Tag Archives: safety

The CalCannabis Appellations Project Is About to Spark a New Chapter in Place-Based Branding

By Amy Steinfeld, Jack Ucciferri
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Connoisseurs know that pairing a fine cut of steak with a Napa Valley cabernet sauvignon is a sure winner. But how many are aware that pairing strawberry cheesecake with a certified Santa Cruz Blue Dream cannabis strain creates an equally delicate palatal synergy? Thanks to the California Department of Food and Agriculture’s CalCannabis Appellations Project (“CAP”), premium cannabis regions will soon have the potential to capitalize on such newfound awareness among discerning consumers.

For decades, cannabis connoisseurs have been willing to pay a premium for flower said to have been grown in certain regions or with certain techniques, but because of cannabis’ legal status, supply chains have been opaque. As a result, cultivators of distinct cannabis strains struggled to capture the full market potential of their products. That has begun to shift with implementation of California’s Cannabis Track-and-Trace System. The costs associated with implementation of the METRC1 system have been bemoaned by many in the industry, but there is also tremendous potential value in having the most transparent supply chain in the world. The CalCannabis Appellations Project is the vehicle through which brands will be able to harness that value.

The underlying premise behind the CalCannabis Appellations Project is that the distinctive qualities of a cannabis product are often attributable to where and how the plant is grown. Through this project, CalCannabis is developing a statewide appellations system2 that will allow qualifying licensed cultivators to effectively communicate information about their cannabis crops (i.e., the standards, practices and/or varietals used) through labels, advertisements and other marketing techniques. It will also prevent disingenuous cannabis cultivators from making inaccurate claims about where and how a product is grown, which protects the integrity and value of the appellation.

What is an appellation?

In general terms, an appellation is an identifying name, title or label that can be legally defined and protected. Appellations are most commonly used in the wine industry to geographically identify the origin of grapes in a particular bottle. This place-based identification system comes from an understanding that certain regions have unique environmental and growing characteristics, which result in a product that cannot be produced from other regions even when the same varietals are used. Famous wine appellations or American Viticultural Areas (AVAs) in California include the Napa Valley and Santa Ynez AVAs, and sub-AVAs such as the Russian River Valley AVA, located within the larger Sonoma County AVA.

Recognizing there are also growing regions that produce uniquely distinctive cannabis, CalCannabis is developing a process for:

  1. Establishing an appellation (i.e., identifying regions that produce distinctive cannabis and defining standards, practices and/or varietals that must be used in those regions to qualify for an appellation); and
  2. Qualifying to use a particular appellation once they are established (i.e., determining the cannabis cultivators that can legally label or market themselves as belonging to a particular appellation).

While the state has not released program details, it’s likely that cultivators will have to demonstrate their outdoor-grown cannabis is distinctly unique.3 CalCannabis has until Jan. 21, 2021,4 to establish these processes, but a draft is expected to be released by early January 2020.5 This is an opportunity for cultivators to organize and participate in the process to define and create unique local appellations.

What are the benefits of an appellations system?

Napa wine country
Image: James Faulkner, Flickr

Appellations benefit both cannabis cultivators and consumers. It allows small farmers to capture the value that consumers place on unique and local cannabis products. Allowing for product differentiation through an appellations system will prevent cannabis from becoming a commodity—a situation that could result in indistinguishable products and a single market price for cannabis regardless of how or where it is grown. Thus, an appellations system protects not only local economies and farming communities, but also consumers that care about the origin and growing practices of their cannabis.

A criticism of appellations, particularly in the wine industry, is that they can disincentivize innovation and industry growth when strict growing practices and standards are required to be a part of an appellation. This will be an important consideration as CalCannabis establishes its appellations system.

County of Origin

In addition to setting up an appellations system, the CalCannabis Appellations Project will expand upon current county of origin regulations. Unlike an appellation designation, the county of origin designation is designed to be much more inclusive—it can currently be used on any cannabis product as long as 100% of the cannabis is grown within the designated county.6 Whereas an appellation will communicate information about the quality of a cannabis product and how it was produced, a county of origin designation is more like a “Made In” label. For example, a county of origin designation can be applied to indoor cannabis whereas an appellation will likely only include sun-grown cannabis.

There is also a desire to allow city of origin designations in addition to county of origin designations, which would enable products grown wholly within the political boundaries of a city to further differentiate themselves.7 As the legal cannabis landscape changes nationwide, it may also be important to have a statewide appellation allowing products to be marketed as “Grown in California.”

What should cannabis cultivation regions be doing now?

After CalCannabis releases a draft process for establishing an appellation, the next steps will be clarified. However, not everyone is waiting. For instance, growers in Mendocino County have already started to organize.8 The Mendocino Appellations Project divided the county into 11 unique subregions based on regional growing conditions and practices that could potentially be turned into appellations in the future. The goal of the appellations outlined by the Mendocino Appellations Project is to protect cannabis products coming out of Mendocino County and preserve the region’s growing heritage.

A group in Sonoma County is also discussing the establishment of appellations with the hope that it will help differentiate their cannabis and draw attention to the unique microclimate and soil structure in parts of Sonoma County.9 The groups involved in these discussions also believe it will allow cultivators to develop strict growing standards and to protect certain strains, while creating new jobs and encouraging agritourism. Appellations will become increasingly important as sophisticated consumers begin to select quality cannabis that aligns with their preferences.

References

  1. METRC is the third-party-owned software contracted by California authorities to implement the commercial cannabis track-and-trace system “from seed-to-sale.”
  2. Passage of Senate Bill 185 calls for the use of the term “appellations of origin” instead of “appellations.”
  3. Based on comments made during the October 23 Cannabis Advisory Committee Meeting.
  4. Business and Professions Code Section 26063.
  5. Based on comments made during the October 23 Cannabis Advisory Committee Meeting.
  6. Business and Professions Code Section 26063(a).
  7. Based on comments made during the October 23 Cannabis Advisory Committee Meeting.
  8. https://swamiselect.com/mendocino-appellation-project/
  9. https://www.sonomacountygazette.com/sonoma-county-news/cannabis-appellations-the-small-cannabis-farmers-elyon-cannabis.

Khiron Life Sciences Makes Strategic Moves In South America

By Marguerite Arnold
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Khiron Life Sciences Corp. has played an interesting game globally for some time now. Far from a “high flier” in the first tiers of Canadian cannabis companies to watch, that may be changing. Not to mention, this fall, what exactly do these labels mean right now as almost all the first movers retrench and reconsider?

How and where Khiron’s influence will be felt however, is still very much a question in the air.

The big news? The company has obtained authorization from the Colombian government to commercialize high-THC cannabis, and further, for both domestic and international consumption.

There are several interesting things about this announcement.

The first is that Khiron inevitably got its domestic license to supply a 15,000-patient trial “at home” in Columbia (and for the prestigious Latin American Institute of Neurology and the Nervous System).

The second is that the company will also be exporting – and to where.

Uruguay is at the top of that list – starting with the fact that the country has had a “recreational market” that actually predates Canada’s. To import medical cannabis here in other words, is also an interesting statement in and of itself. Namely, what is wrong with domestically produced Uruguayan product? Even and especially in this case, for the medical market? (The answer of course has more to do with U.S. banking law than product quality).

The second is the UK where the company will also supply the patient trial there – Project Twenty21. This is even more intriguing considering that the NHS has just denied the efficacy of cannabis for treating neurological conditions and pain and only recently agreed that Sativex was “cost effective” after negotiating a lower bulk price with GW Pharmaceuticals made possible by the new NICE guidelines.

The third is Brazil – a growingly valuable market now firmly on the radar of those watching all things cannabis-related in the hemisphere.

Regardless, it shows that the lights are on in the executive suite at Khiron. The question is, will this early mover advantage pay off – and more interestingly, where?

A Hemispheric Play – But In Which Long Term Direction?

While the UK at least seems to be Brexiting itself off a cliff of free trade agreements with the world (and expect cannabis to be in the early room of conversation about commodities in this regard), is Latin American cannabis really price impactful in low price per gram Europe long term? Especially given the inclinations of a company whose CEO admits in press statements that he wants to be a “Starbucks of Cannabis” – selling not coffee beans at “80 cents a pound…” but rather a cup of coffee “for four dollars.”

That is a still-to-be answered question. Especially in an environment where the German government has announced its essential reference wholesale price for floss at €2.30 per gram (around four dollars American). Not to mention what is going on domestically in countries across the continent from Denmark and Portugal to Poland.

However, what all this positioning also does of course, is pose questions for Khiron’s intentions throughout the American hemispheres, both more locally and of course north of the Rio Grande (in the U.S. market) not to mention Canada.

This is the kind of reverse hemisphere play of course that everyone in North America has been expecting since Uruguay’s early market movement earlier in the decade. The great South American fruit and veg market is finally allowed to turn to legal production in the form of cannabis.

Is the “Drug War” finally in its last, dying days? The answer appears to be yes. Trade wars, inevitably, however, are looming. Protectionism in the cannabis industry may be a new flavour of the day but not in any other agricultural or indeed any other kind of commodity. And on this front, things are also likely to be fierce.

2020 Financial Trends for the Cannabis Industry

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

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

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

Finding New Capital Investment Will Be Tougher

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

Image: Flickr

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

Expect More M&A and Consolidation

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

New Markets & Regulations

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

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

Image: Cafecredit, Flickr

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

Credit Card Payments

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

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

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Hemp in the United States: An Opinion

By Dr. Anthony Macherone
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The Agriculture Improvement Act, also known as the Farm Bill, was signed into law in December 2018. A major provision in the law legalizes hemp as an industrial crop. In August of 2016, USDA, DEA, and FDA published a Statement of Principles in the Federal Register (FR 53365) that defined industrial hemp as any part or derivative (including seeds) of the plant Cannabis sativa L. with a dry weight concentration of tetrahydrocannabinols not greater than 0.3% (wt/wt).

USDA LogoGlobally, the hemp market was estimated at $3.9 billion in 2017 and the hemp seed segment is predicted to grow “at a CAGR of 17.1%” through 2025. Some of the markets affected by hemp production include nutraceuticals, food, textiles, construction materials, and personal care products. It is also anticipated that cannabidiol (a non-psychoactive cannabinoid extracted from hemp) production will grow to support the burgeoning recreational and medicinal cannabis markets in the U.S., Canada and other countries around the world.

In U.S. states and Canada where recreational or medicinal marijuana programs have been legalized, regulations have been defined to assure the safety and quality of the products sold to consumers. These regulations include analytical chemistry and biological assays to identify and quantify pesticides, mycotoxins, heavy metals, residual manufacturing solvents, terpenes, and microbial contaminates. With regards to hemp, the USDA recently released guidelines for testing of hemp. To date, the only required test from the Federal perspective is total ∆9-tetrahydrocannabinol (THC) content < 0.3% by weight. Total THC is essentially the sum of tetrahydrocannabinolic acid (THCA) and THC (Total THC = 0.877(THCA) + THC) but this may be eventually expanded to include all salts and isomers of cannabinols as noted above. Another complication: what constitutes “dry”? The CFR does not answer this.

Agilent Technologies has invested in the development and implementation of the analytical protocol, the services needed to support these assays, the required consumables, reagents, and supplies, and the training of sales and support personnel to comprehensively ensure compliance of hemp with USDA regulations.

Harvest Connect Aims to Advance Georgia Hemp Market

By Aaron G. Biros
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Georgia doesn’t have a hemp market yet, but that is about to change. In 2019, the Georgia state legislature passed two bills: HB 213, the Georgia Hemp Farming Act and HB 324, the Hope Act, which legalized low-THC oil. While the regulatory framework for the program is still being decided, the market in the state is now beginning to materialize.

Kevin Quirk, CEO of Harvest Connect LLC, wants to be a pioneer for the hemp industry in the Southeast. With a strong focus on local economic growth, Quirk is moving quickly to corner the market and establish a thriving enterprise. His background is in consumer packaged goods (CPG). He’s worked for Anheuser-Busch, Coca Cola and Minute Maid before becoming an entrepreneur in the CPG space. He started White Hat Brands, a children’s health and wellness company, where they worked with the Juvenile Diabetes Research Foundation to co-develop wellness brands for children.

Kevin Quirk, CEO of Harvest Connect LLC

During that time, he saw two major trends unfolding in the CPG arena: organic health and wellness products and hemp-derived CBD products. “Every year we’d see more and more CBD products on the market,” says Quirk. “Almost a year ago, we decided to get into the hemp space coinciding with Georgia’s push around the hemp and medical cannabis market.” That’s when Georgia’s state legislature introduced those two bills.

In October of 2018, Hurricane Michael wiped out an entire season of crops for Georgia farmers, an almost $3 billion hit to the local agricultural economy. Farmers in Georgia were devastated, taking massive losses. “That put momentum behind the hemp program and gave Governor Kemp the impetus to move forward right after the 2018 Farm Bill passed,” says Quirk. With the launch of his newest venture, Harvest Connect LLC, a Georgia-based hemp-derived CBD extraction and retail company, he saw a way to help some farmers get back on their feet.

Quirk says he expects the state will have applications ready for submittal in the next 60-90 days. The state is going to issue permits to processors and farmers. For farmers, the barriers to entry are pretty low- just $50 per acre for a hemp farming permit with a $5 thousand dollar cap. For a processing permit, the barriers are higher and include an application fee, a surety bond and a minimum of at least five Georgia farmers committed to process in a permitted facility. According to Quirk, it is also critical to understand how to manufacture quality products in a highly regulated environment. Quirk has experience in building and running food-grade USDA and FDA manufacturing facilities and already has a number of farmers signed up to process with them once the program gets off the ground. Many of them are tobacco and cotton farmers hit hard in the aftermath of Hurricane Michael.

Harvest Connect, through its subsidiary Graceleaf, is planning to launch a series of retail CBD stores throughout the state. “This will help us  meet the demand in Georgia, which will help patients in Georgia and which will then help farmers in Georgia,” says Quirk. Georgia hasn’t launched a new agricultural product in decades at least, so for Quirk and Harvest Connect, this is about putting Georgia farmers first. “We plan to work very closely with our growers as partners to make sure everyone succeeds,” he added.

Quirk predicts the Southeast will be a leading producer of hemp for years to come. “I think it’s going to be huge,” says Quirk. “With just the pure amount of agricultural land mass that we have, plus the ideal climate, we’ll be able to turn 2-3 crops a year in the southern parts of Georgia. We actually think Georgia could be one of the most significant producers of hemp in the country.”

While the state is working on promulgating the rules, establishing the licensing process and rolling out the hemp program, Quirk is working to iron out the details of his business so they are ready as soon as the time comes. “We expect to be up and running with our processing facility by Q2 of 2020.”

Is Australian Cannabis Going Corporate?

By Marguerite Arnold
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Patient numbers in Australia are going in only one way – up. As of last month, the Australian government reported that it had approved a record 3,594 cannabis prescriptions in October 2019 – or about twice as many as it had approved in only July.

As patient numbers have grown, plans have proceeded afoot Down Under to capitalize on the growing willingness in Australia to accept that cannabis is not only medicine – but can now be prescribed by regular GPs – as opposed to specialists. Not to mention exported to a global medical market suddenly looking for high quality product at affordable prices in far afield places.

Leafcann is one of the companies in that elite territory right now. The new approval by the government for the expansion of facilities to both produce and research cannabis will double the company’s facility somewhere in Adelaide (the location is not being disclosed for security reasons). The new facility will also be the first in the world to produce oil from plant genes and distribute the same to patients.

But they are not the only ones. According to the latest market report by Aussie-based Fresh Leaf Analytics, the numbers of patients domestically are set to jump dramatically again next year.

And as the Australian market mushrooms (indeed European farmers are fielding interest from distributors from the region lately), will the Aussies, rather than any EU-based rival, become the first real global competition to the Canadians first in the race on the flower front?

Don’t count on that. There are too many contenders now for quality cannabis all over Europe for low priced medical cannabis from Down Under to be able to do any more than secure a few early harvests. See the activities of Aphria in the UK for example. Or the proclivities of Lexamed and a few other distributors in Germany.

However, what this development clearly shows is that the Aussie market for oil is not only driving large and well-funded production at home, but also having a knock-on effect internationally.

Whatever else is going on, in other words, the Australians are not only gearing up to go big on the weed front domestically, but driving the market for oil just about everywhere. Starting with CBD.

Don’t Bet The Farm On Aussie Production

Looking at what is going on, in fact, by the numbers, it appears that the Australian market is getting going in ways impossible for their northern brethren. In part that has to do with both Australian federal and state legislation.

It also, when you look at the numbers, is still a market dominated by less than THC medical grade product – the vast majority of patients are still only receiving CBD and most of them in oil form. Australian cannabis bound for pharmacies is also so far clocking in far closer to European prices than Canadian – in part because Canadian companies can ship directly to patients. Australia is also following a European distribution model. And recreational is off the table for now (at least until New Zealand does it). In the meantime, the medical business is proceeding apace.

This means two things: CBD oil is going nowhere either in or outside Australia unless it is either GMP or Novel Food certified – and that takes cash up front. Regardless, will the Aussie market look financially like the salad days of Canada’s medical market? Do not count on it. The flameouts of public companies if not volatility of the public sector, not to mention the growing longevity of the legal biz is creating other paths to financing. Including the fact that most savvy investors at any rate understand that price sensitivity is in the room from the beginning.

So yes, there certainly have been and will continue to be large, well-funded, corporate Aussies – indeed that is the shape of the future just about everywhere. But don’t expect the corporate playbook to be the same as the ones played by the Canadians so far.

What’s Going Down In The Danish Cannabis Market?

By Marguerite Arnold
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Despite the fact that the Danes are going to do something that is still verboten in Germany and many other European locales (namely allow a recreational trial), the overall bloom is off the first heady days of the cannabis rose here in Denmark.

Medical sales have stalled of late because of both supply (and in part CannTrust problems) and of course price in a market with a lot of cultivation enthusiasm, but also one which still imports its medical cannabis (although domestic production is coming online soon).

This is even more interesting of course given some ideas floating in the current Euro cannosphere – namely that Canadian funded, Danish based cultivators are or were planning on importing to both Germany and Poland this fall. In other words, low sales at home for expensive product that can be bought for less at the revived Christiana marketplace are not a market entry strategy that brings ballast to balance sheets. And while the rec market is coming (obviously), the trial is in early days yet.

Further, while the German market certainly presents an opportunity for higher priced cannabis coming out of Denmark (for now), that also will not last. And is certainly not the case in Poland.

For that reason, it is clear there is at least temporary trouble brewing in what some initially thought was going to be a European-based cannabis paradise. But that too, is so 2018.

A Few Numbers

The medical trial in Denmark is now entering the beginning of its third year as of 2020. There are, according to official estimates just over 4,000 legal patients. 34 companies have permits to cultivate cannabis, including all the usual suspects – starting with Canopy Growth, Aurora, Aphria, ICC (Wayland) and The Green Organic Dutchman, plus of course all the indie locals.

Put this in perspective and is it really any wonder why Aurora also just recently announced the halting of partly built construction in both Denmark and Canada this month?

aurora logoEspecially with problems in Poland, slower than expected legal sales in Germany and of course the disaster that is still the UK, this newest setback for the company is also not exactly unexpected. The only cannabis company, European or not, who benefitted from the recent NHS pivot on medical cannabinoids was the home-based GW Pharmaceuticals, albeit at lower negotiated prices as the total pool of patients is now increased with the new NICE guidelines.

Given all of these headwinds, even with a few export possibilities, the Danish market that supposedly offered a promised respite from the problems of the German one (certainly on the cultivation front), has run into a similar problem at point of prescription and sales.

Even Danish patient number growth is anaemic compared to Deutschland – which is, by all reports, not even close to considering a recreational trial in Berlin, Bremen or any other jurisdiction which has suggested the same.

With bulk, high-grade production coming online, there is clearly going to be a regulated cannabis market in Denmark. How the decisions about who will qualify for medical will be made in the future is another question. And one that certainly the larger producers at least, are responding to in kind.

The Winds of Change

Given the amount of compliant cannabis now in the pipeline for the continent (and not just domestically) it will be interesting to see how 2020 shapes up. However, no matter how still sluggish the numbers, another domestic cannabis market has begun to come into its own as the continent moves forward on the issue generally.

FDAlogo

FDA Issues Warnings to 15 CBD Companies, Updates Safety Concerns

By Aaron G. Biros
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FDAlogo

On November 25th, the U.S. Food and Drug Administration (FDA) sent out warning letters to 15 different companies for “illegally selling products containing cannabidiol (CBD) in ways that violate the Federal Food, Drug, and Cosmetic Act (FD&C Act).” They also published a “Consumer Update” where they express concern regarding the general safety of CBD products. The press release also states that at this time the FDA cannot say that the CBD is generally recognized as safe (GRAS). To see the list of companies that received warning letters, check out the press release here.

The structure of cannabidiol (CBD), one of 400 active compounds found in cannabis.

While the FDA is still trying to figure out how to regulate hemp and hemp-derived CBD products, they published these releases to let the public know they are working on it, according to FDA Principal Deputy Commissioner Amy Abernethy, M.D., Ph.D.:

“As we work quickly to further clarify our regulatory approach for products containing cannabis and cannabis-derived compounds like CBD, we’ll continue to monitor the marketplace and take action as needed against companies that violate the law in ways that raise a variety of public health concerns. In line with our mission to protect the public, foster innovation, and promote consumer confidence, this overarching approach regarding CBD is the same as the FDA would take for any other substance that we regulate. We remain concerned that some people wrongly think that the myriad of CBD products on the market, many of which are illegal, have been evaluated by the FDA and determined to be safe, or that trying CBD ‘can’t hurt.’ Aside from one prescription drug approved to treat two pediatric epilepsy disorders, these products have not been approved by the FDA and we want to be clear that a number of questions remain regarding CBD’s safety – including reports of products containing contaminants, such as pesticides and heavy metals – and there are real risks that need to be considered. We recognize the significant public interest in CBD and we must work together with stakeholders and industry to fill in the knowledge gaps about the science, safety and quality of many of these products.”

The Warning Letters

The warning letters sent to those 15 companies all mention a few types of violations to the FD&C Act. Those include marketing unapproved human and animal drugs, selling CBD products as dietary supplements and adding CBD as an ingredient to human and animal foods. All 15 companies are using websites, online retailers and social media in interstate commerce to market CBD products unlawfully, according to the press release.

FDAThis is not the first time the FDA has sent out warning letters to CBD companies. Previously, most of the warning letters were sent out regarding companies making unsubstantiated drug and health claims. This new round of 15 warning letters reaches beyond just unsubstantiated claims and identifies a few new areas of regulatory oversight that CBD companies should be wary of.

Of the 15 warning letters sent out, some were sent to companies that are marketing CBD products to children and infants, some were sent to companies using CBD as an ingredient in food products, some were marketed as dietary supplements and one company marketed their products for use in food-producing animals, such as chickens and cows. With this press release, the FDA is saying loud and clear that the above list of marketing strategies are currently unlawful, that is, until they finish their work in devising a regulatory framework for hemp-derived CBD products.

Updated Safety Concerns

Regarding the FDA saying they cannot deem CBD as generally recognized as safe (GRAS), they published a fact sheet titled “What You Need to Know (And What We’re Working to Find Out) About Products Containing Cannabis or Cannabis-derived Compounds, Including CBD.” The key words there should be noted in the parentheses: And What We’re Working to Find Out. The FDA’s research is by no means over with and, if anything, has only just begun. Refer to the fact sheet to see why the FDA couldn’t say that CBD is GRAS.

Epidiolex-GWIn the FDA’s research, they have found a few potential health problems associated with taking CBD. During the marketing application for Epidiolex as a new drug, the only approved CBD drug on the market, the FDA identified a couple of safety risks. The first one is liver injury, which they identified in blood tests, but mentioned that it could be managed easily with medical supervision. Without medical supervision, potential liver injury due to CBD consumption could go undetected, according to the FDA.

The second health concern is drug interaction. During the new drug approval process for Epidiolex, they found that other medicines could impact the dose of CBD and vice versa. The other major health concern they have is male reproductive toxicity. The FDA says that studies in lab animals showed male reproductive toxicity, including things like decrease in testicular size, inhibition of sperm growth and development and decreased circulating testosterone. They do mention, however, that “it is not yet clear what these findings mean for human patients and the impact it could have on men (or the male children of pregnant women) who take CBD.” The fact sheet also some side effects that CBD use could produce including sleepiness, gastrointestinal distress and changes in mood.

What Now?

The FDA says they are actively researching and working on learning more about the safety of CBD products. They listed a couple risks that they are looking into right now: Those include, cumulative exposure (What if you use CBD products daily for a week or a month?), special populations (effects of CBD on the elderly, pregnant or nursing women, children, etc.) and CBD in animals (safety of CBD use in pets or food-producing animals and the resulting safety of human food products like milk or eggs).

While the CBD products market could still be classified as a bit of a gray market currently, the FDA says they are working on researching it more to develop an appropriate regulatory framework. What that might look like is anyone’s guess. One thing that remains clear, however, is that the FDA will not tolerate CBD companies marketing products in ways described above. Those include making unsubstantiated health claims, marketing to children, using CBD as an ingredient in foods and marketing it as a dietary supplement.

Nevada Lab License Suspended Amid Potency Results Investigation

By Aaron G. Biros
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Back in September, Nevada officials announced a state-wide investigation into how products with high levels of yeast and mold were sold in dispensaries and alleged that labs could possibly be manipulating potency numbers on certificates of analysis. Then in late November, regulators suspended the license for Certified Ag Labs, a cannabis testing laboratory based in Sparks, Nevada.

Nevada regulators issued a press release alleging that products tested at Certified Ag Labs “may be labeled incorrectly and could contain a different level of THC than what is listed on product packaging.” Randy Gardner, a managing member at Certified Ag Labs told the Las Vegas Review-Journal that investigators showed up to his lab in October twice to collect samples for follow up tests.

On November 18, a state notice posted on the door of the lab read, “Registration and License Suspended,” according to the Las Vegas Review-Journal.

After that, Gardner fired back. In a statement sent out shortly after, Gardner said they were accused of lying about THC test results to the Department of Taxation (the agency that regulates cannabis in Nevada).

“The state’s decision to suspend and potentially revoke our license came without warning,” says Gardner’s statement. “This accusation is as baseless as it is appalling, as we have been completely transparent with the state at all times. We take this matter very seriously, and based on my over 30 years of laboratory experience we believe these allegations unconscionable at best.”

“The state came in for their audit then came back and suspended our license without us having a chance to further clarify or refute their findings,” the statement reads. “We hope the state appreciates that a business and its employees’ livelihoods and reputations are at stake. We are pursuing our options and all legal and equitable redress will be on the table.”

The Department of Taxation, which isn’t releasing any more information currently, says they found “inaccurate and misleading” potency test results, once they tested the samples collected from Certified Ag Labs.

This isn’t the first time Nevada regulators have suspended lab testing licenses. When Nevada legalized adult use sales and the market became operational back in 2017, the state suspended a lab’s license in September of that year. Then in late 2017, Certified Ag Labs and another lab had their licenses suspended for “not following proper lab procedures and good laboratory practices,” according to Stephanie Klapstein, spokeswoman for the Department of Taxation. Those licenses were reinstated in January of 2018.

How to Protect Your Brand From Counterfeiters

By Gail Podolsky
5 Comments

Global counterfeiting is expected to reach $1.82 trillion by 2020.1 Counterfeiting includes, but goes way beyond, fake watches or bogus polo shirts. In fact, no product is safe, including cannabis.

Counterfeiting is insidious; it supports child labor, human trafficking, organized crime, and has been linked to terrorist groups.2 “[C]ounterfeit good sales have been linked to al-Qaeda, FARC, Colombia’s rebel army and paramilitary groups in Northern Island.” 3 The FBI believes that counterfeit goods financed the World Trade Center bombing and the attack on September 11, 2001.4

Counterfeiters and their fake merchandise are typically difficult to locate and remove from the marketplace. Currently, we are seeing a proliferation of counterfeiting in the cannabis industry. Cannabis companies must consider the impact that counterfeit products have on their brand and goodwill. It is vital for cannabis companies to implement strategies to combat counterfeiting.

Typically, companies use trademark laws to combat counterfeiters. However, brand protection for cannabis companies is difficult because trademark laws do not provide the breadth of protection needed to successfully protect and enforce a cannabis company’s brand. Currently, U.S. trademark laws prohibit the registration of cannabis trademarks because selling cannabis violates federal law.5 While the 2018 Farm Bill amended this steadfast rule slightly, it only applies in limited circumstances, i.e., when the cannabis product contains less than 0.3% THC.6 As a result, cannabis companies are forced to seek protection through indirect registration, namely filing for goods and services that are not cannabis-related, such as clothing, publications or medical services. Indirect registrations are not enough to combat counterfeiters successfully.

Fortunately, there is another avenue that cannabis companies should be using to protect and enforce their brands against counterfeiters — obtaining copyright registrations for the company’s logo, product packaging and, if appropriate, company name. Copyright protection extends to a protectable work regardless of whether the copyright is in an illegal work or the copyright owner uses its copyright for an illegal purpose.7 Moreover, if there is pending or prospective litigation, a brand owner may request special handling of a copyright application to obtain expedited processing.8 If the application meets all the requirements for registration, special handling will result in the brand owner obtaining a copyright registration in about a week.9 Trademark registrations, on the other hand, typically take at least five months to obtain.

Once a company receives a copyright registration, the Copyright Act provides unique and important avenues for relief against counterfeiters.10 For example, a brand owner may obtain an ex parte seizure order, which allows the company to enter the counterfeiter’s premises, without notice, and seize the counterfeit products, business records, financial information relating to the counterfeit operation, customer and vendor lists, and bank account information.11 A brand owner may also obtain injunctive relief — a court order prohibiting the counterfeiter from buying, selling, and advertising counterfeit products — and freeze the counterfeiter’s bank accounts.12

People often say that imitation is the sincerest form of flattery. However, in the counterfeiting context, imitation can be lethal to your company.A cannabidiol (CBD) company recently used its copyright registrations to stop counterfeiters from advertising and selling counterfeit CBD gummies and oils. The CBD company obtained an ex parte seizure order, injunction and asset freeze, and obtained a $5 million judgment against the counterfeiters.13

Litigation is a valuable and effective tool in fighting counterfeiting. It helps protect the company’s goodwill, enhances consumer confidence and increases the company’s revenues. There are other tools that should be used to combat counterfeiting.

Companies must diligently watch their vendors, distributors, and customers for bad actors. Your vendor agreements should include provisions allowing regular audits and inspections. Your distribution agreements should prohibit distributors from selling outside their territory and engaging in price arbitrage. Your customers should be prevented from selling your products in smaller units. Having unique packaging with holograms will also assist in reducing counterfeits as the packaging is harder to replicate. An effective public relations campaign that includes educating your customers and the industry on the harmful effects of buying counterfeit cannabis products is also a very effective tool.

People often say that imitation is the sincerest form of flattery. However, in the counterfeiting context, imitation can be lethal to your company. Counterfeit cannabis products can be subpotent, superpotent or contaminated. Having these dangerous products advertised under your brand in identical packaging can have dire consequences.

If you are not currently experiencing a counterfeiting problem, you likely will. It is important to be proactive and find attorneys that have experience combatting counterfeiters in the cannabis industry to help protect your brand and company.

References

  1. Global Brand Counterfeiting Report 2018-2020 – ResearchAndMarkets.com, AP News (May 15, 2018), https://www.apnews.com/ef15478fa38649b5ba29b434c8e87c94.
  2. Colleen Jordan Orscheln, Bad News Birkins: Counterfeit in Luxury Brands, 14 J. Marshall Rev. Intell. Prop. L. 249, 259 (2015).
  3. Id. at 260.
  4. Id.
  5. Examination of Marks for Cannabis and Cannabis-Related Goods and Services after Enactment of the 2018 Farm Bill, USPTO (May 2, 2019), https://www.uspto.gov/sites/default/files/documents/Exam%20Guide%201-19.pdf.
  6. Id.
  7. See, e.g., Flava Works, Inc. v. Gunter, 689 F.3d 754, 756 (7th Cir. 2012); Dream Games of Ariz., Inc. v. PC Onsite, 561 F.3d 983 (9th Cir. 2009); Mitchell Bros. Film Grp. v. Cinema Adult Theater, 604 F.2d 852, 855 (5th Cir. 1979); Big Daddy Games, LLC v. Reel Spin Studios, LLC, No. 3:12-cv-00449, 2013 WL 12233949, at *16–17 (W.D. Wis. Apr. 10, 2013).
  8. Special Handling, U.S. Copyright Office, https://www.copyright.gov/help/faq/faq-special.html (last visited November 20, 2019).
  9. Id.
  10. See 17 U.S.C. § 503(a)(3).
  11. Id.
  12. Id.
  13. See Global Widget, LLC v. A.R.T. Wholesale LLC, No. 1:19-cv-02136, 2019 WL 3281321 (N.D. Ga. May 16, 2019); Global Widget, LLC v. A.R.T. Wholesale LLC, No. 1:19-cv-02136, 2019 WL 3244489 (N.D. Ga. July 18, 2019).