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The Do’s and Don’ts of Cannabis Labeling

By Jon Bernard
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As more states legalize the use of cannabis for both medicinal and adult use, the market is growing exponentially. For growers and dispensaries, that means bringing their ‘A’ game when it comes to marketing their cannabis products – and that includes labels.

Not only do your cannabis labels need to be compliant with regulations, but you also need to make sure they stand out from the competitors. However, while creating a label seems like it should be easy, it can be a challenge to navigate the complex and murky legal landscape.

But don’t worry, we’ve got your back! Let’s take a look at the key federal regulations you need to be aware of, what NOT to put on cannabis labels and expert advice to help you find the perfect label material for your brand. Let’s get started.

Cannabis Labeling Requirements: What You Need to Know 

As of now, cannabis has not been ruled legal in all 50 states. However, states where cannabis is legalized determine their own set of rules and guidelines. These legislative guidelines are constantly being updated and revised for the labeling and packaging of cannabis products, so staying compliant can be challenging for dispensaries and manufacturers.

It’s important to follow general federal regulations for your product, such as the nutrition facts section

Since packaging laws vary by state, it’s important to follow general federal regulations for your product, as well as check your state for cannabis-specific label requirements.

At the very least, you should understand and follow cannabis labeling regulations in accordance with the Federal Food, Drug, and Cosmetics Act (FDCA). Let’s dive right into the basic elements that FDCA requires when labeling cannabis products.

  • Name and Location of Business: It is critical to always include the name and location of your business on both the inner and outer information panel. In doing so, customers always have a way to contact you for any questions. If you are worried about taking up too much space, a QR code is a great way to offer additional information.
  • Product Identity: Is your product meant to be used for adult or medicinal use? You must include what your cannabis product is or does on the Product Display Panel (PDP) so it’s easy for customers to locate.
  • Net Quantity of Contents: Net quantity refers to the total weight or volume of a finished product (excluding packaging) and is federally mandated on labels. For packaged liquid cannabis products, net quantity should be labeled in fluid measure. Meanwhile, packaged solid, semi-solid and viscous cannabis products should be labeled in dry weight.
  • Warning Statements: Since cannabis is still listed as a Schedule 1 Controlled Substance, it’s recommended to include warning statements for the specific product types. For example, the warning statement should stay “for medical use only” for all medical cannabis products.
  • List of Ingredients: You must include a complete declaration of all ingredients in your cannabis product. This must be listed on the informational panel on the outer packaging. If there is no outer packaging, then it must be placed on the product package itself.
  • Disclosure of Critical Facts: In general, this includes critical information that customers would want to know when buying your product. This can include:
    • Suggested use for the product
    • Application instructions
    • Expiration date 

What NOT To Put On a Cannabis Label

Proper cannabis labeling can ensure you remain compliant with regulations and legal requirements. Without compliance, you won’t be able to sell your products and could lead to a hefty fine – and nobody wants that! Here are the things you should stay away from adding to your label:

Unapproved Health Claims: As of now, both federal law and state laws do not recognize cannabis as a dietary supplement or substance that can help prevent, cure or treat serious diseases. For that reason, your safest bet is to stay away from making any false health claims on labels and websites.

An example of a cannabis flower label in Oregon with all of the required information.

Obscured Fonts: Text and font issues can muddle the look of your cannabis label and land you into compliance issues. Most states require cannabis labels to have a font and text size that is prominent, clear and easy to read for information panels. Therefore, it is critical to find typography that showcases your brand while maintaining compliance with federal and state regulations.

Faulty Ingredient List: Cannabis labels must accurately include the types of compounds present, it’s percentage and dosage found in the product. Plus, it is required that all cannabis products include cannabinoid profiles and provide a list of any active ingredients.

Considerations for Labeling Materials

To cut through the noise in a highly competitive retail environment, it’s critical to carefully consider the label materials for your cannabis product. Here are some things to consider.

Label Material Choice: Polypropylene or Paper

Take into account what your cannabis product is (tincture, gummies, etc.) when choosing your label material. For example, if it’s a liquid cannabis product, your label can come into contact with the liquid itself, causing damage and risk the label falling off over time. For that reason, the polypropylene label would be the better choice because it’s waterproof, oil-resistant and offers more durability. On the other hand, if your cannabis product does not require a lot of protection and you are looking for a more affordable option, then paper labels would be the better option.

Coating Choice: Matte or Glossy

Choosing between matte or glossy finish depends on your preferred brand aesthetic. If you are looking to dazzle some customers and have a vibrant design on your cannabis label, then it’s best to choose a glossy finish because it holds the ink better. As a result, your label design will appear striking and crisp when printed! But, maybe that’s not the vibe of your cannabis brand so you’re looking for something more traditional. If so, a matte finish is a better choice because it absorbs some of the ink – producing that vintage, distressed look!

Final Thoughts

Your cannabis products deserve to stand out and shine in this booming market. But your product won’t even make it to the market if you are not following label requirements. Proper cannabis labeling ensures that the product is compliant, builds trust with your customers and boosts your credibility within the space. Since requirements are constantly evolving in this new industry, you must always triple-check with both federal and state regulations for the most up-to-date information in regards to cannabis product labeling. In doing so, you’ll be able to design an enticing package with proper labels that will earn heart eyes from consumers, while providing essential information about your product.

Cannabis Safety & Quality: An Interview with the Founder of CSQ

By Aaron Green
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The supply chain for consumer cannabis products is complex, involving cultivation, extraction, manufacturing and packaging. While global best practices exist for Good Agricultural Practices (GAPs) and Good Manufacturing Practices (GMPs), the certifications are not tailored to the cannabis industry.

CSQ has developed tailored standards for the cannabis industry to assist cannabis companies in improving their quality. As a division of ASI, a woman-owned business that’s provided safety solutions to the food industry since the 1940s, the CSQ standards were built in 2020 to meet ISO requirements, GFSI requirements and regulatory cannabis requirements from seed-to-sale. CSQ is the first cannabis certification program to meet the GFSI Benchmarking Requirements with plans to be benchmarked in 2022.

We interviewed Tyler Williams, CTO and founder of CSQ. Tyler founded CSQ after working at ASI – a family-owned food safety company in St. Louis.

Aaron Green: Nice to meet you, Tyler. How did you get involved in the cannabis industry?

Tyler Williams: It’s kind of a long story, but it’s a good story. My mom worked for ASI for 15+ years. That company has been around since the 1940s and is one of the oldest food safety companies in the world. The owners were ready to sell about five or six years ago, and my mom ended up using a small business loan to purchase the company. That’s how I got started in a food safety and dietary supplement space.

About three to four years ago, we started getting inquiries from cannabis companies asking about GMP audits and certification and different things. We started doing certifications to our GMP food processing standard or dietary supplements depending on what they wanted but realized that there were a lot of things that weren’t applicable to cannabis companies or there were extra things needed for cannabis companies. That’s how I started working with cannabis companies to start developing the CSQ certification program and it has just kind of grown over the years.

Tyler Williams, CTO and founder of CSQ

We currently have four standards at the CSQ level. CSQ plans on being benchmarked to GFSI which stands for Global Food Safety Initiative. We plan on going through that process to get the benchmark next year. There are four standards underneath CSQ: one for growing and cultivation; one for extraction; one for food and beverage edibles; and then cannabis dietary supplements. We’re looking to add standards for cosmetics, cannabis contact packaging materials, retail and consumption lounges.

Last year, when we were doing our pilot audits, we realized that the CSQ standard was great for medium to big sizedMSOs because they’re already doing these best practices. It’s easier for them to, you know, implement a few things, and then get certified, whereas for the smaller guys who might be coming from the illicit market, it’s a lot harder – it’s a lot bigger jump from them to go from zero to 100. Last month, we released our unaccredited cGMP, cGMP+, cGAP and cGAP+ standards. The difference between the regular and the plus is that the plus has HACCP (Hazard Analysis Critical Control Point) and then it also includes a recall module where the site must do a mock recall while the auditor is on-site.

CSQ doesn’t perform the audits. We license the use of our standard to accredited certification bodies and then they must get accredited to be able to certify companies under the CSQ name.

Green: Can you tell me a bit about the genesis of CSQ and the structure of the organization?

Williams: We’re a for-profit company. We thought about going the non-profit route but it’s a lot more intricate and a lot more people involved when you go that route. Our parent company is ASI, and we are under the ASI global standards division which is responsible for developing standards. So, CSQ is one of those standards under that brand and that’s kind of the foundation of it. We have two licensed certification bodies right now. ASI has a certification body, and they are one of our licensed CBs and then WQS, who’s based out of North Carolina and has a big presence in South America which is great because we’re starting to get inquiries from companies in South America as well.

Green: How do you go about building industry awareness and acceptance of the standard?

Williams: Building awareness really started with going out to the medium- to large-sized companies and saying, “Will you open your doors and let us come and basically do all these audits for free at your facility just so we can kind of get a baseline across the industry?” So, that started the conversation with industry. The MSOs in the medium- to large-sized companies, are more ready to go through the certification process because they know that federal legalization is around the corner. They know these things are going to have to be in place already so they’re just doing it as preparation. There isn’t much demand for retailers right now like there is in the food and or dietary supplement space. So that’s where the demand is really coming from – wanting to self-regulate in preparation for federal legalization.

Most of our outreach is education-based. We speak at a lot of conferences. We host a lot of webinars and free events and things like that, just to get the word out about CSQ. A lot of people know what GMPs are, or know that they should be following GMPs, but they don’t necessarily know how to get from point A to point B. Our job is to educate them that it’s not as hard as they think it is and it’s not as expensive as they think it is. The cost of an audit is relatively inexpensive. What I always tell people is the sooner you start preparing, the cheaper the whole process is. What happens a lot of times is a facility will not build out their facility to GMP specifications, and then they want to get GMP certified so they must move the hand washing station from the back of their facility to the front where the employee entrance is or things like that. The sooner these companies start thinking about it, the better and that’s basically what we’re trying to do is just educate the industry about that kind of preparation.

Green: cGMP and cGAP are perhaps more broadly accepted outside of the cannabis industry. Do cGMP and cGAP fall under the CSQ certification?

Williams: There are four ingredients that make up the CSQ standard. There are industry best practices, which are specific to just the cannabis industry. There are good manufacturing practices, or good agricultural practices, that are just accepted globally. Then we look at the Codex Alimentarius, which is the global food code. Every country mustwrite their federal rules on food based off this standard. We use the Codex when we’re talking about edibles and things like that. And then the last aspect of CSQ is the GFSI benchmarking requirements. So that’s kind of the basis of our program, making sure that the auditors have certain amount of audit hours, and we have training and processes in place for that. That’s where the GFSI benchmarks are coming out. So, all those four things kind of really create the CSQ standard.

Green: There are clear internal benefits to a company for holding to a quality standard. What are the downstream benefits to the companies that have CSQ? How do the end-users know about it?

Williams: I come from the food industry and if you go to the grocery store, you just assume that everything’s safe.Consumers don’t even think about the certifications that those companies must get to even be able to sell their product in retail stores. They don’t necessarily put those certifications on the packaging material, because as a consumer “SQF” means nothing to most consumers, right? It would only mean something if you’re in the industry.We’re trying to be different with CSQ and get more consumers aware of it. One of the things that we have is a database of certified facilities. Consumers will be able to say, “Okay, maybe I’m interested in this new brand. Are they certified to this program or not?” and be able to see that. We’re also trying to get companies to put the CSQ logo once they’re certified on their marketing materials.

Now, one thing that we cannot do yet is put the logo on the finished product packaging, because we don’t have a testing addendum, but we’re working on that. There’s not a lot of demand for it right now and it’s more expensive audit costs, where you’re talking about lab tests, and things like that. So, it’s something that we’re working on, but we haven’t fully developed yet.

Green: Next question is around d-8 THC and federal regulations. What’s your position on d-8 and how are you thinking about d-8 trends in the future?

Williams: d-8 THC itself as a product, I think it’s fine. I think if it’s made safely, we know all the components I think it’s fine from that aspect. The problem that we have right now is it’s not regulated. That’s where I think we need to have these states that have legalized THC or hemp to then implement rules and regulations and bring d-8 THC into those rules and regulations. And so maybe then it’s only those licensed facilities that are inspected by the state that are producing those products and not just some guy out of his garage. I think a lot of people right now are just wanting to ban it completely and I don’t think that’s the best approach. There’s nothing wrong with the product itself, it’s just how it’s being produced right now in the gray area where no one’s regulated.

Green: What in your personal life or in cannabis are you most interested in learning about?

Williams: I love what I do. I’m always looking at and reading regulations and then trying to learn something new. I’ve been going through organic certification training right now. At some point, CSQ will probably go down the route of having some sort of organic certification. So that’s been kind of what I’ve been working on and learning right now. But I’m a sponge and I like to absorb new information about the industry.

Green: Thanks Tyler, that concludes the interview!

Williams: Thanks, Aaron!

3 Pillars of Cannabis Banking Compliance

By Mark Lozzi
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Few people will disagree that financial compliance isn’t the most exciting topic within the cannabis industry. But compliance is, and always will be, the engine grease to the legal cannabis market. Cannabis operators have the arduous task of dealing with multiple layers of compliance, both operational (maintaining and adhering to regulations enforced by the state licensing board) and financial. These compliance measures include managing everything from seed-to-sale systems for all plant-related activity to on-site requirements like facility access points and alarms systems to name a few.

With complex compliance requirements for the business, the last thing cannabis operators want to think about is financial compliance. We created Confia on this notion. Just as cannabis regulators impose the tracking of plants through the supply chain via a seed-to-sale system, we have developed a storyboard similarly designed to follow the money, which is the equivalent of a transaction-to-deposit system.

Having experience in regulatory technology, artificial intelligence and machine learning, we’ve been fortunate enough to work with some of the world’s largest banks across multiple countries. This experience has afforded us the luxury of working alongside regulators, chief compliance officers and chief risk officers, understanding how risk is perceived by financial institutions and how it ought to be mitigated. It was this access and knowledge that allowed us to effectively reform, enhance and improve the antiquated BSA programs with a technology-enabled process. Leveraging technology is a necessity, almost a requirement, for the cannabis industry as legalization nears and banking access begins to broaden.

Jamming cannabis requirements into an existing BSA program doesn’t scale well. BSA programs are very manual, descriptive and process oriented. So, we’ve taken our prior experience and success in banking to form Confia, distilling the complexities and simplifying the deliverables surrounding cannabis banking compliance. To best articulate cannabis banking requirements, I break it down into three pillars.

Pillar One: KYC-Enhanced Due Diligence

The first pillar is the client-onboarding bucket or KYC – Know Your Customer. In the complex world of cannabis banking, banks must know and understand their clients to great depths. It’s not enough to simply know that the client exists; you also have to understand whether or not that client could be a potential risk to the bank, and one step further, the financial system. Cannabis is a high-risk industry, so the KYC requirement is escalated to a deeper diligence and review, called Enhanced Due Diligence (EDD).

Cannabis is a high-risk industry so extra due diligence is needed

Banks need to know and understand their customers’ story, and all the key parties (officers, directors, and those with key decision-making powers or access to the bank accounts) within that organization. This includes reviewing personal, business, and legal history – not to mention watchlists and negative news presence. An initial onboarding review must then be followed with daily screening and monitoring of all watchlists and adverse media. Typically, banks do KYC refreshes every three years. In cannabis, a full refresh should be done annually with the daily monitoring systems in place.

The high-risk nature of the industry also requires a level of diligence on all parties to a transaction, even if one of the parties, whether a payer or recipient, is not a client of your bank. Unlike traditional banking sectors, reliance on other banks’ KYC programs is far less defensible in the cannabis industry.

Pillar Two: Transactional Monitoring & Detection

Tracking and monitoring the actual financial transactions comprises the second pillar required for cannabis banking. At Confia, we have focused on streamlining processes, so the cannabis operator can seamlessly support the compliance obligation for every transaction. A bank must demonstrate supporting documentation for every cannabis transaction, and gathering such information is a large undertaking in and of itself and can pose future issues if not done properly, see the pitfalls for lack of compliance. Banks are obligated to understand the nature and reason for each transaction, the source of funds, ensure cannabis licenses are in good standing for all parties, and collect evidence such as accounting records and seed-to-sale data.

Core to transaction monitoring in the traditional sense, is the overarching support through anomaly detection. Relying on information is important, but testing those inputs keeps everyone honest. It is important to evaluate transactions from a holistic point of view relative to peers and relative to the general contents of a transaction. This anomaly detection layer is your last line of defense, and as new information is collected, it continues to refine itself.

Pillar Three: Filing and Reporting Requirements

The third component to compliant cannabis banking is regulatory filing and reporting. Once a client is onboarded, the account requires an initial suspicious activity report or SAR-Initial within 30 days of that client being approved by the bank. Then, a report must be filed every 90 days after that for all the transactions of that cannabis operator. Banks must file the SAR-Initial and the Continuing-SAR reports for each cannabis client they have.

The high-risk nature of the industry requires a level of diligence on all parties to a transaction

Solutions like Confia automate the filing process and support the filing with transactional data evidenced on our distributed ledger of record. This provides immutable audibility and simplifies the process for all parties involved.

Compliance Requirements After US Legalization

The anticipation of federal legalization and banking reform bills has many operators hoping for easier banking. Yet, in my opinion, regulatory oversight and audits will likely increase after such reform or legalization. As other financial institutions start to support cannabis, it will inadvertently create greater opportunity and expose the financial system to nefarious or illegitimate transaction activity. This is why cannabis banking will be carefully monitored by regulators, and more so, why banks will be slow and pragmatic in standing up their internal cannabis banking programs. Some banks may forever avoid the cannabis industry due to the known pitfalls of an industry specific program, while others may simply mitigate the possible exposure to reputational risk.

Choose Wisely: Pitfalls for Lack of Compliance

Financial compliance is the responsibility and duty of the banks, but the real losers and result of non-compliance always fall on the cannabis operators. Regulatory action against an institution may result in the bank shutting down its cannabis program or may require them to complete a remediation of all their cannabis transactions for a certain period from its clients. At the end of the day, regardless of action, the cannabis operator is the one being punished. Operators either lose their bank account and have business massively disrupted, or they are asked to provide all the compliance docs for a historic period, which is a huge undertaking and operational distraction, ultimately impacting business and productivity. So, choose your banking partner wisely.

Summarizing Key Banking Requirements

In summary, banking in the cannabis industry will undoubtedly remain a high-risk industry, with or without legalization. Although banking opportunities may expand as US policies change, there will be continued compliance and regulatory requirements for the foreseeable future.

  • Onboarding and ongoing screening are critical
  • Evidence for every transaction is a significant portion of compliance and must not be dismissed
  • Evaluating activity with broader strokes is essential in mitigating against money laundering
  • Managing the staggered filing timelines and due dates for each client

Compliance is the most crucial factor in cannabis banking at this point. It cannot be overlooked or taken for granted. Cannabis operators must take an active role in evaluating the compliance programs of their financial providers. To open a bank account is one thing, but the consideration and effort that goes into keeping a bank account is the difference that will protect your business in the long run.

Ask the Experts: Microbiological Contamination in Cannabis & What You Should Look for

By Cannabis Industry Journal Staff
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Testing cannabis and cannabis derived products for microbiological contamination should be a straightforward conversation for testing labs and producers. However, a patchwork of regulations and a wide variety of perspectives on what we should, or should not, be looking for has left much of the cannabis industry searching for reliable answers.

Organizations like the AOAC are taking the first crack at creating standardization in the field but there is still a long way to go. In this conversation, we would like to discuss the general requirements that almost all states share and where we see the industry headed as jurisdictions start to conform to the recommendations of national organizations like AOAC.

We sat down with Anna Klavins and Jessa Youngblood, two cannabis testing experts at Hardy Diagnostics, to get their thoughts on microbiology testing in the current state of the cannabis industry.

Q: What are the biggest challenges facing cannabis testing labs when it comes to microbiology?

The CompactDry Yeast and Mold Rapid plate provides fast results.

Anna Klavins & Jessa Youngblood: For microbiology testing, it comes down to a lack of standardization and approved methods for cannabis. In the US, cannabis regulation is written on a state-by-state level. As a result, the rules that govern every aspect of bringing these materials to market is as unique and varied as the jurisdiction writing them. When we are speaking specifically about microbiology, the question always comes back to yeast and mold testing. For some, the challenge will often be centered on the four main Aspergillus species of concern – A. terreus, A. niger, A. fumigatus, and A. flavus. For others, it will be the challenges of total count testing with yeast, mold, and bacteria. These issues become even more troublesome by the lack of recognized standard methodology. Typically, we expect the FDA, USP, or some other agency to provide the guidelines for industry – the rules that define what is safe for consumption. Without federal guidance, however, we are often in a situation where labs are required to figure out how to perform these tests on their own. This becomes a very real hurdle for many programs.

Q: Why is it important to use two different technologies to achieve confirmation?

Dichloran Rose Bengal Chloramphenicol (DRBC) Agar is recommended for the enumeration of yeasts and molds.

Klavins & Youngblood: The push for this approach was borne out of the discussions happening within the industry. Scientists and specialists from across disciplines started getting together and creating groups to start to hash out problems which had arisen due to a lack of standardization. In regards to cannabis testing, implementing a single method for obtaining microbiology results could be unreliable. When clients compared results across labs, the inconsistencies became even more problematic and began to erode trust in the industry. As groups discussed the best way to prove the efficacy of their testing protocol, it quickly became apparent that relying on a single testing method was going to be inadequate. When labs use two different technologies for microbiology testing, they are able to eliminate the likelihood of false positives or false negatives, whichever the case may be. In essence, the cannabis testing laboratories would be best off looking into algorithms of detecting organisms of interest. This is the type of laboratory testing modeled in other industries and these models are starting make their way into the cannabis testing space. This approach is common in many food and pharma applications and makes sense for the fledgling cannabis market as well.

About Anna Klavins

Anna Klavins earned a Molecular and Cellular Biology B.S. degree from Cal Poly San Luis Obispo while playing for the Cal Poly Division I NCAA women’s tennis team. Since joining Hardy Diagnostics in mid-2016, she has gained experience in FDA submissions [510(k)] for class II microbiology in vitro devices. She has worked on 15 projects which led to a microbiology device becoming FDA cleared. She has recently begun participating in the AOAC Performance Tested Methods program.

 

About Jessa Youngblood

Jessa Youngblood is the Food, Beverage and Cannabis Market Coordinator for Hardy Diagnostics. A specialist in the field of cannabis microbiology for regulatory compliance, she is seated with the AOAC CASP committee working on standard methods for microbiological testing in cannabis and hemp. She also sits on the NCIA Scientific Advisory Council as well as the ASTM Cannabis Council.

Content sponsored by Hardy Diagnostics.

How Effective is Your Internal Auditing Program?

By David Vaillencourt
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The word “audit” evokes various emotions depending on your role in an organization and the context of the audit. While most are familiar with and loathe the IRS’s potential for a tax audit, the audits we are going to discuss today are (or should be) welcomed – proactive internal quality audits. A softer term that is also acceptable is “self-assessment.” These are independent assessments conducted to determine how effective an organization’s risk management, processes and general governance is. 

“How do you know where you’re going if you don’t know where you’ve been” – Maya Angelou

Internal quality audits are critical to ensuring the safety of products, workers, consumers and the environment. When planned and performed periodically, these audits provide credible, consistent and objective evidence to inform the organization of its risks, weaknesses and opportunities for improvement. Ask yourself the question: do your clients/vendors rely on you to produce reliable, consistent and safe products? Assuming the answer is yes, what confidence do you have, and where is the documented evidence to support it?

Compliance units within cannabis businesses are typically responsible for ensuring a business stays legally compliant with state and federal regulations. This level of minimum compliance is critical to prevent fines and ensure licenses are not revoked. However, compliance audits rarely include fundamental components that leave cannabis operators exposed to many unnecessary risks.

Internal quality audits are critical to ensuring the safety of products, workers, consumers and the environment.

As a producer of medical and adult-use products that are ingested, inhaled or consumed in other forms by our friends, family and neighbors, how can you be sure that these products are produced safely and consistently? Are you confident that the legal requirements mandated by your state cannabis control board are sufficient? Judging by the number of recalls and frustrations voiced by the industry regarding the myriad of regulations, I would bet the answer is no.

What questions do internal audits address? Some examples include:

  • Are you operating as management intends?
  • How effective is your system in meeting specified objectives? These objectives could include quality metrics of your products, on-time delivery rates and other client/customer satisfaction metrics.
  • Are there opportunities to improve?
  • Are you doing what you say you do (in your SOPs), and do you have the recorded evidence (records) to prove it?
  • Are you meeting the requirements of all applicable government regulations?

There are potential drawbacks to internal audits. For one, as impartiality is essential in internal audits, it may be challenging to identify an impartial internal auditor in a small operation. If your team always feels like it is in firefighting mode, it may feel like a luxury to take the time to pull members out of their day-to-day duties and disrupt ongoing operations for an audit. Some fear that as internal assessments are meant to be more thorough than external assessments, a laundry list of to-do items may be uncovered due to the audit. But, these self-assessments often uncover issues that have resulted in operational efficiencies in the first place. This resulting “laundry list” then affords a proactive tool to implement corrective actions in an organized manner that can prevent the recurrence of major issues, as well as prevent new issues. The benefits of internal audits outweigh the drawbacks; not to mention, conducting internal audits is required by nearly every globally-recognized program, both voluntary (e.g. ISO 9001 or ASTM Internationals’s Cannabis Certification Program) and government required programs such as 21 CFR 211 for Pharmaceuticals.

Internal Auditing is a catalyst for improving an organization’s effectiveness and efficiency by providing insight and recommendations based on analyses and assessments of data and business processes. Additional benefits of internal audits include giving your organization the means to:

  • Ensure compliance to the requirements of internal, international and industry standards as well as regulations and customer requirements
  • Determine the effectiveness of the implemented system in meeting specified objectives (quality, environmental, financial)
  • Explore opportunities for improvement
  • Meet statutory and regulatory requirements
  • Provide feedback to Top Management
  • Lower the cost of poor quality

Findings from all audits must be addressed. This is typically done in accordance with a CAPA (Corrective Action Preventive Action) program. To many unfamiliar with Quality Management Systems, this may be a new term. As of Jan 1, 2021, this is now a requirement for all cannabis licensed operators in Colorado. Many other states require a CAPA program or similar. Continuing education units (CEUs) are available through ASTM International’s CAPA training program, which was developed specifically for the cannabis industry.

Examples of common audit findings that require CAPAs include:

  • Calibration – Production and test equipment must be calibrated to ensure they provide accurate and repeatable results.
  • Document and record control – Documents and records need to be readily accessible but protected from unintended use.
  • Supplier management – Most standards have various requirements for supplier management that may include auditing suppliers, monitoring supplier performance, only using suppliers certified to specific standards, etc.
  • Internal audits – Believe it or not, since internal audits are required by many programs, it’s not uncommon to have a finding related to internal audits! Findings from an internal audit can include not conducting audits on schedule, not addressing audit findings or not having a properly qualified internal auditor. Are you looking for more guidance? Last year, members of ASTM International’s D37 Committee on Cannabis approved a Standard Guide for Cannabis and Hemp Operation Compliance Audits, ASTM D8308-21.

If you are still on the fence about the value of an internal audit, given the option of an inspector uncovering a non-conformance or your own team discovering and then correcting it, which would you prefer? With fines easily exceeding $100,000 by many cannabis enforcement units, the answer should be clear. Internal audits are a valuable tool that should not be feared.

Learning from The First Wave Part 3: Seven Basic Questions About Local Cannabis Ordinances & Real Estate

By Todd Feldman
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Part One of this series took a look at how the regulated cannabis market can only be understood in relation to the previous medical market as well as the ongoing “traditional” market. Part Two of the series describes how regulation defines vertical integration in California cannabis.


If you are considering getting involved in California cannabis, imagine the following sentence in ten-foot-tall letters made out of recently ignited $20 bills:

Before you put any money down on property, carefully examine the local cannabis ordinance and tax rates. 

This article is written in the form of advice to a newbie cannabis entrepreneur in California, but it will discuss issues that are also of significance to investors, as well as (to various degrees) cannabis entrepreneurs in other states.

Here are seven basic questions that you need to ask about local regulations (in order, except for Number 7).

1. What’s Your Jurisdiction?

If you’re in city limits, it’s the city. If you’re outside city limits, it’s the county.

2. Does the Jurisdiction Allow Cannabis Activities?

If the answer is yes, go to the next question. If the answer is no, pick another jurisdiction.

3. Where Does the Jurisdiction Allow Cannabis Activities?

A zoning ordinance will limit where you can set up shop. The limitation will probably vary by license type.

4. How Does the Local Ordinance Affect Facility Costs?

The short answer is: in many ways. Your local ordinance is a Pandora’s box of legal requirements, especially facility-related requirements.1 Read your local cannabis ordinance very carefully.

Generally speaking, the cannabis ordinance will set out two types of requirements – those that are specific to cannabis and those that apply generally to any business.

Looks great but . . . where are the sprinklers? Does it need a seismic upgrade? How about floor drains?
Photo by Wilhelm Gunkel on Unsplash

Cannabis-specific requirements:

  • Typically incorporate state cannabis laws by reference.
  • Have significant overlaps with state cannabis laws. For example, the state requires commercial-grade locks and security cameras everywhere cannabis may be found on a given premises. Local ordinances generally include similar requirements – keep in mind that you will need to comply with a combined standard that satisfies both state and local requirements.2
  • Vary greatly according to type of activity. For example, manufacturers will need to comply with Health & Safety Code requirements that can have a major impact on construction costs.
  • Vary greatly by jurisdiction when it comes to equity programs.

General requirements:

  • Include by reference building and fire codes, which can require very expensive improvements. Note that this means your facility will be inspected by the building department and the fire department.
  • Can include anything from Americans with Disabilities Act (ADA) requirements to city-specific requirements, such as Design Guidelines.
  • Will be zealously enforced because you’re a cannabis business.

5. What is the Enforcement Policy?

It may be that your local jurisdiction will give you temporary local authorization after meeting some, but not all, of the requirements. For example, you may be able to begin operations once you’ve provided your city or county with your cannabis permit application, a zoning clearance and a business permit. In this jurisdiction, you would be able to bring your building up to code sometime after you begin operations.

On the other hand, your local jurisdiction may require you to meet every requirement – from cannabis-specific security requirements to general building code and ADA requirements – before you can begin operations. Depending on the type of cannabis business (and facility condition), this might be inconsequential. Or it might mean that you will have to pay more than a year’s worth of rent (or mortgage) before you can start making money.

6. Can You Choose a Facility That Saves You Time and Money?

Of course, you won’t have to spend much time or money bringing your facility up to code if it’s already up to code. How likely it is that you will find such a facility varies wildly according to the type of cannabis activity in question. In general:

  • Service-side activities (delivery retail, storefront retail, distribution) are in many respects similar to their non-cannabis counterparts. From a facilities standpoint, the major differences come from security requirements. So, it may be possible to save time and money by choosing a facility that is already up to code for a similar use.
  • Manufacturing activities are trickier, since you will need food-grade facilities and equipment. You may be able to save money by setting up shop in a commercial kitchen.
  • Extraction with volatile solvents is a special (and particularly expensive) case, since it is inherently dangerous and requires special facilities.
  • Outdoor cultivation may be relatively unproblematic if it has an appropriate water source.
  • Indoor cultivation is expensive because of climate-control and lighting requirements. Buildings potentially suitable for large-scale indoor grows frequently come with significant problems. Former warehouses will typically require major power upgrades, while former factories may have inconvenient architecture and/or hidden toxic waste. In all cases, internal reconstruction is likely to be necessary, and will trigger all sorts of building and fire code requirements.

7. What Are the Local Cannabis Taxes?

Cannabis tax rates may be determinative. For example, Oakland imposes a 6.5% gross receipts tax on manufacturers that have gross receipts of less than $5M, and 9.5% on manufacturers that have gross receipts over $5M. In comparison, Santa Rosa only imposes a 1% gross receipts tax on manufacturers.

Local cannabis ordinances and taxes can make or break your business, so you need to understand them before you commit to a location. The seven basic questions listed above are designed to get you started.

This article is the opinion of the author and is not intended to be legal or other advice.


References

  1. For example, see Part II of the City of Oakland’s Administrative Regulations and Performance Standards, and The City of Los Angeles’s Rules and Regulations for Cannabis Procedures No. 3 (A)(14).
  2. For example, compare 16 CCR § 5044 (“Video Surveillance System”) with The City of Los Angeles’s Rules and Regulations for Cannabis Procedures No. 10 (A)(7).

CA Health and Safety Warning Laws Have Changed: Are You In Compliance?

By Megan Caldwell, Lindy Martinez
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A new California Proposition 65 mandate took effect on January 3, requiring health warning labels for all cannabis products sold in the state. Failure to comply with the requirements can and will result in enforcement against cannabis producers and sellers, resulting in hefty penalties. Here’s what you need to know.

Some Background on Proposition 65 and Cannabis

California’s Proposition 65, also known as the “Safe Drinking Water and Toxic Enforcement Act of 1986,” requires various parties in the supply chain for consumer products to provide warnings on products they sell in the state if exposure to certain chemicals in those products will pose a significant risk of cancer or reproductive harm. Proposition 65 applies to any company that sells products in California, regardless of whether the business is headquartered or manufactures products in California.

This is an example of a Prop 65 warning label. They might look familiar because we tend to see them on a lot of common goods and products.

Cannabis (Marijuana) Smoke” was listed under Proposition 65 in 2009 because of the potential that it contains ingredients or emits chemicals known to cause cancer. These chemicals include toxins such as arsenic, benzene, cadmium, formaldehyde, lead and nickel. In January 2020, Delta-9-Tetrahydrocannabinol (THC) was added to the list of toxic chemicals under Proposition 65 because of THC’s potential to cause reproductive harm. Now, both THC and cannabis smoke are listed under Proposition 65 and require warning labels.

What This Means for You and Your Company

The updated chemical list, which includes THC, became effective January 3, 2021, so the clock to come into compliance is ticking if you are not already complying. Many cannabis companies selling in California already comply with Proposition 65 by including warnings on their products that emit cannabis smoke. However, now companies that have previously issued a consumer warning regarding cannabis smoke must expand their warnings to include both the potential risk of cancer and the potential risk of reproductive harm. Additionally, products that previously did not require a warning for cannabis smoke will now be subject to Proposition 65 for exposure to THC.

The listing of THC implicates a broader range of cannabis products because it affects any product that contains detectable levels of THC, including products that contain less than 0.3% THC in compliance with the 2018 Farm Bill. Under the THC listing, a wide range of cannabis and hemp-derived CBD products, including products that do not emit smoke, such as edibles, topicals and other concentrates are subject to the Proposition 65 labeling requirements.

The agency that oversees Proposition 65 has provided so-called “safe harbor” levels for many listed chemicals that allow companies to forego a warning label if exposure to the chemical occurs at or below a certain threshold. However, no safe harbor level has been established for cannabis smoke or THC, and so the burden falls to the business to determine if the levels of the chemical pose a significant risk to the consumer. This determination typically requires extensive and costly testing that is not practical for most businesses. Thus, parties in the cannabis supply chain should work to properly label all cannabis-related products at this time. Failure to do so is risky. Proposition 65 “bounty hunters” team up with individuals to enforce Proposition 65 by sending notice of violation letters and then often filing lawsuits against businesses they believe are in violation of the statute. Many of these demands and lawsuits settle, as the cost to litigate is expensive. Settling, though, can be expensive, too.

Integrating a Culture of Quality Into the Cannabis Industry

By David Vaillencourt
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The culture of the cannabis industry is filled with passion that many envy, and for valid reasons. The roots of the cannabis plant go back thousands of years. As of this writing, there are no documented human deaths that were caused by a phytocannabinoid overdose. However, it is not all rainbows and unicorns.

Before breaking ground, fundraising, proper facility design, competitive application and permitting requirements are just the start. Once operating, businesses struggle to stay current with regulations that continue to evolve. Cannabis cultivators struggle to scale while mitigating pest infestations, which is a part of life in the conventional agricultural industry. A lack of consistent products frustrates consumers, while regulators and policy makers continue to struggle on the best way to regulate a commodity that has seemingly endless demand. The reality is dizzying!

However, amidst all of the challenges and opportunities, a continually overlooked tool stands out: a Quality Management System (QMS). Merriam-Webster defines a system as “an organized set of doctrines, ideas, or principles usually intended to explain the arrangement or working of a systematic whole.”

A QMS documents processes, procedures and responsibilities that ultimately direct an organization’s activities to meet customer and regulatory requirements as well as continually improve its effectiveness and efficiency. In other words – it steers innovation through the collection of data while ensuring products are safe for the consumer. For further reading, the American Society for Quality (ASQ), now over 70 years old, is an excellent resource and provider of resources and formal training programs that are recognized and revered around the world.

Step 1: Define your stakeholder requirements

This all starts with knowing your stakeholder (e.g., customer, regulatory body) requirements. For simplicity’s sake, let’s start with your customer; at a fundamental level, they expect safe, consistent and reliable products that impart a certain experience.

How does that translate into specifications? Let’s look at them one at a time.

What does “safe” mean? For an edible, safe means the product is free of physical, chemical and microbial hazards. Knowing what potential impurities could be in your product requires understanding your raw materials (inputs) and the manufacturing process. To take a deeper dive, some of the aspects of safety and quality, product specifications and testing considerations are discussed in this recent Cannabis Industry Journal article by Dr. Roggen and Mr. Skrinskas here.

An example of a compliant label in Oregon

What does “consistent” mean? This builds off and complements the safety profile. It could mean a consistent fill level, an acceptable range of cannabinoid concentration, and so on. For example, in the US Pharmacopeia’s peer-reviewed article about quality attributes of cannabis inflorescence (commonly known as flower or bud), they recommend 20% as the acceptable variance in cannabinoid content. For a product labeled as having 25% THC, the product will actually test to between 20% and 30%. This may be surprising, and discomforting for some, but the reality is that products on the market consistently fail to meet label claims.

What does “reliable” mean? That could mean that you always have inventory of certain products on the shelves at your dispensary. Defining “always” as a SMART goal – perhaps it means that you will have your top 3 products in stock at least 90% of the time. Customers need to feel like they can rely on your business to provide them with the products they want. Take the time to capture the data on what your customers want and work to satisfy their needs and you’ll watch your business really accelerate.

Step 2: Build your processes to meet these expectations

This is where your written standard operating procedures (SOPs), forms and records come into play. Your SOPs serve to memorialize your operations for consistency. Most SOPs in the cannabis industry are not written by the actual operators of a process. Rather, they are written by the legal and compliance team without review by the operators to confirm that what they are stating reflects operational reality. The audience needs to be the operators. Without effective SOPs that are utilized by your employees, your business will struggle to meet the established specifications. Cannabis businesses in Colorado, the oldest regulated adult-use cannabis market in the United States, continue to see 1 in 8 of their products fail final product testing! Cannabis businesses that understand their processes, document them in SOPs and have records to prove they follow their SOPs (see Step 3) are able to reduce errors that ultimately lead to costly rework and product failures.

Consistency in quality standards requires meticulous SOPs

Step 3: Monitor and improve

You have your requirements, you have your process, but how do you know that they are being adhered to? By the time you have results from a third-party lab, it’s too late. Look internally. Records and logs that show preventive maintenance was performed, room and canopy temperature and humidity checks, inventory reports, production records, extraction equipment report and employee training records shouldn’t be filled out only to be filed away. These records are data, which is your most valuable tool. Unfortunately, records are one of the most overlooked assets in today’s cannabis business. A team independent from operations (typically a Quality Unit) should be regularly reviewing these for inconsistencies and trends that can alert you to catastrophic failures before they occur.

Initially, the additional expenditure and learning curve may make this seem like an added burden, but keep in mind that succeeding in today’s cannabis industry requires long-term customer retention. By biting off one piece at a time, you can slowly implement a QMS that will improve your business, increase customer satisfaction, and ensure your brand is a staple for years to come. Remember, quality and compliance is a journey, not a “set it and forget it” situation.

The definition of a Quality Management System includes ‘continuous improvement’. Look forward to a future article which will discuss the importance of tools like a CAPA Program – Corrective Action Preventive Action (which all cannabis license holders in Colorado are required to have in place as of January 1, 2021) and how they complete your QMS, keeping you compliant and mitigating your business risks!

Updates in Employment Law: CA, WA & CO

By Conor Dale
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A number of laws have gone into effect in 2021 which may have a major impact on cannabis industry employers; clearly understanding the changing legal landscape is essential to avoid and limit potential liability in the new year and beyond. Below is a brief summary of some relevant new employment laws in cannabis friendly states:

California:

  • Expansion of family and medical leave: California has long required employers to provide job protected medical and family leave if an employee worked at a jobsite with 50 or more employees within a 75-mile radius.
  • Senate Bill 1383 now requires all employers with five or more employees to provide up to twelve weeks of unpaid, job-protected leave for employees to bond with a new child or to care for themselves or a family member suffering from a serious health condition. To be eligible for the leave, an employee must have at least 12 months of service with the employer and have performed at least 1,250 hours of work in the previous 12-month period. While on leave, employees are entitled to continue to participate in an employer’s health insurance plan and to return to their job or a comparable position at the conclusion of their job-protected leave. Previously exempt small employers should be aware of these obligations moving forward.
  • Employer Pay Reporting Requirements: Under Senate Bill 973, employers with 100 or more employees that are required to file an annual Employer Information Report, colloquially known as the EEO-1 report, must submit annual information on its employees’ pay data to the state’s Department of Fair Employment and Housing (DFEH). The report must include the number of the employer’s employees by race, ethnicity and sex in specific job categories and pay ranges and their associated work hours and earnings.
  • The first report is due on March 31, 2021, and the DFEH has prepared an online portal to assist employers in submitting this information. These reports can be complex and address highly sensitive information, so employers are strongly advised to contact counsel for assistance in preparing and submitting their first report.

Washington

  • Increased pay requirements: Washington’s inflation-based minimum wage system has increased the minimum wage to $13.69 per hour in 2021. Employers with 50 or fewer employees must also pay salaried employees at least $827 per week (or $43,004 per year) and employers with more than 50 employees must pay at least $965 per week (or $50,180 per year) starting January 1st.

Colorado

  • Equal Pay for Equal Work Act: Beginning in 2021, all employers with at least one employee must: (1) provide formal notice to Colorado employees of promotional opportunities; and (2) disclose pay rates or ranges in job postings that could be performed in Colorado (this includes virtual or remote work positions).
  • The Equal Pay for Equal Work Act generally requires employers to take reasonable efforts to promptly announce, post, or otherwise communicate all opportunities to all current employees prior to making a promotion decision. An employer must communicate promotional opportunities when it has or anticipates a vacancy or a new position that could be considered a promotion for current employees in light of pay, benefits, status, duties or further potential promotions.
  • Under the law, job postings must also include: (1) the rate of pay or pay range for the position; (2) a general description of bonuses, commissions or other forms of compensation offered with the job; and (3) a description of the employment benefits associated with the position.

Cannabis industry employers face a range of new laws, even absent the continued legal burden of managing employees during the COVID 19 pandemic. Employers should consider carefully reviewing all applicable laws and seeking guidance from counsel when needed.

PJRFSI Accredited for Cannabis Certifications

By Cannabis Industry Journal Staff
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In a press release published, last week, Perry Johnson Registrars Food Safety, Inc. (PJRFSI) announced they are now officially the first certification body to be granted accreditation for cannabis certification in the United States by ANAB.

PJRFSI has developed a cannabis certification standard that uses GMP- and GAP-based scheme to help growers, manufacturers and retailers meet a wide range of different state regulations. The goal of the standard, according to the press release, is to provide guidelines for cultivation, manufacturing and retail best practices across the country.

Because each state has very different rules and requirements for cannabis companies, the certification requirements can be confusing and vary widely from state to state. With the release of this new standard, PJRFSI wants to simplify cannabis markets in the United States and hopefully get various states on a same or similar page.

According to Terry Boboige and Lauren Maloney, president and accreditation manager at PJRFSI respectively, they have a lot of hope for what the future holds in terms of unifying cannabis rules and requirements. “The team at Perry Johnson Registrars Food Safety Inc. is incredibly excited to be the first company in the United States to achieve formal accreditation for our Cannabis and Hemp Certification Program,” says Boboige and Maloney. “We believe this nationally-recognized program will help the budding cannabis and hemp industries to strengthen, legitimize, and separate themselves from companies that do not have formal certification. Certification to this standard will forever help enhance companies’ image, credibility, and reliability. Accredited certification exemplifies to the public that certified organizations who supply cannabis and hemp products and services have internal safety systems that can inspire confidence.”