Tag Archives: New

October 27, 2020

How GW Pharma Won CBD

By Cathleen Rocco

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 6^th, 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 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.
Gallup poll on American CBD product usage

August 25, 2020

Shimadzu & Front Range Biosciences Announce Partnership

By Cannabis Industry Journal Staff

No Comments

According to a press release, Shimadzu Scientific Instruments and Front Range Biosciences (FRB) announced a partnership where they will establish the FRB Hemp Science Center of Excellence. The center will focus on genetics, biobanking, breeding and analysis, all with Shimadzu instrumentation. The center will host scientists performing chemical and genetic analytical research to “support the development of new hemp varieties for the production of cannabinoids, terpenoids and other compounds for medical and wellness applications; lipid, wax and protein ingredients for food and cosmetics applications; and fiber for industrial applications.”

Dr. Jon Vaught, CEO of Front Range Biosciences

Located at FRB’s new headquarters in Boulder, CO, the new center will allow for collaborative efforts between researchers from the public and private sectors like academic, nonprofit and government agencies. The center will expand FRB’s collaboration with the University of Colorado at Boulder. Researchers at other institutions can apply for grants to support students, postdoctoral candidates and other researchers at the new center.

Dr. Jonathan Vaught, CEO of FRB, says they’re honored to work with Shimadzu and their instrumentation. “Front Range Biosciences is honored to partner with the world-class team at Shimadzu. Combining their innovative and proven cannabis and hemp analytical instrumentation solutions with our next-generation breeding program, we will be well positioned to continue advancing the industry with data-driven science so we can harness the incredible potential of this versatile plant for therapeutic, wellness, nutrition and industrial applications,” says Dr. Vaught. “We are confident that with Shimadzu’s cutting-edge technology, we will be able to drive forward-thinking solutions in this growing industry to better serve farmers, producers and consumers.”

August 18, 2020

Cannabis & COVID: Changes, Advances & Opportunities

By Laura Bianchi

No Comments

The onset of the COVID-19 pandemic sent shockwaves around the world, and they’re still rippling today. Businesses had to quickly pivot from in-person transactions and services to virtual operations, or close down until stay at home orders and other restrictions eased or lifted. While it varies from state to state, due to statutory and rule based operating requirements, requiring facilities to be open a certain amount of hours per week, many were deemed essential. These circumstances create a huge set of complex challenges for anyone in business to navigate, from workers and their families to management and owners, let alone vendors and ancillary businesses.

The bright side is being in an industry where plot twists are not uncommon. Cannabis is legal and highly regulated state by state, illegal on a federal level, so it’s always full of strategic problems to solve. With so many people, businesses, ever-shifting regulations, and financial interests at stake, the need for strategic legal services are the constant. From a purely business and regulatory standpoint, the pandemic has provided some in the cannabis industry with quantum leaps forward in operations and service, and many of them may likely become the new norm.

For people with anxiety (#everydemographic2020) and other debilitating medical conditions, perception is shifting towards the importance and benefits of cannabis as a medicine and alternative therapeutic treatment option, on pace with a larger global trend towards personal and shared wellness. There’s more freedom for consumers to participate recreationally in states with adult use programs too. Extended families and friends in other states may not have the same access to cannabis. We live in a socially driven world, and the awareness of the medicinal properties of cannabis has rapidly grown nationwide across broad demographics. The gateway drug stereotype and stigma is slowly but surely fading away.

Momentum and shift in consumer behavior, need and the shifting perspective of healthcare providers is affecting more state regulators. They’ve worked with the cannabis industry to modify and adjust operational rules as needed to ensure medicinal access during the ever-changing COVID climate. Although current rules and regulations haven’t been lifted in any way, this is a step in the right direction. However, recreational states are less likely to consider that portion of the cannabis market essential and look for ways to prioritize medical dispensaries over recreational.

Medical Cannabis Businesses Deemed Essential

The most immediate problems to solve in many states were social distancing and waiting areas – where to keep patients/customers? There are state guidelines and regulations for operations during COVID, plus CDC general safety and sanitation considerations for workers and consumers alike. Lawyers and regulators are working to make sure that these stores are open and operating safely, have established safety protocols, number of customers allowed inside the store, minimum hours of operation, and to allow for special elderly hours and accommodating patients with compromised immune systems.

One of the biggest operational changes has been an increase in the facilitation of online ordering and curbside pickup to help keep patients safe. Employees are wearing gloves and PPE as an added precaution. This puts the health of the patients and employees first, while still allowing businesses to operate.

More and more patients are not all that enthusiastic about making in-person appointments that may put them at risk. In every state, people waver between venturing out for necessities so they’re buying larger quantities and stocking up when they can, and cannabis is no different. Cash-paying customers must still pay in-person. As federal regulations continue to hinder additional payment options and protections, demand for change grows on both sides.

Staffing in a Pandemic

Like all employers, it’s easier for larger cannabis companies to accommodate employees who are sick or may have been exposed. It’s often more difficult for smaller operations. For many employees, the decision to go into work sick means rent and food, because the employer can’t offer additional sick pay.

In most states, employees have to have some type of state card to work in a store. It’s hard to find replacements and pay for sick leave. There’s no call for a temp agency solution due to clearance needed by cannabis employees. If the business has to shut down, it might not be able to bounce back. So in some states, cannabis businesses have suffered setbacks, but not to the extent as other industries such as hospitality, food and beverage, and tourism.

Crunching the Numbers

The cannabis industry is also excluded from PPP loans and other federal aid. True plant-touching cannabis companies can’t access those funds, adding extra financial stress to operations. The irony is for the majority of cannabis operations nationwide, the biggest change was not the increased regulatory requirements for social distancing, sanitation and safety, it was handling the incredible increase in product demand under circumstances that include financial and staffing stress.

One Arizona-based dispensary was averaging around $300K a month before COVID-19. Today, business has more than tripled to nearly $1 million a month. In mature legal state Colorado, a record $155 million in recreational product sales for June reflects a six percent increase over the previous month’s sales. The Colorado Department of Revenue collected $33.6 million from the industry in June. Colorado’s medical dispensary sales record was set in May, just shy of $43 million, dropping down to about $40.8 million in June. Both are still setting records for business volume. For 2020, revenue already exceeds $203.3 million, in contrast to roughly $302.5 million in cannabis-related revenue in 2019.

Heightened Supply, Demand & Opportunities

Heightened demand and the search for new market ventures means investors are taking notice. People sheltering or working from home are spending more time online, too. Many are searching for healthcare; others for promising investment opportunities. Legalization has been a long journey, state by state. Everyone inside the cannabis and hemp industries has learned to roll with the punches – expect ongoing legal needs, and to do strategic short- and long-term planning. How to anticipate change and pivot on a dime. It’s a must.

With the healthcare system struggling or strained in many areas of the country, non-essential primary care has shifted to telemedicine. Federally, the DEA granted permission to do so that extends for the duration of the COVID-19 public health emergency. The problem? State-level regulations may prohibit the prescription of Schedule III drugs via telemedicine, or limit the amount and refills. For essential healthcare, limited appointments or emergency-only availability remains a concern. Innovative new cannabis products help fill that gap.

There will be more challenges as elections approach and beyond. For those in cannabis, we’re used to being ready for anything. Stay tuned.

December 10, 2019

2020 Financial Trends for the Cannabis Industry

By Melissa Diaz

No Comments

The past year has been another strong year in cannabis. Investors continued to pour money into the burgeoning industry — surpassing 2018 investment totals in just 40 weeks — and new markets opened up for recreational and medical cannabis. And following the passage of the 2018 Farm Bill, CBD has proliferated and become one of the hottest health supplements in the country.

But as the year winds down, the industry appears to be poised for a more challenging shift in the new year, as once-heady expectations for some big companies don’t pan out and some states clamp down, rather than loosen up, certain regulatory hurdles.

Here are some financial trends to keep an eye on in cannabis over the next year:

Finding New Capital Investment Will Be Tougher

After an initial investment boom in recent years, cannabis investors are realizing not everything colored green turns to gold. With public cannabis companies not performing as well as hoped and restrictive tax laws still plaguing the industry, investors are growing more cautious when it comes to cannabis. Add in other macroeconomic trends that are pointing to a global economic slowdown, and 2020 is shaping up to be a tough year to find cannabis capital.

That’s not to say funding will completely dry up, but operators and business owners must be aware that investment deals that perhaps closed in a matter of days in previous years, likely will take weeks or months while investors dig deeper into books and perform higher levels of due diligence before inking a deal. This means cannabis businesses must carefully plan and watch their cashflow and pursue fresh capital or investment earlier rather than later.

Expect More M&A and Consolidation

With the green rush reaching a crest of sorts, reality is setting in for some smaller cannabis operators. Expect to see more consolidation with smaller dispensaries and cultivators being bought up and absorbed by the big kids. More limited capital and investment options coupled with continued regulatory and legal uncertainties mean unsustainable operating costs for independent and smaller operators, which means the only way to survive may be to sell to a larger player.

New Markets & Regulations

The new year brings new states opening up to recreational or medical cannabis sales, as well as newer or altered regulations in existing markets. Cannabis firms must keep an eye on these new markets and regulations to best determine whether they plan to expand or not.

How stringent or lenient regulations are written and executed will determine the size and viability of the market. One state may severely limit the number of licenses it issues, while others may not put any limit. For example, Oklahoma issues unlimited licenses to grow hemp at $1,500 a piece. While that sounds promising for smaller hemp producers, it also could potentially lead to an oversaturation in the market. On the flip side, a more restrictive (and costly) licensure structure could lead to a far more limited market where only the industry’s largest players will be able to compete.

Cannabis businesses also should keep an eye out for new regulatory hurdles in existing cannabis markets. For instance, California is raising its excise tax on cannabis beginning Jan. 1. That will result in higher costs for both consumers and cannabis companies. High state and local taxes have been a challenge industrywide because they make legal operators less competitive with the illicit market. Also, a proposed rule in Missouri could ban medical cannabis operators from paying taxes in cash. Such a rule would prove problematic for an industry that has had to rely on cash because of federal banking regulations.

Credit Card Payments

While cannabis businesses may face several new and recurring hurdles in 2020 on the financial front, at least one looming change should make business easier: credit card payment processing. Because of cannabis’ continued banking woes, dispensaries and other plant-touching operations have not been able to accept credit cards. Though federal banking limitations remain in place, in 2020 we will see payment processors introduce new, creative and less expensive ways to navigate current banking limitations that will allow cannabis sellers to take credit cards. Opening up payments in this way will not only make transactions and record keeping easier for customers and businesses alike, it also will attract consumers who don’t use cash.

While some of these trends may prove challenging, in many ways they are signs that the cannabis industry is shifting and maturing as we enter a new decade. Many hurdles remain, but the size and momentum of the industry will only continue to grow in 2020 and beyond.

September 3, 2019

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

By Seth Mailhot, Emily Lyons, Steve Levine

No Comments

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 Act¹(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.

The 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).

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

May 2, 2019

Soapbox

Cannabis Pioneers vs. Cannabis Innovators: Who Has the Advantage?

By Jeff Arbour

No Comments

In today’s innovation marketplace, everybody wants to be the first. Tech and non-tech companies alike are racing to raise capital for crypto, blockchain and AI, yet these sectors and technologies are still not even close to mass adoption.

Today’s entrepreneurs are obsessed with disruption. While this is obvious in the world of tech, it may soon be overshadowed by the nascent cannabis industry in the United States. Every time a new state opens an application submission period for a new cannabis dispensary, hundreds of companies apply. Each new market and state have pre-existing demand. Until recently, obtaining cannabis was difficult for many and illegal.

Often, the latecomers who learn from pioneers’ mistakes are the ones who earn the greatest successes.

Most of these companies apply in good faith, only to run into unforeseen problems as the regulatory landscape changes. This is part of the risk inherent to pioneering and disrupting industries. Often, the latecomers who learn from pioneers’ mistakes are the ones who earn the greatest successes.

The Difference Between Pioneering and Innovating

In the world of commerce, paving the way for a new product to hit the market is usually a thankless, time-consuming task. It exposes the weaknesses of the market’s operators and invites newcomers to disrupt the already unstable status quo.

Although household names like Levi’s and Wells Fargo owe their success to the California Gold Rush, historians pay relatively little attention to the hundreds of thousands of casualties the Gold Rush caused. Pioneers paved the way, and innovators – like Levi Strauss – profited from the result.

Similarly, when it comes to cars, Peugeot and Tatra are not household names like Ford and Honda. Henry Ford’s assembly line innovations and Honda’s unbeatable factory flexibility led to those younger companies becoming far more successful than their older counterparts.

Pioneers change the way an industry operates. Airbnb did not succeed because it offered superior service compared to the powerful and deep-pocketed hotel industry. It succeeded because it improved the model that HomeAway and VRBO launched years prior – and did so in a way that undermined the hotel’s typical strengths while capitalizing on their weaknesses.

Pioneering disruption is not equal to innovation, and the cannabis industry will follow the same course.

Although pioneering the creation of new business models is an admirable thing to do, it’s not for everyone. Airbnb has been fighting regulators since the very beginning. The company has been forced to pay fines and taxes that simply didn’t exist until Airbnb’s business model came into being.

Uber’s regulatory troubles regularly make headlines around the world. Although it successfully disrupts every market it enters, established taxi companies and newcomers like Taxify often get the last laugh when they implement Uber-like functionality into existing business models. Uber found it too difficult to compete in China and sold its business to local newcomer Didi Chuxing.

All of these cases demonstrate that being the first or early to introduce a business concept comes with many challenges. Pioneering disruption is not equal to innovation, and the cannabis industry will follow the same course.

Cannabis Industry Pioneers vs. Innovators

In the cannabis industry, being the first often meant living in constant fear of being arrested. During the early years of medical cannabis legislation, it was unclear whether federal authorities would raid and prosecute cannabis cultivators and dispensaries.

Every new cannabis market offers important, expensive lessons to future cannabis entrepreneurs:

California changed its cannabis product packaging laws several times before its market went live.
Oregon’s lack of state inspectors led to a laboratory testing bottleneck and an upsurge in black market cannabis diversion that the state’s last audit called “currently unstoppable.”
The two largest medical marijuana cultivation facilities in Illinois cost about $40 million to build, yet they compete over a market of less than $10 million.
Major pioneers like Medmen have paid enormous sums of money to gain entrance into regulatory environments they can’t accurately predict profits from.

Newer cannabis industry entrepreneurs are taking notice of all these obstacles and implementing plans to overcome them. It’s likely that the next generation of medical and recreational dispensaries will have far greater success than today’s biggest names, primarily due to this fact.

Consider the fact that all three of the S&P’s biggest cannabis industry companies have valuations far in excess of their actual sales. It is possible that these large, deep-pocketed organizations will generate enough revenue to justify their valuations, but in the meantime, newer players will enter the picture with greater responsiveness and startup efficiency.

Newcomers to the cannabis industry are setting themselves up for success with highly targeted business objectives, strong executive teams and high-impact advisors. They are navigating the regulatory landscape with more agility than early cannabis pioneers can muster, obtaining lower price-to-sales ratios in the process.

Cannabis entrepreneurs need to be creative in their assessment of the opportunities these new environments create.

This is the hallmark of innovation. While disruptions and inventions typically take the form of new products or services, innovations expand marketplaces and lay the groundwork for new interactions between economic actors in those marketplaces.

What Tomorrow’s Cannabis Innovators Can Do Now

States like Pennsylvania, New York, and New Jersey are currently leaning towards recreational marijuana legislation like those currently in place in Colorado and California. Cannabis entrepreneurs need to be creative in their assessment of the opportunities these new environments create.

Opening a cannabis company is no small task. As regulators gradually come to agree on the requirements each state will ask its business owners to meet, the next generation of pioneering cannabis entrepreneurs will have to adapt. At the same time, a relatively small contingent of innovators – the new generation of Levi Strauss’s – will coincide to provide much-needed products and services to the incoming rush.

These innovators will not be limited to one side of the industry. Innovation thrives on integration, and tomorrow’s cannabis entrepreneurs are going to develop streamlined solutions for tackling today’s inefficiencies in ways that simply are not possible right now. These lean, sophisticated startups will use that path paved by the first generation of cannabis industry incumbents.

Cannabis innovators will need to develop solutions for minimizing the costs and complications of setting up companies in highly regulated environments. This can mean anything from developing superior seed-to-sale tracking POS integrations to building a more efficient supply chain and a path to the consumer.

With luck, the next generation of cannabis entrepreneurs will look to the past when informing their strategic decisions for the future.

December 3, 2018

Discussing Lab Accreditation: The New ISO 17025:2017 Standard

By Aaron G. Biros

2 Comments

At this year’s Food Safety Consortium a couple weeks ago, the newly launched Cannabis Quality Track featured a number of panels and presentations that highlighted the many intersections between food safety and cannabis. One particular topic of interest was measuring the quality and safety of cannabis products through laboratory testing. At the event this year, representatives from the leading laboratory accreditation bodies in the country sat together on a panel titled Accreditation, Regulation & Certification: Cannabis Labs and Production.

Representatives from ANSI-ASQ National Accreditation Board (ANAB), the American Association for Laboratory Accreditation (A2LA) and Perry Johnson Laboratory Accreditation (PJLA) discussed the new ISO standard, common issues that labs encounter when getting accredited, the future of the cannabis lab industry and certifications for food safety and quality.

The panelists included:

Tracy Szerszen, president/operations manager, PJLA
Natalia Larrimer, engagement and program development manager, ANAB
Lauren Maloney, food safety program accreditation manager, Perry Johnson Registrars Food Safety, Inc. (PJRFSI)
Chris Gunning, life sciences accreditation manager with A2LA

The new ISO 17025:2017 standard was a topic addressed pretty early in the panel. Tracy Szerszen introduced the topic with a recap of the 2005 standard. “With 17025, for those that are familiar with the older version, 2005, there are really two sections of the standard for that one,” says Szerszen. “The newer standard is a little bit different, but there is a quality management system review that we do and we look at the laboratory to ensure that they are testing appropriately based on what they applied for. So, for cannabis labs, they typically have the same scope in types of methods with respect to microbiology and chemistry, and we are making sure they are following the standard from a technical standpoint, meaning they have the right equipment, the appropriate personnel and also have a quality management system.”

Chris Gunning followed that up with a closer look at the changes coming to the new 2017 standard. “If you are familiar with the 2005 version, you know that a lot of the clauses started out with a ‘you shall have a policy and procedure for doing X,’” says Gunning. “One of the major changes to the 2017 version is it gives laboratories more latitude on whether they need to have a policy/procedure to do certain things.” Gunning says the 2017 version is much more of an outcome-based standard. “As far as assessing to it, it becomes a little harder from our side because we can’t say you have to have this quality manual or you have to have this procedure that were going to assess you to. We are more open to looking at the outcomes.”

Christopher Gunning, life sciences accreditation manager with A2LA

The most interesting change to the ISO standard comes with addressing the idea of risk. “One of the newest concepts in this standard is risk and how you assess your risk to your organization how you assess risk of impartiality, how you assess your measurement uncertainty when you are creating decision rules,” says Gunning. “Those are the big concepts that have changed in the 2017 standard in that it is more outcome-based and introducing the concept of risk more.”

After discussing some of the broader changes coming to the 2017 version, the panelists began delving into some common pitfalls and issues labs face when trying to get accredited. “From our experience, in Michigan, the new standard was written into the regulations, but a lot of labs were already accredited to 2005,” says Szerszen. “So, we actually contacted the state and explained to them that they have three years to transition. And some states will say ‘too bad, we want the 2017 ISO,’ so some of the cannabis labs are asking us to quickly come back so they can get appropriate licensing in the state and do a transition audit quickly.” She says most states seem to be comfortable with the current transition period everyone has, but it certainly requires some discussion and explanation to get on the same page with state regulators. “November 29, 2020 is the deadline for moving to the new 2017 standard.”

In addition to state requirements like traceability and security on top of an ISO 17025 accreditation, labs can run into issues not typically encountered in other testing markets, as Gunning mentioned during the panel. “One of the hardest parts of getting accredited is the need for properly validated methods, for all the different matrices in samples,” says Gunning. “Some of the biggest hurdles for new labs getting assessed are validation and the availability of reference materials and proficiency testing samples that meet their state requirements.” Those are just a handful of hurdles that labs aren’t usually anticipating when getting accredited.

Natalia Larrimer, engagement and program development manager, ANAB

Another big topic that generated a lot of dialogue during the panel was the need for a national accreditation standard for cannabis testing labs, one that Natalia Larrimer is advocating for. “Many laboratories are operating facilities in more than one state and what they are facing is a different set of criteria for laboratory recognition in each state, says Larrimer. “One initiative that we would love to see more support for, is a set of uniform requirements nationally. ACIL is currently working on developing these type of requirements which would be in addition to the ISO/IEC 17025 standard and specific for cannabis industry…” Larrimer says she’d like to see these requirements recognized nationally to get labs on the same page across multiple states. “This includes requirements for things like security, traceability, proficiency testing, sampling and personnel competence. The industry would greatly benefit from a uniform cannabis testing program across the US, so that testing facilities in Oregon are operating to the same criteria as facilities in California or Colorado, etc.”

The panelists went into greater detail on issues facing the cannabis lab testing industry, but also delved into certifications for food safety and quality, an important new development as the infused products market grows tremendously. Stay tuned for more highlights from this panel and other talks from the Food Safety Consortium. We will be following up this article with another that’ll shed some light on food safety certifications. Stay tuned for more!

October 15, 2018

Quality From Canada

Protecting Intellectual Property in Canada: A Practical Guide, Part 3

By Richard Naiberg

No Comments

Editor’s Note: This is the third article in a series by Richard Naiberg where he discusses how cannabis businesses can protect their intellectual property in Canada. Part 1 introduced the topic and examined the use of trade secrets in business and Part 2 went into how business owners can protect new technologies and inventions through applying for patents. Part 3, below, delves into plant breeders’ rights and how breeders in Canada could protect new plant varieties.

Plant Breeders’ Rights: Protection For New Plant Varieties

Unlike the Patent Act, Canada’s Plant Breeders’ Rights Act does provide intellectual property protection for whole plants. Plant breeder’s rights are available for new cannabis plants, whether they are the product of genetic engineering or more traditional cross breeding.

The applicant must also propose a name (referred to as a “denomination”) for the new variety that is acceptable to the Commissioner.The Plant Breeders’ Rights Act focuses on the material used to propagate a new variety of plant, such as its seeds. The owner of a plant breeder’s right can stop others from selling, producing or reproducing the propagating material, conditioning the propagating material for use, exporting or importing the propagating material, repeatedly using the protected variety to commercially produce another variety, and stocking the propagating material for the purpose of doing any of the above acts. The owner can also assert these same rights to stop another’s activities as they relate to another plant variety that is essentially derived from the protected variety. The owner can also recover for the damages it suffers as a result of any infringement. For cannabis plants, the term of a plant breeder’s rights endures for 20 years from the date of its issuance.

To register a plant-breeder’s right, a breeder provides an application to the Commissioner of Plant Breeders’ Rights Office, which is part of Canadian Food Inspection Agency.

To be registrable, the plant variety must be new, meaning that the propagating material has not been sold in Canada more than 1 year prior to the application (or elsewhere more than 4 years prior to the application); it must be distinguishable from all varieties that are known to exist at date of filing of the application; it must be sufficiently homogeneous, meaning that its relevant characteristics are predictable and commercially acceptable; and it must be stable in its essential characteristics over successive generations. Registration under the Plant Breeders’ Rights Act provides plant breeders’ rights in Canada only. However, Canada is a signatory to a treaty (UPOV) that allows an application originally filed in Canada to provide priority for registration in other member countries, and vice versa.The Commissioner also has the power to require the performance of tests on a sample of the propagating material, such as to verify its stated characteristics.

The applicant must also propose a name (referred to as a “denomination”) for the new variety that is acceptable to the Commissioner. The Plant Breeder’s Rights Act puts limits on what may be chosen as the denomination. Among other things, the denomination cannot refer to characteristics the variety does not have, suggest that it is derived from another variety or bred by a particular breeder when this is not case, or comprise laudatory descriptives that could cause confusion. The denomination cannot be used or registered as a trademark and, once accepted by the Commissioner, must be used by all traders when selling the propagating material, even after the expiry of the plant breeder’s right. Indeed, the Plant Breeders’ Rights Act makes it an offence to misuse or misapply the name. The same denomination will be used for the same variety in all UPOV countries.

The application process can involve some back-and-forth with the Commissioner, as well as the opportunity for others to oppose the registration. The Commissioner also has the power to require the performance of tests on a sample of the propagating material, such as to verify its stated characteristics.

A unique feature of a plant breeder’s right is that it can be enforced even before the Commissioner finishes his or her review against infringers who are given notice of the applicant’s application.

As of this writing, there are three registered denominations of cannabis plants under the Plant Breeders’ Rights Act. Chris Griffin has registered “Big C” – cannabis sativa subsp. indica; and MedReleaf Corp. has registered MR2017001 and MR2017002, both being varieties of cannabis sativa. It is expected that further registrations will follow.

There are some important limitations to the plant breeder’s rights. Farmers who harvest the plant variety on their “holdings” are given a privilege: they can store, produce and reproduce (but cannot sell) the variety on such holdings. The Commissioner also has the power to issue compulsory licenses when a protected variety is not available to the public at reasonable rates. Further, the plant breeder’s right is not infringed when the protected variety is used for non-commercial or experimental purpose.

In Part 4 of the series, Naiberg will discuss trademarks and how cannabis businesses should go about protecting their brand identity in Canada. Stay tuned for more!