On Thursday, April 21, a handful of dispensaries in New Jersey begin selling cannabis to adults over the age of 21. The state has so far issued licenses for adult use sales to seven alternative treatment centers (ATCs), otherwise known as medical cannabis businesses already established in the state. In total, thirteen dispensaries in the state can sell cannabis to adults over 21.
The Capitol in Trenton, New Jersey
The reason why adult use sales could not start on April 20 is because of “unmanageable logistical challenges for patients and other buyers, surrounding communities, and for municipalities,” Toni-Anne Blake, communications director for the New Jersey (CRC) told The Philadelphia Inquirer. “Regulators and industry representatives agreed it was not feasible.”
The seven ATCs awarded adult use licenses are Ascend, Curaleaf, GTI, Acreage, Verano, Columbia Care and TerrAscend. The state’s roll out created a lot of controversy over allowing already established, larger medical cannabis businesses and multi state operators to begin adult use sales before smaller businesses and social equity applicants get licensed.
According to The New York Times, the CRC gave condition approval to 102 companies for cultivation and manufacturing, but they need local approval and real estate before commencing operations. Another 320 organizations have applied for licenses for the New Jersey adult use cannabis market, but could wait up to a year or more before they begin operating.
Regulators in New Jersey say the seven companies commencing sales will need to follow social equity rules, including providing technical knowledge to social equity applicants. “We remain committed to social equity,” says CRC Chair Dianna Houenou. “We promised to build this market on the pillars of social equity and safety. Ultimately, we hope to see businesses and a workforce that reflect the diversity of the state, and local communities that are positively impacted by this new and growing industry.”
Jeff Brown, executive director of the CRC, says they anticipate long lines and crowds. “We expect 13 locations for the entire state will make for extremely busy stores,” said Jeff Brown, executive director of the New Jersey Cannabis Regulatory Commission. “The dispensaries have assured us that they are ready to meet the demand without disrupting patient access, and with minimal impact on the surrounding communities, but patience will be key to a good opening day.”
Adults in New Jersey can purchase up to one ounce of flower, up to five grams of concentrates or up to ten 100mg packages of edibles. Click here for a list of the locations opening their doors for business.
Back in November of 2020, voters in New Jersey overwhelmingly approved Question 1, the ballot measure to legalize cannabis. On February 22, 2021, New Jersey Governor Phil Murphy signed three bills into law, laying out the framework for how the state would move forward with legalized adult use cannabis.
New Jersey Governor Phil Murphy
The legislation became law once the Governor signed the bills, tasking a five-member Cannabis Regulatory Commission (CRC) with developing regulations for the market by June of 2021. The CRC set a deadline of February 22, 2022, six months after the regulations have been established, for when they wanted to officially launch the adult use cannabis program and commence sales.
It looks as though the Garden State is not quite ready to meet that deadline. According to NJ.com, the setback is due to a couple issues, namely municipalities dragging their feet and worries about a weak supply chain. Before a CRC meeting kicks off today, Jeff Brown, executive director of the CRC, told NJ Cannabis Insider that they still have work to do before they can give the green light. “Feb. 22 is not a concrete date to open,” says Brown. “There is no firm commitment on timing of when recreational sales will begin.”
Among the issues that are causing these delays is local approval. Municipalities need to first approve and adopt the cannabis rules before allowing businesses to open. “One of the biggest deficiencies we’re seeing is a lack of municipal approval,” Brown told NJ Cannabis Insider. “That’s an issue, and supply continues to be issue. It’s the priority of the CRC to get recreational sales started as soon as we can, but we have to do it in a way that’s compliant with the law. We need the industry to get there.”
As Brown noted, the CRC also thinks they need to make sure there is adequate supply before the state opens the market. However, businesses appear to be ready and chomping at the bit to get started with the adult use program. Patrik Jonsson, regional president of the northeast for Curaleaf says they have been ready. “Give us 48 hours, and we can pretty much do whatever the state wants, and we’ll open,” says Jonsson. “We have product, the people and the facilities. There are a few minor things we need clarified around the product. But we are very much ready for turning it on as soon as the state lets us.” Curaleaf is the biggest cannabis company in New Jersey and has two cultivation facilities and three retail locations across the state.
While the February 22 deadline is still in place, questions still linger about when exactly the state will be ready to launch its adult use cannabis program and commence sales.
By Abraham Finberg, Simon Menkes, Rachel Wright 1 Comment
When Montana became a territory in 1864, its legislators chose as its motto the Spanish words “Oro Y Plata” which means “Gold and Silver.” Gold and silver discoveries brought people to the new territory in droves, and everyone expected to get rich.
Near the North entrance of Yellowstone in Park County, Montana
Nowadays, the newest gold rush to open up in Montana is the state’s adult use cannabis market, which began operation this past January 1, 2022. The Cannabis Control Division (CCD) of the Montana Department of Revenue expects total adult sales in 2022 to top $130M. With a population just over a million residents, that works out to about $120 per person, which would be more than California’s benchmark $111 per person. Montana’s cannabis industry is expecting exciting and enriching times ahead!
We advise our Montana clients to be cautious, however, and to keep an eye on the “cannabis tax ball.” Why? You can be killing it in sales but still get dragged under by a heavy tax burden, especially in adult use sales, or worse, not keep up with your tax obligations and run afoul of the Department of Revenue or Big Brother IRS.
Montana’s initial foray into cannabis began in 2004, when the state passed Initiative I-148, allowing patient cultivation and use of marijuana but left the legality of commercial sales ambiguous.1 The government reactionaries jumped in and used legislative action to tighten and limit that law.2 Then, in 2016, Montana voters legalized the medicinal sale of cannabis with I-182,3 and in 2021, adult use was legalized with I-190, allowing existing dispensaries to sell recreationally beginning January 1, 2022 in counties which voted yes on the initiative.4,5
From a federal taxation standpoint, of course, Montana’s cannabis operators are only allowed to deduct Cost of Goods Sold under Internal Revenue Code (IRC) 280E, and in general, the state of Montana’s tax code conforms with the Internal Revenue Code.6,7 However, the Montana Department of Revenue departed from the IRC in 2017 and allowed normal business deductions for licensed (legal) cannabis corporations.8 The Montana Department of Revenue also interpreted the law for pass-through entities and individuals with licensed cannabis operations to allow deductions of ordinary and necessary business expenses.9 This is what makes it possible to do business in cannabis in the state of Montana.
But what about Montana’s cannabis taxes? How big are they, and how do they compare with other states?
Montana charges a regular sales tax as well as either a 4% cannabis tax on medical sales or a 20% cannabis tax on adult use (recreational) sales.10 Some good news: wholesale sales are exempt from this tax.11 More good news: Both the retail tax and the regular sales tax are exempt from the taxable price i.e., the state does not charge “tax on tax.”12,13 However, be warned: be careful of offering discounts as it is assessed on the regular retail price rather than the actual discounted price.
Pray, a town near Livingston, Montana
Montana assesses the Cannabis Tax on the retail price and excludes discounts or even product given away.14 As of this writing, Park, Yellowstone and Missoula (medical only for Missoula) Counties have an additional 3% Local Option Tax based on the same state retail price definition with an exclusion for discounts or gifted products.15
So, with all these different taxes, is Montana actually a low tax state for cannabis? To begin with, the state is at least “in the ball game” by allowing the deduction of regular operating expenses on state income taxes. In addition, Montana has a relatively low tax which only applies at the retail level for medical sales and a relatively high tax on adult use. Adult use tends to be the vast majority of sales for dispensaries, so this does not bode well for retail cannabis operators.16
But before you throw in the towel and start looking to move to California (or Oklahoma, another cannabis-friendly state), a look at the whole Montana cannabis picture provides a rosier outlook. Montana income tax is relatively low, and since cultivators and manufacturers do not have to pay any cannabis excise taxes (especially as compared to California, with its cultivation tax and a functional 27% excise tax charged to retailers – a tax theoretically assessed to the consumer but in reality charged by a distributor to a retailer) or cultivation taxes on weight that enters the commercial market. All-in-all, Montana is actually a low-tax state for cannabis operators!
Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.
Author’s experience with clients from California Oregon, Washington State and Nevada; states with both adult use and medical sales as of this writing. Montana does not have a commercial adult use program as of this writing.
Investors looking to gain exposure to the cannabis space have several options given the increase in the number of cannabis producers in the past decade, the recent wave of legalization in the U.S. and a rapidly expanding addressable market. However, one undervalued cannabis stock with enticing growth prospects that remains a top buy today is Columbia Care (OTC: CCHWF). Let’s see why we are bullish on the large-cap multi-state operator right now.
What is Columbia Care?
Columbia Care is one of the largest cannabis producers in the world with 31 manufacturing and cultivation facilities. It has 99 dispensary locations in the U.S. with more than two million square feet of cultivation capacity and over 300 acres of outdoor cultivation capacity.
The company’s rapid expansion over the last few years has allowed Columbia Care to increase sales from $77.45 million in 2019 to $179 million in 2020. Wall Street expects sales to more than triple to $626 million this year and grow by another 55% to $970 million in 2022. In case Columbia Care manages to meet analyst estimates, the company would have grown its revenue at an annual rate of 132% between 2019 and 2022.
While several of Columbia Care’s peers, especially in Canada, are grappling with negative margins, this cannabis company is racing towards profitability. It has already narrowed its operating losses from $81 million in 2019 to $31.5 million in the last 12-months. Analysts expect its bottom-line to improve from a loss per share of $0.48 in 2020 to earnings of $0.27 per share in 2022.
Columbia Care has a strong presence in markets such as Virginia, Ohio and Pennsylvania that provide limited licenses to cannabis producers. This allows Columbia Care to improve customer engagement and ensure repeat purchases of its products.
In the second quarter of 2021, it increased revenue by 232% year over year to $110 million. Its adjusted EBITDA also rose to $16 million, compared to a loss of $4.7 million in the prior-year period.
Columbia Care acquired Medicine Man for $42 million.
Now, Columbia Care has shifted focus to larger cannabis markets including New York, Arizona, Columbia and New Jersey. In Q2, its sales in Arizona and Illinois rose by 23% and 15% respectively, on a sequential basis.
The cannabis heavyweight recently completed the acquisition of Medicine Man, a Colorado-based cannabis producer, for $42 million. Columbia Care explained the acquisition will be accretive to its bottom-line and is valued at 4.5x projected EBITDA for 2021.
Columbia Care has improved its gross margins to 42% in Q2, from 36% in the prior-year period. Its operating costs have also fallen from $61 million to $51 million in the last year, making it one of the best cannabis stocks on the market today.
Bottom Line: Why Should You Add Columbia Care to Your Cannabis Portfolio?
Columbia Care expects its total addressable market in licensed U.S. states to reach approximately $31 billion by 2026. In the event that cannabis is legalized at the federal level, this figure will surge significantly higher. Additionally, Columbia Care is well poised to gain traction in the future and leverage existing expertise, as it already has wholesale distribution agreements in 13 operational markets.
Its capital expenditure investments continue to generate returns as the company continues to benefit from economies of scale and higher margins.
For these reasons, we believe investors should consider adding Columbia Care to their cannabis stock portfolios while it’s still trading at a discount.
Flower continues to be the dominant product category in US cannabis sales. In this “Flower-Side Chats” series of articles, Aaron Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses navigate a rapidly changing landscape of regulatory, supply chain and consumer demand.
Audacious (OCTQB: AUSA) is an Aurora (TSX: ACB) spinoff formerly known as Australis Capital, Inc. They have focused on an asset-light expansion strategy whereby they leverage their expertise in designing cannabis facilities in exchange for favorable cost plus arrangements for a percentage of the facilities’ production.
We interviewed Marc Lakmaaker, SVP of Capital Markets at Audacious. Prior to joining Audacious, Marc worked with Terry Booth at Aurora. His background is in investor relations.
Aaron Green: Marc, how did you get involved in the cannabis industry?
Marc Lakmaaker: I was working for an investor relations agency. and one of my colleagues left and she had a cannabis client that I took over, which was Bedrocan, Canada. I started working with them. They were then acquired by Tweed, which became Canopy. The guy I was working with at the time at Bedrocan was Cam Battley, who then went to Aurora. As soon as he joined Aurora, he said, “I need some help.” So, I came in house and worked there until July 2019. When I left, I set up my own agency, but by that time, I’d been working with Terry Booth for a few years. Then, this past December, Terry got in touch with me and said he needed my help. It was after the concerned shareholders had won the shareholder battle around Australis and the rest is history. So, I’ve now been working with Audacious, which was Australis, since December of last year, roughly.
Green: Just quickly on Australis: So, Audacious is basically a spin off of Aurora, correct?
Lakmaaker: Correct. So, at the time, Aurora had a couple of US assets on its balance sheet, a piece of land an annuity through a company Michigan. We were listed on the TSX. We were going to list or had just listed on the NYSE and were arranging for loan facility with a syndicate of banks. They said, “even though these assets are dormant, you can’t have any US assets on your balance sheet.” So, we spun Australis off – a little bit how Canopy had spun off Canopy Rivers. But it was really the idea that Australis is going to become the foothold for Aurora in the US cannabis market because Aurora has back-in rights.
The management team was put in place and started making some investments in the cannabis space, but kind of drifted away, sort of more into FinTech. First, it was FinTech related to cannabis and then FinTech, full stop. That’s when the shareholders were like, “we don’t agree with this.” Then the proxy battle started in which the dissident shareholders, or the concerned shareholders, won overwhelmingly. The Board left. The management team left. A new management team was put in place, a new Board in place, and it was kind of a restart.
So, we feel like we’re a bit of a startup. But a very rapidly moving startup. We’ve done an incredible amount of work in just the last seven to ten months. There was a lot of housekeeping to do. A lot of stuff related to restructuring the company, dealing with the departing management teams, dealing with bringing new management, etc. There were some deals that had to be unwound… Housekeeping if you will.
Green: Australis went down the FinTech route. What are the plans for Audacious now?
Lakmaaker: We’ve already started. We pivoted right away. In early January, we announced two acquisitions. One of ALPS, and the other one of Green Therapeutics. ALPS is really what is enabling us to execute on our strategy. It’s a very different strategy. It’s an asset light model, because we figured out that in order to grow quickly in this market without spending huge amounts of shareholder money, you need to be able to get into markets in a capital-light fashion. ALPS is the world’s preeminent greenhouse design company. Not just greenhouses, but also indoor facilities. They’ve got a 35-year track record in fruits and vegetables. They’ve got an eight-year-plus track record in cannabis – and built some of the best facilities in the world. They’ve got a lot of IP.
Marc Lakmaaker, SVP of Capital Markets at Audacious (formerly Australis)
The proof point of that is our relationship with Belle Fleur. It’s a social equity license holder in Massachusetts. We helped them build their facility. We’re not contractors, but we do the design and engineering. We help them with partner selection. We do the construction management. We bring in a general contractor. Then we do the commissioning, and optionally, post-commissioning services, making sure that the facilities are dialed in. In return for all that IP, because what people know that what they get at the end of it is high quality, consistent cannabis and very low operating costs, we ask our clients to dedicate a certain percentage of their canopies to grow with our cultivars. Those we will buy back on a cost plus arrangement and we use that to launch our brands into whatever jurisdiction.
So, in Massachusetts, we’re working with Belle Fleur. We’re getting 10% of their canopy. We’re buying it back at cost plus 5%. So, we don’t have to sink money into building the facility. We’re not carrying the cost of capital there. We’re also not paying wholesale prices. And these relationships are locked in for a long time. I can’t remember if it was five or 10 years. So, it’s a very, it’s a different strategy, but it’s not contrarian – it’s very de-risked, that allows us to launch into new countries.
Then for Green Therapeutics, we’ve got a number of award-winning brands like Provisions and Tsunami. We’re kind of phasing out GT Flowers and there will be something else in its place. We also acquired Loose, which caters to a younger demographic, with a high potency shot beverage line that is now for sale in California.
We also have a partnership with PBR, the Professional Bull Riders Association. There’s some statistics around that that just absolutely blew me away – 83 million permanent fans! That’s 25% of the US population. I think the average income is $70,000. That’s well above the national average and the general split is fairly even too; it’s 53/47, male/female. Proper American sport! They have hundreds of hours of exposure on CBS. They’ve got 2 billion imprints on social media. So, with PBR, we launched Wreck Relief, which has several recognized and approved pain products in the lineup.
Green: What markets are you in right now?
Lakmaaker: Right now we’re in Nevada with cannabis products. This is our home market where our head offices are in Las Vegas. We’re in California. We just bought a dispensary in San Jose that comes with a partnership with Eaze. On top of that, we’re operationalizing in Missouri and Oklahoma, and officially building in Massachusetts.
Then through ALPS because they does both cannabis and non-cannabis, we’re in a number of states. We’re looking to get more of the supply deals. We’re also doing a lot of vegetable facilities throughout the entire world. We’re in Europe, we’re in Asia, in the Middle and in North America, we build these facilities from the desert up to the Arctic.
There’s a big movement right now to produce food that is safe and has a smaller carbon footprint. So, our facilities are kind of inherently more sustainable. They use up to 95% less water, less labor, less energy, they are less prone to disease, crop failure, everything. And because you are local producing for local communities, you reduce the transport carbon footprint.
Green: What in your personal life or in cannabis are you most interested in learning about?
Lakmaaker: I really like the sciences. I’m a chemical engineer by training. I think what is going to take an incredible flight in the years to come is the application of medical scientific research that’s being done right now. To me, that’s fascinating because the cannabis plant is something special. It’s got such a broad utility that we know, anecdotally. I think we’re moving towards a world where we’re going to see a lot of breakthroughs on the medical side.
I’m very excited about the other end too – cultivation. I think tissue culture is going to play an incredible and important role.
In this “Flower-Side Chats” series of articles, Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses integrate innovative practices in order to navigate a rapidly changing landscape of regulations, supply chain and consumer demand.
The California legal flower market is the largest in North America. According to recent BDSA data, monthly cannabis sales in January 2021 were $243.5 million. Flower sales represented 35.6% of overall sales, or about $87 million, representing a $1 billion yearly run rate for 2021 flower sales in California.
Union Electric was founded in California in 2020 as one of OpenNest Labs’ first incubator brands. Its model is uniquely asset-light, and focused on filling an area of opportunity with a consumer-first approach, aimed at an underserved market: the working-class customer. The name Union Electric was inspired by the punching-in and punching-out aspect of working a union job — more specifically, the average cannabis user’s job. The name also represents the brand’s union of stakeholders: Customers, cultivators and retailers alike, working together to provide affordable, quality products.
Max Goldstein is the CEO of Union Electric and Founding Partner at OpenNest Labs. Max incubated Union Electric at OpenNest Labs, a cannabis venture studio he helped co-found, and launched the brand in 2020 the day after COVID lockdowns began in California. Prior to Union Electric, Max worked at Google managing a 90 person, 12-market partnerships team.
Aaron Green: How did you get into the cannabis industry?
Max Goldstein: I’ve had a fun entrepreneurial and professional journey. I started my career in my 20s with Google working in the marketing department sitting at the intersection of new product development and customers. During that time, I really learned the ins and outs of bringing products to market and building brands. I had to understand how to value and champion the customer, or the user. At Google, I was sitting at the intersection of people building products that are affecting billions of people’s lives and users and customers that potentially have really cool insights and feedback. It was an incredible learning experience. I was able to focus on what I’m good at, which is that early stage of businesses and most importantly, listening to the consumer and developing products and services that they ultimately really want.
Max Goldstein, CEO of Union Electric and Founding Partner at OpenNest Labs
Near the end of 2018, I co-founded OpenNest Labs, a cannabis venture studio. We came together as a four-person partnership to form OpenNest, as an assortment of skill sets, with all of us contributing an area of focus that we could really combine our experiences to take focused and concerted efforts at building brands that resonate with different consumers across various form factors in cannabis and health. My partner Tyler Wakstein has been in the cannabis industry for several years and helped launch the brand, hmbldt (which is now Dosist) and a number of other projects in the cannabis space.
Green: Was Union Electric an incubation project out of OpenNest?
Goldstein: Yes. Union Electric is the first project we incubated out of OpenNest. We launched the day after the pandemic. So, it was interesting timing.
At Union Electric we’re focused on the core, everyday consumer of cannabis. I think a lot of folks, particularly the new money that have come into the industry, have often focused on new form factors or things that they think the new cannabis consumer is going to enjoy or appreciate. Because quite frankly, that’s their level of familiarity with the industry. For us at Union Electric, we want to hit the end of the market with exactly what they want and that is high-potency, affordable flower with a brand that really stands for something and has values.
Union Electric is positioned as an advocate for the legal cannabis industry as a whole. We look at the stakeholders and the work that needs to be done across the board. The idea of just being one member of the value chain and not trying to ultimately uplift and elevate everyone in that value chain, it’s just not going to work in cannabis. We’ve seen a lot of people trying to go at this alone and I think the pandemic, if anything, showed that you’re only as good as your partners. We truly believe that the investment in our partners, in the local communities and everyone that’s really touching this industry is critical to ultimately building success for one company because a rising tide raises all ships.
Green: How did you settle on the name Union Electric?
Goldstein: One of the things that we wanted to do was focus the brand on who we see as the core consumer, which is somebody that is working hard, like a shift worker punching in and punching out and putting in the long hours on a daily basis and using cannabis as a critical part of their personal wellness and relief. There are elements of that which we certainly want to tap into. The “Union” represents our stakeholder approach, which is, all of us are in this together and our tagline “roll together” represents that. The “Electric” part is what we’ve seen cannabis sort of representing culturally, and for people more broadly. This is an exciting product that’s going to change a lot of people’s lives and, and I just don’t think there’s anything else in our lifetimes that we’re necessarily going to be able to work on from a consumer-packaged goods perspective, that’s going to change as many people’s lives. It’s electric. That’s how we came up with the name.
The coloring and a lot of the brand elements that we focused on were about providing transparency and simplicity to the marketplace: big font and bold colors. There are little nuances with our packaging, like providing a window just so people can see the flower on our bags. We look at the details and made sure that we’re ultimately out of the way of the consumer and what they want, but providing that vehicle that they’re really comfortable with.
Green: You have an asset-light business model, focusing on brand and partnerships. How did you come to that model?
Goldstein: I think everyone who’s operating and working in cannabis right now is looking at strategy and what the model is that’s going to work for them. We’re ultimately going to find out what works, which is why this industry is so fun and exciting. Our specific approach is really under the assumption that vertical integration in a market that’s maturing as quickly as California is going to be hard, if not impossible – it’s just too competitive. There are too many things going on in order to be successful in California. You have to be really good at cultivation, really good at manufacturing, really good at distribution, and then ultimately, you have to be able to tell a story of that process to ensure sell-through and that you really resonate with the consumer.
I think the big, missed opportunities that we’re seeing are that a lot of great cultivators are not marketers or storytellers. They really do need people that are there to help amplify and provide transparency to their stories. There are amazing stories out there of sacrifice and what cultivators have done to create a new strain. We all enjoy Gelato. What’s the process to make that happen or to create any other new strain? It’s fascinating. It’s too hard for a lot of these cultivators to go out and tell that story themselves. So, we act as a sales and marketing layer on top of the supply chain to provide visibility, transparency and trust with the consumer so that they know who grew their product, how it was grown, when it was cultivated and that they can build a real strong relationship with that cultivator as well.
It’s also hard to be a brand that’s using 19 different suppliers, selling the same genetics and expecting the same results. As an example, we’ve gotten Fatso from one of our partners, Natura. We’ve also gotten Fatso from Kind Op Corp (fka POSIBL). We renamed one of the strains – by adding a number on the end – just so that the consumer knew that we’re not saying that this is the same product, because it’s not. It’s from a different farmer and there’s going to be differences. While it does create a little bit more complexity for the consumer, we ultimately believe that every consumer has a right and will expect to know that type of information in the future.
Green: You launched Union Electric one day after the COVID lockdowns began in California. How did you navigate that landscape?
OpenNest Labs Logo
Goldstein: A lot of praying to the cannabis gods! It was really an incredibly challenging and difficult time. We were all concerned about the impacts of the virus. There were moments where we didn’t even know if dispensaries would be open, particularly in states that just legalized. You went from something being completely illegal to an essential business in 12 months. As a team, we were just trying to hold on to our hats and focus on product and partnerships.
Fortunately, with a brand like ours and the price point that we’re operating at, we just needed to consistently be on the shelves and available, and to be present with the bud tenders. So, we focused on that and shoring up our supply chain and just trying to wait it out. COVID forced a lot of cannabis companies to make a lot of decisions quickly and I think in some ways, because we have not been in the market for 24 months under one paradigm, we were pretty quick to be able to adjust and keep the team super lean to fit the emerging and rapidly changing environment. We learned a lot. We focused on partnerships and we leaned into the model that we set out to build which is being asset-light and focusing on the sell-through.
Green: I understand you have a 2% giveback program. Tell me about that.
Goldstein: The 2% giveback program was something that we wanted to put on the bag from day one. It’s on every bag that we made and put out into the market. We’ve seen a lot of cannabis companies come in and invest tens and hundreds of millions of dollars in infrastructure. Then, month 24 they realize “oh, crap, I gotta figure out what I’m going to do to get back and actually tap into the issues that are most important to cannabis consumers.” These are issues like social equity, equitable development of the industry, and ensuring that cannabis companies and its owners are active, responsible members of society.
What we’re going to focus on with our giveback program is working with our supply chain partners. We highlight the local communities, because when you look at the landscape in California, two thirds of its municipalities still don’t allow cannabis operations. We’re in a heart and minds battle still, even here in California, just proving that the operators here are not criminals and that they’re not going to bring negativity to local communities.
As we scale in California and scale to other states, the giveback program for us is a platform and a medium to work with our supply chain partners to make sure that we’re giving back and investing every step of the way. As founders and operators, it’s how we show that we are being mindful of the importance of equitable development of the industry. Ultimately, prosperity is going to come if everyone is getting a piece of the pie.
Green: What are you most interested in learning about?
Goldstein: I’m a student of history (I was a history major) and I was very fortunate to be part of a big evolution of technology development starting in 2011 working at Google and other tech companies. In some ways, this is the second generational industry that I’ve been a part of, and I have a lot of regrets about how the first one developed – not that I necessarily was the chief decision maker. The idea that large tech companies would always act responsibly (i.e. “Don’t be evil”) didn’t really pan out. I think it was an ignorant thought process as a person in my young 20s.
What I’m most interested in learning is: Can the cannabis industry develop consciously? Can you keep the greed and the things that bring industries down at bay? How can I, as an operator, be the best facilitator of that future? I’m always thinking how I can continue to bring in the people around us and around me as the CEO of Union Electric to ensure that we’re always focused on that.
Green: Great, that concludes the interview. Thank you, Max.
Goldstein: Thanks Aaron.
From Union Electric: Union Electric Cannabis will be offering their first Regulation CF crowdfund raise in an effort to give everyday consumers a stake in one of California’s fast growing cannabis brands. Due to the ever-evolving legal status of cannabis in the US, there have been very few opportunities for individuals to invest early on in American cannabis brands. This decision to give everyday cannabis smokers access to investing in their favorite cannabis brand (for as little as $100) is a natural manifestation of Union Electric’s mission: Collective power and championing accessibility for the plant. You can learn more about their raise by visiting https://republic.co/union-electric
The edible cannabis market in Canada is still green. Delayed by a year from the legalization of dried flower, the edibles and extracts market poses significant opportunities for manufacturers. Edibles and extracts typically have higher profit margins than dried flower (“value-added” products) and consumer demand appears to be high and rising. So, what is causing trouble for cannabis companies trying to break into edibles and extracts? Below are four observations on the market potential of edibles in Canada.
Canada’s Edibles Market: The Numbers
In 2020, Canada – the largest national market in the world for cannabis products – grew more than 60%, largely as a result of the introduction of new products introduced in late 2019, often called “Cannabis 2.0,” which allowed the sale of derivative products like edibles. Deloitte estimates that the Canadian market for edibles and alternative cannabis products is worth $2.7 billion, with about half of that amount taken up by edibles and the rest distributed amongst cannabis-infused beverages, topicals, concentrates, tinctures and capsules. More recently, BDSA forecasts the size of the Canadian edibles market to triple in size by 2025 to about 8% of the total cannabis dollar sales.
Source: BDSA
In December 2020, the Government of Canada reported that edibles made up 20% of total cannabis sales; Statistics Canada data shows that 41.4% of Canadians who reported using cannabis in 2020 consumed edibles. While sales have gone up and down over the course of the COVID-19 pandemic, there are clear indications that there is a substantial demand for edibles and extract products, which can be consumed more discreetly, with greater dosage precision and with fewer adverse effects (as opposed to smoking).
While sales of regulated edibles products continue to grow, edibles, extracts and topicals sales in Canada are facing a similar problem as dried flower sales: inventory growth is outpacing sales. Unsold stock sitting in inventory is growing at a dramatic pace, showing a clear lag in demand for these products on the legal market. How do we understand this contradiction?
1) Complex Regulatory Standards are a Major Barrier
Cannabis edibles compound the already existing problems around the conceptualization of cannabis products regulation. How should it work? Edibles can be considered in any of the following categories:
Cannabis as a pharmaceutical with medical application. Requires strict dosage and packaging requirements;
CBD as a nutraceutical with health benefits claimed. Requires specific nutraceutical regulations be followed;
Food product to be consumed. Must comply with food safety regulations around biological, chemical, physical hazards through a risk-based preventive control program. A full supply chain and ready-to-recall based system of regulatory standards need to be followed.
Incorporating elements from each of these three regulatory regimes into a single regulatory standards body is a confusing logistical and compliance challenge for both the regulators, and the producers and retailers of the product.
In mid-2019, the Government of Canada released the Good Production Practices Guide for Cannabis. This merged cannabis-specific regulations with food safety-specific regulations. Rigorous food safety requirements were combined with equally rigorous cannabis production and processing requirements, resulting in extremely laborious, detailed and specific regulations. These span everything from building design and maintenance, to pest control, to employee sanitation, to traceability – at all levels of the process. Navigating these regulations is a challenge, especially for many smaller producers who lack the necessary resources, like automation technology, to devote to understanding and tracking compliance.
2) Low Dosage Regulations Give an Edge to the Illicit Market
When edibles were legalized, THC dosage was capped at 10mg per package. For more experienced consumers, especially those who are dealing with chronic pain and other medical needs, this limit is far too low – and the unregulated market is more than able to fill this gap. One analyst from Brightfield pointed out that the dosage restriction, in combination with other regulations, will make it harder for the edibles market to grow in Canada.
It also makes the unregulated market almost impossible to beat. Barely more than half of cannabis consumers in Canada buy exclusively from government-licensed retailers, while 20% say that they will only buy unregulated products. According to a Deloitte report, 32% of legacy cannabis consumers said that unregulated products were better quality, and 21% reported that they preferred unlicensed products because there were more options available. Almost half of respondents also reported that quality was the biggest factor that would cause them to switch to regulated sources, and 28% said that higher THC content would prompt them to switch.
3) There is a Big Price Disparity between Legal and Illicit Edibles
As a result of dosage requirements and other factors, price per gram of regulated edible product is much higher than that of flower, unregulated edibles and edibles available through regulated medical distributors.
If you take the BC Cannabis Store’s price for Peach Mango Chews as an example: a 2pc package is $5.99. Since the dosage limits at 10mg per package, that’s the equivalent of $0.60/mg or $600/gram. A quick Google search reveals that an easily available edible from a medical cannabis distributor contains 300mg of THC and sells for $19.00, a price of $63.00/gram.
That means that not only is 10mg too low a dose for many users to achieve the result they were looking for, but the dosage restriction also makes the products less attractive from both a nutrition and cost standpoint. Deloitte reportsthat higher prices is the reason that 76% of long-time cannabis consumers continued to purchase from unregulated sources. The regulated industry as a whole is missing its legal market opportunity, where consumers prefer a lower price product with a greater range of dosage availability.
4) The Range of Products Available is Too Limited for Consumers
For most of 2020, chocolate edibles were the dominant product in this category in the Canadian market, garnering 65% of all edibles sales. But is this reflective of consumer wants? Despite a demand for other kinds of edibles like the ever-popular gummies, there are still only a few edible brands that offer the range of products consumers are asking for. According to research from Headset, there are 12 manufacturers in Canada making edibles but only two of them produce gummies. In comparison, 187 brands make gummies in the United States.
While some of this delay is likely due to the long licensing process in Canada and the newness of the market, there are other factors that make it challenging to bring a variety of products to market. The province of Quebec, Canada’s second-largest province, has banned the sale of edibles that resemble candies, confections, or desserts that could be attractive to children – giving yet another edge to unregulated sellers who can also capitalize on illegal marketing that copies from existing candy brands like Maynard’s.
When companies do want to introduce new products or advertise improvements to existing product lines, they are restricted by stringent requirements for packaging and marketing, making it harder to raise brand awareness for their products in both the legal and unregulated markets. Industry players are also complaining about government restrictions on consumers taste-testing products, which further compounds challenges of getting the right products to market.
In the meantime, illicit producers have also shown themselves to be savvy in their strategies to capture consumers. It is not uncommon to find illicit products packaged in extremely convincing counterfeit packaging complete with fake excise stamps. New consumers may assume the product they are purchasing is legal. Availability of delivery options for higher dosage, lower price illicit products is also widespread. All of this adds up to significant competition, even if it were easier to meet regulatory requirements.
Conclusion: Significant Room for Growth Remains Limited by Government Regulations
These four challenges are significant, but there are a number of opportunities that present themselves alongside them. A year and a half into the legalization of edibles, cannabis companies are getting a better picture of what Canadian consumers want and low dosages are proving to be desirable for Canadian consumers in some areas.
Some of the many infused products on the market today
In particular, sales of cannabinoid-infused beverages far outpaced other edibles categories last year, likely tied to the availability of these products in stores over the summer of 2020. BDSA’s research has shown that, in contrast with American consumers, the lower THC dosage for cannabis beverages is an advantage for Canadian consumers. Major alcohol brands like Molson Coors and Constellation Brands are investing heavily in this growing product area – though there the dosage limits also apply to how many products a consumer can buy at a time.
At the same time, the large quantity of unsold cannabis flower sitting in storage also poses an opportunity. While its quality as a smokeable product may have degraded, this biomass can be repurposed into extracts and edibles. Health Canada has also shown some responsiveness to industry needs when it shifted its stance to allow for Modified Atmosphere Packaging (MAP), which will help improve shelf life of products.
While strict regulatory obstacles remain, challenges will continue to outweigh opportunities and the illicit market will remain a strong player in the edibles market. As regulations become clearer and producers become more accustomed to navigating the legal space, barriers to entry into the regulated cannabis market and specifically the extracts and edibles market, will decrease. Meanwhile, those getting into the edibles market will do well to be wary of the challenges ahead.
On Tuesday, September 22, the Vermont Senate voted (23-6) to pass a bill that would legalize, tax and regulate adult use cannabis sales. The bill, S. 54, was approved by 92-56 in the Vermont House of Representatives earlier in the month.
Vermont Gov. Phil Scott
Governor Phil Scott did not sign the bill, but let it become law anyway without his signature late Wednesday night on October 7. He did however sign separate legislation that will expunge previous cannabis-related convictions.
With this piece of legislation becoming law, Vermont is now the 11th state to regulate and tax cannabis sales. The Marijuana Policy Project has a helpful summary of the legislation you can find here.
Back in 2018, Vermont actually voted to legalize adult use possession and cultivation of cannabis, just not to tax and regulate it. Governor Scott signed that bill into law a couple years ago.
Previously, Vermont and Washington D.C. had legislation that legalized cannabis, just not the sale of it. Technically speaking, it is still illegal to sell cannabis in D.C.
On Tuesday, September 22, the Vermont Senate voted (23-6) to pass a bill that would legalize, tax and regulate adult use cannabis sales. The bill, S. 54, was approved by 92-56 in the Vermont House of Representatives last week. The bill has now made it to Governor Phil Scott’s desk, where although he has not said whether or not he’ll sign it, supporters think it is likely he will.
Vermont Gov. Phil Scott
If the Governor signs this piece of legislation into law, it’ll make Vermont the 11th state to regulate and tax cannabis sales. The Marijuana Policy Project (MPP) has a helpful summary of the legislation you can find here.
Back in 2018, Vermont actually voted to legalize adult use possession and cultivation of cannabis, just not to tax and regulate it. Governor Scott signed that bill into law, which is why some supporters are hopeful he will sign S. 54 into law as well.
Currently, only Vermont and Washington D.C. have legislation that legalized cannabis, just not the sale of it. Technically speaking, it is still illegal to sell cannabis in D.C. or Vermont.
The Vermont Senate is also expected to pass a bill that would automatically expunge criminal records for past low-level cannabis possession charges. Check out the MPP summary for that bill here.
With the death of Facebook arbitrage, direct-to-consumer (DTC) marketers are forced to look for new ways to drive sales more quickly than ever before. Enter TV. Once seen primarily as a branding medium, DTC brands are now using television to drive online and in-store sales. The continued growth and sophistication of attribution modeling in television has allowed marketers and their agency partners to more directly measure television’s impact on KPIs.
But what if you are a brand that can’t be on Facebook or Google due to ad restrictions? Or your potential customer base is spread across multiple demographics? TV is a great, if not the only, way to reach CBD customers on a mass scale. CBD brands face the same challenges that all DTC brands face with the added bonus of additional restrictions due to product perception, and can also vary drastically state-by-state around the country. These restrictions however, also create a huge opportunity for the savvy marketer to dive in and own share of voice in the CBD market. With Facebook off the table, CBD brands are spared the expense of learning that Facebook arbitrage no longer exists. The opportunity to scale an emerging CBD brand on TV has never been more accessible.
The acceptance of CBD brands on television still faces restrictions as each network group has their own standards and practices. However, the number of networks accepting CBD products grows by the day. As education and understanding around the efficacy of CBD increase, so are the networks’ willingness to accept advertising. Remember, there once was a time when liquor brands couldn’t advertise on TV!
Looking at other media platforms for reaching potential CBD customers through advertising, terrestrial radio also provides very strict guidelines, if allowed at all; the same can be said for digital options and satellite radio. Whereas podcasts are a popular option due to regulations mostly being decided upon by the podcast’s producers, it’s hard to compare the reach to consumers of podcasts vs. television.
The nuances of navigating the media landscape for CBD brands remains complex. The opportunity to capture market share through TV is wide open. The CBD brand who recognizes this and acts most quickly has the chance to become the undisputed brand leader in a market that projects to exceed $45 billion by the year 2024.
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