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Q&A with Bruce Macdonald, Chairman of C21 Investments

By Aaron Green
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Multi-state operators (MSOs) are on the rise in the United States, navigating complex regulatory frameworks to drive profitability through economies of scale and scope. C21 Investments is a vertically integrated cannabis company with operations in Nevada and Oregon; traded on the Canadian Stock Exchange (CXXI) and on the OTCQX (CXXIF). The company recently secured a commitment from Wasatch Global Investors, JW Asset Management (Jason Wild/TerrAscend) and CB1 Capital Management (Todd Harrison) who, in addition to C21’s CEO, provided an equity commitment for repayment of all convertible debt.

We spoke with Bruce Macdonald, Chairman of C21 Investments. Bruce joined C21 in 2018 after reviewing the company as a personal investment and getting to know the senior management team. Prior to C21, Bruce had a long and successful career in finance and capital markets at one of Canada’s largest banks.

Aaron Green: Can you give a brief overview of C21?

Bruce MacDonald: C21 is a cannabis company that has operations in both Nevada, and in Oregon. Oregon is fundamentally a wholesale business, and we recently announced a divestment of some non-core assets in the state. Our cash cow and where we currently see our best opportunity for future growth is our Nevada operations. We run a seed-to-sale business in the state with two dispensaries doing about $35M a year in revenue, with a 40% EBITDA Margin, and servicing 600,000 customers.

Aaron: Can you tell me about a little bit about your background and how you got involved in a cannabis company?

Bruce: I spent 37 years working for RBC in the capital markets business. I started as a floor trader, back when there was such a thing as a floor, and over the years held a number of positions, ultimately working my way up to Chief Operating Officer of the bank’s global capital markets division. Throughout my time, I built a lot of businesses, which was why C21 and this opportunity was so interesting to me.

My involvement in the cannabis sector was a bit of an accident, but it’s turned into a passion. It actually found me. I was an investor in the C21 IPO. I sat down with management to understand the investment and given my experience, they asked if I would consider becoming a member the Board. Since joining the Board, my involvement has been primarily focused on strategy and the financing side of the business. While I certainly didn’t anticipate it, it’s turned into a 24/7 gig and a challenge I am thoroughly enjoying.

Bruce Macdonald, Chairman of C21 Investments

Aaron: Can you tell me about the history of C21 becoming a MSO? Did you start in one state?

Bruce: While this history predates my time at the company, my understanding is that as a Canadian company, we had first mover advantage to be able to access public funding and get established in the US cannabis space. As part of that, the team at that time reviewed approximately 100 different properties. Because we were based out of Vancouver, the focus was primarily the Western states like Washington, Oregon, Nevada and California. Arizona wasn’t in the game yet. The first transaction C21 did was in Oregon, with a company called Eco Firma. In all, there were four acquisitions in Oregon, and one in Nevada. In fact, it was the investment in Silver State (Nevada) that was by far the most meaningful. As far as our Oregon assets are concerned, we have worked hard to integrate and streamline them into an efficient operation.

So, when I joined the Board, we were just completing the paperwork on the acquisitions, and finalizing our strategy and business plan to go forward.

Aaron: Today there are a number of MSOs. How does this more crowded market impact your value proposition; how do you think about gaining and maintaining strategic advantage?

Bruce: It’s important first to start with strategy. From a strategic perspective, we had the advantage of being the first operator in Nevada with Silver State. Sonny Newman, our CEO, started the business back in 2013. We run a seed-to-sale business so we have a deep knowledge of all aspects of the operation and really know the Nevada market. In fact, 70% on a dollar volume basis of the 700 SKUs that we sell are products that we manufacture. It’s a critical piece of our strategic advantage.  

What I would say is our most important strategic advantage is the fact that C21 is a stable, self-sustaining operator. What I mean by that is we’re one of the few businesses that actually makes money. This is what really allows us to be strategic and disciplined in our approach to growth. For example, it’s been more than 18 months since we did our last capital raise and that’s by choice. Every decision we make is through the shareholder lens and focusing on delivering value to customers and shareholders.

Looking at our value proposition, simply put, it comes down to four things – the right products, at the right price, in the right location, with the right environment. Some people might call this motherhood, but there’s a lot of work that goes behind each of them. 

Great quality products, that’s table stakes. You have to be a top-notch grower and generate quality products that people demand if you want to build a loyal customer base. Right price – to some it sounds like just putting the right sticker on the package – it’s not. It’s all about making sure you are efficient in your operations because to be profitable, you have to be a low-cost producer to deliver on a lower price promise. Tons of work has gone into our operation around being a “right price” business. 

Right location is another important element of our value proposition. We wanted to build a loyal customer base which for us meant focusing more on locals than on tourists. This is why Sonny positioned the dispensaries on commuter paths.

The last key factor is having the right environment to sell our products. In Nevada, the company ended up building fit-for-purpose dispensaries rather than fitting ourselves in a strip mall. We cater to over 600,000 clients a year. Now we’re doing 10,000 curbside pickups a month. With that type of volume, logistically speaking you need ample parking, a well-lit exterior so people feel safe, and of course, great curb appeal. These factors are essential in maintaining a loyal customer base.

Aaron: Tell me more about Silver State Relief and why it has been so successful?

Bruce: I think what you’re really asking for is: what is Sonny’s secret sauce? There are a few ingredients that go into it. As I highlighted, it was a purposeful decision to build a business with a loyal customer base focused primarily on locals. That needs product, price, and convenience. Sonny lives in the Reno area, which is one of the main reasons Silver State is located up North.  

Critical to success has been the culture of the organization. Let’s start with the company being nimble and I’ll give you an example. The early days of the pandemic included the complete shutdown of dispensaries. We went from serving over 1500 customers a day in our stores to the next day being told that we could offer delivery only. Within a week, we were able to pivot and had lockboxes, regulatory approvals and a delivery capability. When you look at our Nevada operation, we ended up with just a 10% dip in our revenues for the quarter, even though we had to live through six weeks of delivery-only and then a phase of curbside-only.

Another key element of the culture is our laser focus on cost management. We’ve talked a little about cost management, but it’s absolutely critical, especially in the context of the high cost of capital that we see in this sector. Add to that the punitive tax impact of 280e where federal tax is applied to gross margins which means SG&A and interest are non-deductible expenses for tax purposes. So, to enhance our profitability, we are intent on having the lowest SG&A of the public cannabis companies. We’re also among the lowest in interest expense. That whole drive for efficiency has given us a formula and a mantra that has allowed us to have a stable business with significant cash flow. We get to make strategic decisions — not hasty or desperate ones — and focus on what’s good for the shareholder.

Aaron: How was C21 capitalized?

Bruce: We did a $33M raise on the RTO of a listed shell company. That was how C21 was established, and then signed contracts with the Oregon and Nevada properties.

Aaron: I recently saw a press release about expanding the Nevada cultivation. Can you give me some more details? 

Bruce: We announced that we are tripling our capacity within our existing 100,000 square foot warehouse facilities. We’re going to build out another 40,000 square feet, and we currently use 20,000. That’s the tripling. Expanding our cultivation was clearly the next logical step in our growth story. This should yield us an additional 7,500 pounds of high-quality flower. We can do this very cost effectively with about $6M in capex, and we anticipate funding the project internally. We will still leave another 40,000 square feet of expansion capacity as market needs justify.

This announcement was significant, but I don’t think it was fully understood by the market. Just to play with some numbers, 7,500 pounds of flower has a wholesale market value today of about $17M. It will cost us approximately $2M in incremental operating expense to add these additional grow rooms. We already pay the rent, so we just need to pay for the people, power, fertilizer and product testing. When you do the simple math, we see this as a big win for shareholders and extremely accretive on an after-tax basis. 

Historically, we always used to grow more than we needed, but with the increase in demand that’s going on in the market, we now run at a flower deficit. In the near term, this build-out will allow is to meet our current retail needs, with the balance that we will sell on the wholesale market. Ultimately, this positions us well on a seed-to-sale basis to support our plans to extend our retail footprint in Nevada. 

Aaron: It sounds like the decision was made based on both revenue growth and supply chain consolidation?

Bruce: Yes, and just the pure profitability of it! You can’t get a bigger, better bang for your buck from spending $6M to generate $17M with ongoing operating costs of $2M.

Aaron: The next question here is about the recent note restructuring and, and how the debentures was restructured. How’d that come about and what is the advantage now of having gone through that process? 

Bruce: This all fits into our medium-term growth strategy. For C21, the first thing we focused on was getting our house in order to ensure that we were efficient and profitable. We knew we needed to have a scalable machine to grow. The second step, which the debt restructuring relates to, was around fortifying our balance sheet. To support our growth plans, we needed to have a solid foundation.

Our balance sheet had two things that needed fixing. One was that we had an $18M obligation coming due to our CEO. The effect of the restructuring extended this obligation over the next 30 months at favorable terms. Additionally, $6.5M of convertible debentures were reaching maturity in January of 2021. And while the debentures were in the money and theoretically would convert to shares, we didn’t want to take the risk that our stock price could drift a bit and all of a sudden there could be significant cash required for redemptions. We’ve seen a lot of companies suffer significant unwanted dilution when their debentures get out of control. So, we approached Wasatch, Jason Wild’s JWAM and CB1 Capital, three seasoned investors, who provided a backstop whereby they would purchase any shares not taken up by people though the conversion of their debentures, so that we would be able to pay any debenture holders back cash with the money we would receive as the investors took shares. In exchange for providing this backstop, C21 gave them an upside participation in the form of warrants. I think it was absolutely critical to get this in place. And it’s phenomenal to have these three names in our corner. We couldn’t imagine better partners.

Aaron: So, what’s next for C21? 

Bruce: I hope you are getting the feeling that here at C21 our objective is to play the long game. That means we make measured decisions with the interest of shareholders top of mind. We’ve worked hard in 2020 to get our house in order, fortify our balance sheet, and generate significant cash flow. I think we’re clocking in at around $12M in trailing annual cash flow, which interestingly, is about the same number that Planet 13 is doing. That’s obviously a fantastic result for a company with $150M of market cap.

“We are working with urgency to break the back of these sector economics.”When we think about our medium-term growth strategy, we will continue to make our decisions through a cash flow and earnings lens rather than hype and flash. While we will remain opportunistic with respect to strategic alternatives, the core of our expansion is going to focus on where we already have a proven track record: Nevada. We’re big believers that to achieve long term success, you have to own your home market. And what I mean by that is today we’re about 5% of the Nevada market. Owning your home market looks more like a 15% share. That is our focus. I think we’ve shown that our disciplined approach delivers results – results such as having top five metrics in Net Income, Cash Flow and EBITDA Margin, across the range of public companies that we can see.

I think it’s key we’re getting noticed. We talked about the strategic investors, but we’re also one of the 17 plant-touching companies that’s in the MSOS ETF. So, we’re going to follow our clear growth trajectory, focused on the bottom line and delivering for shareholders. If you look under the hood right now, you see a 10% cash flowing company, which is a pretty rare bird in our industry. We’re excited about where we are.

One thing I haven’t touched on in great detail is our plans for expanding our retail footprint. How do you grow in the dispensary space? Aaron, I think what’s key here is looking at the expected return relative to the cost of capital. For example, if you targeted buying a dispensary with $20M in revenues, and are able as we are, to generate 25% in after-tax cash based on those revenues, then once optimized, it would generate $5M in earnings. An asset like this is going to trade at roughly one and a half times revenues. So, you’re going to have to pay $30M. For the people that have been going out and borrowing money at 15%, their annual cost would be $4.5M. We’re not going to give four and a half to the moneylenders, it just doesn’t make sense for shareholders. We are working with urgency to break the back of these sector economics. It is something we believe will be afforded to companies with stable earnings and profitability such as ours. Of course, no deal’s a deal until it’s on the tape, but we are very hopeful that we have cracked the code ahead of SAFE Banking to get capital costs down. This is just a little bit of an inside look into our thought processes.   

Aaron: Okay, awesome. All right. That concludes the interview.

2021 Trends: Nine Developments in California’s Cannabis Market

By Amy Steinfeld, Jack Ucciferri
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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.

Biros' Blog

Tuesday, September 24th is National Voter Registration Day

By Aaron G. Biros
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In an interview with HeadCount back in 2012, Bob Weir, founding member of the Grateful Dead, discussed the importance of registering to vote. “Just register, study up and vote. It’s your future. Don’t let people take that from you,” says Weir. “Cause in years to come you’ll be wishing you had.”

Tuesday, September 24th is National Voter Registration Day and we want to remind our readers to register to vote. If you subscribe to our newsletter, read our articles, news stories, columns and features, then chances are that you support legal cannabis. If you are supportive of legal cannabis, then you should consider voting for candidates that support the same cause. Cannabis legalization is about more than just creating a legal marketplace; it’s about social justice, equality, civil rights and more. If you can heal the symptoms, but not affect the cause, it’s quite a bit like trying to heal a gunshot wound with gauze.

Bob Weir, founding member of the Grateful Dead
Image: jgullo, Flickr

The 2020 election is approaching faster than you think and choosing candidates that support legal cannabis is a quick and easy way to help. We really like what the Cannabis Voter Project (CVP) is up to. CVP is a nonprofit initiative started by HeadCount, an organization that promotes voter registration and participation in democracy through the power of music. This past summer, CVP went on tour with Dead & Co., engaging with concertgoers about registering to vote. Headcount has helped about 600,000 people register to vote so far. Bob Weir sits on their board of directors. Bands like Phish, Jay-Z, Dave Matthews, Pearl Jam have also helped get the word out about registering to vote as a part of HeadCount’s campaign.

You can register to vote or check your voter registration status by clicking here. You can also text CANNA to 40649 to contact your lawmakers and ask where they stand on cannabis. Once in a while you get shown the light, in the strangest of places if you look at it right. At the CVP’s website, you can check out their database of congress, organized state-by-state, with each members’ stance on cannabis.

Their advisory board features cannabis companies like CannaCraft, Terrapin Care Station, Harvest, Sal Pace Consulting, 1906 and Vicente Sederberg. They went on tour with funk band Lettuce to educate the band’s fans about what’s going on with cannabis policy in their state and how they can use their vote to impact cannabis policy.

Cannabis is a bipartisan issue. The cannabis voting bloc is bigger than you think and we have the power to make change happen by making our voices heard. “HeadCount is not so much political, it’s nonpartisan,” says Weir. “What we’re trying to do is get kids to register, pay attention to what candidates are saying, pay attention to the politics of the moment, and react with their hearts and minds.”

The cannabis legalization movement has made serious progress recently, but we still have to just keep truckin’ on.

Soapbox

5 Things You Can Do To Get the Most Value From Your Consultant

By Vince Sebald
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I worked for about 18 years as a company employee in various levels from entry-level engineer to senior director. Since then I have spent over a decade as a consultant in the life science industry as the founder of Sebald Consulting. Presently, I also use consultants as CEO of GxPready!, a web based CMMS software company. Based on this experience, I have put together a top 5 list of things you can do to get the most value when using consultants:

1. Recognize when a project requires a consultant

There can be several reasons a project may benefit from having a consultant which may include bringing a new skill set, industry experience or an outside perspective to bear on a project that is not available otherwise.

Provide clear guidance as to what the task and deliverables are on an ongoing basis.Also, there are occasions when resources are already stretched and you need short-term support to get through an intensive segment of a project, but the work may not be enough to justify additional longer-term resources.

In any of these cases, filling the gap internally can be difficult and time consuming. A consultant can be a great solution. Even if you don’t plan to use a consultant for the project, it may be to your benefit to have a consultant perform a “gap assessment” to help you to identify areas which require improvement to meet compliance requirements or best practice guidelines. This is often done to prepare for audits, for example.

2. Vet the consultant to get a good match

Contact potential consultants to determine if they have the set of skills you are looking for and if they fit within the culture of your organization. Talk to the actual consultant you will be working with before bringing them on.  Review the consulting contract carefully to make sure the terms are mutually acceptable.  Often consultants have some flexibility to accommodate different project situations.

One advantage to using consultants is that you don’t have a long commitment so even after you vet them with interviews, you can work on small projects and gauge the results. Some consulting companies are very formal and others are less so, for example. A good fit is better for both parties. It’s not just the competence, but the culture and personal fit with your team.

3. Provide the consultant with appropriate guidance and resources

Help the consultant give you the best results possible by providing access to the resources (personnel, information, documents, systems, etc.) to allow the consultant to perform the tasks.

Consultants can help you get through unfamiliar territory or help you to manage your team’s workload. Know how to use these resources to benefit your projects. This project manager called just in time.

Provide clear guidance as to what the task and deliverables are on an ongoing basis.

Alternatively, allow the consultant to manage the project and reach out as necessary. Any guidance and resources you can provide the consultant will increase the effectiveness and help control your costs on the project.

If you don’t know exactly what needs to be done (“That’s why I hired a consultant!”) then have the consultant put together a list for you based on some general guidance and then work from that list to get your job completed.

4. Track progress with appropriate level of detail

If you have vetted and hired a consultant, chances are they are going to put in their best effort to meet your requirements. Nonetheless, it is good practice to have a system in place to track hours/costs.

Whether it is weekly reporting, or based on milestones and project updates, this helps to avoid any misunderstandings and provides opportunities for communication of project issues in addition to whatever project updates may be scheduled.

You want your team of consultants and employees to be able to work as well as possible together.Recognize that you can go overboard in this area, working against yourself and the project, if the tracking is so detailed that it takes excessive resources to document. It is definitely possible to inadvertently generate more hours (and expense) by managing time in too much detail. If the concern is high and heavy management is required, perhaps that indicates the consultant is not the best match for this project.

Generally, you can find a good balance with a simple up-front chat with the consultant to review your expectations, and for larger projects it is often formalized in the contract.

5. Recognize if it’s not a good fit

There are many consultants and clients out there. Inevitably, there are times when, despite best intentions, the consultant/client mix isn’t working out. Make sure the contract allows for management of this situation. Can you cancel the contract with reasonable notice? Is there a mechanism for being able to replace members of the team that aren’t working out?

You want your team of consultants and employees to be able to work as well as possible together. If that’s not happening, recognize it and make adjustments as necessary. But don’t lose the contact information. A consultant that doesn’t work out today may be just right for your next project!

Following the above can improve your chances of success with consultants you may hire and allow you to build a solid set of resources you can call on from time to time as things change in your company. Consultants can fill a vital role for tasks requiring specialized skills or short-term projects where a full time hire is not practical.

HACCP

Hazard Analysis and Critical Control Points (HACCP) for the Cannabis Industry: Part 1

By Kathy Knutson, Ph.D.
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HACCP

Hazard Analysis and Critical Control Points (HACCP) Defined

Farm-to-fork is a concept to describe the control of food safety starting in the fields of a farm and ending with deliciousness in my mouth. The more that is optimized at every step, the more food safety and quality are realized. Farm-to-fork is not a concept reserved for foodies or “eat local” food campaigns and applies to all scales of food manufacture. HACCP is like putting the last piece of a huge puzzle in the middle and seeing the whole picture develop. HACCP is a program to control food safety at the step of food processing. In states where cannabis is legal, the state department of public health or state department of agriculture may require food manufacturers to have a HACCP plan. The HACCP plan is a written document identifying food safety hazards and how those hazards are controlled by the manufacturer. While there are many resources available for writing a HACCP plan, like solving that puzzle, it is a do-it-yourself project. You can’t use someone else’s “puzzle,” and you can’t put the box on a shelf and say you have a “puzzle.”

HACCP is pronounced “ha” as in “hat” plus “sip.”

(Say it aloud.)

3-2-1 We have liftoff.

The history of HACCP starts not with Adam eating in the garden of Eden but with the development of manned missions to the moon, the race to space in the 1950s. Sorry to be gross, but imagine an astronaut with vomiting and diarrhea as a result of foodborne illness. In the 1950s, the food industry relied on finished product testing to determine safety. Testing is destructive of product, and there is no amount of finished product testing that will determine food is safe enough for astronauts. Instead, the food industry built safety into the process. Temperature was monitored and recorded. Acidity measured by pH is an easy test. Rather than waiting to test the finished product in its sealed package, the food industry writes specifications for ingredients, ensures equipment is clean and sanitized, and monitors processing and packaging. HACCP was born first for astronauts and now for everyone.HACCP

HACCP is not the only food safety program.

If you are just learning about HACCP, it is a great place to start! There is a big world of food safety programs. HACCP is required by the United States Department of Agriculture for meat processors. The Food and Drug Administration (FDA) requires HACCP for seafood processing and 100% juice manufacture. For all foods beyond meat, seafood and juice, FDA has the Food Safety Modernization Act (FSMA) to enforce food safety. FSMA was signed in 2011 and became enforceable for companies with more than 500 employees in September of 2016; all food companies are under enforcement in September 2018. FSMA requires all food companies with an annual revenue greater than $1 million to follow a written food safety plan. Both FDA inspectors and industry professionals are working to meet the requirements of FSMA. There are also national and international guidelines for food safety with elements of HACCP which do not carry the letter of law.

The first step in HACCP is a hazard analysis.

Traditionally HACCP has focused on processing and packaging. Your organization may call that manufacturing or operations. In a large facility there is metering of ingredients by weight or volume and mixing. A recipe or batch sheet is followed. Most, but not all, products have a kill step where high heat is applied through roasting, baking, frying or canning. The food is sealed in packaging, labeled, boxed and heads out for distribution. For your hazard analysis, you identify the potential hazards that could cause injury or illness, if not controlled during processing. Think about all the potential hazards:

  • Biological: What pathogens are you killing in the kill step? What pathogens could get in to the product before packaging is sealed?
  • Chemical: Pesticides, industrial chemicals, mycotoxins and allergens are concerns.
  • Physical: Evaluate the potential for choking hazards and glass, wood, hard plastic and metal.

The hazards analysis drives everything you do for food safety.

I cannot emphasize too much the importance of the hazard analysis. Every food safety decision is grounded in the hazard analysis. Procedures will be developed and capital will be purchased based on the hazard analysis and control of food safety in your product. There is no one form for the completion of a hazard analysis.

HACCP risk matrix
A risk severity matrix. Many HACCP training programs have these.

So where do you start? Create a flow diagram naming all the steps in processing and packaging. If your flow diagram starts with Receiving of ingredients, then the next step is Storage of ingredients; include packaging with Receiving and Storage. From Storage, ingredients and packaging are gathered for a batch. Draw out the processing steps in order and through to Packaging. After Packaging, there is finished product Storage and Distribution. Remember HACCP focuses on the processing and packaging steps. It is not necessary to detail each step on the flow diagram, just name the step, e.g. Mixing, Filling, Baking, etc. Other supporting documents have the details of each step.

For every step on the flow diagram, identify hazards.

Transfer the name of the step to the hazard analysis form of your choice. Focus on one step at a time. Identify biological, chemical and physical hazards, if any, at that step. The next part is tricky. For each hazard identified, determine the probability of the hazard occurring and severity of illness or injury. Some hazards are easy like allergens. If you have an ingredient that contains an allergen, the probability is high. Because people can die from ingestion of allergens when allergic, the severity is high. Allergens are a hazard you must control. What about pesticides? What is the probability and severity? I can hear you say that you are going to control pesticides through your purchasing agreements. Great! Pesticides are still a hazard to identify in your hazard analysis. What you do about the hazard is up to you.

The First Map of the Cannabis Genome

By Aaron G. Biros
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Sunrise Genetics, Inc., the parent company for Hempgene and Marigene, announced last week they have successfully mapped the cannabis genome. The genome map was presented at the 26th Annual Plant and Animal Genome Conference in San Diego, CA during the panel “Cannabis Genomics: Advances and Applications.”

According to CJ Schwartz, chief executive officer of Sunrise Genetics, the full genome map will allow breeders to develop strains using DNA sequence information to complement phenotyping. “In this way a breeding program can be guided by the breeder versus blindly as it is for just pheno-hunting,” says Schwartz. “At the DNA level, we can identify what version of a set of genes a plant contains, and make predictions as to the phenotype, without ever growing the plant. As we make more and more gene markers, we have more genes to track, and breeding becomes more rapid, efficient and precise.” Schwartz says this is essential for breeding stable, repeatable plants. “A commercial strain will be grown in different environments, with solid genetics, the phenotype will mostly stay true, a term we call Genetic Penetrance.”

Ancestry-painted chromosomes for marijuana Image: Chris Grassa / Sunrise Genetics

Determining a plant’s DNA can be extremely valuable and completing the map of the genome now makes this more precise. It can serve as a point of proof, according to Schwartz, providing evidence of lineage in a breeding project and confirming the uniqueness and identity of a strain. The genome map can also allow breeders to select specific genes to develop custom strains. And in addition to all that, it provides legal protection. “Knowing your plants DNA code is the first step to being able take action so no one else can protect it,” says Schwartz. “Well documented evidence in the development of a customized strains is essential to maintaining control of your plant and keeping those you distrust (big pharma) away, many of which have minimal interest in the whole plant anyhow.”

CJ Schwartz, chief executive officer of Sunrise Genetics

Schwartz says this project took them roughly 18 months to wrap up. “One of the biggest problems was just finding the right plants to grow,” says Schwartz. “In addition we used some emerging technologies and those had some challenges of their own.” According to Schwartz, a key aspect in all this was finding the right collaborators. They ended up working with CBDRx and the plant biology department at the University of Minnesota, where a DEA-licensed lab has been researching cannabis since 2002. “George Weiblen’s group at UM has been working on Cannabis for over a decade,” says Schwartz. “During that time they did repeated selfing to make highly inbred marijuana and hemp lines. The lines were instrumental in deterring the physical order of the genes.”

Ancestry-painted chromosomes for hemp Image: Chris Grassa / Sunrise Genetics

After finishing up some experiments, they expect to get the genome map published on public domain in less than a year, opening up their research to the general public and allowing breeders and growers to use their data. “This will be a very significant publication,” says Schwartz. “The genome assembly allows for the assimilation of all the currently incompatible Cannabis genome sequence datasets from academia and private companies,” says Schwartz. “Joining datasets from 1000s of strains, and from every continent, will generate an essential public resource for cannabis researchers and aficionados alike.” With a tool like this, we can discover the genes that help produce desirable traits. “This project is a major accomplishment for cannabis, bringing it on par with other important crops, providing a scientific tool to unravel the secrets of this incredibly versatile plant,” says Schwartz.

Sunrise Genetics is assisting cannabis businesses in evaluating strains and developing breeding programs, working with a number of customers currently to develop strains for many different specific traits. “We have the expertise to help select parental strains and guide the selection process at each generation using genotype and phenotype information,” says Schwartz. “Essentially we are bringing all the tools any modern plant breeder would use for improving strawberries to cannabis.”