Ask any cannabis connoisseur, and they’ll likely tell you that cannabis delivery services have been around for a long, long time. Given the distancing requirements of the COVID years, the increasing number of medical cannabis patients who need or would like cannabis delivered to their door and the surge in recreational adult use sales, cannabis delivery is coming out of the shadows and into the legal cannabis industry.
Proponents of cannabis delivery say that creating a legal structure and guidelines that allow cannabis home delivery encourages people to buy from legal sources rather than the legacy market. In some cases, it’s a way to entice legacy cannabis delivery operators to transition to the licensed and regulated market. While many states remain hesitant to allow adult use cannabis delivery, some do, and others have taken the first step, allowing delivery to registered medical cannabis patients and caregivers.
Where is Cannabis Delivery Legal?
According to Cannabis Business Times, states that permit medical cannabis delivery as part of another license type, retail, for example, or with a specific delivery license include: Arizona, Arkansas, California, Colorado, Maine, Maryland, Massachusetts, Michigan, Nevada, New Mexico, New York, Oregon, Rhode Island and Vermont. Complex reports that delivery service is legally available without any restrictions to anyone 21 years or older in California, Nevada and Oregon.
Medical or adult use, there are restrictions on where cannabis can be delivered, even within states that allow it. For instance, you can’t legally deliver cannabis to college or university campuses. Although many people still discreetly deliver and receive cannabis products on campuses, it’s illegal to do so since cannabis is a federally controlled substance and higher education institutions that receive federal funding must prohibit its use and distribution.
It’s noteworthy that some states without legal cannabis delivery regulations have a “loophole” through which some delivery businesses operate. Gifting, for example, is an established, though not entirely legal, delivery practice. According to NJ.com, New Jersey falls into the gifting loophole category:
Licenses to sell legal weed are still months away, but there’s a handful of entrepreneurs coming into the scene through a possible legal loophole — “gifting” cannabis. It’s a scheme popular in other states and particularly in Washington, D.C. A company lets you buy cookies, snacks or brownies that come with sticker shock of $50 or more. But when they make the delivery, it comes with a suggested gift: maybe a cannabis edible or an ounce of flower.
Although many underground businesses thrive in the Garden State’s “in-between” market, NJ.com also reports that gray market operators have faced legal penalties and even jail time.
Why Are Cannabis Delivery Services Popular?
Cannabis delivery services have a rich cultural history in the underground market. Rather than making a transaction in public, home delivery provides a more intimate and secure way of selling cannabis to consumers.
Cannabis delivery has skyrocketed in popularity due to the COVID-19 crisis. MJBizDaily reports that online cannabis orders boomed during the pandemic, increasing the need for cannabis delivery services.
Historically, cannabis delivery services also help registered medical cannabis patients receive access to their medicine since their disability or chronic condition might prevent them from leaving the house and visiting a dispensary. This can be especially true for seniors, even if they aren’t a registered patient, but live in a state with adult use cannabis.
What’s the Difference Between Cannabis Delivery and Transport Licenses?
There is real confusion surrounding the differences between delivery and transport licenses. Basically, delivery licenses are B2C (business to consumer), and transport licenses are B2B (business to business).
Cannabis delivery and courier licenses allow licensees to deliver cannabis products directly to patients, caregivers, and in some states, consumers. While the name of the license differs depending on the state in which you seek to operate, delivery licenses tend to allow operators to act as a retailer without a traditional bricks and mortar location. Delivery licensees purchase and store wholesale cannabis products and sell them via the delivery model. Couriers, however, are traditionally hired by retailers as their delivery arm. In this model, the retailer takes the order, and the courier delivers, like Door Dash or Uber Eats. One key difference between a delivery and courier license is the significantly lower cost of entry for couriers as they don’t have facility, inventory, or storage costs, and generally have lower operational expenses.
But what about transport licensees? Rather than delivering to individuals, transport licensees typically deliver cannabis products between licensed cannabis facilities, such as a cultivator or manufacturer to a retail dispensary or testing facility.
In Massachusetts, there are three delivery and transport licenses (courier, delivery operator, and transporter) as well as a delivery endorsement that allows certain licensees to deliver directly from a licensed establishment to consumers.
The first step to operate a cannabis delivery or transport business is determining whether you want to deliver for retail establishments, buy product and deliver directly or transport cannabis between licensed cannabis businesses. Each model has its plusses and minuses, just depends on what you want. It’s important to note that Massachusetts delivery operator licenses are currently reserved for social equity participants, as reported in the Milford Daily News:
“The new “marijuana delivery operator” licenses…will be available exclusively to participants in the CCC’s social equity program and economic empowerment applicants for the first three years.”
Once you decide which type of license you want, the next steps are first to familiarize yourself with your state’s cannabis rules and regulations, and then to complete and submit a license application.
How to Apply for a Cannabis Delivery or Transport License
While the delivery and transport license application process looks different in each state that allows them, all states require applicants to be 21 years of age or older and most require operators to be current residents of the state where they intend to operate. There are also required, non-refundable application and licensing fees. While these fees are not insignificant, the good news is that they tend to be lower than the fees required for other cannabis business license applications.
Since compliance with state rules and regulations is a condition of licensure, licenses are awarded to some or all applicants that meet the application and regulatory requirements. Once awarded, cannabis delivery and transport licensees must maintain compliance or risk hefty fines and/or face a temporary or permanent shut down. One regulatory example is that delivery operators must digitally verify any and every customer’s photo ID before and when a cannabis product is delivered to a recipient; missing this critical step can put your businesses at serious risk of legal and financial consequences.
How to Maintain Compliance Once You’re Licensed
Maintaining compliance for any cannabis business can be challenging. There are strict guidelines on marketing and advertising, security, employee training, inventory management and more. Additionally, there are restrictions specific to cannabis delivery services, particularly limits on how much product can be delivered per order/transaction.
What does cannabis compliance specifically look like for cannabis delivery licensees? For one, all merchants must verify ID before an order is fulfilled. In states with medical cannabis, this would require medical card ID verification. Otherwise, for adult use markets, a driver’s license or other state-issued photo ID with a valid birthdate is acceptable. Some states require recipients to sign a manifest or receipt acknowledging that they accepted the cannabis order and for the licensee to maintain a record of that acknowledgement for a specified number of years.
There are many other regulations that delivery operators must adhere to and many ways to stay up to date and compliant. Tasking a staff member to handle all things compliance is one option. Another is hiring a compliance professional to set up and oversee a compliance operating system and/or partnering with a compliance software solution provider.
Cannabis delivery services can be very profitable. In comparison to other cannabis licenses, they don’t require as much finance capital to get started. Once a license is obtained, your priority will turn to maintaining compliance. Too many delivery services exist in a precariously legal gray area; don’t let yours be one of them.
Last week, Gary Chambers Jr., a Baton Rouge native, launched his political campaign to run for a U.S. Senate seat in Louisiana. He took the internet by storm with his first political advertisement, a 37-second-long video where he advocates for cannabis legalization, discussing the disproportionate effects that cannabis prohibition has on communities of color.
But that’s not why he made such a splash on social media; the campaign ad made headlines as possibly the first major party candidate to smoke a cannabis blunt in an advertisement.
The timing of the video is also very intentional, lasting 37 seconds. “Every 37 seconds, someone is arrested for possession of marijuana,” Chambers says in the video. “Since 2010, state and local police have arrested an estimated 7.3 million Americans for violating marijuana laws, over half of all drug arrests. Black people are 4 times more likely to be arrested for marijuana laws than white people.”
Chambers is running against Sen. John Kennedy, the Republican incumbent with support from Trump and very deep pockets.
“Most of the people police are arresting aren’t dealers, but rather people with small amounts of pot just like me,” says Chambers. “I’m Gary Chambers, and I’m running for the U.S. Senate.” Click here to see his campaign website and make a donation.
What does Lean Mean to the World of Cannabis Testing?
Rob Radke, President, Method Testing Labs
In this session, Rob Radke delves into the world of Lean management, how Lean process implementation can enhance quality in a lab setting, what it means for customers and why it is unique and effective in the cannabis industry.
TechTalk: Hardy Diagnostics
Jessa Youngblood, Food & Beverage Market Coordinator II, Hardy Diagnostics
How Cannabis Labs Can Prepare for Accreditation?
Renee Delauter, Cannabis Program Manager, A2LA
Learn when to apply for your lab’s accreditation, what to expect during your ISO/IEC 17025 audit and find guidance on how to approach deficiency findings.
TechTalk: Bio-Rad
Helen Fong, Product Manager, Food Science Division, Bio-Rad
The Challenges and Benefits of National Standardization for Hemp Testing
Dillon Burns, Lab Manager, Infinite Chemical Analysis Labs
This presentation takes a deep dive into current hemp regulatory programs, why standardization is crucial and some shortcomings in current regulations.
Curaleaf Holdings, Inc., a Florida-based cannabis company operating in 23 states and Europe, made two big announcements earlier this morning. First, they acquired Bloom Dispensaries for $211 million. As part of the acquisition, Curaleaf is purchasing Bloom’s four dispensaries in Phoenix, Tucson, Peoria and Sedona. They also acquired Bloom’s cultivation and processing facilities outside of Phoenix.
Bloom’s revenue last year was near $66 million, with EBITDA margins above 40%. Boris Jordan, executive chairman of Curaleaf, says the Bloom acquisition is huge for the company’s position in Arizona, a state with a billion-dollar-market. “Bloom is an excellent strategic fit for Curaleaf as it further expands our capacity and retail footprint in Arizona with an attractive set of assets, enabling us to better serve the state’s US$1.4 billion-plus annual market opportunity,” says Jordan. “Adding to these benefits, Bloom will be immediately accretive to our adjusted EBITDA margins.”
Now that they have 121 retail locations across 23 states and over 5,000 employees, Curaleaf is on a path to become one of the largest cannabis companies in the world.
According to Matt Darin, president of Curaleaf, their growth strategy is continuing well into 2022. “We are excited to kick off this year continuing our momentum of expansion and growth in Florida,” says Darin. “Throughout this year our patients can expect to see Curaleaf continue to lead the Florida market with new innovative products and convenient new locations.”
Canadian cannabis giant Tilray (NASDAQ:TLRY) announced its fiscal second quarter of 2022 results last week. The company reported net revenue of $155 million in Q2 which was an increase of 20% year over year. Tilray attributed these gains to its expansion in verticals that include alcohol as well as hemp-based wellness.
Despite an uptick in sales, Tilray’s gross margin reduced by 7% to $32.8 million as the Canadian cannabis market continues to wrestle with oversupply issues resulting in lower-priced products. Alternatively, Tilray claimed its cost-reduction program is running ahead of schedule and it expects to save $100 million by 2023, up from its earlier forecast of savings of $80 million.
Tilray reported a net income of $6 million in Q2, compared to a year-ago loss of $89 million. The fiscal second quarter was also the 11th consecutive quarter where Tilray reported an adjusted EBITDA. This figure stood at $13.8 million in Q2.
Tilray stock rose by 15% in the two trading days following its Q2 results.
What impacted Tilray in Q2 of fiscal 2022?
Tilray explained its Q2 results were solid as it has successfully built a cannabis and lifestyle brand. Further, the company continues to benefit from its scale, global distribution capabilities as well as operational excellence allowing it to increase sales and maintain profitability despite macro-economic headwinds.
The company enjoys strong brand recognition and is focused on ensuring an adept pricing environment. It also believes marketing adjustments will allow Tilray to aggressively capture market share going forward.
Germany is the largest medical cannabis market in Europe where Tilray has a 20% share. It’s well-positioned to capture the adult use cannabis market as well in Europe, if and when cannabis is legalized in this region.
Tilray, similar to most other producers aggressively acquired companies in the past. Its acquisition of the U.S.-based SweetWater Brewing and Manitoba Harvest provides it a foothold in the world’s largest cannabis market. These two companies have invested in product innovation to enhance awareness and distribution.
Further, SweetWater and Manitoba Harvest are profitable and provide Tilray an opportunity to launch THC-based products in the U.S. when pot is legalized at the federal level.
What next for TLRY stock?
During its earnings call, Tilray disclosed its new parent name called Tilray Brands. It reflects the company’s evolutions from a Canadian licensed producer to a global consumer packaged goods company with a leading portfolio of cannabis and lifestyle CPG brands.
Tilray aims to post annual sales of $4 billion by 2024 which is quite optimistic given analysts expect revenue to grow to $980 million in fiscal 2022 and $1.2 billion in fiscal 2023. In order for Tilray to reach its lofty goals, it will have to acquire other licensed producers resulting in shareholder dilution.
Germany is expected to legalize marijuana at the federal level, making it the largest country to do so in terms of population. Tilray already has an EU GMP-certified facility operating in Germany which can increase production capacity to accommodate demand from the adult use segment.
Bottom Line: Is Tilray Stock a Buy Post Fiscal Q2 Results?
While Tilray’s stock gained pace, following its Q2 results, investors should understand that it was estimated to report revenue of $171 million in the quarter. Despite the cost synergies enjoyed by Tilray, the adult-use market in Canada is crowded as well as highly fragmented and should consolidate in the upcoming years which will allow companies to improve the bottom line.
Tilray stock is valued at a market cap of $3.2 billion which suggests its forward price to sales multiple is over 3x. Unlike most cannabis producers in the U.S. Tilray continues to post an adjusted loss making it a high-risk bet at current multiples.
By Abraham Finberg, Simon Menkes, Rachel Wright 1 Comment
When Montana became a territory in 1864, its legislators chose as its motto the Spanish words “Oro Y Plata” which means “Gold and Silver.” Gold and silver discoveries brought people to the new territory in droves, and everyone expected to get rich.
Nowadays, the newest gold rush to open up in Montana is the state’s adult use cannabis market, which began operation this past January 1, 2022. The Cannabis Control Division (CCD) of the Montana Department of Revenue expects total adult sales in 2022 to top $130M. With a population just over a million residents, that works out to about $120 per person, which would be more than California’s benchmark $111 per person. Montana’s cannabis industry is expecting exciting and enriching times ahead!
We advise our Montana clients to be cautious, however, and to keep an eye on the “cannabis tax ball.” Why? You can be killing it in sales but still get dragged under by a heavy tax burden, especially in adult use sales, or worse, not keep up with your tax obligations and run afoul of the Department of Revenue or Big Brother IRS.
Montana’s initial foray into cannabis began in 2004, when the state passed Initiative I-148, allowing patient cultivation and use of marijuana but left the legality of commercial sales ambiguous.1 The government reactionaries jumped in and used legislative action to tighten and limit that law.2 Then, in 2016, Montana voters legalized the medicinal sale of cannabis with I-182,3 and in 2021, adult use was legalized with I-190, allowing existing dispensaries to sell recreationally beginning January 1, 2022 in counties which voted yes on the initiative.4,5
From a federal taxation standpoint, of course, Montana’s cannabis operators are only allowed to deduct Cost of Goods Sold under Internal Revenue Code (IRC) 280E, and in general, the state of Montana’s tax code conforms with the Internal Revenue Code.6,7 However, the Montana Department of Revenue departed from the IRC in 2017 and allowed normal business deductions for licensed (legal) cannabis corporations.8 The Montana Department of Revenue also interpreted the law for pass-through entities and individuals with licensed cannabis operations to allow deductions of ordinary and necessary business expenses.9 This is what makes it possible to do business in cannabis in the state of Montana.
But what about Montana’s cannabis taxes? How big are they, and how do they compare with other states?
Montana charges a regular sales tax as well as either a 4% cannabis tax on medical sales or a 20% cannabis tax on adult use (recreational) sales.10 Some good news: wholesale sales are exempt from this tax.11 More good news: Both the retail tax and the regular sales tax are exempt from the taxable price i.e., the state does not charge “tax on tax.”12,13 However, be warned: be careful of offering discounts as it is assessed on the regular retail price rather than the actual discounted price.
Montana assesses the Cannabis Tax on the retail price and excludes discounts or even product given away.14 As of this writing, Park, Yellowstone and Missoula (medical only for Missoula) Counties have an additional 3% Local Option Tax based on the same state retail price definition with an exclusion for discounts or gifted products.15
So, with all these different taxes, is Montana actually a low tax state for cannabis? To begin with, the state is at least “in the ball game” by allowing the deduction of regular operating expenses on state income taxes. In addition, Montana has a relatively low tax which only applies at the retail level for medical sales and a relatively high tax on adult use. Adult use tends to be the vast majority of sales for dispensaries, so this does not bode well for retail cannabis operators.16
But before you throw in the towel and start looking to move to California (or Oklahoma, another cannabis-friendly state), a look at the whole Montana cannabis picture provides a rosier outlook. Montana income tax is relatively low, and since cultivators and manufacturers do not have to pay any cannabis excise taxes (especially as compared to California, with its cultivation tax and a functional 27% excise tax charged to retailers – a tax theoretically assessed to the consumer but in reality charged by a distributor to a retailer) or cultivation taxes on weight that enters the commercial market. All-in-all, Montana is actually a low-tax state for cannabis operators!
Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.
Author’s experience with clients from California Oregon, Washington State and Nevada; states with both adult use and medical sales as of this writing. Montana does not have a commercial adult use program as of this writing.
Federal legalization of adult use cannabis is still out there as a potential, but ultimately, there are no guarantees that come with such a move. Further, even with legalization, the state-to-state variations in regulations for everything from cultivation standards to packaging and transportation will make marketing country-wide a difficult proposition for most cannabis businesses. The businesses that will grow and thrive will be ones that embrace trends and opportunities that are on the horizon for 2022 and beyond.
Economic resilience even in challenging times
Large scale companies are dealing with the issue of state-to-state differences in regulations by building branded verticals in each state: from growing to packaging, as well as building stores, in order to avoid the issue altogether. It’s an expensive proposition that is out of reach for the smaller entrepreneur, but it creates an almost regulation-proof setup for these organizations.
One interesting trend that would never have been as clear if the pandemic had not occurred is that cannabis is being generally viewed as a recession-proof industry. The pandemic has put the same types of constraints on consumer activity as a recession does and the results are clear: people are still interested, perhaps more so, in cannabis-related products and will choose to continue using them, even in times of restraint.
This economic resilience has also encouraged the growth of investment opportunities in the cannabis industry. ETFs (exchange-traded funds) that cover the industry are growing in number, as more cannabis related businesses grow in size and go public.
While banking through traditional institutions will continue to be difficult for cannabis businesses, pending federal legalization, there is a lot of money being funneled into the industry, through venture capital and angel investments. There is no question that it is still a growth industry now, and into the next decade.
Technological advancements
Now more than ever, cannabis has gone mainstream. The medical uses for it in terms of stress reduction, mental health and so on, have built up markets that might have otherwise looked to more traditional pharmaceutical options. There is an interesting portion of this new mainstream market that is interested in the therapeutic effects of cannabis but not in the traditional consumption method of smoking. In addition to wanting to avoid inhaling smoke, this same section of the market is acutely aware of what they put into their bodies and what impacts their choices have on the environment at large. The result? Organic, ethically sourced and developed cannabis products are becoming more and more the norm.
Products that include oils, tinctures, topicals and edibles are all within the scope of what the discerning cannabis consumer is looking for. The only downfall for many of these types of products, versus a smokable, is the effectiveness of the THC. For example, edibles can take upwards of an hour to produce any psychoactive effects. That limits the function of these types of products, so the next generation of these requires technological innovation to find a solution to that limitation, such as nano emulsions.
For example, we have innovated by leveraging technology that reduces THC particles to a nano size and creates a barrier around the particle so that they can be absorbed into the bloodstream, bypassing the neutralizing effects of the digestive system. This effectively creates edibles that produce a high that is comparable to what can be obtained by smoking a joint, therefore solving the issue that edibles have had in the past.
Multinational growth opportunities
With the inability to export from the US to other growing markets, there is the opportunity for cannabis companies to expand as multinationals. Growing and marketing cannabis products elsewhere and exporting to other countries that will accept the imports, is a big opportunity. To use an existing example, Uganda has established a government sponsored program to produce and export medical cannabis to Germany. This is an important change that has other countries in particular watching to see how this evolves. Certainly, from the point of view of local economic development, it’s too good an option to ignore.
We are partnering with a chain of medical clinics in Tanzania—“Your Local Clinic”—to provide local medical practitioners with the ability to prescribe medical cannabis, once legalization is realized. This is the first step in a longer term plan that will allow us to build up legal exports to Europe.
Export to the European Union (EU) is expected to grow dramatically by 2025, leaving plenty of expansion opportunities for US companies to take their growing practices, as well as available technology for irrigation, to the next level, via Africa and potentially even Latin America.
This is the second piece in a two-part conversation with the founders of Veda Scientific, CEO Leo Welder and CSO Aldwin M. Anterola, PhD. To read part one, click here.
In part one, we chatted about their backgrounds, their approach to cannabis testing, their role in the greater industry and how they came into the cannabis industry.
In part two, we’re going down a few cannabis chemistry rabbit holes and realizing that what we don’t know is a lot more than what we do know. Join us as we delve into the world of volatile compounds, winemaking, the tastes and smells of cannabis, chicken adobo and much more.
Aaron: Alright so you mentioned the GCxGC/MS and your more advanced terpene analysis. How do you envision that instrument and that data helping your customers and/or the industry?
Leo: Some of the things that we envision will help is a better understanding of what compounds and what ratios will lead to desirable outcomes, things like better effects, aroma and flavor. By better understanding these things it’ll help the industry create better products.
I have a personal connection to this. My wife has some insomnia and she’s always had to take various forms of OTC pharmaceuticals to help with sleep. She tried using a 1:1 vape pen and it was a miracle worker for her for several months. The local dispensary had a sale on it, and she bought some extra. Unfortunately, even though she used it the same way as before, she got very serious anxiety, which obviously didn’t help her sleep. Every time she used the vapes from this same batch, she felt the same extreme anxiety. Sadly, she now had a lot of this product that she couldn’t use because it kept her awake rather than helping her sleep, so she went back to trying other OTC solutions. That’s a problem for both consumers and the industry at large. If people find something that works and provides a desired effect, they need to be able to rely on that consistency every time they purchase the product, leading to similar outcomes and not exaggerating the problem. That’s why I think consistency is so important. We’re taking two steps forward and one back when we have inconsistent products. How do we really grow and expand the availability of cannabis if we lose trust from our consumer base? What a lab can do and what we can do is provide data to cultivators and manufacturers to create that consistency and ultimately allow the market to expand into other demographics that are currently wary and less tolerant of that variance.
On a similar note, we have been having a lot of discussions with the CESC [Clinical Endocannabinoid System Consortium] down in San Diego. They are an advanced cannabis research group that we have been working with for over a year. We’ve started looking at the idea of varietals. To be more specific, because I’m not a wine connoisseur, varietals are the pinot noirs, the cabernets and sauvignon blancs of the industry. In the cannabis industry, consumers have indica and sativa, though we still argue over what that concept really means, if anything. But for the sake of argument, let’s say we have this dichotomy to use as a foundational decision tool for consumers- call it the red and white wine of the cannabis industry. How inaccessible would wine be if we just had red or white? Imagine if you went to a dinner party, really liked the wine you were drinking, and the host could only tell you that it was a red wine. You can’t go to a wine store and expect to find something similar to that wine if the only information you have is “red.” At a minimum, you need a category. So that’s what varietals are, the categories. The data that we can produce could help people in the industry who identify and establish the varietals based on their expertise as connoisseurs and product experts to find what those differences are chemically. Similarly, we’re also looking at appellation designations in California. So, we want to help provide tools for farmers to identify unique characteristics in their flower that would give them ability to claim and prove appellation designation.
Aldwin: The GCxGC/MS allows us to find more things besides the typical terpene profile with 20 or 40 terpenes. It allows us to go beyond those terpenes. The issue sometimes is that with a typical one-dimensional GC method, sure you could probably separate and find more terpenes, but the one dimension is not enough to separate everything that coelutes. And it’s not just terpenes. Some terpenes coelute with one another and that’s why people can see this inconsistency. Especially if you use a detector like an FID, we can see the compound limonene on the chromatogram, but there’s another terpene in there that is unknown that coelutes with limonene. So, this instrument is helping us get past the coeluting issue and solve it so that we know what peaks represent what terpenes.
The other bonus with our GCxGC/MS is that the coeluting compounds that were masked behind other terpenes are now revealed. There is a second dimension in the chromatogram where we can now detect some compounds in cannabis that would be hiding behind these large peaks if it were just a one-dimensional GC. Besides terpenes, we’ve found esters, alkanes, fatty acids, ketones, alcohols and aldehydes, as well as thiols. The terpenes are so plentiful in cannabis that these other compounds present at lower levels cannot be seen with just one-dimensional GC. There are just so many compounds in cannabis that the ones in small amounts are often masked. My analogy to highlight the importance of these minor compounds is like a dish; I am from the Philippines and I like chicken adobo. My father does it differently from my mom and someone else will do it differently in a different region. The base of the sauce is vinegar and soy sauce, but some people will do it differently and maybe add some bay leaf, garlic, pepper, or a touch of another spice. It’s still chicken adobo, but it tastes differently. Just like in cannabis, where yes, you have the same amount of THC in two different plants, but it’s still giving you a different experience. Some people say it’s because of terpenes, which is true in a lot of cases, but there are a lot of other volatile compounds that would explain better why certain dishes taste different.
Leo: There’s been some recent developments too here that show it’s very significant. It’s like the difference between bland and spicy. And it could be the thiol. We identified a thiol in cannabis at the same time as other scientists reported an article that just came out on this subject.
Aldwin: Thiols are sulfur containing compounds that produce very powerful odors, giving cannabis the skunky smell. Skunks also produce thiols. It is very potent; you only need a little bit. It turns out that yes, that paper described thiols and we also saw them in our GCxGC/MS. These are the kinds of things that the GCxGC can show you. Those very tiny amounts of compounds that can have a very powerful impact. That’s one that we know for sure is important because it’s not just us that’s finding out that GCxGC can detect this.
Not everything is about THC or the high amount of the compounds in the flower. This paper and our concurrent findings indicated that the skunkier smelling strains contained very small amounts of thiols and you can recognize their presence quite readily. It’s not a terpene, but it’s producing a distinct flavor and a powerful smell.
Aaron: Okay, so why is this useful? Why is it so important?
Leo: I would say two things in particular that we know of that are issues currently, both related to scents. We mentioned this earlier. We do know that farmers with breeding programs are trying to target particularly popular or attractive scent profiles, whether it be a gas or fruity aroma. Right now, when they get the flower tested and review the terpene profile, it isn’t enough information to help them identify what makes them chemically distinct. We hear time and again that farmers will say their terpene profile is not helpful in identifying specific scents and characteristics. They are looking for a fingerprint. They want to be able to identify a group of plants that have a similar smell and they want a fingerprint of that plant to test for. Otherwise, you have to sniff every plant and smell the ones that are most characteristic of what they’re targeting. For larger operations, walking through and smelling thousands of plants isn’t feasible.
Once we can identify that fingerprint, and we know which compounds in which ratios are creating the targeted aroma, we can run tests to help them find the best plants for breeding purposes. It’s about reproducibility and scalability.
Another value is helping people who are trying to categorize oils and strains into particular odor categories, similar to the varietals concept we’ve been talking about. Currently, we know that when manufacturers send multiple samples of oils with the same or similar scent to be tested, the results are coming back with significantly different terpene profiles. There is not enough data for them to chemically categorize products. It’s not that their categories are wrong, it’s just that the data is not available to help them find those boundaries.
Those are two issues that we know from conversations with customers that this particular piece of equipment can address.
Aldwin: Let’s start from what we find, meaning if you are using the GCxGC/MS, we are finding more terpenes that nobody else would be looking at. We have data that shows, for example, that certain standards are accounting for 60% or so of total terpene content. So a large percent is accounted for, but there is still quite a bit missing. For some strains there are terpenes that are not in common reference standards. Being able to know that and identify the reason why we have different terpenes in here unaccounted for is big. There are other things there beyond the standard terpenes.
What excites me sometimes is that I see some terpenes that are known to have some properties, either medical or antibacterial, etc. If you find that terpene looking beyond the list, you’ll find terpenes that are found in things like hardwood or perfumes, things that we don’t necessarily associate with the common cannabis terpenes. If you’re just looking for the limited number of terpenes, you are missing some things that you might discover or some things that might help explain results.
Leo: It’s also absolutely necessary for the medical side of things. Because of the federal limitations, cannabis hasn’t been researched nearly enough. We’re missing a lot of data on all of the active compounds in cannabis. We are finally starting to move into an era where that will soon be addressed. In order for certain medical studies to be successful, we need to have data showing what compounds are in what plants.
Drs. John Abrams and Jean Talleyrand of the CESC launched the Dosing Project in 2016. They have been studying the impact of cannabis flower for indications such as pain mitigation and sleep improvement, and now more recently mood, and appetite modulation. They categorize the THC & CBD content as well as flower aroma into 3 cannabinoid and 3 odor profiles. They are able to acquire quite a bit of data about how odor correlates with the outcomes. Because they were initially limited in terms of underlying natural product content data, they contacted us when they found out we acquired this equipment in 2020, and have stated that they are certain the data we will now be producing will take their research to the next level of understanding.
Aldwin: For quality control you are looking at specific things that would reflect properties in cannabis. There should be a 1:1 correspondence between properties observed and what we are measuring. The current assumption is that the terpenes we are looking at will tell us everything about how people would like it, with regards to flavor and smell preference. But we know for a fact that the limited terpenes most labs are measuring do not encapsulate everything. So, it is important for QC purposes to know for this particular strain or product, which everyone liked, what is it in there that makes everybody like it? If you just look at the typical terpene profile, you’ll find something close, but not exact. The GCxGC/MS shows us that maybe there’s something else that gives it a preferred property or a particular smell that we can explain and track. In one batch of flower, the consumer experiences it a certain way, and for another batch people experience it another way. We’d like to be able to understand what those differences are batch to batch so we can replicate the experience and figure out what’s in it that people like. That’s what I mean by consistency and quality control; the more you can measure, the more you can see.
Aldwin: Speaking to authenticity as well, in a breeding example, some growers will have this strain that they grew, or at least this is what they claim it to be, but what are the components that make those strains unique? The more analytes you can detect, the more you can authenticate the plant. Is this really OG Kush? Is this the same OG Kush that I’ve had before? Using the GCxGC/MS and comparing analytes, we can find authenticity in strains by finding all of the metabolites and analytes and comparing two strains. Of course, there is also adulteration- Some people will claim they have one strain that smells like blueberries, but we find a compound in it that comes from outside of cannabis, such as added terpenes. Proving that your cannabis is actually pure cannabis or proving that something has added terpenes is possible because we can see things in there that don’t come from cannabis. The GCxGC/MS can be used as a tool for proving authenticity or proving adulteration as well. If you want to trademark a particular strain, we can help with claiming intellectual property. For example, if you want to trademark, register or patent a new product, it will be good to have more data. More data allows for better description of your product and the ability to prove that it is yours.
Leo: One thing that I think is a very interesting use case is proving the appellations. It is our understanding that California rolled out a procedure for growers to claim an appellation, but with strict rules around it. Within those rules, they need to prove uniqueness of growing products in specific regions. The GCxGC/MS can help in proving uniqueness by growing two different strains in two different regions, mapping out the differences and seeing what makes a region’s cannabis unique. It’s valuable for growers in California, Oregon, Colorado to be able to prove how unique their products are. To prove the differences between cannabis grown in Northern California versus plants grown along the Central Coast. And of course, for people across the world to be able to really tell a story and prove what makes their cannabis different and special. To be able to authenticate and understand, we need to have more comprehensive data about properties in those strains. It could be terpenes, it could be esters or thiols. That’s what we’re excited about.
Aaron: From your perspective, what are some of the biggest challenges and opportunities ahead for the cannabis industry?
Aldwin: Getting ready for federal legalization is both a challenge and opportunity. A challenge because when it is federally legal, there will be more regulations and more regulators. It is also a challenge because there will be more businesses, more competition, that might get into the industry. It is opening up to other players, much bigger players. Big tobacco, mega labs and massive diagnostic testing companies might participate, which will be a challenge for us.
But it’s also an opportunity for us to serve more customers, to be more established at the federal level, to move to interstate commerce. The opportunity is to be ready here and now while other people are not here yet.
Another challenge and opportunity is education. Educating consumers and non-consumers. We have to realize and accept that cannabis is not for everybody, but everyone is a stakeholder, because they are our neighbors, parents or part of the medical establishment. It would be a disservice not to educate the non-consumers.
The medical establishment, they don’t have to be consumers but they need to know about cannabis. They don’t know as much as they should about cannabis and they need to know more, like how it could affect their patients for better or for worse, so they know how to help their patients better. There could be drug interactions that could affect the potency of other drugs. They need to know these things. Educating them about cannabis is a challenge. It’s also an opportunity for us to now come in and say that cannabis is here to stay and be consumed by more and more people, so we better know how to deal with it from a medical perspective.“This bucking bronco of a growth style will throw a lot of people off. We need to figure out what we can grab on to and ride out these waves.”
Law enforcement needs to be educated too. What THC level in the blood indicates impairment? It is still a challenge because we’re not there yet, we don’t have that answer quite yet. And it’s an opportunity to help educate and to find more answers for these stakeholders, so we can have regulations that make sense.
Leo: To Aldwin’s point, the biggest opportunity comes along with federal legalization as well as expanding the customer base beyond the traditional market. Since adult use was legalized in CA, we haven’t yet seen the significant expansion of the consumer population. We’re primarily seeing a legal serving of the market that already existed before legalization.
The reality is cannabis can be used in different ways than what we think of. We know it has medical benefits and we know it is enjoyed recreationally by people looking for high THC content and the highest high. But there is also this middle ground, much like the difference between drinking moonshine and having a glass of wine at dinner. The wine at dinner industry is much bigger than the mason jar moonshine industry. That’s really where the opportunity is. What’s the appeal to the broader market? That will be a big challenge, but it’s inevitable. It comes from everything we’ve talked about today, consistency in products, educating people about cannabis, normalizing it to a certain degree, varietals and appellations.
As an entrepreneur, I’m looking at this from a business perspective. Everyone talks about the hockey stick growth chart, but it is a very wavy hockey stick. I expect to see very significant growth in the industry for a while, but it will have a lot of peaks and valleys. It’ll essentially be whiplash. We are seeing this in California right now, with sky high prices in flower last year down to bottom of the barrel prices this year. We have to all figure out how to hang on. This bucking bronco of a growth style will throw a lot of people off. We need to figure out what we can grab on to and ride out these waves. The good ones will be fun and the bad ones will be painful and we know they are coming again and again and again. That’s the biggest challenge. People say ‘expect tomorrow to look a lot like today,’ but you really can’t expect tomorrow to look anything like today in the cannabis industry. Tomorrow will be totally different from today. We need to figure out, within all this chaos, what can we hang on to and keep riding the upward trajectory without getting thrown off the bronco.
Natural cannabinoid distillates and isolates are hydrophobic oils and solids, meaning that they do not mix well with water and are poorly absorbed in the human body after consumption. Cannabinoid oils can be formulated into emulsions to form a fine suspension in water to modulate bioavailability, stability and flavor.
Happy Chance is a cannabis infused products company offering better-for-you products to their customers. Happy Chance recently launched a low-glycemic index fruit bite line made from fresh ingredients, distinguishing them from traditional gummies. Splash Nano is a cannabis infused products ingredients company specializing in nano emulsions. Happy Chance utilizes Splash Nano technology in their fruit bites formulations.
We spoke with Katherine Knowlton, founder of Happy Chance, and Kalon Baird, co-founder and CTO of Splash Nano to learn more about their products and how they came to do business together. Prior to Happy Chance, Knowlton worked as a chef. Prior to Splash Nano, Baird was a consultant to the cannabis industry.
Aaron Green: Katherine, how did you get involved in the cannabis industry?
Katherine Knowlton: I am a chef by trade. I went to culinary school in 2015. My partner also got into the cannabis space in 2017, which was right around the time when adult use cannabis became legal in California. As a chef, I am very passionate about cooking for optimal health and well-being. I noticed right away the abundance of candy- and sugar-laden products on the market. I set out to create a wellness driven product blending healthy, whole foods with a better value proposition, better-for-you and better-for-the-planet.
Green: Okay, great. Kalon, same question: how did you get involved in the cannabis industry?
Kalon Baird: I left a corporate job in 2011 and started cultivating in Southern California. I started to develop techniques for horticulture and developed a connection with the plant. I was a consultant for many years, and then decided to take a different path when legalization happened and got into the regulated manufacturing space. My goal was to bring new products to market to help satiate the demand for the infused category, the non-smokeable categories and to pursue niche product development.
Green: Tell me about your recent product development interests?
Baird: We’re interested in the research that comes out regarding cannabis minor constituents. We work with other research labs doing two-dimensional chromatography. We’re trying to figure out what compounds exist in the plant that aren’t just the major cannabinoids, and how to work with them in a pharmacological context so that they can be standardized and replicated at scale.
So, it’s not just about making a sugary THC gummy, it’s about seeing what minor cannabinoids, what minor terpenoids and what other unknown compounds can we explore, and then put back into products.
Green: That’s 2D GC-mass spec?
Baird: Yeah, it’s GC-by-GC and tandem mass spec. There are only a couple people that make that piece of equipment. The lab that we work with on that project is called Veda scientific. They’re one of the only people in the cannabis space that uses that machine. And they’re right in our backyard. The tech enables us to further quantify terpene profiles and helps to differentiate our products.
Green: I’d like to focus first on the Splash Nano technology and then we’ll dig into how you got to know each other, and then we’ll finish off with learning more about Happy Chance. So Kalon, tell me more about Splash Nano.
Baird: We employ nano emulsion technology. It’s essentially the science of making oil and water compatible and suspended in a way that reduces droplet size. With nano emulsions, you create an interfacial layer that enhances absorption and solves technical problems like being able to make cannabis oil compatible in water-based matrices, and sometimes in non-water-based matrices. The idea is that as we spread out the particles and as we change attributes of how they’re coated, they’re more bioavailable, and you get a more consistent and faster onset experience like you would in the pharmaceutical or alcohol industry. It’s bringing the industry standard up to the consumer package level and the pharmaceutical level, so that people aren’t waiting the typical hour-long timeframe to absorb that first dose.
Green: Tell me about your business model.
Baird: When we started out in 2018, we were going for a manufacturing license. In the meantime, we saw the drink category evolving and we wanted to be a part of that conversation in that ecosystem. We started developing our own nano emulsions that we knew would be useful when we got our license. We knew that we would sell the base material to co-packers who would put them into beverages. We didn’t want to co-pack the beverages ourselves. So, we developed a drink additive that was our proof of concept that had legs for the technology so that we could show people how to use it. That proof of concept spun off and became its own product and now it’s in the market under the brand name Splash Nano and comes in four distinct product SKUS using minor cannabinoids as differentiators.
Meanwhile, our bread-and-butter business was working with smaller brands, like Happy Chance that needed a path to market but couldn’t get the license or couldn’t go through that whole rigmarole of a two-year waiting period and a half a million dollars and all the other stuff. So, we started taking on all these smaller brands effectively licensing their brand IP and their ideas. In the process, we ended up learning a ton about product development and it became kind of a passion.
We have three core revenue streams. One of them is contract manufacturing, or private labeling. The other one is our own product Splash Nano which is a drink additive. And then the last is we open sourced the technology and sell that as a business-to-business platform so that people can infuse their own products with our fast-acting emulsions. We’re working on a licensing model that will allow other states to create that same consistency, where we send a black box model out to them, and then they infuse the cannabis and then turn that into a product.
Green: Moving on to Katherine here. Tell me about Happy Chance, and how you came up with the brand concept and the product idea.
Knowlton: Going back to what I touched on earlier, many traditional edibles in the space are brownies, cookies and candy type of products that do not contribute to wellness. I wanted to give the wellness driven consumer an option in cannabis. I wanted to create a powerhouse edible that was not only functional and complete but that elevated the consumer’s experience as a whole because of the ingredients we choose and the whole cannabis we source.
I’m someone who values better-for-you products that contribute to optimal health and well-being. So, I set out to make something. I didn’t really know what I wanted to make in the beginning. I bought a dehydrator and a food processor, and I started messing around with different applications in my kitchen. Over 100 variations later, the fruit bite was born.
The fruit bite is made with dates – a natural sugar that delivers nutritional power: a low glycemic index and high in vitamins, minerals and antioxidants. A sweet you can feel great about. And we use pumpkin seeds which have a lot of great protein. We are working with a company in California that takes imperfect fruits and vegetables and upcycles that back into the food supply chain. We utilize the whole fruits and vegetables as a dried intermediate, capturing all the flavor of nutrients. No added natural flavors and nothing from concentrate.
Green: How does the consistency differ from a gummy?
Knowlton: The consistency is similar to a Lara bar or an Rx bar. Essentially, it’s that same consistency in a bite form and so it’s very different than a gummy. It’s a low dose, low sugar alternative to the modern-day gummy.
Green: So, you’ve got this healthy concept for the fruit bite. You’re looking at suppliers and technologies to infuse the product. How did you finally decide on Splash Nano?
Knowlton: I watched my partner lose his company a few years ago to a larger vertically integrated company. The MSO promised the moon and the stars, and they got lost in the weeds of their eco-system, ultimately losing their company. That said, I was very sensitive when I first started on this journey. I even took on my own partners who didn’t work out either. I spoke with a lot of manufacturers in the selection process. Splash Nano was the tenth manufacturer I spoke with.
It was a very organic way of meeting. I am also based in Santa Barbara where Splash Nano is located. My partner’s brother shared an office space with Kalon, so we met through that connection. I learned right away that Splash was founded on wellness, much like Happy Chance. It was important to source clean cannabis, an aspect that Kalon and his team take pride in. We quickly discovered that Kalon’s Splash Nano technology was going to work in my product. Happy Chance immediately found a home, and it has been an organic evolution of realistic business and friendship.
Green: Kalon, I’d love to get your perspective as well. How do you think about partnering with brands?
Baird: Because of our contract manufacturing experience, we’ve been able to touch approximately 50 brands over our three-year tenure in this space. We’ve seen kind of everything from the multi-state operator to the owner-operator and everything in between. I developed a passion for working with these smaller brands for a lot of different reasons. This industry is built on the success of small mom and pops. Yes, the multi-state operators do have a place and they absolutely add a lot of value. But at the same time, they have their own natural challenges. You have essentially a culture of employees versus a business owner that’s making a lot of their own decisions.
There are advantages to somebody like Katherine, who’s in the trenches of business, and understands the ebbs and flows and ups and downs of this industry and be able to get through some of those challenges a lot more organically and a lot more sustainably. Katherine has such a deep pulse on her business and on her customer and on her own money. She tends to make a lot more calculated decisions, and I really appreciate that.
There’s a lot of waste that gets accumulated in this industry through packaging, through bad decisions, and over extensions of capital. It’s sad to watch and you see these people that have great potential, but it’s kind of lost in this sort of the framework of a large organization. Again, I like multi-state operators, they’re great. There’s nothing wrong with them, but it’s just a different flavor. I’m trying to highlight the fact that working with somebody that has a pulse on her business, and the passion for what she’s doing is wonderful. It’s not just about making money; it’s about adding value.
Green: Katherine, talk to me about sustainability and how you’ve woven that into your product.
Knowlton: We’re dedicated to supporting Product, People and Planet. That’s the whole mission and ethos of Happy Chance. As a chef, I wanted to be intentional about where our ingredients come from. We only source organic and upcycled ingredients – an essential recipe in sustaining a healthy, eco-friendly plant. Intention and integrity are always at the forefront of our products. We prioritize partnering with more transparent supply chains. We want to show the world how cannabis can promote positive lifestyle changes that support living more actively and consciously.
To reiterate, we are also not using anything from concentrate. We are using the entire strawberry, the entire blueberry and so it encapsulates all the flavor and all the nutrition that you would have from a fresh fruit into our products.
Green: How do you think about sustainability in product packaging?
Knowlton: As far as packaging goes in this industry, we’re very limited in what we can do. Compostable packaging isn’t really available, but we have partnered with a packaging company that definitely has mindfulness at the core of their mission. They have established their entire supply chain to ensure they are focusing on green practices and reducing waste each step of the way. Their energy efficient machinery creates a zero-waste manufacturing process to reduce their carbon footprint and they utilize soy and vegan inks to help reduce air pollution by minimizing toxic emissions in the air. My hope for the industry is that as it continues to evolve, we can become less wasteful as far as packaging goes.
Green: Rapid fire questions for both of you: What trends are you following in the industry right now?
Knowlton: As a chef and coming from the CPG world, I’m passionate about health and wellness. I think that it’s important to stay on trend with what we’re seeing in CPG. There’s definitely a market as far as people wanting these better-for-you products. I want to bring that into the cannabis space.
Baird: We’re seeing the inclusion of minor cannabinoids, terpenoids, standardized recipes and faster- or slower-acting delivery systems. So, I’m following trends in advanced drug delivery systems paired with minor cannabinoids.
Green: What are you most interested in learning about?
Knowlton: I’m most interested in how I can take what I’ve learned in the food space and help bring that into the world of cannabis through Happy Chance. Ultimately cannabis is plant medicine. So, how can we educate people that the ingredients we choose to make products should be good for us too. I think that there’s a lot that can be done with it from a from a health and wellness standpoint.
Baird: I’m interested in learning more about the analytical overlay between quantifying and standardizing entheogens and plant medicines like cannabis into the product development process in CPG. I’m thinking of ways to blend the two worlds of traditional science and New Age medicine.
Green: Awesome, that concludes the interview. Thank you both, Katherine and Kalon.
Aurora Cannabis Inc. sent out a press release today announcing that they have completed their largest shipment of cannabis to Israel yet. The Canadian company says the shipment of medical cannabis is worth roughly C$10 million, making it their largest shipment and possibly the largest cannabis import in Israel’s history.
Aurora is working on building their market presence in Israel as they continue to focus on international expansion. They claim that they are the leading Canadian licensed producer in global medical cannabis by revenue.
Miguel Martin, CEO of Aurora Cannabis Inc., says they are watching the world slowly begin to embrace cannabis just a bit more. “It’s an exciting time for the global cannabis industry, as we’re seeing growing acceptance and thoughtful regulation of both medical and adult-use cannabis across Europe and in key markets like Israel,” says Martin. “With strong local relationships, as well as support from our patients and consumers, we look forward to continuing to expand our international business to complement our total cannabis portfolio.”
Aurora also announced a joint venture in The Netherlands back in November of 2021, joining their regulated adult-use pilot program. The shipment of medical cannabis to Israel was delivered in December and will be posted in their second quarter revenue of 2022.
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