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 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.
Many experts agree that of all pests threatening the cannabis industry, rodents are the most dangerous. Not only do they chew on cannabis plants and ruin crops at an incredible rate, they also contaminate product with their urine and feces. Rodents post a serious threat to cannabis facilities at every level of the supply chain.
Rodents’ incisor teeth never stop growing; left untouched, a rat’s incisor teeth would grow 4 inches in a year*. For this reason, they must constantly gnaw on things around them to wear them down. Unfortunately for cannabis growers, the woody stalks of cannabis plants present a perfect target. The destructive power of rodents cannot be overstated – creatures that can gnaw through plastic, wood, aluminum, brick, cement and even lead will make very short work of cannabis crops.
The notion that growing cannabis indoors will protect it from rodents is a misconception. Their destructive gnawing power makes rodents highly adept at getting inside buildings. Rodents can enter a building through an opening as small as 1/4 inch, and they will use any means necessary to reach the food and shelter that a heated building provides. In addition to squeezing through minuscule openings, rats and mice can climb wires and rough surfaces, jump considerable distances and tread water for several days.
And once they are inside, it is already too late. Pest control experts worldwide agree that exclusion – the technical term for using physical barriers to prevent rodents from entering a building vs. trying to remove them once inside – is the safest, most effective approach to rodent control. This is because once rodents have gained entry, they will contaminate – and multiply – at an alarming rate.
In one year, two mice could potentially multiply into more than 5,000 mice and two rats could become 1,250. In that same year, a single rat can shed more than half a million body hairs, and a mouse can produce up to 18,000 fecal droppings. Rodents eat or contaminate at least twenty percent of the world’s food supply each year (according to the Indiana Department of Health) and carry diseases including rat bite fever, hantavirus, leptospirosis, salmonellosis, murine typhus, and even the bubonic plague. According to experts from Total Food Service, “Mice are known to frequently carry salmonella bacteria in their digestive tract, so salmonella can be easily spread through contact with rodent waste. This is true with marijuana [sic]edibles just as it is with other food products.”
Keeping rodents out of cannabis facilities is fundamental to protecting crops and products. The most common rodent entryways include exterior doors, open garage and loading dock doors, windows, air vents, fireplaces and at points where electrical, water, gas, sewer and HVAC lines enter the building. Rats and mice can also gain entry through tiny cracks in the foundation, by gnawing through the standard rubber and vinyl seals on most garage and loading dock doors, and beneath roofing tiles.
Consider the following exclusion best practices highlighted in The Mallis Handbook of Pest Control:
Safeguard your doors. Wooden doors are continuously vulnerable to the gnawing of rats. Sheet iron flashing should be installed surrounding the door, and any clearance below the door must be smaller than 3/8 inch. All doors should remain closed when not in use and be fitted with proven, specialized rodent-proof door sweeps.
Ventilator grills and windows should be protected with proper and proven exclusion materials, ensuring any voids or cracks are filled.
Defective drain pipes provide a transportation pipeline for rodents. A perforated metal cover should be cemented over the drain pipe, and any small openings surrounding the drain where it enters the building should be patched or filled with proven exclusion material.
Large sidewalk cracks should be sealed as these crevices allow rodents to access a building’s foundation, enabling them to more easily search for entry points. Foundation walls can be protected with barriers of metal, concrete, or brick around and below the foundation.
Circular rat guards should be placed around all vertical wires and pipes.
Ensure that cracked or broken roofing tiles are identified and replaced in a timely manner, and utilize proven exclusion material to fill any voids.
It’s also critical that only proven, rodent-proof exclusion materials be utilized to seal entry points. Caulk, mortar and spray foam offer almost zero protection against the gnawing power of rodents. Steel wool is often used for filling cracks and crevices, but will eventually rust and break down, rendering it useless against rodents. All exclusion materials should be made of stainless steel or other permanent elements.
Standard rubber door sweeps used for weatherization are not designed to withstand rodent gnawing, making the small gap beneath and around exterior doors a primary rodent entry point. Specialized rodent-proof door sweeps are fundamental to effective rodent exclusion. Xcluder’s Rodent-Proof Door Sweeps feature a core of Xcluder Fill Fabric – a blend of stainless steel and poly-fiber with sharp, coarse fibers that rodents cannot gnaw through – reinforced gaskets for a superior weatherseal and an extended rubber flap to create a flush ground seal against insects and other outdoor contaminants. Installing rodent-proof door sweeps is arguably the single most important step in protecting cannabis facilities from rodent infestation.
Sanitation is also important. Food products of any kind must be stored in sealed containers. Garbage should be collected frequently and stored as far away from the building as possible. Clutter should be avoided in storage areas as crowded shelves and boxes create opportunities for rodent nesting. Roofs and gutters should be free of debris as standing water attracts rodents as well. All trees and landscaping should be trimmed back away from the building to prevent not only rodent burrowing but also access to the roof.
Rodents are not easily deterred, but a well-supported, thorough exclusion plan is the strongest weapon in the fight against rodents. Investing the time and resources to properly safeguard buildings against rodents before a problem is identified is the best way to protect the plants, products and personnel inside cannabis facilities.
In 2002, Dale Katechis revolutionized craft beer. A seemingly simple packaging decision, putting craft beer in a can, sparked an international movement and put craft beer on the map.
Before the craft beer market really gained steam, consumers associated good beer with glass bottles and larger brands selling cheap beer with cans. Through education, creative marketing and a mission to put people over profits, Dale helped the craft beer market expand massively while sticking to his roots. He also managed to convince people to drink good beer from a can.
When Dale founded Oskar Blues about twenty years ago, he didn’t just succeed in selling beer. Through collaboration and information sharing, Dale propelled craft beer as a whole and lifted all boats with a rising tide. He’s hoping to achieve similar results with his new role in the cannabis space.
Veritas Fine Cannabis, the first craft cannabis cultivator in Colorado, announced that Dale joined the company’s leadership team. Jonathan Spadafora, partner and head of marketing and sales at Veritas, told us that he’s excited about working with Dale. He says Dale is already helping them open a whole world of branding and marketing opportunities. “This is our Shark Tank moment – we’ve got someone who’s been through the fire before and will help us keep differentiating, finding new avenues and new ways to solve problems,” says Spadafora.
His colleague, Mike Leibowitz, CEO of Veritas, shares the same sentiment. “Dale maintained company culture and quality as he grew Oskar Blues into a household name,” says Leibowitz. “Maintaining our unique company culture is paramount as we work to build Veritas Fine Cannabis into the same.”
Dale’s role in the leadership team at Veritas is about sticking to his roots. Through raising industry standards in the best interest of quality products and consumers, the team at Veritas hopes to expand the brand nationally, just like Oskar Blues did, while instilling a culture of disruption and innovation without compromising quality.
We caught up with Dale to learn more about his story and what he hopes to bring to Veritas, as well as the cannabis industry at large. And yes, I had a couple of Dale’s Pale Ales (his namesake beer) later that evening.
Aaron Biros: Your success with Oskar Blues is inspiring. Taking an amazing beer like Dale’s Pale Ale and putting it in a can sounds simple to the layperson, but you launched a remarkable movement to put craft beer on the map. How do you plan to use your experience to help Veritas grow their business?
Dale Katechis: I am hoping that I can apply some of the lessons that I’ve learned through making mistakes of growing a business from the ground up. There’s obviously a lot of road blocks in cannabis and that is certainly one of the qualities of Veritas – how they’ve grown and how they had to do it in an environment that is much more challenging than the beer space.
My experience in small business development could potentially help them navigate this next renaissance of the space. I’m going to help them compete and bring the industry to a level that helps everybody win. I certainly felt that way in the craft beer movement. It was very important to us to bring the whole industry along because we were educators, we weren’t salesmen. In doing that, lifting everyone to a level where the industry benefits as a whole is a part of small business growth. To me that’s the most fulfilling part. It wasn’t just about the Oskar Blues ego at the time, it was about the craft beer scene. And what’s happening in cannabis now is very similar to what happened in the nineties with the craft beer scene.
Aaron: How did you get interested in joining the cannabis industry? What made you choose Veritas?
Dale: Most of my life, I’ve been an enjoyer of cannabis. Very recently, in the last two years, I’ve been intrigued by getting involved in the space. I’ve been shopping around for opportunities and nothing really excited me until I met Jon Spadafora and Mike Leibowitz.
It was really the two of them, the comradery and how they treat their staff that was so similar to the culture at Oskar Blues. Call it a “passion play” if you will, but this was the best opportunity to get involved with a small company and hopefully be a value add for them being in the room and sharing ideas.
Aaron: As a pioneer and leader in the craft beer space, do you notice any commonalities between the growth of the craft beer market and the legal cannabis market?
Dale: It is kind of crazy how many similarities there are. Not just the industry as a whole, but specifically the commonalities between my business, Oskar Blues, and Veritas. Overall, that’s really what allowed me to want to lean in a bit more. I wasn’t in the place where I wanted to start anything on my own. I didn’t want to be involved in fixing anything. I’ve been involved in those situations before and I’m at a point in my life that I don’t want to fix anything. Thankfully there’s nothing that needed to be fixed at Veritas. That was an exciting piece of the equation for me.
Back to your question, how the consumer looks at cannabis versus how the consumer looks at beer in the craft beer space is very similar. There is a bit of an educational piece that’s happening where it’s almost a requirement in the cannabis industry and Veritas is leading that charge out front.
That’s what’s going to catapult Veritas and other companies if they follow suit. It’s their mentality and their philosophy of bringing the industry along as a whole, and I think it’s going to end up boding well for the consumer. The craft beer space was the same.
We had to educate people on a beer can and why we felt like a can of beer was important and exciting. The industry and the consumer associated cans of beer with large, industrial lagers and the can got a bad rap as a result. Not because it wasn’t a great package, but because they were putting bad beer in a good package. So, we had a long road of educating the consumer on the benefits of the can and I think what Veritas is doing with packaging now, how they use quality as such a fundamental pillar of their business, how they focus on the employee experience and the consumer experience sets them up for success, instead of just looking at the bottom line.
I’ve said it throughout my entire career, and at Oskar Blues, we never focused on the profits. You do the right thing for the biggest group of people moving the ball forward and the bottom line takes care of itself. Jon and Mike understand that so I don’t need to fight that battle. It’s another big similarity to the craft beer space.
Aaron: How can cannabis companies keep their craft? How can we, as an industry and as individual businesses, celebrate craft cannabis and follow in the footsteps of independent craft beer?
Dale: I believe that we’re starting to see some of that consolidation [that has been taking place in the craft beer market]. We’re at a time in the market right now where companies with such a solid foundation like Veritas don’t need to go that route to grow. I think we’ll start to see a lot more consolidation in the cannabis industry soon.
Back to the point of bonding together as an industry and as a whole. Championing some of the regulatory hurdles that are coming and sticking together is crucial. One company can’t do it. There’s going to have to be some comradery in the industry among everyone trying to hold the bar up high instead of racing to the bottom. You die by a thousand cuts. I’ve lived that life in craft beer and we saw what happened 6-7 years ago when the industry overexpanded because of exponential growth. A lot of egos got in the room, and a lot of breweries spent a lot of money building out capacity and then that same year the market popped out. Everyone who didn’t have a solid foundation, got washed out of the industry.
That’s why I appreciate what Jon and Mike are doing and how they built Veritas. It’s very similar to how we built Oskar Blues. We had humble beginnings; we didn’t spend money on things outside of our core competency. We focused on quality, employee experience, morale and holding on to the culture of Oskar Blues. That’s what Jon and Mike are doing with Veritas and I think that’s really important.
It’s no secret that the rollout of cannabis legalization has underperformed in countries like Canada. Since legalization in October of 2018, industry experts have warned that the projections of the big cannabis firms and venture capitalists far exceeded the expected demand from the legal market.
Today, major production facilities are closing down, some before they even opened, dried flower inventory is sitting on shelves in shocking quantities (and degrading in quality), and an extremely robust illicit market accounts for an estimated 80% of the estimated $8 billion Canadian cannabis industry. None of those things sound like reasons for optimism, but while some models for cannabis business are withering away, others are beginning to put down stronger roots. Crucially, we are beginning to see new business models emerge that will be able to compete against the robust black market in Canada.
The Legal Cannabis Industry Can’t Compete
Legal rollout in Canada could easily be described as chaotic, privileging larger firms with access to capital who were able to fulfil the rigid – and expensive – regulatory requirements for operating legally. But bigger in this case certainly did not mean better. The product these larger firms offered immediately following legalization was of a lower qualityand higher price than consumers would tolerate. In Ontario, cannabis being shipped to legal distributors lacks expiration dates, leaving retailers with no indication of what to sell first, and consumers stuck with a dry, poor quality product.
The majority of existing cannabis consumers across the country prefer the fresher, higher quality and generally lower priced product they can easily find on the illicit market. That preference couldn’t be clearer when you look at the growth of inventory, which is far outpacing sales, in the graph below:
Which brings us to the crux of the matter: when it comes to building up the Canadian cannabis industry, what will succeed against the black market that has decades of expertise and inventiveness behind it?
Rising From the Ashes: Craft Growers and Other Small-Scale Producers
The massive facilities like Canopy’s may be shutting down, but our friends over at Althing Consulting tell us that those millions of square feet facilities are being replaced by smaller, more boutique-style cultivation facilities in the 20,000 ft tier, which are looking to be the future of the industry.
Consumers have consistently shown a strong preference for craft cultivators and other small-scale producers who produce higher quality, more varied products that are more responsive to consumer needs. It also hasn’t hurt that prices are also coming down: Pure Sun Farms in Delta, BC is consistently selling out of their $100/ounce special, which is highly competitive even with the illicit market.
This vision of the industry matches up better with the picture we’ve been getting from other legalization projects around the world. It also squares with other indicators of success. Despite the small market capture of the legal market, industry employment numbers are still relatively high, especially when compared with more established legal consumer products markets such as beer. In fact, craft cannabis growers now employ nearly as many people as the popular craft brewing sector here in British Columbia.
But in order to make the craft cannabis market actually competitive in both the regulated and unregulated spaces, the government will have to address four major challenges.
Challenge #1: License Distribution is Uneven and Chaotic
A December 2020 report by Ontario’s auditor general contains admissions by the Alcohol and Gaming Commission of Ontario (AGCO), Ontario’s cannabis industry regulator, that they lack the capacity and resources to manage the number of applications for private cannabis retailing. Problems relating to the issuing of licenses, including long delays and difficult requirements, are widespread across provinces. One way this becomes clear is by looking at the very uneven distribution of stores across the country in the graph below.
Challenge #2: Basic Regulatory Compliance is Complex and Time-Consuming
Smaller-scale micro cultivators, whose good quality craft product remains in high demand, still face prohibitive barriers to entry into the legal market. Licensing from Health Canada is one onerous challenge that everyone must tackle. Monthly reporting requirements have in excess of 477 compliance fields. Without additional support to navigate these requirements – including automation technology to ease the administrative burden – these smaller producers struggle to meet the minimum regulatory standards to compete in the legal market.
Challenge #3: A Long-Distance Road to Compliance and Safety Means Higher Costs
Even with all regulatory requirements satisfied, cannabis cultivators can’t sell their product from “farm to fork” (to borrow a phrase from the food industry). Many growers ship their product to be irradiated in order to ensure they are below the acceptable microbial threshold set by Health Canada. While irradiation positively impacts the safety of the product, new evidence shows that it may degrade quality by affecting the terpene profile of the plant. Furthermore, only a few facilities in Canada will irradiate cannabis products in the first place, meaning that companies have to ship the finished product sometimes thousands of kilometers to get their product to market.
Next year, Health Canada looks set to lower the limit on microbials, making it virtually impossible to avoid cannabis irradiation. If Health Canada follows through, the change will be a challenge for small-scale cultivators who strive to prioritize quality, cater to consumers who are increasingly becoming more educated about terpene profiles, and seek to minimize the environmental impact of production.
Challenge #4: It is Virtually Impossible to Market Improved Products
Finally, there is a marketing problem. Even though the regulated market has made dramatic improvements in terms of product quality from legalization two years ago, Health Canada’s stringent marketing restrictions means that cannabis producers are virtually unable to communicate these improvements to consumers. Cannabis producers have little to no opportunity to reach consumers directly, even at the point of sale – most legal sales are funneled through government-run physical and online stores.
What Can a Thriving, Legal Cannabis Market Look Like in Canada?
The good news is that change is being driven by cannabis growers. Groups like BC Craft Farmers Co-Op are pooling resources, helping each other navigate financial institutions still hostile to the cannabis trade, obtain licenses and organizing craft growers to advocate to the government for sensible regulatory changes. As a result of their advocacy, in October, the federal government initiated an accelerated review of the Cannabis Act’s restrictive regulations related to micro-class and nursery licenses.
Now, more co-op models are popping up. Businesses like BC Craft Supply are working to provide resources for licensing, quality assurance and distribution to craft growers as well. Indigenous growers are also showing us how cannabis regulation could work differently. Though Indigenous cultivators currently account for only 4% of Canadian federal cannabis licensees (19/459), that number looks to be growing, with 72 new site applications in process self-identified as Indigenous, including 27 micro cultivators. In September, Williams Lake First Nation entered into a government-to-government agreement with the province of British Columbia to grow and sell their own cannabis. The press release announcing the agreement includes the following statement:
“The agreement supports WLFN’s interests in operating retail cannabis stores that offer a diverse selection of cannabis products from licensed producers across Canada, as well as a cannabis production operation that offers farm-gate sales of its own craft cannabis products.”
More widespread adoption of the farm-gate model, which allows cultivators to sell their products at production sights like a winery or brewery, has a two-fold benefit: it better supports local, small-scale producers, and it offers opportunities in the canna-tourism sector. As the economy begins its recovery alongside vaccine rollouts and restrictions on travel ease, provincial governments will have the chance to leverage the reputation of unique regional cannabis offerings (i.e. BC bud) through these farm-gate operations.
While the cannabis legalization story in Canada has had its bumps, the clear path forward for greater legal market success lies in increased support for micro-cultivators. By increasing support for these small-scale producers to navigate regulatory requirements, more will be able to enter the legal market and actually compete against their illicit counterparts. The result will be higher quality and more diverse products for consumers across the country.
Small cannabis dispensaries face different challenges than those seen with large, multi-state operators. To this end, massive companies like MedMen and Grassroots Cannabis need to accommodate multi-state operations’ compliance challenges. Conversely, small dispensaries must learn to compete with the big box retailers of the cannabis industry.
Small cannabis dispensaries must figure out how to make their size an advantage against larger business entities to stay competitive. To this end, they must critically assess the corporate structure of large cannabis companies like Green Thumb Industries to look for operations and marketing opportunities still “left on the table” for smaller operators.
Luckily, owning and operating a small cannabis dispensary affords creativity and innovation in the workplace. Namely, because small businesses can quickly implement change and pivot to the demands of the ever-changing cannabis landscape. Conversely, due to corporate structures’ difficult navigation, their larger counterparts must go through far more effort to implement operational changes. To better understand how small dispensaries can stay competitive in today’s market, we put together some criteria to examine.
Cross-Training Employee Teams
The fact that small cannabis dispensaries do not have many employees significantly reduces operating costs. However, to capitalize on the savings of a small employee team, you must cross-train your staff. Because if a small team can handle all the required tasks of a shift, you will never waste money on over-staffing your dispensary operation.
Looking at the specific jobs of a small cannabis dispensary, business owners should ensure that budtenders are trained to handle nearly every business task. To illustrate, you should train budtenders to open and close the store, conduct inventory work, recommend products and operate seed-to-sale software. Not only does this cross-training keep you from overstaffing your dispensary when it is slow, but it also insulates your business during busy market fluctuations.
Please note, once you train budtenders to handle a variety of tasks, you should also pay them more than the industry average. In doing so, you insulate yourself from the high turnover rate that plagues the cannabis space.
Lean Operating Principles
Lean operating is a practice that has exploded in popularity across the business world. To help teach lean operating principles, specialty training companies offer Six Sigma certifications. These certifications help business owners and executives save money on operational efficiencies. Methods taken from Six Sigma can be incredibly impactful for small cannabis dispensary businesses.
According to the ASQ professional training website, “Lean Six Sigma … drives customer satisfaction and bottom-line results by reducing variation, waste, and cycle time, while promoting the use of standardization and flow, thereby creating a competitive advantage.”
Lean Six Sigma principles can be beneficial with inventory control in small cannabis dispensaries. To this end, these businesses should apply analytics to track consumer behavior within their stores. After that, they can use data to create precise sales forecasts and conduct highly accurate product procurement. The end goal being to increase liquidity by reducing money tied up in a bloated inventory of unsold cannabis products.
Due to their small size, single dispensaries have the luxury of customizing the retail shopping experience. As such, without the added pressures of corporate oversight, small operators have the creative freedom to make for highly memorable shopping experiences within their stores. In going the extra mile on things like interior design, small dispensaries can help ensure customer retention and benefit from word-of-mouth marketing.
For example, Barbary Coast Dispensary in San Francisco, CA, has the look and feel of a high-end speakeasy, making it the perfect match for the Bay Area’s aesthetic sensibilities. The dispensary interior is decorated with a 19th-century touch and features a dab bar, where clients can enjoy the surreal atmosphere while consuming some of California’s best cannabis. A visit to a small dispensary like this will likely leave a lasting impression.
Memorable retail shopping experiences often translate directly to customer loyalty. In turn, this dynamic directly impacts your bottom-line concerning marketing expenses. Notably, a steady base of loyal customers will sustain your business, significantly reducing your marketing costs. In the end, marketing can be directed at retaining clients through loyalty programs and customer engagement – both can be mainly handled “in house” and relatively inexpensively.
Small dispensaries can utilize product differentiation to stay competitive in today’s market. To this end, small operators are blessed with the ability to pivot quickly with new product offerings. Conversely, large dispensary chains with corporate structures must go through rigorous steps before launching new products at their stores.
Small cannabis dispensaries can immediately “get out ahead” on new product trends as they arise. For example, you can offer rare cannabis strains or boutique extracts that none of the larger dispensaries carry.
By the time the larger dispensaries in your area catch up on the current trends, you can move on to the next one. We recommend making alliances with some of the top craft growers in your area to make this possible.
Every year, the cannabis industry grows more competitive. As this business evolves from an underground affair to a multi-billion-dollar enterprise, the scope and sophistication of cannabis dispensary operations grows exponentially. Within this ever-changing dynamic, many small dispensaries fear the wayside will leave them.
Yet, if you approach the market with creativity and zeal, you can make the additional market pressure work to your benefit. By focusing on critical facets like cross-training employees, lean operating principles and product differentiation, you can build a profitable and sustainable cannabis dispensary by making small size a competitive advantage.
As we’ve covered previously, the coronavirus pandemic has impacted the cannabis industry in the United States in a number of ways. Many states with legal medical and recreational cannabis markets have deemed those cannabis businesses essential, allowing them to remain open during statewide stay-at-home orders. Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help small businesses through the economic downturn, directing trillions of dollars to the Small Business Administration (SBA) to administer emergency loans, paycheck protection programs and other financial assistance to small businesses affected by the coronavirus pandemic.
Enter the hemp and CBD products market. Thanks to the 2018 Farm Bill, which removed cannabis containing less than 0.3% THC from the list of controlled substances, hemp and CBD companies are not exempt from the SBA’s relief efforts.
According to VICE News, The Trump Administration has handed out millions of dollars to companies that sell CBD products. When VICE News looked into some SEC filings, they found more than $4 million in federal loans that have been granted to CBD products companies.
They found three CBD companies that scored big with federal assistance:
By Steve Levine, Megan Herr, Meghan Brennan No Comments
On Thursday April 23, 2020, Representatives Earl Blumenauer (D-OR) and Ed Perlmutter (D-CO) introduced the “Emergency Cannabis Small Business Health and Safety Act” in the House. Blumenauer and Perlmutter have been influential in protecting state-legal cannabis businesses from federal interference, most recently under the 2020 federal appropriations rider.
If passed, the Act would allow state-legal medical and recreational cannabis businesses to take advantage of the multi-trillion dollar stimulus packages designed to help small businesses harmed by COVID-19.
As we previously discussed, cannabis businesses harmed by COVID-19 remain ineligible to receive federal financial assistance due to their engagement in “federally illegal” activities. Consequently, cannabis businesses cannot receive assistance from the Small Business Administration (SBA) thereby making them ineligible to receive Paycheck Protection Program (PPP) loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), traditional 7(a) loans, 504 loans, and microloans.
To provide the industry with much needed economic relief, the legislation states that cannabis businesses would no longer be prohibited from (i) participating in the PPP, (ii) receiving EIDL loans, or (iii) receiving emergency EIDL grants purely on the basis that the business is a “cannabis-related legitimate business”1 or “service provider.”2
Additionally, the Act clarifies that the SBA and its officers, directors and employees would “not be held liable pursuant to any Federal law or regulation solely for providing a loan or a loan guarantee to a cannabis-related legitimate business or a service provider.”
Even though states have varied in their approach to continue medical and retail cannabis operations amid the coronavirus outbreak, a majority of states that allow some form of sale and consumption of cannabis have designated the cannabis industry as “essential” and open for operation.3 Some states have gone as far as allowing home delivery, curbside pick-up, and telemedicine consultations.
Nonetheless, despite the cannabis industry’s designation as “essential,” cannabis businesses (including those who service the cannabis industry) will continue to be precluded from receiving federal financial assistance until the Emergency Cannabis Small Business Health and Safety Act, or similar legislation, is passed. It is important to note that, even if passed, the Emergency Cannabis Small Business Health and Safety Act would likely provide little relief, as the majority of the funds to be administered by the SBA have already been accounted for.
What does this mean to you?
Although the COVID-19 pandemic has highlighted the need for the heavily-taxed and financially burdened cannabis industry to receive assistance under the stimulus packages, the Act, even if passed by Congress, faces an uphill battle in the Republican-held Senate.
The term “cannabis-related legitimate business” means a manufacturer, producer, or any person that – (A) engages in any activity described in subparagraph (B) pursuant to a law established by a State or a political subdivision of a State, as determined by such State or political subdivision; and (B) participates in any business or organized activity that involves handling cannabis or cannabis products, including cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing cannabis or cannabis products.”
The term “service provider” (A) means a business, organization, or other person that – (i) sells goods or services to a cannabis-related legitimate business; or (ii) provides any business services, including the sale or lease of real or any other property, legal or other licensed services, or any other ancillary service, relating to cannabis; and (B) does not include a business, organization, or other person that participates in any business or organized activity that involves handling cannabis or cannabis products, including cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing cannabis or cannabis products.”
On Wednesday, March 25, the United States Senate approved an estimated $2-trillion stimulus package in response to the economic impact of the COVID-19 outbreak. The legislation, formally known as the “Coronavirus Aid, Relief, and Economic Security Act” (or the CARES Act), was approved by the Senate 96-0 following days of negotiations. One of the most highly anticipated provisions of the CARES Act, the “recovery rebates” for individuals, will provide a one-time cash payment up to $1,200 per qualifying individual ($2,400 in the case of eligible individuals filing a joint return) plus an additional $500 for qualifying children (§6428.2020(a)). The CARES Act, which remains subject to House approval, also prescribes an additional $500 billon in corporate aid, $100 billion to health-care providers, $150 billion to state and local governments and $349 billion in small business loans in an effort to provide continued employment and stabilize the economy. The legislation further provides billions of dollars in debt relief on existing loans.
CARES Act – Paycheck Protection Program
Under the CARES Act, small businesses who participate in the “Paycheck Protection Program” can receive loans to cover payroll expenses, group health care benefits, employee salaries, interest on mortgage obligations, rent, and utilities (§1102(F)(i)). To qualify for these small business loans, businesses must employ 500 employees or less, including all full-time and part-time employees (§1102(D)). Eligible recipients must also submit the following as part of their loan application: (i) documentation verifying the number of full-time equivalent employees on payroll and applicable pay rates; (ii) documentation verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments; and (iii) a certification that the documentation presented is true and the amounts requested will be used to retain employees and make necessary payments (§1106(e)). The CARES Act delegates authority to depository institutions, insured credit unions, institutions of the Farm Credit System and other lenders to provide loans under this program (§1109(b)). The Treasury Department will be tasked with establishing all interest rates, loan maturity dates, and all other necessary terms and conditions. Prior to issuing these loans, lenders will consider whether the business (i) was in operation as of February 15, 2020, (ii) had employees for whom the business paid salaries and payroll, or (iii) aid independent contractors as reported on a Form 1099-MISC (§1102(F)(ii)(II)).
What Does This Mean for Cannabis Businesses?
Due to the continued Schedule I status of cannabis (excluding hemp) under the Controlled Substances Act (CSA), cannabis businesses are not eligible to participate in the Paycheck Protection Program intended to keep “small businesses” afloat during the current economic crisis. Because federal law still prohibits banks from supporting marijuana businesses, financial institutions remain hesitant to service the industry, as anti-money laundering concerns and Bank Secrecy Act requirements (31 U.S.C. 5311 et seq.) are ever-present. As a result, even if cannabis businesses technically qualify to receive federal assistance under the Paycheck Protection Program, they will face an uphill battle in actually obtaining such loans.
Cannabis Businesses Are Also Precluded from “Disaster” Assistance
Moreover, the conflict between state and federal law continues to prevent cannabis business from receiving assistance from the U.S. Small Business Administration (SBA) under the Coronavirus Preparedness and Response Supplemental Appropriations Act (H.R. 6201). In light of the COVID-19 outbreak, the SBA revised its “Disaster Loan” process to provide low-interest “Disaster Loans” to eligible small businesses. To qualify for these loans, a state must submit documented business losses for at least five businesses per county. The problem, however, is that the SBA still refuses to assist state-legal cannabis businesses in equal need of small business loans. Specifically, in a 2018 Policy Notice, the SBA reaffirmed that cannabis businesses – and even some non “plant-touching” firms who service the cannabis industry – cannot receive aid in the form of federally backed loans, as “financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity.” The 2018 Policy Notice clarified that the following business are ineligible to receive SBA loans:
(a) “Direct Marijuana Business” — a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to personal use and medical use even if the business is legal under local or state law where the applicant business is or will be located.
(b) “Indirect Marijuana Business” — a business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to support the use, growth, enhancement or other development of marijuana. Examples include businesses that provide testing services, or sell grow lights or hydroponic equipment, to one or more Direct Marijuana Businesses. In addition, businesses that sell smoking devices, pipes, bongs, inhalants, or other products that may be used in connection with marijuana are ineligible if the products are primarily intended or designed for such use or if the business markets the products for such use.
More recently, the SBA provided further clarification that cannabis businesses are not entitled to receive a cut of the federal dollars being appropriated for disaster relief because of the CSA’s continued prohibition of the sale and distribution of cannabis. Last week, the SBA reiterated that:
“With the exception of businesses that produce or sell hemp and hemp-derived products [federally legalized under the 2018 Farm Bill], marijuana related businesses are not eligible for SBA-funded services.” (@SBAPacificNW)
Consequently, because of the continued Schedule I status of cannabis under federal law, cannabis businesses will not be entitled to receive Disaster Loans from the SBA, regardless of whether they qualify as a struggling small business.
Resolving the Issue
While the federal government has been considering legislation, such as SAFE Banking and the STATES Act, to create a more rational federal cannabis policy, neither of these bills are likely to pass any time soon given the current COVID-19 pandemic.
At the end of the day, until Congress passes some form of federal cannabis legalization, these small businesses will remain plagued by the inability to receive financial assistance, as evinced by the Paycheck Protection Program.
The Craft Cannabis Alliance is a values-driven industry association whose mission is to define, promote, and celebrate authentic Oregon craft cannabis. Though it has only recently launched, it already counts many of Oregon’s most important local brands among its members, and looks poised to help lead a craft cannabis movement both within the industry and among consumers.
When recreational cannabis was originally legalized in Oregon,according to the Portland Mercury, there were residency requirements for obtaining a license, but in 2016 those rules were removed. In the wake of that decision, Adam J. Smith, founder and executive director of theCraft Cannabis Alliance, saw the prospect, and, increasingly, the reality of out-of-state businesses with deep pockets buying up local cannabis businesses, expanding out of state brands into the market, or financing new brands here. It was quickly apparent to Smith that the big money threatened to overwhelm the market, push Oregon-owned companies off of shelves and eventually dominate Oregon’s much-anticipated export market. In May, drawing on his experience as an organizer and drug policy reform advocate, as well as several years working in with Oregon craft industries, he launched the Craft Cannabis Alliance.
Smith has a long history of taking aim boldly at seemingly implacable interests. In 1998, Smith launched the Higher Education Act Reform Campaign (HEA Campaign), which successfully won back the right to federal financial aid for students with drug convictions. That campaign led to the founding ofStudents for Sensible Drug Policy, now the world’s largest student-led drug policy reform organization, active in more than 40 states and 26 countries. Since then, he has participated in a number of public policy and civic engagement campaigns and organizations, serving on the founding boards of the League of Young Voters and the Oregon Bus Project. He’s also written for dozens of publications on drug policy.
The Craft Cannabis Alliance is a membership-based industry association of cannabis businesses with like-minded values, who believe that cannabis is, in fact, Oregon’s next great craft industry. And they want to make sure that means something. We sat down with Smith to learn more about his organization and why he wants to fight big cannabis.
CannabisIndustryJournal: How exactly do you define craft cannabis?
Adam Smith: In the beer industry, the Brewers Association defines a craft producer as one who produces fewer than 6 million barrels per year, and is not more than 25% owned by a larger brewer. And that’s fine for beer, but with cannabis just emerging from its own prohibition, there are broader concerns that we believe a craft industry needs to be responsive to. So we’re less concerned with the size of a company’s production than how it’s producing that product, and how it’s contributing to communities and a healthy industry.
Here in Oregon, there’s a core of the cannabis industry that cares deeply about people, place, planet, and plant. As someone who has spent considerable time writing about and organizing around ending the drug war, it is important to me that cannabis’ first foray into the post-prohibitionist world is not only successful, but that it reflects a shared set of values. When I started talking with people in the industry who take their values seriously, I asked a lot of questions. I wanted to go from “we know it when we see it” to something that could be defined and therefore legitimately promoted. Pretty soon, it became clear that there were six major areas of agreement.
Ethical employment practices
Substantial local ownership
Meaningful participation in the movement to end the disastrous drug war.
The first three requirements, clean, sustainable, and ethical employment practices, are pretty obvious core values for craft producers, and we believe for many Oregon consumers as well.
Substantial local ownership, particularly in a place like Oregon, is an essential component of what the Alliance is trying to organize and represent. We grow some of the finest cannabis in the world in Oregon, and while we’re a small market, we know that eventually, probably sooner than most people realize, the federal walls will come down and we’ll be able to export our products to other states and internationally. At that point, Oregon will be home to a multi-billion dollar industry. The question then, is who will own that?
We are already seeing big out of state and international companies and investment groups buying up brands or starting their own brands here. With tens of millions of dollars behind them, they have the marketing and distribution muscle to push locally owned companies, even those producing superior product, off of shelves. And if foreign-owned companies are dominating shelf space here when those federal walls crumble, those are the companies that will own the export market, and who will ultimately own the Oregon Cannabis brand globally. And if that happens, we will never buy it back.
Southern Oregon, in particular, is a region that has seen little economic growth since the waning of the timber industry. The communities there have a huge stake in how this plays out. Will the cannabis industry build wealth, and economies, and institutions here? Or will Oregon become a low-wage factory for out of state and international corporations.
Beyond local ownership, community engagement is another important component of craft cannabis. The industry, which still faces PR challenges, many of them well earned, needs ambassadors who can demonstrate what a healthy cannabis industry looks like, and who will build the relationships and the credibility necessary to gain the loyal support of their neighbors, local media, and public officials.
Finally, participation in the anti-drug war movement, beyond the self interest of simply opening up the next market, is a must. This industry stands atop a mountain of eighty years of ruined lives and destroyed communities. If you are in the industry, and you are not looking for ways to support drug policy reform, you are profiteering, plain and simple. The drug war is teetering on the brink of the dustbin of history, but it is not over yet. The very existence of a legalized industry is the product of decades of work by many, many individuals, most of whom will never earn a dime from the end of prohibition, and never intended to. We view a healthy legal cannabis market as an important platform for social progress on this front, and we are going to use it.
CIJ: Doesn’t capitalism guarantee that the big money will win out? That striving to maintain one’s values in the face of competition that is laser-focused on profits above all else is inefficient and doomed to failure?
Adam: Believe me, when your name is Adam Smith, you spend a lot of time thinking about capitalism. Let’s be clear, our members are committed to profits. We just don’t believe that nihilism is going to be a profitable strategy in Oregon cannabis, nor should it be. Our goal is to monetize our values by offering a win-win proposition to consumers, opinion makers, political leaders, and everyone else who will benefit from a visionary, responsible, and successful Oregon industry feeding into the local economy.
The choice is not between capitalism and something else. It is between an extractive model of capitalism and a value-adding model of capitalism. Between an industry that seeks to bleed value from the earth, and communities, and employees, and consumers, and one that adds value to everything it touches at every level while producing the best cannabis in the world.
In the end, consumers are the key. If we can be the coolest thing happening in Oregon cannabis, if we can bring consumers into this movement, we will succeed. There’s simply no reason for Oregonians to be buying cannabis grown by a Canadian bank account, even if it’s physically produced here. That is SO not cool. And what’s cool in Oregon will be what’s cool and in demand nationally and internationally as we are able to expand the reach of the legal Oregon industry.
We believe that offering the world’s best cannabis, grown responsibly, by Oregonians who are actually committed to the environment, to their communities, and to social justice is a going to be a powerful marketing proposition here. More powerful than having a famous person on your label or weak attempts at greenwashing.
Within the authentic Oregon craft universe will be super high-end products, as well as more value-oriented offerings, and everything in between. We’re going to make it easy for Oregonians to recognize and support the kind of industry that we’d all like to see here.
CIJ: Why do you think this could be successful in Oregon? Is the industry receptive to this idea?
Adam: Not only the industry, but the media, elected officials, and most importantly, we believe, consumers.
Oregon sees itself, not unjustifiably, as the birthplace of the craft movement in America. Our craft beer, artisan wine, and craft distilling industries are world-class by any standard, and are very well supported locally. Include in that list our local food scene and the myriad artisans of all stripes who ply their trades in the region, and it’s pretty obvious that there will be strong support for a values-driven, locally owned cannabis industry.
Craft is about people making something they love, as well as they possibly can, for themselves and their friends, and to share with others who will love it too. It’s not a coincidence that those products tend also to be of the highest quality.
The key, as I’ve mentioned, is for craft cannabis is to build a partnership with consumers. Let them know who we are, and what we are trying to build, which is an authentic, and authentically Oregon craft cannabis movement.
There are quite a lot of people in the Oregon industry who share this vision, including many of the best and most important brands in the state. The are people who got into cannabis for the right reasons, with a craftsperson’s dedication to quality and mindfulness on all fronts. To truly be a craftsperson is not only to make an exceptional product, but also to be cognizant of the historical and social context of your craft, with a respect for what has come before, and a commitment to setting an example for those who will follow.
Those are our people, and they are well represented in the industry here. Our goal is to organize them and help insure a path to their success.
CIJ: Tell us about how you are educating the industry, consumers and political leaders.
Adam: Well, we launched at the end of May, from the stage at the Cultivation Classic, which highlights and honors the best cannabis in Oregon, grown sustainably and regeneratively. That was a great opportunity for us to introduce ourselves to the part of the industry that we’re targeting, and we were very grateful to Jeremy Plumb of Farma, who is also an Alliance member, and who puts on that incredible event, for that stage.
Right now, we are still a manageable group, size-wise, and we are doing a lot of personal networking in the industry, seeking out the right people to join us. It’s been a lot of “who do we like and trust, who is making great product?” As a long-time organizer, I believe in starting out by putting together the strongest possible group of leaders who are also good people and fun to work with. I’d say that that’s going very well, since we have just an incredible group, who I am honored to stand beside. Over the past several weeks, as we have started to be a bit outward facing, we have had more and more folks in the industry reaching out to us, rather than the other way around. So we’re in a great spot to grow.
On the political side, we really launched the project at the very end of the most recent state legislative session, and so we purposely did not engage that process this year. But over the past several months, we have been seeking out and introducing ourselves to key public officials. Their response has been extremely positive. Here we are, a group of companies who are substantially locally owned, and committed to being transparent and accountable to the health of our employees, our communities, and our state. In an industry that is still very chaotic, and not well organized, with plenty of shady players, I think that they see us as a compelling partner going forward.
CIJ: Some of these standards seem pretty difficult to quantify. How do you expect to judge new member businesses?
Adam: Well, in the areas of clean product, sustainable methods, and ethical employment practices, we will adopt standards being developed and promulgated by third-party certification efforts such as Resource Innovation Institute (energy, water, carbon footprint) and the Cannabis Certification Council (“organic” and fair labor standards). There are others as well, some that exist, things like Clean Green, and some that are still in development. We are beginning to meet with these folks to gauge where they are, and to give input on their standard-setting processes. In the end, hopefully within the next year as more third-party standards come online, we will choose which of those standards to adopt or accept.
Community engagement and anti-drug war participation will be things that we undertake as an alliance, as well as providing support for our members to do these things individually behind their brands
As for “substantial local ownership” we are already discussing the parameters of what that means. Certainly, here in Oregon, there is a need for outside capital. We are not going to fund a robust industry, especially one that is prepared to take advantage of the coming interstate and international markets, with all local funding.
That said, there is a huge difference between having an out of state partner who owns a piece of a local business, and having an out of state or international corporate overlord with a 90-100% ownership stake. And the distinction is important for the future of the industry and for Oregon’s economy.
The temptation is to set the bar at 50% in-state ownership. But what if you are a large cannabis brand, selling in four or five or six states, that is 35% or 40% Oregon-owned? That would likely meet the definition of “substantial.” It is a difficult line to draw, in some sense, but not impossible. As we move forward, we will develop guidelines on this, and we will have a membership committee that can look at an individual company and say “yes, you are substantially Oregon-owned” or “not you are not” as well as a process in place to insure fairness in that decision. Right now, every cannabis company in the Alliance is majority Oregon-owned, and I would expect that to continue except in very rare cases.
CIJ: One of your standards for membership requires participation in the movement to end the drug war. Some might see this as a given, but could you shed some light on this?
Adam: As I mentioned earlier, we see reform movement participation as a moral imperative, and since a lot of my background is in drug policy reform, it’s important to me personally. As an alliance, we hope to partner with organizations like Students for Sensible Drug Policy and NORML, and within the industry with groups like the Minority Cannabis Business Association to both advocate for broad drug policy reform, and hopefully to provide opportunities and support for communities that have been most negatively affected by Prohibition. We believe that those of us participating in the legal, regulated cannabis market have both a responsibility and an opportunity to use our voices to point out the difference between the chaos, corruption, and violence of prohibition, and the the sanity, humanity, and opportunity of a post-prohibitionist world.
Strictly Necessary Cookies
Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.
We use tracking pixels that set your arrival time at our website, this is used as part of our anti-spam and security measures. Disabling this tracking pixel would disable some of our security measures, and is therefore considered necessary for the safe operation of the website. This tracking pixel is cleared from your system when you delete files in your history.
If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.