Tag Archives: property

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Cannabis Growers and Distributors: Your Cyber Risk is Growing Like Weeds

By Emily Selck
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Cannabis growers and distributors are “green” when it comes to cyber security. Unaware of the real risks, cannabis businesses consistently fall short of instituting some of the most basic cybersecurity protections, leaving them increasingly vulnerable to a cyber-attack.

Cannabis businesses are especially attractive to hackers because of the vast amount of personally identifiable and protected health information they’re required to collect as well as the crop trade secrets they store. With businesses growing by leaps and bounds, and more and more Americans and Canadians purchasing cannabis, cybercriminals are likely to increase their attacks on the North American market in the coming year. Arm your cannabis business with the following best practices for growers and distributors.

Distributor Risk = A Customer’s PII

Cyber risk is the greatest for cannabis distributors, required to collect personal identifiable information (PII), including driver’s licenses, credit cards, medical history and insurance information from patients. State regulatory oversight further compounds the distributor’s risk of cyber-attack. If you’re a cannabis distributor, you’ll want to make sure to:

  • Know where you retain buyer information, and understand how it can potentially be breached. Are you scanning driver’s licenses into a database, or retaining paper files? Are you keeping them in a secure area off site, or on a protected network? Make sure a member of your management team is maintaining compliance with HIPAA and state statutes and requirements for cannabis distribution.
  • Institute strong employee oversight rules. Every employee does not have to have access to every sale, or your entire database of proprietary customer information. Delegate jobs behind the sales desk. Give each employee the access they need to do their job – and that’s it.
  • Distributors have to protect grower’s R&D information too. Most cannabis distributors have access to their grower’s proprietary R&D information so they can help customers understand which products are best for different medical symptoms/needs. Make sure your employees don’t reveal too much to put your suppliers in potential risk of cyberattack.

Grower Risk = Crop Trade Secrets

For cannabis growers, the risk is specific to crop trade secrets, research and development (R&D). If you’re a cannabis grower, you’ll want to:

  • Secure your R&D process. If you’ve created a cannabis formula that reduces anxiety or pain or boosts energy, these “recipes” are your competitive advantage – your intellectual property. Consider the way you store information behind the R&D of your cannabis crops. Do you store it on electronic file, or a computer desktop? What type of credentials do people need to access it? Other industries will use a third party cloud service to store their R&D information, but with cannabis businesses that’s typically not the case. Instead, many growers maintain their own servers because they feel this risk is so great, and because their business is growing so fast, there are not yet on the cloud.
  • Limit the number of people with access to your “secret sauce.” When workers are harvesting crop, or you’re renting land from farmers and planting on it, make sure to keep proprietary information in the hands of just the few who need it – and no one else. This is especially important when sharing details with third party vendors.

Cyber coverage is now ripe for picking

Although cannabis businesses are hard to insure – for just about every type of risk – cyber insurance options for cannabis companies have recently expanded, and come down in price. If you’ve looked for cyber coverage in the past and were previously unable to secure it, now is the time to revisit the market.

Know that cyber policy underwriters will do additional due diligence, going beyond the typical policy application, and ask about the types of proprietary information you collect from customers, as well as how you store and access it at a later date. Have this knowledge at your fingertips, and be ready to talk to underwriters about it when you’re bidding for a new policy – and at renewal time.

How to Properly Store Plastic Cannabis Packaging

By Danielle Antos
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Your plastic cannabis packaging has a big responsibility. It contains and protects your product, communicates pertinent product information and delivers the first brand impression to your consumers. In order for plastic packaging to fulfill these important roles, you must take care to store and handle it properly.

Following storage condition requirements for plastic bottles helps protect your cannabis product, your company and your customers. It doesn’t matter if your cannabis packaging is HDPE (high density polyethylene), PP (polyethylene) or PET (polyethylene terephthalate), proper storage is imperative to maintain the integrity of the product until you’re ready to fill it.

Bottle and closure storage conditions such as time, temperature and humidity can have an effect on plastic containers. The exposure and age of a sample can also affect shrinkage, impact properties and the stress crack resistance of the container. Not to mention the potential threat of contamination to your cannabis product and the poor impression of your brand in the eyes of your consumers.

You may be wondering how to obtain storage information. The best place to start is with your cannabis packaging partner. Your supplier should be ready and willing to share all vital storage information with you. The best suppliers realize that there is more to a business relationship than just the financial transaction of buying packaging. The first step in proper storage is to identify the type of material that was used to manufacture your bottles and closures.

Know Your Bottle Material Type – HDPE

If you are utilizing HDPE for your cannabis packaging, the storage time should be minimal and a strict first-in-first-out inventory should be maintained. Many end users will re-approve bottles after two or three years to ensure they are damage-free.

In addition, elevated storage temperatures allow plastic containers to further shrink and harsh conditions can actually cause severe distortion. The degree of distortion and shrinkage depends on the design and how the bottles have been stored. Higher storage temperatures also accelerate the aging process of the container. A moderate storage temperature should be provided to safeguard consistent bottle dimensions and properties. It is routinely reported that HDPE bottles can withstand temperatures of 110°F/33°C for brief periods.

Although humidity itself will not degrade the plastic container, a humid environment can have a direct impact on the secondary packaging, such as the cardboard cartons used for shipping. If you use stretch wrap and/or control warehouse conditions, secondary packaging problems can be alleviated.

HDPE bottles and closures should be kept as clean as possible – it is best to leave them in the original sealed cartons. The storage area should be kept clean, dry and dust, odor, insect, and rodent-free. Following this rule will help to build consumer trust in your brand. No one wants to purchase cannabis products in dirty, dusty contaminated packages.

Using PET Bottles?

PET bottles should also be used in a first-in-first-out system to limit the time in storage. Long-term storage should be accomplished using a sealed polyethylene plastic bag or lined drums, totes, bins, Gaylord containers, supersacks or seabulks. The plastic liner will help prevent dust and dirt from entering the bottles.

Elevated storage temperatures (above 100°F/38°C) allow empty PET bottles to shrink, mainly due to relaxation of the oriented and partially oriented regions of the bottle. Extreme temperature conditions (above 131°F/55°C) can cause severe distortion of the amorphous areas of the bottle, including the finish and neck. Moderate storage temperature should be maintained to ensure consistent bottle dimensions and properties.

To help protect PET bottles from contamination, the storage area should be kept clean, dry and dust, odor, insect, and rodent-free. Additionally, the storage area should be approved for food storage. PET bottles should not be stored in direct sunlight, and aromatic materials such as spices, solvents, ink, cleaning supplies and disinfectants should not be stored in the same area.

When empty PET bottles are shipped to or through areas where the outdoor temperature may exceed 90°/32°C, it is recommended that a temperature-controlled container or trailer capable of maintaining a temperature of 80°F/27°C or lower be used.

Polypropylene (PP) Closures

Closures are also an important part of your cannabis packaging. The storage time of unlined closures should be minimized. As with bottles, a strict first-in-first-out inventory should be maintained.

Elevated storage temperatures allow unlined PP closures to further shrink. Harsh conditions can actually cause severe distortion. The degree of distortion and shrinkage depends on the closure design and storage conditions. High storage temperatures accelerate the aging process of the closure; moderate storage temperatures should be provided to ensure consistent closure dimensions and properties. Like HDPE bottles, this type of closure can withstand temperatures of 110°F/43°C for brief periods.

When stored in humid conditions, pay attention to the integrity of the cardboard cartons the closures are stored in. The use of stretch wrap and/or controlling warehouse conditions will help alleviate damage to the cardboard. Just like their bottle counterparts, PP unlined closures should be kept as clean as possible and it is best to store in original sealed cartons.

Proper Storage Supports Your Bottom Line

Storing plastic bottles improperly can reduce the integrity of the plastic, therefore making it unsuitable to contain your cannabis product. Poor storage can also be detrimental to filling lines and cause production problems, which can result in reduced efficiencies and added costs.

Product recalls can also be a by-product of poor storage due to increased chances of product contamination. If plastic bottles and closures are not properly stored before using, distortion and shrinkage can damage the bottle labels used to identify your product. Shrinkage of your plastic closures result in a poor sealing surface which is detrimental to the freshness of your cannabis product. All of these side-effects can be very damaging to your brand image, from which it’s hard to recover. Consumers will lose confidence in your brand – leading to reduced profits for your bottom line.

Whether your cannabis business is in the early start-up stages or established with loyal customers, properly storing your plastic packaging will help protect your brand, decrease the risk of product recalls and increase your profitability.

Soapbox

The Stress of a Grower

By Carl Silverberg
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Tell me that you can’t relate to this story.

You’re sitting down to dinner at a restaurant about ten minutes from where you work, finally relaxing after a tough day. You’ve set your environmental alerts on your plants; you have that peace of mind that the technology promised and you know that if anything goes wrong you’ll get notified immediately. As you’re looking at the menu, you receive an alert telling you that the temperature in one of your 2,000 square foot grow rooms has gone out of the safe range. Your mind starts to race, “It’s week seven, I’ve got 500 plants one week away from harvest, that’s 200 pounds of cannabis worth about $150,000-$200,000. Oh my God, what am I going to do?”

You’re doing all this at the dinner table and even though you’re not in a state of panic, you are extremely concerned. You need to figure out what’s going on. You check the graphing and see that over the past hour your humidity dropped and your temperature is gradually going up. Within the past ten minutes, the temperature has gone to 90 degrees. Your numbers tell you that the temperature in the room with $200,000 of cannabis is going up about five degrees every three minutes.

adamJgrow
Monitoring a large grow room can be a stressful task.

“I see this trend and can’t figure it out,” the grower relates. “Normally, the HVAC kicks on and I’d begin to see a downward trend on the graphs. I pre-set my trigger for 90 degrees. But, I’m not seeing that. What I AM seeing is the temperature gradually and consistently getting warmer without the bounce-back that I would expect once the HVAC trigger was hit. All I know is I better find out what’s causing all this and I better find out fast or my entire crop is gone.”

You go through the rest of the checklist from LUNA and you see that the lights are still on. Now, you’re starting to sweat because if the temperature in that room hits 130 and stays there for more than twenty minutes, you’re losing your entire crop. You have to walk in your boss’s office the next day and explain why, after all the time and money you put in over the past seven weeks, not only is all that money gone but so is the $200,000 he is counting on to pay salaries, expenses, and bank loans.

This is something you’ve been working on for seven straight weeks and if you don’t make the right decision, really quickly, when that room hits 130 degrees here’s what happens.

“My equipment starts to fail,” our grower continues. “The crop literally burns as the oils dry up and the crop is worthless. At 130 degrees, my grow lights essentially start to melt. All you can think of is that temperature going up five degrees every three minutes and you’re ten minutes from your facility. I need to leave that restaurant right now, immediately, because even if I get there in ten minutes the temperature is going to be almost 120 degrees while I’ve been sitting here trying to figure out what’s wrong.”

You run out to your car and you speed back to the facility. The grow room is now 125 degrees, you have maybe three or four minutes left to figure things out before you flush $200,000 down the drain. The first thing you do is turn off the grow lights because that’s your primary source of heat. Then, you check your HVAC panel and you realize it malfunctioned and shorted out. There’s the problem.

The real toll is the human cost. Once this happens, no grower ever wants to leave and go home or even go to dinner. It’s a horrible toll. It’s the hidden cost we don’t talk about. The grower opens up with his own personal experience.“This system allows the grower to step back and still feel confident because you’re not leaving your facility to another person,” 

“You think about the burden on the person that you bring in to replace you while you’re out of town and then you think about the burden on you if something goes wrong again. And you decide, it’s not worth it. The anxiety, the fear that it will happen again, it’s not worth it. So, you don’t go. I didn’t even see my sister’s new baby for eight months.”

Your desire to see your family, your desire to have a normal life; all of that goes out the window because of your desire to be successful in your job. It outweighs everything.

This is every grower. It’s why many farmers never leave their property. It just becomes a normal way of living. You just repeat it so much that you don’t even think about it. Why go on vacation if your stress level is higher than it is if you’re home. You’re constantly worried about your farm or your facility. The only way to escape it is to not go away at all.

“This system allows the grower to step back and still feel confident because you’re not leaving your facility to another person,” he tells us. “You don’t realize how stressful a lifestyle you live is until you step back and look at it. Or, if you have an alert system that allows you to pull back. That’s when you realize how difficult your life is. Otherwise, it just seems normal.”

As AI technology expands its footprint into agriculture, there will be more tools to help mediate situations like this; more tools to give you a more normal life. It’s one of the reasons we got into the business in the first place.

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

By Susan Preston, T.J. Frost
1 Comment

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

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

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

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

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

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

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

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

Transporting Cannabis Can Be a Costly Business Risk

By Susan Preston, T.J. Frost
1 Comment

Did you know that the use of personal vehicles for transporting cannabis products is one of the most frequent claims in the cannabis industry? It surpasses property, product liability and even theft. Businesses are either unaware of the risks involved in using personal vehicles for transporting cannabis, or they aren’t taking them seriously enough.

Considering the strict statutes many states have placed on transporting cannabis should be reason alone to be more diligent. For example, the California Bureau of Cannabis Control’s proposed regulations require cannabis business owners to ensure their drivers have designated permits to transport the product. The state’s current legislation mandates inspections at any licensed premises, and requires employers to provide detailed tracking and schedules on the transport of product. Further, the state prohibits using minors to transport cannabis, and considers it a felony to do so.

Regulatory concerns, combined with the potential liabilities that could come from driver behavior, are keeping insurers from offering auto coverage to the cannabis industry. In fact, just four insurers currently offer the industry auto coverage, with premiums running as high as $17,000 per auto on average. It is important to note that personal auto insurance falls short because it doesn’t cover cargo loss.

Alternatively, because the stakes are so high, many companies are using courier services to transport cannabis product. But cargo insurance is still an issue. Without it, the care, custody and control of someone else’s products, and insurance limits are lacking. Even when the courier has cargo coverage, because they are delivering for multiple companies, the claims payout would have to be split amongst all the customers – likely below the value of your loss.

Consider the following best practices when transporting cannabis:

  • Conduct background checks/review DMV records. Uncovering any potential driver issues prior to hiring is critical. Look for previous DUIs or drug related history. Employees who might use product before getting behind the wheel are a significant danger to other drivers and a major liability to the employer. Even after hiring, be on alert for signs that indicate poor driving performance. Use check-in/check-out processes for all drivers, and conduct regular vehicle walk-arounds to look for scratches, dents or other damage that otherwise might be unreported to the employer.First, and most importantly, assess your risk mitigation options. Then, put processes in place as soon as possible to eliminate risk. 
  • Implement quarterly driver training. Educate employees on proper procedures. While minor fender benders and sideswipe accidents are most common, even these can be costly if not handled properly. Once law enforcement get involved in an accident the car’s transportation of cannabis could become a secondary issue. Teach drivers how to handle accidents while on the scene, including informing law enforcement about the cargo and the employer.
  • Use unmarked vehicles. Drivers carrying a significant amount of product and/or cash are tempting targets for thieves. Company cars used for transporting product should be newer, and have no fleet serial numbers or anything identifying the company.
  • Require increased personal liability limits. If an employee is using their own personal vehicle for business purposes, the business owner should require that person carry more than minimum limits of personal liability.  Ideally, they should have $300,000 or more, at an absolute minimum $100,000.

Get started now

First, and most importantly, assess your risk mitigation options. Then, put processes in place as soon as possible to eliminate risk. Secure the right insurance coverage, and ask your broker/underwriter to provide any additional recommendations to best mitigate your transportation, delivery, and cargo exposures.

To learn more, please visit our website.

Water Policy in California: Six Key Takeaways from the State Water Board’s New Cannabis Cultivation Policy

By Amy Steinfeld
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Cannabis is the most highly regulated crop in California, and the state just added another layer of regulation. This article breaks down the State Water Resources Control Board’s (SWRCB) recently updated Cannabis Cultivation Policy – Principles and Guidelines for Cannabis Cultivation (“Policy”) into six key takeaways.1 These guidelines impose new rules on cannabis cultivation activities that have the potential to impact a watercourse (stream, creek, river or lake). Most of these rules apply to cultivation of sun-grown cannabis, which is currently allowed in some form in 12 counties. Compliance with these new requirements will be implemented through the CalCannabis Cultivation Licensing Program.

  1. When developing farmland, hillsides should be avoided and erosion must be controlled.

The Policy provides specific rules for growing pot on undisturbed land. To prevent erosion, numerous limitations are placed on earthmoving and activities in sensitive areas, and cultivators are not allowed to grade hillsides that exceed a 50% slope.2

Cultivation prepping activities must minimize grading, dust, soil disturbance, erosion, and impacts on habitat, especially during the winter season.3 No vehicles or heavy equipment may be used within a riparian setback4 or watercourse,5 and cultivators must avoid damaging native riparian vegetation6 and oak woodlands.7 All farm equipment, fuel, and hazardous materials must be carefully stored away from creeks and sensitive habitat.8 The Policy also governs road construction.9

  1. Cultivators should avoid work in or near a surface waterbody.10

If a cultivator’s activities impact a river, stream, or lake, they must consult with the California Department of Fish and Wildlife (CDFW).11 Cultivators must maintain minimum riparian setbacks for all cannabis activities, including grading and ancillary farm facilities. Before grading land, a biologist must identify any sensitive flora or fauna, and if any is located, consult with CDFW and provide a report to the Regional Board.12 No irrigation runoff, tailwater, chemicals or plant waste can be discharged to a waterbody.13 Diversion facilities for the irrigation of cannabis may not block fish passage, upstream or downstream, and must be fitted with a CDFW-approved fish screen; new facilities are subject to all applicable permits and approvals.

  1. During the dry season, cultivators may not use surface water.

The use of surface water supplies in California requires a valid water right and the use of water for cannabis cultivation is no different.14 Anyone seeking to appropriate “water flowing in a known and defined channel” or from a watercourse must apply to the SWRCB and obtain a permit or license.15 Alternatively, a landowner whose property is adjacent to a watercourse may have a riparian right to divert the water for use on her land. Riparian users do not need permission from the SWRCB to divert water, but they must report water use annually.16

The biggest obstacle that growers face under this Policy is that they cannot divert anysurface water during the dry season—the growing season (April 1 through Oct. 31). It should be noted:

  • The seasonal prohibition of surface water diversion applies regardless of the nature of the water right or what has been historically used to irrigate other crops.
  • During the dry period, cultivators may only irrigate using stored water (see no. 5 below) or groundwater.
  • It remains to be seen whether a legal challenge will be brought against the state for their draconian prohibitions on irrigating cannabis during the six-month growing season. Because this prohibition applies to all watersheds in California, singles out one low-water use crop, and ignores established water rights, it is overly broad and may constitute a constitutional “taking” of property rights.
  1. During the wet season, surface water diversions must be monitored closely.

Cannabis-specific restrictions also apply during the wet season. From Nov. 1 to March 31, cultivators must comply with instream flow requirements and check in with the state daily. All surface water diversions for cannabis are subject to “Numeric and Narrative Instream Flow Requirements,” to protect flows needed for fish migration and spawning. To ensure diversions do not adversely impact fish flows, cultivators must also “maintain a minimum bypass of at least 50% of the streamflow.”17,18

While valid appropriative right holders may divert more than 10 gal./min. for cannabis irrigation during the wet season, riparian right holders are not allowed to exceed that diversion rate.19 All cultivators (including small diverters <10 acre-feet (“AF”)/yr) are required to employ water-saving irrigation methods, install measuring devices to track diversions daily, and maintain records on-site for at least five years.20 Cultivators must inspect and repair their water delivery system for leaks monthly,21 and inspect sprinklers and mainlines weekly to prevent runoff.22

  1. Cannabis cultivators may obtain a new water storage right for use during the dry season.

To address dry season irrigation limitations, cultivators are urged to store water offstream during the wet season, including rainwater, for dry season use. Growers may not rely on onstreamstorage reservoirs, except if they have an existing permitted reservoir in place prior to Oct. 31, 2017.23 Alternatively, small growers (storage is capped at 6.6 AF/yr) may benefit from the new Cannabis SIUR Program, an expedited process for cultivators who divert from a surface water source to develop and install storage offstream. Only diverters with a valid water right that allows for diversion to storage between Nov. 1 and March 31 qualify.

  1. Groundwater is less regulated, but cultivators should avoid drilling or using wells near waterbodies.

Groundwater is generally the recommended water supply for cannabis because, unlike surface water, it may be used during the dry season and is not subject to many of the restrictions listed above. It should be noted however:

  • Many groundwater basins are now governed by California’s Sustainable Groundwater Management Act (“SGMA”), which requires water agencies to halt overdraft and restore balanced levels of groundwater pumping from certain basins. Thus, SGMA may result in future pumping cutbacks or pumping assessments.
  • In some counties, moratoriums and restrictions on drilling new wells are on the rise.
  • Under this Policy, the state may step in to restrict groundwater pumping in the dry season in watersheds where there are large numbers of cannabis groundwater, wells located close to streams, and areas of high surface water-groundwater connectivity.24

In short, groundwater pumpers are at risk of cutback if the state deems it necessary to maintain nearby creek flows.Noncompliance can bring lofty fines, revocation of a grower’s cultivation license, or prosecution

Final Takeaways

This cannabis policy presents one of California’s most complex regulatory schemes to date. Before investing in a property, one must understand this Policy and have a robust understanding of the water rights and hydrology associated with the cultivation site. Growers looking to reduce permitting time and costs should invest in relatively flat, historically cultivated land with existing wells and ample groundwater supplies, or alternatively, grow indoors.

This article attempts to synthesize the maze of water supply and water quality regulations that make compliance exceedingly difficult; more detailed information can be found here. Noncompliance can bring lofty fines, revocation of a grower’s cultivation license, or prosecution. Growers are encouraged to contact a hydrologist and water lawyer before making major investments and to designate a water compliance officer to monitor and track all water diversions and water used for irrigation. Growers should also consult with their local jurisdiction regarding water use restrictions and stream setbacks before moving any dirt or planting cannabis.


References

  1. The Policy is available at: https://www.waterboards.ca.gov/water_issues/programs/cannabis/cannabis_policy.html (will go into effect on or before April 16, 2019.)
  2. Policy, Appendix A, Section 2, Term 4. The Policy defines “Qualified Professional” as a: California-Licensed Professional Geologist, including Certified Hydrogeologist and Certified Engineering Geologist, California-Licensed Geotechnical Engineer, and Professional Hydrologist. (Policy, Definition 72, p. 11.)
  3. Policy, Appendix A, Section 2, Terms 4 and 10.
  4. Policy, Appendix A, Section 2, Term 3.
  5. Policy, Appendix A, Section 2, Term 40.
  6. Policy, Appendix A, Section 2, Term 33.
  7. Policy, Appendix A, Section 2, Term 34.
  8. Policy, Appendix A, Section 2, Term 7.
  9. Policy, Appendix A, Section 2, Terms 15 to 29.
  10. Policy, Appendix A, Section 1, Term No. 41.
  11. Policy, Appendix A, Section 1, Term No. 3; see also 1602.
  12. Policy, Appendix A, Section 1, Term No. 10.
  13. Policy, Appendix A, Section 1, Term No. 326.
  14. Policy, Appendix A, Section 2, Term 69.
  15. Wat. Code §1225; See alsoWat. Code §1201 [providing that the state shall have jurisdiction over, “[a]ll water flowing in any natural channel” except water that is appropriated or being used for beneficial purpose upon land riparian to the channel.”]
  16. Wat. Code §§ 5100–02.
  17. Policy, p. 12.
  18. Policy, Attachment A, pp. 60, 63.
  19. Policy, Section 2, Term 78.
  20. Policy, Section 2, Term 82.
  21. Policy, Section 2, Term 95.
  22. Policy, Section 2, Term 99.
  23. Policy, Section 2, Term 79.
  24. Policy, p. 11.

Seven Steps To Avoid the Green Rush Blues: Investigate Water Supplies Before Planting Cannabis

By Amy M. Steinfeld
2 Comments

A clean, reliable water supply lies at the heart of every successful cannabis farm. It’s no surprise that the stakes for finding land with ideal growing conditions, including adequate water, are high. But new buyers (and lessees) caught up in the green rush often gloss over water rights or are unaware of California’s byzantine rules governing the irrigation of cannabis.

Water rights are complex. Water regulations applicable to cannabis cultivation are even more complex. And our new climate reality convolutes things further. Longer droughts, more volatile weather, political uncertainties, increased groundwater regulation and water quality concerns are exacerbating tensions over local and statewide water supplies. In many areas of California, landowners can no longer rely on local water districts to meet their needs.

A robust investigation of the property must consider water supplies. Because a property’s water supply is dependent on water rights, local ordinances, state regulations, politics and hydrology, it’s important to consult a water lawyer (and in some instances a hydrologist) before closing. A bit of foresight can prevent a grower from being left high and dry.

The following checklist provides a roadmap to conduct water rights’ due diligence. While many of these details are California-specific, this type of due diligence applies throughout the West.

Step 1: Identify Available Water Supplies and Consider Potential Limitations On Irrigation, Including Potential Future Changes

Conduct a site visit to identify existing water infrastructure, natural water features and existing or potential water service options. Next, determine if the property is served by a public water supplier. If that’s the case, the California State Water Resources Control Board (“State Water Board”) does not require any specific documentation to irrigate cannabis, but the water supply must be disclosed in the CalCannabis license application.

Groundwater is generally the best supply for cannabis, but the era of unregulated groundwater pumping is over. Many groundwater basins in California are now governed by the Sustainable Groundwater Management Act (“SGMA”), which requires water agencies to halt overdraft and restore balanced levels of groundwater pumping from certain basins. As a result, SGMA may result in future pumping cutbacks or pumping assessments. It’s imperative to identify the local groundwater basin via the Department of Water Resources’ Bulletin 118, and determine whether the groundwater basin is adjudicated or governed by a groundwater sustainability agency. Growers should also test the local water supply’s pH and salt levels because cannabis plants are finicky and water treatment can be cost prohibitive. If a new well is needed, growers should consult with their local county before drilling a new well. In some areas, moratoriums and restrictions on drilling new wells are on the rise.

As a rule of thumb, cannabis cultivators should avoid using surface water to irrigate cannabis. Surface diversions are subject to the California Department of Fish and Wildlife’s permitting authority. And under the interim State Water Board Cannabis Policy, commercial cannabis cultivators cannot divert anysurface water during the dry season (April 1 through Oct. 31), even if they have a riparian right that can be used to irrigate other crops. During the dry season, cultivators may only irrigate using water that has been stored off-stream. And even during the wet season, cannabis cultivators must comply with instream flow requirements and check in with the state daily to ensure adequate water supplies are available. Cannabis cultivators are also required to install measuring devices and track surface water diversions daily. And buyer beware, a groundwater well that extracts water from a subterranean stream may be considered a surface-water diversion. So be especially cautious if the well is located close to a creek or river.Develop a water use plan to optimize water efficiency 

Step 2: Identify Water Supplies Used On the Property, Including the Basis of Right, and Quantify Historical Use

Review information on historic and existing water use. This may include past water bills and assessments. If there is a well on the property, the seller or lessor may have metering data, electrical records and crop data that can establish historic groundwater use. Cultivators must submit a well log to CalCannabis as part of the cannabis cultivation application. If surface water is available, the purchaser should review the State Water Board eWRIMs database for water rights permits, licenses, stock pond registrations and certificates, decisions and orders. The purchaser should also identify surface water diversion structures and review annual filings to determine compliance with all terms and conditions of the water right. Lastly, the purchaser should request all documents and contracts pertaining to water rights.

Realistically estimate water demand for irrigation and other on-site purposes.Step 3: Confirm Ownership of Right and Assess Any Limitations On Water Right

Determine whether the right has been abandoned, lost to prescription or forfeited. Evaluate the seniority of the water right, availability of the right, adequacy of place of use, purpose of use (must include irrigation), season of use, and quantity of any permitted or licensed post-1914 right. Determine whether historical diversions pursuant to an appropriative right support the full amount of the claimed right, and whether any changes to the water right are needed to support the proposed new use. Cultivators in California who plan to utilize surface water also need to file for a “Cannabis Small Irrigation Use Registration” to store water during the wet season for use during the dry season.

Step 4: Reconcile Water Demand With Available Supply

Realistically estimate water demand for irrigation and other on-site purposes. Develop a water use plan to optimize water efficiency (drip irrigation, rainwater harvesting, water monitoring, hoop structures) regardless of supply sufficiency. Many counties, such as Santa Barbara County, require that cannabis growers meet certain irrigation efficiency standards. Determine whether available supplies can meet all proposed demands, including plans for full buildout. If not, consider whether additional supplies are available for use on the property.

Step 5: Determine Water Supply Compliance Obligations

 The rights associated with water supplies are defined by their source, the time frame during which supplies can be taken, the quantity of water to which the right attaches, and any limitations on the purpose of use of the water supply. There may also be reporting requirements associated with taking and using the supply—these can include requirements to report the quantity of water used as well as information regarding the end use of the water. Failure to timely report can have serious consequences. Cannabis cultivators are also subject to additional water quality regulations and restrictions, including waste discharge requirements pursuant to the State Water Board’s Cannabis General Order.

Step 6: Negotiate Deal and Draft Conveyance Documents

After obtaining an understanding of the water supply associated with the property, the property conveyance documents may be drafted to incorporate the transfer of rights associated with the property’s water supplies. These may include the assignment of contracts pursuant to which water supplies are obtained, the transfer of permits or licenses as to the water supplies, or the transfer of water rights arising out of a judgment or decree.

Step 7: Consider Unused Water Supply Assets That Could Be Monetized 

To the extent the water supply rights associated with the property exceed the cannabis plants’ water demand, it may be possible to monetize unused or excess water supply assets through transfer of the rights to a third party.

If you have any questions about water rights related to cannabis cultivation it’s always in your best interest to contact an experienced water attorney early on in the process.

Dr. Zacariah Hildenbrand
Soapbox

Sustainability & Quality Go Hand-In-Hand In The Cannabis Industry

By Dr. Zacariah Hildenbrand
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Dr. Zacariah Hildenbrand

I recently attended the CannaGrow Expo held in Denver, Colorado. It was a fantastic event, per usual, and I was pleasantly surprised to see a number of presentations by industry experts where the central themes were sustainability and environmental stewardship. I was particularly struck by Adam Maher’s presentation, where he discussed the merits of micro grid technologies and the ease in which they can be coupled with renewable energy modalities, such as solar. His sentiments really resonated with me, particularly with respect to the long-term implications of cannabis cultivation sweeping across North America.

Considering that cannabis represents the new frontier of modern medicine and its societal acceptance is rapidly spreading, there is a growing impetus for cannabis professionals to implement technologies that will enhance the sustainability of their operations. These pertain to, but are not limited to, power generation and lighting, both of which are integral components to any indoor cannabis cultivation facility. Not only can the utilization of energy efficient technologies (i.e., solar panels and LED lights) help our planet that is struggling mightily to neutralize the influences of anthropogenic climate change, but it can also add value to the bottom line. That’s right: environmental stewardship, product quality and financial success are not mutually exclusive in the cannabis industry. For example, the utilization of solar panels and/or a micro grid can have a relatively rapid payback (<6 years), while the hardware itself adds inherent value to any cannabis property/operation. This is particularly relevant in an emerging market where acquisitions are common and the management of asset value is a harbinger of success. Secondarily, the use of LED lighting technologies to produce ultra-premium cannabis is another piece of low-hanging fruit that can be picked to add value. For example, 1st and 2nd place in Arizona’s 2017 ERRL Cup were awarded to flower that was grown under LED lights designed by the Tall Trees LED Company, where the total cannabinoid levels exceeded 32% and a wide variety of terpenes were detected. These results, coupled with the fact that LED lights can provide full spectrum light that requires less energy and produces less heat than HPS lights, make the adoption of LED lights a simple choice for the environmentally conscious and financially savvy operator.

As we continue to move towards more states becoming cannabis powerhouses, and a potential federal rescheduling, the industry must continue pushing the operational equilibrium towards more resourceful technologies. Of course there is always going to be a perceived activation energy or threshold that must be transcended before the adoption of new technologies can be successfully accomplished with confidence. This is completely normal and is usually associated with the initial capital that is required to acquire such technologies, and/or fears that such an investment won’t bear fruit. However, there is currently enough data to indicate that technologies like solar panels and LED lights are a smart financial choice for any cultivation facility where there is sunlight and electrical outlets.

In summary, I would strongly encourage any operator to evaluate the sustainability and environmental stewardship of their business, especially if they anticipate spreading the holistic gospel of cannabis medicine for many years to come. You are already doing a tremendous service for those who depend on cannabis medicine and now is the time to continue your noble pursuit while taking care of Mother Earth and paying it forward to our subsequent generations.