest international levels, let alone federal ones domestically, hemp products are clearly entering the consumer market here – from upscale CBD stores in city centers to hemp seed oil and hemp-infused mayonnaise appearing on the shelves of German mainstream grocery stores. Not to mention hemp infused alcohol of at least the vodka, gin and rum varieties.
And then of course there is Italy.
The Italian Market May Be The Dark Horse In Europe Everyone Has Been Waiting For
Within literally the month of October, all in public view, the Italian government circled on the topic of legalizing the CBD/hemp market. As of last week, the Ministry of Health finally decided that cannabidiol sourced from hemp is not a narcotic.
CBD in Italy went from widely available to banned and back to available again.
Given the fact that home grow now is not illegal, and medical cannabis is technically available, it would seem that Italy is positioning its hemp market to survive if not thrive at least domestically and further thread the needle of industry continuity against fluid and further rapidly changing European and international regulation right now.
In the meantime, like Germany, however, the country is clearly angling to create an industry infrastructure – and further beyond the pharmaceutical vertical – via “other” channels before taking the final plunge. Cannabis Lite fits that bill perfectly.
What Does This Mean For 2021 And Beyond?
No matter the official denials, it is very clear that recreational cannabis reform at the American and Canadian ballot box is moving the conversation forward globally, even if at a different pace.
With the WHO now poised to weigh in on the issue, more American states signing up, an expanding medical market across the world and adult use upstarts everywhere, 2021 is absolutely sure to be a meaningful year just about everywhere on the cannabis front.
Editor’s Note: This article has been updated to include the presidential and congressional election results.
While the votes continue to come in for the presidential and congressional elections and we have some concrete results materializing, cannabis legalization has emerged as a clear winner across the board. Five states had initiatives on the ballot to legalize cannabis in one form or another and voters in all five states approved those measures by wide margins.
As of this writing, 15 states now have legalized adult use cannabis and 36 states have legalized medical cannabis. That is a significant portion of the United States with some form of legal cannabis, even without counting the emergent hemp markets across the country.
After a tight race and mail-in vote counts diminishing President Trump’s lead days following the election, Joe Biden has won the White House. Most cannabis industry stakeholders see this as a win for cannabis as both Biden and Vice President-Elect Kamala Harris have voiced support for federal decriminalization of cannabis. The vocal support is very much so tied to their campaign on ending racial injustices and systemic racism, citing the failed war on drugs for disproportionately harming communities of color.
While it is looking like the Democrats will retain control of the House of Representatives, it is still unclear which party will control the Senate. That question likely won’t be answered until January 2021, when voters in Georgia will decide on two Senate seats in runoff elections that will decide which party gets the majority. With a Democratic majority in the House and Senate, it is entirely possible that the Biden administration could decriminalize cannabis on a federal level within the next four years. Without that majority, however, it is possible reform could come at a much slower pace.
As more states legalize cannabis, their neighbors see the potential economic benefits and want to cash in on the movement. Just take a look at the West Coast.
Comments made by politicians leading up to the election in the Northeast also shed some light on the alleged domino effect coming to the United States. In late October, about two weeks before the election, New York Governor Andrew Cuomo was asked when his state will legalize adult use cannabis. His answer: “Soon, because now we need the money.” Back in September, Pennsylvania Governor Tom wolf specifically asked the state legislature to legalize adult use cannabis. Governor Wolf said “people will go to New Jersey” to purchase cannabis once it becomes legal in the neighboring state.
Question 1 in NJ won by a very wide margin
Well, New Jersey legalized adult use cannabis. So now it appears we are in a waiting game to see which neighboring state will move forward before the other. Alyssa Jank, consulting services manager at Brightfield Group, predicts cannabis sales in New Jersey to reach about $460 million in 2021, up from about $94 million this year. She says the market could reach $1.5 billion by 2025.
Sam D’Arcangelo, director of the Cannabis Voter Project, a division of HeadCount, says the New Jersey measure is pretty bare-bones, so the legislature will need to pass enabling legislation that actually creates the adult-use program. “It’s tough to tell exactly what that legislation will look like or how long it will take to pass, but it’s possible it will be approved pretty quickly,” says D’Arcangelo. “Tonight’s results could set off a domino effect that inspires lawmakers to move forward with legalization in a number of states throughout the region.”
Let’s take a closer look at Arizona: Back in 2016, Arizona had a measure on the ballot to legalize adult use cannabis that failed to get enough votes. Things have clearly changed in the state in the last four years because Prop. 207 (the 2020 ballot initiative to legalize adult use cannabis) won 59.8% to 40.2%. Arizona now joins a massive West Coast bloc of states slowly creeping inland that have legalized adult use cannabis, including, Washington, Oregon, California, Nevada and now Arizona, not to mention Montana. Drug Policy Alliance’s Emily Kaltenbach believes that New Mexico will follow suit as well, with three out of four voters in the state in favor of it.
Voters in Mississippi approved a medical cannabis program by a wide margin with almost 74% in favor. Even more encouraging, voters in the state rejected the legislature’s attempt to hijack the initiative with their own alternative measure that would have involved developing their own program as they see fit without any sort of deadline.
While Montana can tend to lean slightly Democrat, it is surrounded by heavily Republican-dominated states like Wyoming and Idaho. With both Montana and South Dakota voters approving adult use legalization measures, this presents a potential inroad for cannabis to reach far more conservative states in the Northern Rockies and beyond.
Greg Kaufman Partner at Eversheds Sutherland and frequent Cannabis Industry Journal contributor, says this election puts considerable pressure on Congress to take some action on one or more of the cannabis-related bills currently pending. “In several states, cannabis was more popular than the winning presidential candidate, regardless of the party of the winning candidate,” says Kaufman. “This suggests that cannabis is not a partisan issue, nor should it be.”
The 15 states that have legal adult use cannabis now represents about 34% of the population in our country. “During the most divisive election in modern U.S. history, Americans demonstrated unity around at least one issue – cannabis policy reform,” says Aaron Smith, co-founder and chief executive officer of the National Cannabis Industry Association. He says the victories we saw this week are commendable and will lead to a lot of new jobs, tax revenue and thousands of fewer arrests, but there is still a lot of work to be done. “We look forward to building on this progress as we continue to work with Congress to end the conflict between outdated federal laws and the growing number of states with regulated cannabis markets, and help undo the racially and economically disparate harms caused by prohibition.”
While we wait to hear who will control the Senate in 2021, which will have a massive impact on cannabis reform, we leave you with this great quote from Aaron Smith: “There is still a lot of work to do, but the wind is at our backs.”
Five states had cannabis reform on the ballot yesterday for the 2020 election: Arizona, Mississippi, Montana, New Jersey and South Dakota. All five ballot initiatives won by a clear margin, with some races ending in landslides. Stay tuned for coverage on congressional and presidential elections and the impact on the future of the cannabis industry.
For now, here are which states legalized cannabis last night, as well as some details on the five (well, technically eight) state ballot initiatives:
Arizona – Prop. 207 (Adult Use)
Results: 59.8% Yes, 40.2% No
Details:
Legalizes cannabis for adults over 21
Puts a 16% tax on retail sales of cannabis and cannabis products
Develops a process for expunging records of cannabis-related drug offenses
Arizona already has an established medical cannabis program
Mississippi – Initiative Measure 65 & Alternative Measure 65A (Medical)
Results: 67.9% Yes for either, 32.1% No against both
Details:
Both initiatives theoretically legalize medical cannabis in the state.
There is a legislature-proposed alternative on the ballot, which makes things a bit confusing and gives voters the option of voting for both, neither or one of the two.
Initiative 65 would give the state’s department of health a mandate and authority to establish regulations for a medical cannabis program by August 2021. This initiative lists 22 qualifying conditions.
Initiative 65A gives the legislature the power to come up with their own program as they see fit and does not include any sort of deadline.
Legalizes, taxes and regulates cannabis for adults over 21
Requires the state’s department of revenue to license and regulate cannabis businesses
Puts a 20% tax on retail sales of cannabis and cannabis products
Develops a process for expunging records of cannabis-related drug offenses
Montana already has an established medical cannabis program
Initiative 118:
This just allows the language of the initiative to call an adult over 21, instead of 18 as it is stated in the Montana constitution.
New Jersey – Question 1 (Adult Use)
Results: 66.9% Yes, 33.1% No
Details:
Legalizes, taxes and regulates cannabis for adults over 21
New Jersey already has an established medical cannabis program – this ballot measure gives authority to the regulatory body currently overseeing the medical program, the five-member Cannabis Regulatory Commission.
Only applies the 6.625% state sales tax and prohibits additional sales taxes.
South Dakota – Constitutional Amendment A & Initiated Measure 26 (Adult Use & Medical)
Details:
Constitutional Amendment A Results: 53.4% Yes, 46.6% No
Legalizes, taxes and regulates cannabis for adults over 21
This also requires the state legislature to set up a medical program as well as a hemp program by April 2022.
Puts a 15% tax on retail sales of cannabis and cannabis products
Gives local governments authority to allow or ban cannabis businesses
Initiated Measure 26 Results: 69.2% Yes, 30.8% No
Establishes a medical cannabis program in South Dakota
It does list a few qualifying conditions like severe nausea, chronic pain, seizures and more, but it gives the state’s department of health the power to add more conditions to that list.
SD Department of health would have 120 days to set up regulatory framework.
While we’re pleased to report that 2020 is almost over, 2021 will be a mixed bag. New jurisdictions will open their doors to cannabis and consumption will continue to rise, but competition from new operators and illicit supplies will increase. As California’s cannabis industry matures and turns the page on a bizarre year, market uncertainty will linger as the pandemic drags on and overtaxation and regulation strangle profits. But let’s remember, cannabis has been cultivated for over 6,000 years and has withstood far worse—this market isn’t going anywhere and will continue to grow and become more impactful.
Access to Traditional Finance Services
The U.S. Senate will likely pass legislation providing cannabis businesses access to traditional banking and financing services. This will be a game changer for the industry. Valuations will go up. Increased liquidity will smooth transactions. Companies will look to affordable debt to expand their footprints and capacity to compete on a new scale. Full federal legalization could be a game changer if 280E tax restrictions are lifted and interstate and international cannabis trade open up, but the timing of this is hard to predict.
Continued Quarantine-Induced Consumption
Cannabis consumption will continue to increase as Californians seek to ease pandemic-related stress, temper quarantine conditions, and sample an eye-popping array of new products. Sophisticated consumers will be open to spending more on unique and niche products. But hemp-derived cannabinoids may present a new source of competition, especially if CBD remains unregulated. By the end of 2021, cannabis beverages will begin to compete with mainstream alcohol categories. Pharmaceuticals will increasingly take notice of this industry and the increasing share of consumers turning to plant-based remedies.
Ever More Cultivation Opportunities
In pursuit of revenue, agricultural counties will liberalize their policies on cannabis cultivation by permitting more acreage and streamlining permit processes. Neighborhood groups will push back, but policymaker concerns will be assuaged when they see cannabis farms operating innocuously (and sustainably) around the state. Advances in seed breeding, pest-and-disease control, outdoor growing techniques and odor abatement technology will help too.
New Retail
Cities and counties will revisit opening their borders to cannabis retail storefront and delivery as they attempt to fill budget gaps. Many cities will allow cannabis retail for the first time and/or expand the number of licenses available. These new dispensaries will provide a much-needed outlet for the influx of licensed flower and will continue to spur innovation and consumer education. But a “second wave” of retail speculators seems poised to let optimism override judgement, setting themselves up for failure or acquisition by incumbents.
Getting Social Equity Right
2021 will be a pivotal year for social equity, which will establish a foundation for a just cannabis economy. The industry will have to grapple with how to ensure that those most impacted by the criminalization of cannabis and most often excluded from traditional financing exposure are provided with equitable access to meaningful opportunities. As California’s regulated cannabis market grows, getting social equity right will be important if the industry is to firmly establish itself as an inclusive industry that addresses impacts on marginalized communities and responds to customer demands.
Formalizing Appellations
California’s new CalCannabis Appellations Program will provide cultivators and brands a way to credibly market the value of their unique growing regions and cultivation methods. These distinctions only apply to cannabis planted in the ground, excluding greenhouse and warehouse grows. The expectation is that high-end consumers, trained to recognize place-based designations and quality certifications in other products, will reward products that boast these designations. How many consumers will be willing to pay the premium and how long full implementation of the program will take, remains to be seen.
Prices May Begin to Drop
2020 was a great year for the few fully licensed cultivators in California permitted to sell to the regulated market. 2021 may be different. Numerous licensed cultivation projects will complete the permitting processes and come online next year. While growing demand may outpace supply at first, by Q3 supplies could swamp the market. Premium flower is perhaps an exception. Adding to the pricing pain, as always, is California’s illicit market, which will continue to undercut prices, as legal growers toil to comply with a labyrinth of state and local regulations. Nonetheless, cannabis will remain the most profitable crop on a per acre basis for some time.
Business Turmoil
The drop in prices coupled with continued high taxes and regulatory burdens will result in turnover of assets and businesses. Less efficient and inexperienced cultivators will struggle, many unable to ultimately withstand pricing pressure. Others will be hit by enforcement actions for failing to comply with California’s myriad regulations. Retailers, already burdened by punitive tax structures, real estate finance commitments and onerous local regulations, will need to be disciplined and have a clear strategy to address new competition.
Consolidation
Driven by business failures and renewed investor interest, California’s regulated cannabis industry may consolidate rapidly in the second half of 2021. Institutional finance will enter the space with a much more disciplined approach than prior capital sources. Traditional agricultural interests will invest in cannabis cultivation projects. Well-run retail chains will begin to outcompete, and then acquire, mom-and-pop competitors. Big brands will continue to expand their shelf space, relegating smaller competitors to niche and novelty status.
In short, the cannabis industry will continue to be highly dynamic, exciting, enticing and risky.
According to a press release published earlier in October, Metrc has won the seed-to-sale traceability software contract for West Virginia. The West Virginia Department of Health and Human Resources, Bureau for Public Health, Office of Medical Cannabis (OMC) made the announcement on October 21.
According to that press release, the main focus for the state’s traceability program is “helping OMC regulators ensure no illicit cannabis products are sold in the medical cannabis market, and also that no legal medical cannabis products are sold unlawfully.”
Regulators in West Virginia are still on schedule to open the medical cannabis market as soon as next year, according to Jason Frame, OMC director. “This is an important step to make certain medical cannabis is available only to West Virginians with serious medical conditions and to prevent diversion of products in West Virginia,” says Frame. “While the COVID-19 pandemic has put many industries across the country on hold, we’re proud to say that it has not stopped West Virginia from meeting its deadlines and laying the groundwork for a safe, regulated medical cannabis market.”
Regulators at the OMC are still working on scoring processing and retail license applications. The OMC says they will begin the process of issuing patient cards in the spring of 2021.
As of this writing, the United States Food and Drug Administration (FDA) has approved GW Pharma’s CBD drug Epidiolex for treating profound refractory pediatric epilepsy syndromes (Dravet syndrome and Lennox Gastaut syndrome) as well as for treating seizures associated with tuberous sclerosis complex (TSC) in patients one year of age or older. The product is a very simple, orally-administered formulation comprised of 100mg/ml cannabidiol (CBD), dehydrated alcohol, sesame seed oil, strawberry flavor and sucralose – basically, an alcohol-based solution with sesame seed oil to help solubilize the CBD oil, flavoring and sweetener.
On April 6th, 2020 GW Pharma performed a regulatory miracle when they succeeded in convincing the Drug Enforcement Administration (DEA) to deschedule Epidiolex (i.e., remove it from the Schedule 1 and Schedule 5 lists of substances that the agency regulates due to concerns regarding safety, potential for abuse or both) for all indications – including indications for which it has not yet been approved by the FDA.1 The benefit to GW of having their product descheduled is incalculable. This status change removed potential barriers to insurance reimbursement and made the need to set up and administer an expensive REMS2 drug safety program less likely. In part because of this regulatory coup d’état, the drug recently posted yearly earnings of nearly $300 million.
It is important to note that the DEA descheduled the Epidiolex formulation and not cannabis-derived CBD itself. Thus, GW Pharma is now in the enviable position of being the only company that can legally sell cannabis-derived CBD. More importantly, because the DEA descheduled the formulation and not the active ingredient, other companies who wish to market cannabis-derived CBD pharmaceutical formulations will have to repeat whatever it is that GW did to get Epidiolex descheduled.3 The DEA effectively gave the company a huge head start with respect to competitors who are developing other cannabis-derived CBD formulations that would compete with Epidiolex. That advantage will remain in place unless and until cannabis-derived CBD itself is descheduled or cannabis is legalized at the federal level.
GW Pharma’s CBD drug Epidiolex, which is FDA-approved to treat profound refractory pediatric epilepsy syndromes
GW Pharma’s attorneys demonstrated considerable virtuosity in devising this approach. However, there is another aspect of the GW Pharma story – one that could have profound implications for the exploding CBD consumer packaged goods (CPG) industry. The Federal Food, Drug, and Cosmetics Act4 (FFDCA) prohibits the introduction into interstate commerce of any food to which has been added an approved drug or a drug for which substantial clinical investigations have been instituted and made public.5 Because CBD was and is still the subject of clinical trials run by GW Pharma and others, even hemp-derived CBD is currently illegal to use as a food additive or dietary supplement under the FDCA
The FDA has recently re-started the public commentary stage of a long process that will hopefully result in the creation of a regulatory pathway for CBD to be used as a food additive – something that would seemingly be a straightforward matter given the copious amounts of safety data being generated from all of GW Pharma’s clinical trials. However, as long as the FDA continues to drag its feet in providing a regulatory pathway for CBD CPG products, CBD, regardless of its source, will remain illegal to use as a food additive or supplement under either the CSA or the FFDCA despite the existence of safety data obtained through the Epidiolex clinical trials. If, as many people in the industry anticipate, the agency decides to begin enforcement action, this could have a hugely negative impact on the industry.
In addition to the potentially disastrous effect that federal law could have on an important new industry, the federal regulatory scheme introduces unnecessary regulatory complexity and cost by imposing two different regulatory schemes depending on the source of the CBD. CBD derived from hemp is chemically identical to CBD derived from cannabis. Despite that identity, the 2018 Farm Bill nonsensically exempts only hemp-derived CBD from the Controlled Substances Act. If a regulatory pathway is created for hemp-derived CBD, but the DEA insists on maintaining cannabis-derived CBD as a schedule 1 substance, then the same molecule will be subject to two different regulatory schemes. This scenario would require tracking and certifying CBD sources and thereby impose regulatory and economic burdens that are entirely unnecessary from a public health point of view.
An alternative, economically disastrous scenario: given the pharmaceutical industry’s formidable lobbying power, it is entirely possible that the FDA could decide to limit the use of CBD exclusively in prescription drug formulations. This could kill the entire US hemp CBD CPG industry, currently estimated to reach $22 billion by 2022.6
Overall, the current state of affairs is unfair, expensive, uncertain and entirely unworkable over the long term. The CSA must be amended, ideally to deschedule both hemp and cannabis entirely, but at least in the short term, to deschedule CBD and preferably all non-THC cannabinoids regardless of their source. Further, the FDA must provide a regulatory pathway to allow the use of low doses of cannabinoids shown to be safe, either by existing clinical trial data or future testing pursuant to the NDIN submission process.
A 2019 Gallup poll found that 14% of Americans – 1 in 7 – use CBD products.7 The demand is there, the industry is thriving, and adequate safety data exists to justify a regulatory system that allows low-dose over the counter CBD products provided those products are produced using Current Good Manufacturing Practices (CGMPs) for food and dietary supplement manufacturing prescribed by the FDA and that such products undergo regular testing that demonstrates they are safe, unadulterated and accurately labeled. It is time for the industry to collectively fund a New Dietary Ingredient Notification (NDIN) submission that would provide safety data sufficiently compelling to force the FDA to either recognize CBD and other non-THC cannabinoids as being GRAS substances regardless of their source, or in the alternative create a regulatory path for CPG products containing low-doses of CBD and other non-THC cannabinoids.
Editor’s Note: The opinions expressed in this publication are those of its author. They do not purport to reflect the opinions or views of the Cannabis Industry Journal, its editorial staff or its employees.
References
Clincialtrials.gov lists 256 different clinical trials in which Epidiolex has been, is being or will be tested for a wide variety of other indications, including but not limited to opioid use disorder, several types of prostate cancer, alcohol use disorder, musculoskeletal pain, and a host of others.
REMS – risk evaluation and mitigation strategy – are drug safety programs that the FDA requires in cases where mediations pose serious safety concerns with respect to potential abuse and other adverse effects.
Exactly what they did isn’t clear, and won’t be for a long while given the snail’s pace at which FOIA requests are filled.
Title 21 United States Code Chapter 9
Title 21 United States Cod Chapter 9, Sections 331(ll), 342(a)(1) and Section 342(d)(f)(1)
“Exclusive: New Report Predicts CBD Market Will Hit $22 Billion by 2022” Rolling Stone Magazine, September 11, 2018, citing cannabis industry analysis from the Brightfield Group.
Cannabis infused products manufacturing is quickly becoming a massive new market. With companies producing everything from gummies to lotions, there is a lot of room for growth as consumer data is showing a larger shift away from smokable products to ingestible or infused products.
This is the first article in a series where we interview leaders in the national infused products market. In this first piece, we talk with Keith Cich, co-founder of Sunderstorm, Inc. and the brand Kanha Gummies. Keith and his business partner, Cameron Clarke, started Kanha Gummies in 2015 after long careers outside of the cannabis industry. In 2015, they went all in and started the brand, which grew to be a major player and driving force in the California market.
Next week, we’ll sit down with Mike Hennesy, director of innovation at Wana Brands. Stay tuned for more!
Aaron Green: Keith, nice to meet you. Thank you for taking the time today. Tell me about how you got Sunderstorm off the ground and how you got involved in the company?
Keith Cich: Absolutely. So, my business partner, Cameron Clarke, is a lifelong friend. We met as undergraduates at Stanford University. I went on to work on Wall Street and did commercial real estate. Cameron has been a serial entrepreneur, from a much more technical side working in software. He was actually one of the first people to bring the Açai Berry to market and put it on the shelves of Whole Foods. So, he’s kind of the science and operations guy and I’m the finance and business guy. It’s been very synergistic.
Keith Cich, co-founder of Sunderstorm, Inc.
By 2015 we had both traveled extensively and were big advocates of plant medicine and cannabis as another form of plant medicine. We also have a 15-year track record of going to Burning Man together. Really, explorations in consciousness and plant medicine were what tied us together. When cannabis came up as a business opportunity, we just kind of looked at each other and said, you know, we have a lot of business experience to bring to the table. We have a love of the plant and an appreciation for how it will impact society. So, we kind of went all in in 2015 under proposition D, and set up operations in Los Angeles at that time.
Aaron: How did you decide to get into infused products from the list of choices?
Keith: Yeah, we initially set up extraction, but we felt that cultivation and extraction would ultimately be commodities. However, if you could develop popular brands you could carve out valuable shelf space and have longevity.
We acquired a small gummy company in February 2016. In the beginning of it all – I call it “Cannabis 1.0.” At that time, a lot of the packaging was really oriented around men in their 20s focused on “high consumption.” The packaging was a lot of black and skull and crossbones, and it didn’t really represent who Cameron and I were as people. You know, we were a little bit older and well-traveled. And we just felt like when adult use would come in that brands would take a different pathway. So, we hired a branding person to come in and help with packaging.
We really focused on a product that would appeal to females because it was clear they were going to be 50% of the market – and packaging that would really appeal to older people, which we thought would come on board once the stigma of cannabis was reduced. And so, we really set up Kanha gummies, at that time in early 2016, to be this adult use product that would appeal to a wide spectrum, both medical users as well as adult users in the time that would come in the not too distant future.
Aaron: Yeah, that’s interesting. You talked about how you thought about differentiating in the early days getting off the ground. How do you think about differentiating today?
Keith: The two things that really set Sunderstorm apart from the crowd is automation and innovation. We were the first gummy company to invest hundreds of thousands in European confectionery equipment, which allowed us to scale our business, but more importantly, produce an identical product every time. The reason we hear people come back to Kanha gummies is that they have the same replicable experience every time, which is really the key to CPG companies. So, it’s really stringent automation that allowed us to develop precise dosing. In fact, in 2019, we won the award from CannaSafe, which is the largest lab in California, for the most accurately formulated edible. We dialed in manufacturing and that’s what set us apart in the early years.
My partner is really geared towards science and implementing new delivery systems for cannabinoid products. We were the first company to come out with a nano edible about a year ago in 2019 and we are still the leader in offering consumers nano-molecular delivery systems. What does that mean? One of the common problems with edibles is that it takes 45 minutes to an hour for it to kick in. We all know friends who take a cookie and double up on the cookie and end up having too big of an experience. Rapid onset curbs that risk. Our nano gummy kicks in about 15 to 20 minutes, and it’s got just this really nice journey to it. We’ve separated the audience between the people that have our classic gummies, which takes longer to kick in, maybe a little bit stronger and the nano technology, which has a really fast onset, and really kind of a discrete journey. We stay ahead of the competition today, because of the nanotechnology that we’ve implemented in gummies.
As I always say, it’s not about how much vitamin C you take – it’s more about how much vitamin C gets in your blood stream. And it’s the same with cannabis, right? It’s how much THC and CBD or other molecules get in your system. So it’s about really having the highest bioavailability and the best performing products. And that’s what our customers have come to believe about Sunderstorm.
Aaron: You’ve talked about a couple new products from Kanha. At a high level, can you talk about your process for ideating and creating a new product?
Keith: Sure. I could use an example of a product that we’ve just kind of relaunched. It’s called the Tranquility gummy and it’s targeted for sleep. What we’ve discovered is there’s a whole host of medical reasons why people take cannabis – as well as the adults who take cannabis for entertainment – but sleep is a major issue for Americans of all ages. It’s surprising. It impacts 20 year olds and it impacts 60 year olds.
Part of the process of coming up with a product is trying to figure out what’s the need in the marketplace. So in this case, we really looked and said, hey, let’s target sleep and see if we can experiment and come up with a product. Our first round of Tranquility had a mix of CBD and THC in it because both of those are valuable for sleep. CBD is a chill-pill that kind of makes you calm so you can go to sleep. THC is often something that helps people stay asleep.
“We go through many iterations of a product before it actually hits the marketplace.”In that product, we also added 5-HTP, which is a serotonin booster, which once again, people take when they have anxiety or stress. So it’s kind of a stress reliever, and it helps you be calm, which again, I think a lot of the problems for people who have an issue with going to sleep, it’s having so much on their mind that they can’t stop the monkey mind to actually enter into sleep to begin with.
We also added just a small amount, one milligram, of melatonin. We know that Melatonin is a sleep aid, but you don’t want to take so much melatonin that your body stops producing melatonin because you’re taking the supplements. So at the end of the day, you want to just encourage and coax your body into healing and not overkill it with a pharmaceutical. Right?
So that was our first generation and we worked with that but my partner looks through a lot of research that’s occurring on different cannabinoid particles, and it became clear that CBN, which is kind of a new cannabinoid that’s hitting the press, actually had really strong properties for sedation and keeping people asleep. So, we added the largest dose of CBN in any gummy, and then re-launched that product a month or two ago. And we’re getting incredible feedback from shops that they’re selling out. It’s awesome, because people are actually taking the gummy and having the effect of falling asleep and staying asleep.
It’s the combination of the different factors. No one factor is so overwhelming like a pharmaceutical drug. But it’s the combination of the different factors together that make for a great product. And we fortunately have dozens of people in our company who are happy to do R&D for our new products. We also have some people outside the company that are consultants and experts as well. We go through many iterations of a product before it actually hits the marketplace. And that’s the second thing: it’s a lot of rigorous R&D testing of products before we launch it for the end consumer.
Aaron: Yeah, so if we can touch on that, can you tell me about your experience with your most recent product launch? Whether it’s the NANO5 or the Tranquility gummies? How did you think about preparing the market for the launch? Preparing your team for the launch? And then how did it go?
Keith: I’ll talk about our sublingual line called NANO5. Again, it’s a nano product where every molecule of CBD or THC is wrapped in a molecule of fatty lipids, so that when you spray it on your tongue, it tricks your body into absorbing it directly into the bloodstream and doesn’t actually go through the digestive tract and the liver. The bioavailability of these sublinguals is high and 70 to 80% of the cannabinoids actually get into your bloodstream.
We’ve done blood sampling tests versus your standard tincture. Your standard tincture is just MCT oil and cannabis, it’s pretty crude, kind of caveman-ish, quite frankly, when compared to the delivery of pharmaceuticals are today. NANO5 is a much more advanced delivery system.“We’re here to really try to educate people the best that we can.”
Now we have the product… right? This is a sophisticated product that’s challenging for bud tenders to explain when consumers come in with their medical needs. We had to create a lot of written brochures about how the product works, what the dosages are and that sort of stuff. Then our sales people go in and actually train the shops. They’ll pull bud tenders out and do training sessions and talk about NANO5, what makes it different from other tinctures, what medical conditions is it good for, etc. It’s kind of old fashioned, in-store training.
Then we finally have implemented a new piece, which is digital bud tender and consumer training. We are leveraging a platform for bud tender training, we talk with the shop, talk about the product and if the shop manager agrees we send a link out to all the bud tenders who take a quiz. The bud tenders get educated on an online platform, take a quiz, and then when they pass the quiz, they get a licensed sample of the product to try themselves so they have firsthand experience.
What we find in many shops is that the consumer is still not that educated about cannabis, particularly for medical uses, and particularly what I call the “new consumer” that hadn’t used cannabis in their lives, because it had such a high stigma to it and now with the reduction of the stigma it means a 40 or 50 year old woman might go into a store to find something to help with pain, or help with anxiety. Now, the bud tender can use the training that they’ve learned on NANO5, and understand that this could be a good product for them, and then talk about it intelligently and give some materials to the consumer before they walk away.
It can be intimidating for consumers to go into a shop, you know, it’s a new experience. It’s like going to the doctor’s office, you don’t always hear what they say, because you’re kind of nervous. So giving them the written materials, and even a test to follow up on online really allows for a form of education that is in tune with the user needing to learn at their own speed and really to just take away what’s important for them.
Aaron: Did I hear you correctly? The user – the end consumer – can also do a quiz?
Keith: Yes. Sunderstorm is about science and education. There’s a lot of assumptions in the marketplace that may not be correct. So, we’re here to really try to educate people the best that we can. And we really believe the rest of the world acts in a digital manner for education. In some ways, cannabis is a little bit behind the times because it’s difficult to advertise on Facebook and traditional venues. So we have one hand tied behind our back when we’re dealing with the digital world. But we at Sunderstorm are big believers that digital will be the way that cannabis consumers learn about brands, learn about products and learn about cannabinoids, and we want to be at the forefront of that education process.
Aaron: OK, we talked about some challenges. One of the challenges I hear a lot is about sourcing ingredients for infused products. How do you go about sourcing ingredients in your infused product lines?
Keith: Our primary ingredient that we source is distillate. And starting back in prop 215 days, we have a zero parts per billion policy on pesticides. What we discovered is before lab testing and licensure came in place is that 80 to 90% of the oil out there actually had pesticide levels that were way beyond safe. It really took licensing and the implementation of lab testing to change that regime. We now buy distillate from third party extractors and we have a handful of really big, really solid players onboard who provide that oil to us. The key is that if there’s any detectable trace of pesticides, we send it back and they replace it with a not-detect batch. So for us, that’s really the key to the whole supply chain: starting with oil that’s clean and really good quality.“Delivering the product in a compliant manner has been one of our logistical challenges, but one that I think we’ve done quite well at day in and day out.”
Fortunately, we’re one of the bigger brands in the industry so we have a little clout to make sure that the people that give us our oil are giving us their top shelf, and not their bottom shelf. We then have also made it a point to use only natural flavoring and natural coloring in our gummies. Believe it or not some of the red coloring actually is derived from beets and beet juice. We use spirulina as a source for our blue green colors. All of the gummies that we produce, not only have no pesticides, but they have no artificial flavors and no artificial coloring, which is of course standard in mainstream gummies that you buy at CVS or the local drugstore. So we really feel like we want to put out a healthy product and Cameron and I always look at each other, like, ‘we wouldn’t sell a product that we wouldn’t put into our own bodies.” And we’re very health conscious, you know, buying organic produce and not wanting pesticides to be inside us.
Aaron: Can you give me an example of a challenge you run into frequently, and this could be a business challenge, a marketing challenge, financials… something that you run into frequently?
Keith: Yeah, so we not only manufacture our products in California, but we also do self-distribution to over 500 retailers, meaning in store dispensaries and delivery services throughout California. With these 500 customers, we have two distribution points, one in LA and one in the Bay Area where I’m located. It’s an amazing challenge logistically. Not only are we running a manufacturing operation that requires precision – and it’s highly regulated – but we run a distribution company that’s highly regulated. For us the challenge is how do we efficiently deliver product to the Oregon border when we’re manufacturing in LA? We’ve had to spend a lot of time developing protocols for logistics and distribution to be able to basically meet demand throughout the state. And we’ve been growing like crazy. We add 10 new shops probably every week.
Delivering the product in a compliant manner has been one of our logistical challenges, but one that I think we’ve done quite well at day in and day out.
Aaron: What kind of trends are you looking at in the industry? And what keeps you excited?
Keith: I think COVID-19 has touched every aspect of our lives and it is impacting how we consume cannabis. Because it’s a respiratory disease, I think people have been wanting to shy away from smoking flower or vaping to keep their lungs healthy as a precaution in case they get it. So edibles have been kind of a natural choice for that. As well as the simple act of sharing something; sharing a joint raises a lot of safety risks, especially during the pandemic. It’s a lot easier to share a single gummy out of a bag safely.
Secondly, what I’ve noticed is that parents have their kids at home and yet they still want to consume cannabis as they did before. Edibles have been big because of discretion. So mom or dad can pop a gummy and have a spritzer before dinner and enjoy the night and my theory is happy parents make happy kids. So discretion has been critical.
Then I think there’s a whole round of new entrants that I mentioned before. These are people that maybe smoked weed in college or high school and haven’t touched it for 20 years and now that the stigma has been reduced, they’re coming back to the marketplace and wanting to explore. They may try a vape product, but very few of them want to smoke, as the country is generally pretty anti-smoking.
I think edibles and gummies have been a way for new cannabis consumers, particularly those who are older, to come and enjoy the positive effects, the medical effects and the social lubricant that cannabis offers, while being safe and discreet at the same time. I think COVID has definitely changed the way that that people think about consuming cannabis.
Aaron: Okay, awesome! Lastly, what would you like to learn more about? What are you interested in?
Keith: I have a degree in philosophy and religion. I’m a big fan of the evolution of consciousness. I think that is the container of the story through which we view human civilization and I honestly think we’re at a turning point for how humans in Western society view plant medicine.
I think cannabis is just the first to come along and be legalized. They’ve been doing phase II and III clinical trials on psilocybin and end of life anxiety. People, particularly war veterans, are using ecstasy or MDMA for depression.
What we’re discovering is that what we think we know about the mind is only the tip of the iceberg on how the mind works. I’m interested in exploring how these plant medicines impact individually with our psyche. Secondly, what happens to society when we reach a tipping point and a majority or at least some significant portion are taking these plants and medicines on a regular basis? It opens us up to a whole new perspective on ourselves, on society and on the universe that we live in. So I read a lot in those fields. And that’s what really excites me.
Aaron: Great. So that’s the end of the interview. Thank you for that.
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