Tag Archives: state

Where Are We Now? Social Equity in the US Cannabis Industry

By Dede Perkins
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As state legalization measures begin to legitimatize the US cannabis industry, stakeholders, both those currently in the industry and those who plan to join in the not-too-distant future, grapple with the best ways to right the wrongs from the decades-old War on Drugs. While some stakeholders support residency requirements and setting aside a percentage of a state’s cannabis licenses for social equity and economic empowerment applicants, others contend that these solutions are discriminatory. Reuters reports that lawsuits against social equity programs have been filed in Michigan, Illinois, Missouri and Maine, and some have received decisions that rule against existing social equity programs. While there is disagreement on the best way to create an equitable cannabis industry, few dispute that we’re dealing with an oppressive legacy against low-income individuals and people of color and the cannabis industry is in a unique position to shape a socially responsible industry that focuses not just on profits, but also on the greater good.

Challenges for Social Equity Applicants and Licensees 

Currently, Black Americans make up 13% of the US national population, but own less than two percent of cannabis businesses owners, according to Leafly’s Jobs Report 2021. Why? There are five primary factors.

  1. In most states, cannabis licenses are expensive and difficult to get. The application process requires a team of experienced individuals to work on everything from finding and negotiating real estate contracts; to vetting and hiring architects, safety, and security consultants; to working with community stakeholders to gain local approval.
  2. After the pieces are in place, applicants have to write it all down, which is a challenge in itself. It is not uncommon for one state cannabis application to be over one hundred pages.
  3. Since cannabis is still federally illegal and listed as a Schedule 1 drug, it’s nearly impossible to get a business loan to fund the application process or, if an individual is lucky enough to get a provisional license, to renovate or build out cannabis cultivation, processing and/or retail facilities.
  4. Because of the low-income status of many social equity applicants, few have access to accredited investors or low interest loans.
  5. Finally, if an individual or organization makes it through the application process and receives both a license and funding to operate, they face ongoing operational challenges including ever-changing laws, rules and regulations. Maintaining compliance is a process in and of itself.

If cannabis industry stakeholders don’t make honest efforts to provide real solutions to these challenges in the near future, inequalities will proliferate.

Current State of Social Equity in the US Cannabis Industry

To help mend the harms of the War on Drugs and reduce the institutional challenges faced by marginalized individuals, some states have instituted social equity programs that prioritize cannabis business licenses to those previously incarcerated on cannabis-related convictions and/or those who live in zip codes with high incarceration rates for drug crimes. Some states broaden the social equity lens and include women- and veteran-owned businesses in social equity programs.

The National Association of Cannabis Businesses explains:

The goal of social equity laws is to ensure that people from communities disproportionately harmed by marijuana prohibition and discriminatory law enforcement are included in the new legal marijuana industry. Policymakers are working to address criticisms that outsiders are setting up legal cannabis businesses and profiting by doing the same things their less fortunate neighbors were arrested and given jail time for just a few years ago.

By prioritizing social equity applicants, our industry is starting to bridge the access gap and improve the odds that previously marginalized individuals will make it into the C-suite and other influential positions. But is it enough? Many argue that social equity programs won’t make a real difference until more programs include low-interest loans and/or provide access to capital sources and ongoing support after licensure.

Although social equity programs vary, many require applicants to live in a zip code with a high incarceration rate for drug crimes or have a state residency requirement, meaning that social equity applicants must have lived in the state for an established number of years before they can qualify for social equity status. In some states, municipalities are tasked with creating these programs as is the case in Los Angeles and Oakland, California.

While some states offer social equity applicants priority consideration for their licensing applications, others offer reduced application and licensing fees, technical assistance, entry into an incubator program specifically designed for social equity applicants and/or apprenticeship opportunities.

Although social equity programs focus on developing business leaders with marginalized racial and socioeconomic backgrounds, other components of these programs often include criminal justice reform, such as revising resentencing guidelines and expungement requirements for those with cannabis-related convictions. The MORE Act, for example, not only calls for federal legalization, but also for reassessing the legal status of cannabis-related convictions, arrests, and prison sentences.

US States with Cannabis Social Equity Programs

When Colorado and Washington voted in favor of adult-use cannabis legalization nearly a decade ago, lawmakers were tasked with drafting regulations for what a legal marketplace would look like in their respective states. Although legalization efforts focused on the inequities of prohibition, the War on Drugs, and the legal cannabis industry, social justice initiatives were not initially included.

Today, there are 37 states and municipalities, including Washington D.C., that have legalized medical cannabis. Nineteen of those states have also legalized adult-use cannabis. Recent data shows that one in four Americans consumes cannabis, suggesting that legalization efforts have started to normalize cannabis use among the US population.

Out of the 19 states with adult-use cannabis, 13 have developed social equity programs to help marginalized people become cannabis leaders in their markets. States that incorporated social equity programs into initial adult-use cannabis legislation include Massachusetts, California, New Jersey, New York, New Mexico, Michigan, Vermont, Illinois, Connecticut, Arizona and Virginia. Although Colorado and Washington’s laws initially did not include social equity programs, both states are now in the process of implementing them.

It’s important to note that not all US states with legal cannabis programs take the social equity approach. States with legal adult-use programs but without social equity programs include Montana, South Dakota, Maine, Nevada, Oregon and Alaska.

After Social Equity Licensure

For those social equity applicants who receive operational licensure, there is the ongoing issue of compliance. As if there were not enough pressure on social equity applicants and license holders, maintaining state-compliant businesses and developing internal policies and procedures that drive brand awareness and loyalty can be a challenge. The hard reality is that admission into a social equity program and even obtaining licensure does not ensure a business leader’s success. Besides increased access to capital, expanding social equity programs to include post-licensure support, at least for the first year or two, would improve the odds of long-term success.

All in all, social equity programs in the US cannabis industry have begun to make a difference and right some of the wrongs of the War on Drugs, but there is still work to be done. To build an industry that improves lives not only with cannabis products but also with financial opportunity, we must continue to prioritize and expand current social equity programs and fight for new social equity programs in all legal cannabis states.

Think Your Cannabis Business Complies with Temp and Part-Time Employment Regulations? You Might Be Surprised

By Stacy Bryant
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As a fast-growing cannabis company, ensuring your business stays compliant with regulatory agencies of all kinds—planning departments, the U.S. Department of Agriculture (USDA), Occupational Health and Safety Administration (OSHA) and so on—is critical for survival. But is your business also compliant with temporary and part-time employment regulations? Violating these often-overlooked regulations can land your company in hot water at best and force you to shut your doors at worst. Here’s what you need to know about risks, regulations, compliance issues and more.

The 30,000-Foot View: Part-Time and Temporary Employees 

Cannabis has proven itself to be a high-turnover industry. But in the ever-shifting, post-COVID landscape, many cannabis employers are seeing the financial and logistical benefits of hiring part-time and temporary workers.

Though the terms “part-time” and “temporary” are sometimes used interchangeably, the fact is, there are legal differences in the definitions of part-time versus temporary work. For starters, temporary employees must work for less than a year at a specific organization, and their work must have a defined end date. Temporary employees, or “temps,” often fill vacant roles in a temporary capacity, such as roles previously occupied by someone on parental leave.

Many full-time employees in the cultivation space are defined as “agricultural workers”

Part-time employees, on the other hand, can work indefinitely for a company—but they must work less than 40 hours per week. And, side note, if a part-time employee works more than 1,000 hours in a calendar year, they could be eligible for retirement benefits—so hiring managers, bear that in mind.

For employers, there are some tangible benefits in hiring part-time or temporary workers. For starters, there are often fewer upfront costs associated with hiring part-time workers (like workers’ compensation and healthcare). Establishing a strong part-time and temp employment strategy also allows for employers to quickly scale up or down based on market tendencies or shifts.

Understanding the Risks of Hiring Part-Time or Temporary Workers

While hiring part-time and temporary workers can help businesses stay agile and responsive to market demands or fill vacancies created by recent resignations, many businesses hire these types of employees without a full understanding of associated regulations. And it can get even trickier: many full-time cannabis industry workers in the cultivation space aren’t considered “employees” at all—they’re defined by the federal government as “agricultural workers.”

It’s essential that businesses classify part-time workers and independent contractors correctly. Attempting to claim a worker is part-time when they’re really a full-time employee (a practice known as “misclassification”) can save a business tax dollars in the short-term but lead to sanctions and hefty penalties down the line. For example, if a worker is misclassified and the Department of Industrial Relations finds out, they can sue the former employer for unpaid wages.

Potential fallout from noncompliance with classification or wage and hour issues includes massive fines, potential litigation and more. Federal agencies are extremely sensitive to cannabis business regulatory violations, it’s vital to adhere to proper staffing regulations and compliance. The wrong kind of attention can tank your business’s reputation and halt your operations altogether. I’ve personally worked with numerous cannabis businesses in their hiring and payroll initiatives, and I’ll say this: It may seem like a headache to cross all the “Ts” and dot all the “Is” in the beginning, but it will make a massive difference down the line.

Understanding the Regulations for Hiring Part-Time or Temporary Workers 

All employers must adhere to the regulations set forth by the Fair Labor Standards Act, which mandates that part-time employees must be treated the same as full-time employees. That means they must be paid minimum wage, be paid overtime should they exceed their determined hours, have the opportunity to take job-protected unpaid leave, and so on. I really want to stress how essential it is that employers classify their workers appropriately.

It’s also worth noting that many states have specific regulatory structures for employment, both full- and part-time.

In the heavily regulated cannabis industry, employers must exercise strict due diligence to meet all OSHA standards. Additionally, they must identify all occupational hazards and account for employees’ overtime and double time. Grow operations must also adhere to the Field Sanitation Provisions of the Occupational Safety and Health Act, which includes providing toilets, drinking water, hand sanitation facilities and hygiene information.

Avoiding Compliance Problems with Planning and Diligence 

There’s a lot more to hiring workers than businesses realize, especially in cannabis. Most companies don’t intend to be noncompliant with regulations—they simply don’t know the regulations, or they’re overwhelmed by hiring and growing so quickly. To make sure you’re compliant, you might consider building out your HR team, educating yourself as the business leader and reaching out to staffing and HR professionals in the space who can answer your questions. In this rapidly growing industry, which seems to shift and change every day, planting your feet firmly on solid regulatory ground will serve to benefit you in the event of federal legalization, massive business growth or initiatives you may want to undertake in the future.

Lean Management in a Cannabis Lab

By Rob Radke
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Lean management or Lean thinking is a process for continuous improvement that can be applied to any business. Most frequently Lean is attributed to the manufacturing sector due to its origins in Japan at the Toyota Motor Company. Lean originated in post-war Japan where resources were scarce as the country rebuilt itself after World War II. The scarcity of resources forced the Japanese to do more with less which manifested itself within the Toyota organization as the Toyota Production System from which Lean originated.

Today, Lean thinking is being applied to every industry and we believe that the cannabis industry, and in particular laboratories, can benefit tremendously from its principals.

What Is Lean and How Does it Apply to Cannabis?

Lean thinking is a set of powerful tools for any business or organization that wants to be the best in their industry and deliver superior value their customers. This is especially relevant to the fast-growing cannabis and hemp testing industry where customers demand fast turnaround times and error-free results.

The reason that Lean applies to all businesses and especially the cannabis industry is because of its focus is on eliminating waste. Waste comes in many forms including defects, waiting time, extra motion, excess inventory, transportation, over production, over processing and underutilized talent.

Companies that adopt Lean management eliminate waste using a wide variety of tools that help surface issues and eliminate the root causes. When companies eliminate waste, they simultaneously improve both their speed and quality, two attributes that customers really care about. Given the fast-changing nature of the cannabis industry and differences state by state, we believe that using Lean thinking to eliminate waste is critical to being a top performing business in the cannabis industry.

One important tool that many businesses begin with is known as 5S or 6S. At our laboratory we recently implemented 6S to organize both our office and laboratory spaces. 6S is a process improvement tool that stands for Sort, Set in Order, Shine, Standardize, Sustain and Safety. The process involves each technician or analyst assessing their areas and asking critical questions such as: Can I easily reach everything I need for this test or process? Is there wasted motion due to the placement of items within the lab? Can I easily tell how much consumable inventory I have on hand at a glance?

This process also helps improve safety because the workspace is better organized, easier to navigate and designed with safety in mind. Each person is responsible for maintaining their workspace and regular audits by rotating teammates, helping drive continuous improvement to our 6S. It is a fundamental process for any business starting to adopt Lean thinking.

Another very helpful process that any cannabis business can implement is the Gemba walk. Gemba is the Japanese word for “actual place” and refers to the place in a business where value is created for the customer. Value in our cannabis business is created in our testing lab. By improving everything in our testing lab we improve our quality and speed for our customers. In our laboratory we begin the Gemba walk as a team reviewing our key performance indicators (KPIs). From there, the management team visits each station to review additional KPIs and discuss any issues that group may be having. We try to surface issues, however small they may be, so that they are solved and hopefully eliminated. This process is key to helping us keep a pulse on the lab, engaging employees and better understand the improvements that need to be made.

How to Implement Lean Processes

labsphoto
Without quality results, a testing laboratory does not really have a product or service to offer

Lean thinking is a very accessible set of tools. Unfortunately, it is quite difficult to implement because of the dedication that it requires. Implementing Lean and changing the culture requires a significant amount of time, investment in training and management commitment. Time and capital for training can be scarce at some businesses in the cannabis industry. For the businesses with capital, it is extremely important that management commit to implementing Lean and changing their culture. Without the support of the executive team most businesses stop implementing new procedures and revert to how they are used to operating. It is also common for changes in management to result in lean becoming deprioritized in place of a new initiative.

If the executive team is inexperienced in Lean management, it will be important to find a Lean consultant that can guide the training and events. A Lean consultant should be able to provide you with thorough training on each tool and help your business implement them in real time to improve the business. The training and knowledge gained during these events are extremely valuable and practical tools that every employee can use.

Results From Implementing a Lean Organization

If a business is able to successfully implement Lean management the results for their customers can be dramatic. In the laboratory setting, turnaround times will be reduced, and more importantly, will remain consistent despite fluctuations in sample volume. Faster turnaround times for cannabis companies means that they can bring inventory to market faster which can be critical for supply constrained businesses.

Additionally, implementing Lean helps reduce the number of errors, rework and retests so the quality of the results for the customer is dramatically improved. Root cause issues are solved, processes are updated and then shared with the entire team so that everyone can learn and benefit from the improvement. Without quality results, a testing laboratory does not really have a product or service to offer so it is critical to get it right every time.

All areas of the cannabis industry are becoming more competitive, and it is important for every business to make sure they can stay competitive considering changing market dynamics. Lean management has helped businesses in other industries stand apart from the rest and we believe that the cannabis industry will be no different. Academic literature has studied and documented the positive impact that Lean has on businesses globally. Lean management has repeatedly shown that businesses that can truly implement Lean thinking in everything that they do will have an inherent advantage because they’ll be faster, more agile, higher quality, more efficient and focused entirely on creating value for their customer.

Recent Developments in Cannabis Vaping Product Safety – A Q&A with Corey Mangold, CEO of PurTec Delivery Systems

By Aaron Green
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Vaping is a multi-billion dollar cannabis product category representing more than 20% category share in the US, according to a recent Headset.io report. The 2019 vaping crisis, whereby lung injury and several deaths were caused by the adulteration of vapor pen cartridges with vitamin E acetate, highlighted the importance of safety and emissions testing for vapor pen products. In addition to volatile organic compounds, metals and ceramics contained in the heating elements of cartridges are also a concern. While the FDA has a robust program for emissions testing in nicotine products, they do not currently regulate cannabis. Cannabis vaping is currently regulated at the state level in the United States.

Cannabis vaping is popular among minors owing to its discrete nature. In a recent study published in the Journal of the American Medical Association (JAMA), 14.7% of teens reported vaping cannabis in 2018. In a separate research study, University of Michigan researchers found that teens vaping cannabis were two times more likely to experience respiratory issues than teens who smoked e-cigarettes.

We spoke with Corey Mangold, CEO and founder of PurTec Delivery Systems, to learn more about cannabis vaping safety and their PurGuard technology. Prior to entering the cannabis space, Corey founded a software company in 1998. He also founded the advertising agency Gigasavvy in 2008, which he recently exited from in March 2021.

Aaron Green: How did you get started in the cannabis industry?

Corey Mangold: I got started in the cannabis industry in 2016. My daughter was away at college in San Luis Obispo and got pregnant and was going to have a baby, which obviously I was excited about. I decided to have her come down to Southern California and start a company together, as I’ve done multiple times in my career successfully. I wanted to show her the ropes, and teach her everything from finance to HR, to business development, marketing – everything it takes to be successful – and give her the tools that she would need to be successful for her life.

Green: What kind of things were you into before 2016?

Mangold: I founded my first company in 1998 in the software industry and had that company up until 2005. In 2008 I started another company called Gigasavvy, a nationally recognized advertising agency out of Irvine, California, which I successfully exited in March of 2021.

Corey Mangold, CEO and founder of PurTec Delivery Systems

When deciding to start a company with my daughter, we were interested in the cannabis industry – I think everybody was back in 2016. In 2016, I had started using cannabis again after probably about a 16- or 17-year hiatus. I was using a vape because I had children in the house. I went to literally anywhere I could and bought every type of cartridge on the market. What I found was that their user experience was not like what it was on the nicotine side of vaping. I reached out to associates of mine who had been manufacturing vapes since 2011, starting with the blue e-cigarette, and we engineered a unique device that was proprietary and completely unlike anything on the market. It was incredible, and still to this day, I think it’s probably the best 510 thread cart on the market. We launched that under the Orchid Essentials (CNSX: ORCD, OTC:ORVRF) brand in California and Oregon.

Green: Is that cart something that you sell to other brands as well, or is it purely for the Orchid brand?

Mangold: Yes, purely for the Orchid brand, but it’s what inspired me to start PurTec Delivery Systems. After a few years of struggling in this industry because we didn’t have the access to capital needed – Orchid is a US company traded on the Canadian Stock Exchange (CSE:ORCD, OTC:ORVRF) – and dealing in a substance that’s federally illegal, there was no access to any traditional financing, be it factoring or inventory financing. We were literally creating as much product as we could every month and then selling out almost instantly, and then waiting till the next month to get money in from all our accounts to make more. We had to slug it out. We did get into a little over 500 stores in California and Oregon, but it was just a battle, and I didn’t really want to be touching cannabis.

In 2020, I had a breakthrough in my strategy. I was watching the TV show Gold Rush and I watched one of the guys go and have to buy a new wash plant. He pulls up to this dealer’s yard that sells wash plants and tractors. I saw this dealer had a lot of inventory and clearly a lot of money, and I realized the place to make money was selling the shovels, not really digging for gold. I said to myself if I have the best shovel out there, why am I digging? I should just be innovating new shovels and selling shovels. Hence, I started PurTec Delivery Systems and now for the last year and a half have been 100% focused on developing advanced vaporizer technologies.

Green: Tell me more about PurTec.

Mangold: I founded PurTec with the sole intention of creating safe vaporizers for consumers. We conducted an 18-month safety study in Switzerland with our partners, on vaping devices in the market. I learned a lot of things that I already knew but wanted to see it proven by independent laboratories and by PhDs and MDs, and really see what was so concerning to me. For the last year and a half, we have sought to develop a safe line of vaporizers. I’m very cognizant about what’s going on in my body and want to know what’s going on internally with these products. I don’t think anyone would be using them if they knew what was really going into their lungs.

Green: What are some of the things that consumers should be thinking about when it comes to vape safety?

Mangold: Consumers should be thinking about all the different aspects from inhaling vaporized heavy metals to ceramics. Ceramic particle inhalation is one of my biggest concerns. I think it’s been ignored. I think all the manufacturers know about it and I think it’s been swept under the rug. I think it’s one of the threats that we have. There should be regulatory bodies that are out there protecting consumers like the FDA, hence why I believe federal legalization is so important, because if the FDA was involved not even one of these products would be on the market because the first thing the FDA would do would be very extensive emissions testing to find out what compounds and potential toxins are entering into your body.

Green: There’s clearly a need for safety and regulation in the space, but from where you’re sitting, is there a demand? When consumers go into a store, one of their main focuses is: what’s the THC content? How do you see consumer demand for safety and how do you think about building that awareness?

Mangold: I don’t think there is consumer demand yet. The consumer demand right now is for getting medicated and having fun or getting whatever relief or primary reason you use cannabis. I can point to a direct correlation with the opioid epidemic. No one knew they were as horrible as they are, and doctors were prescribing them left and right, and everyone thought it was okay. People think these cannabis products are okay because they’re on the shelf in every licensed dispensary, and the California Department of Health and the Department of Health in every other state and country has been involved to some degree. So, consumers think that they’re safe. The problem is they’re likely not just like we weren’t with opioids.

I don’t think the consumer demand will be there for quite some time until we start seeing a lot of long-term health impacts where we start seeing people getting lung disease, we start seeing people getting iron lung, different potential brain issues from inhaling adhesives and heavy metals. I think once the health impacts are seen clinically – just like we saw with the opioid crisis – once that was really in the forefront, everybody saw with their own eyes, and then they were aware that there was a problem. So, I think that it’s important to become aware of the potential health impacts, but I think it will take quite some time before that happens.

Green: It sounds to me like you want to get ahead of the industry on this because if it does go federally legal, there will be more stringent requirements. How do you think about that from a product design and development perspective to get ahead of a problem that exists but isn’t reflected in current regulations?

Mangold: The best thing we can do right now in the cannabis vape industry is to look at what the nicotine vape industry is doing. It is controlled by the FDA and there are standards for vaporizers in other parts of the world that are very stringent, like the AFNOR standards, which are in the European Union regulations for vaporizer safety.

What we do is we find the most stringent standards in the world, and we test our products to those standards. If the standards get stricter, we can develop our products and re-engineer them to meet those new requirements. Right now, all our products are emissions tested at AFNOR standards and over-engineered even for those standards. We also are constantly working on reduction of potentially hazardous materials: reductions of heavy metals; only using proven safe and effective materials and FDA approved materials like SAE 316L surgical stainless steel; and using improved ceramics that are not as brittle as the ceramics being used by almost every single manufacturer out there. There’s a lot of things that can be done. It takes supply chain management, understanding the technology and having strong solid teams of scientists and doctors that know this stuff much better than anyone else in the industry does, and leveraging their expertise.

Green: You recently launched a safety feature for minors. Can you tell me more about that?

Mangold: Yes. Two weeks ago, we launched a new software application called PurGuard. PurGuard is a massive innovation and is the first of its kind that we’re aware of. It’s a piece of software that pairs with any device, whether it’s a disposable pod system or a 510 cartridge. You then pair it to your phone and take a picture of your government ID. Then the camera looks at your face, runs quick facial recognition and runs an age check through the largest age-checking platform API in the world. Then based on location and legal age of the user’s location – some states are 18 and different countries have different rules – it validates your ability in your market to be consuming that product. This technology works in 180 different countries.

Once that occurs and the device is ready for you to use, we have another feature that we’ve developed. There is an auto-lock feature that we have where if you’re a parent, like me, and you have kids in the house, you can turn your device to auto-lock right from your phone. When you walk away from your phone and are 10 feet away, your Bluetooth connection will break, and it will automatically lock the device and so your child can’t walk into your bedroom and take your device.

This technology is important to us. Consuming cannabis is horrible for the health of minors. There are serious mental effects on brain growth that occur from using cannabis at a young age because the brain is still developing up until about the age of 23 to 25. So, it’s not safe for them to be using. Of course, I’m sure we all smoked when we were in high school, but the ease of use of vape and the discretion, I think allows minors to use significantly more cannabis than previous generations did 20, 30, 40 years ago. It’s a massive problem right now and I think it’s just a matter of time before the FDA requires such protections. This industry can only survive if we protect minors. So, we’re getting ahead of the curve and setting the standard.

Green: What kind of hardware does PurGuard work with?

Mangold: PurGuard works with every single type of device that we manufacture: 510 thread cartridges, disposables, and pods. If it’s a 510-thread cartridge, the battery has to be a PurTec battery, and the cartridge has to be a PurTec cartridge. They communicate to each other through certain technologies, and it can even recognize what oils are in the cartridge or the pod or the disposable. Moreover, we can tell what strain it is, when it was manufactured, what the potency levels are and more. It records all the usage statistics. We’ve also proven with our hardware, the actual milligram contents being consumed per hit, or draw based on volume, and draw duration. We can track and report to people and say, “Hey, you’re consuming 100 milligrams of THC a day, that’s too high, you need to slow down and maybe go down to 50 milligrams a day.” That will be what is required as it is being required in the nicotine industry under the FDA pre-market tobacco applications (PMTA). When the FDA comes into cannabis, they’re going to want to see the same thing. They’re going to want to know that cannabis products are not promoting people to use more, and they are trying to get people to use less. It doesn’t mean stop using it, but use it in moderation, like everything in life. You shouldn’t be drinking a bottle of whiskey a day. You probably shouldn’t be smoking a pound of weed a day either. Everything in life is moderation and this application not only protects minors but also teaches us about our consumption habits.

Green: A theme here is “skating where the puck is going to be.” What kind of trends are you looking at right now in the industry?

Mangold: The biggest trend I see right now in the industry is disposables. We’ve seen that the trends in cannabis consumption trail behind the nicotine industry by 2-4 years. We see a lot of our customers and potential customers shifting into disposables and are now seeing a very large spike in sales of disposables. I think that’s a big trend, but with that comes another major issue: we now have lithium-ion batteries being thrown away at astonishing rates and going into landfills. PurTec has an answer for that that we’ll be launching here in the next four to six months That will be I think the biggest innovation in regards to eco-friendliness within the vape industry. That’s where I see things going right now.

Green: What are you most interested in learning about?

Mangold: The thing that interests me most, and what I’m most interested in learning about is regulations. Not the regulations themselves, but how regulations are drafted. I’ve sat in several meetings with rules committees for different regulatory bodies throughout the United States and it is laughable. I was recently in a state I’m not going to mention. I asked them what scientists and what doctors they have consulted with and they said none. I just found that dumbfounding. The state regulatory bodies are making decisions without doing due diligence and without bringing in subject matter experts in some cases.

I’m very interested in learning about how we can change our regulatory bodies. Taxpayers pay these salaries and their job at the end of the day is to protect consumers. I think that these cannabis regulatory bodies need to be way more involved with their state’s Department of Health, as well as with the FDA, and National Institute of Health and looking at this as a holistic approach. How do we protect consumers? This is a drug. It’s like anything else out there. If you’re selling tomatoes that were sprayed with a certain pesticide, you must do the research and you have to know what’s in that product before you start putting it in people’s hands. Otherwise, you may have people dying left and right. So, I’m very interested in learning more about regulatory bodies and how they need to evolve and hopefully I can help push them into evolving sooner rather than later.

Green: Great, that concludes the interview, Corey.

Mangold: Thanks, Aaron.

Cannabis Manufacturing Considerations: From Raw Materials to Finished Goods

By David Vaillencourt, Kathleen May
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Facility layout and design are important components of overall operations, both in terms of maximizing the effectiveness and efficiency of the process(es) executed in a facility, and in meeting the needs of personnel. Prior to the purchase of an existing building or investing in new construction, the activities and processes that will be conducted in a facility must be mapped out and evaluated to determine the appropriate infrastructure and flow of processes and materials. In cannabis markets where vertical integration is the required business model, multiple product and process flows must be incorporated into the design and construction. Materials of construction and critical utilities are essential considerations if there is the desire to meet Good Manufacturing Practice (GMP) compliance or to process in an ISO certified cleanroom. Regardless of what type of facility is needed or desired, applicable local, federal and international regulations and standards must be reviewed to ensure proper design, construction and operation, as well as to guarantee safety of employees.

Materials of Construction

The materials of construction for interior work surfaces, walls, floors and ceilings should be fabricated of non-porous, smooth and corrosive resistant surfaces that are easily cleanable to prevent harboring of microorganisms and damage from chemical residues. Flooring should also provide wear resistance, stain and chemical resistance for high traffic applications. ISO 22196:2011, Measurement Of Antibacterial Activity On Plastics And Other Non-Porous Surfaces22 provides a method for evaluating the antibacterial activity of antibacterial-treated plastics, and other non-porous, surfaces of products (including intermediate products). Interior and exterior (including the roof) materials of construction should meet the requirements of ASTM E108 -11, Standard Test Methods for Fire Tests of Roof Covering7, UL 790, Standard for Standard Test Methods for Fire Tests of Roof Coverings 8, the International Building Code (IBC) 9, the National Fire Protection Association (NFPA) 11, Occupational Safety and Health Administration (OSHA) and other applicable building and safety standards, particularly when the use, storage, filling, and handling of hazardous materials occurs in the facility. 

Utilities

Critical and non-critical utilities need to be considered in the initial planning phase of a facility build out. Critical utilities are the utilities that when used have the potential to impact product quality. These utilities include water systems, heating, ventilation and air conditioning (HVAC), compressed air and pure steam. Non-critical utilities may not present a direct risk to product quality, but are necessary to support the successful, compliant and safe operations of a facility. These utilities include electrical infrastructure, lighting, fire detection and suppression systems, gas detection and sewage.

  1. Water
Microbial monitoring methods can include frequent/consistent testing

Water quality, both chemical and microbial, is a fundamental and often overlooked critical parameter in the design phase of cannabis operations. Water is used to irrigate plants, for personnel handwashing, potentially as a component in compounding/formulation of finished goods and for cleaning activities. The United States Pharmacopeia (USP) Chapter 1231, Water for Pharmaceutical Purposes 2, provides extensive guidance on the design, operation, and monitoring of water systems. Water quality should be tested and monitored to ensure compliance to microbiological and chemical specifications based on the chosen water type, the intended use of the water, and the environment in which the water is used. Microbial monitoring methods are described in USP Chapter 61, Testing: Microbial Enumeration Tests 3and Chapter 62, Testing: Tests for Specified Microorganisms 4, and chemical monitoring methods are described in USP Chapter 643, Total Organic Carbon 5, and Chapter 645, Water Conductivity 6.Overall water usage must be considered during the facility design phase. In addition to utilizing water for irrigation, cleaning, product processing, and personal hygiene, water is used for heating and cooling of the HVAC system, fogging in pest control procedures and in wastewater treatment procedures  A facility’s water system must be capable of managing the amount of water required for the entire operation. Water usage and drainage must meet environmental protection standards. State and local municipalities may have water usage limits, capture and reuse requirements and regulations regarding runoff and erosion control that must also be considered as part of the water system design.

  1. Lighting

Lighting considerations for a cultivation facility are a balance between energy efficiency and what is optimal for plant growth. The preferred lighting choice has typically been High Intensity Discharge (HID) lighting, which includes metal halide (MH) and high-pressure sodium (HPS) bulbs. However, as of late, light-emitting diodes (LED) systems are gaining popularity due to increased energy saving possibilities and innovative technologies. Adequate lighting is critical for ensuring employees can effectively and safely perform their job functions. Many tasks performed on the production floor or in the laboratory require great attention to detail. Therefore, proper lighting is a significant consideration when designing a facility.

  1. HVAC
urban-gro
Proper lighting is a significant consideration when designing a facility.

Environmental factors, such as temperature, relative humidity (RH), airflow and air quality play a significant role in maintaining and controlling cannabis operations. A facility’s HVAC system has a direct impact on cultivation and manufacturing environments, and HVAC performance may make or break the success of an operation. Sensible heat ratios (SHRs) may be impacted by lighting usage and RH levels may be impacted by the water usage/irrigation schedule in a cultivation facility. Dehumidification considerations as described in the National Cannabis Industry Association (NCIA) Committee Blog: An Introduction to HVACD for Indoor Plant Environments – Why We Should Include a “D” for Dehumidification 26 are critical to support plant growth and vitality, minimize microbial proliferation in the work environment and to sustain product shelf-life/stability. All of these factors must be evaluated when commissioning an HVAC system. HVAC systems with monitoring sensors (temperature, RH and pressure) should be considered. Proper placement of sensors allows for real-time monitoring and a proactive approach to addressing excursions that could negatively impact the work environment.

  1. Compressed Air

Compressed air is another, often overlooked, critical component in cannabis operations. Compressed air may be used for a number of applications, including blowing off and drying work surfaces and bottles/containers prior to filling operations, and providing air for pneumatically controlled valves and cylinders. Common contaminants in compressed air are nonviable particles, water, oil, and viable microorganisms. Contaminants should be controlled with the use appropriate in-line filtration. Compressed air application that could impact final product quality and safety requires routine monitoring and testing. ISO 8573:2010, Compressed Air Specifications 21, separates air quality levels into classes to help differentiate air requirements based on facility type.

  1. Electrical Infrastructure

Facilities should be designed to meet the electrical demands of equipment operation, lighting, and accurate functionality of HVAC systems. Processes and procedures should be designed according to the requirements outlined in the National Electrical Code (NEC) 12, Institute of Electrical and Electronics Engineers (IEEE) 13, National Electrical Safety Code (NESC) 14, International Building Code (IBC) 9, International Energy Conservation Code (IECC) 15 and any other relevant standards dictated by the Authority Having Jurisdiction (AHJ).

  1. Fire Detection and Suppression

“Facilities should be designed so that they can be easily expanded or adjusted to meet changing production and market needs.”Proper fire detection and suppression systems should be installed and maintained per the guidelines of the National Fire Protection Association (NFPA) 11, International Building Code (IBC) 9, International Fire Code (IFC) 10, and any other relevant standards dictated by the Authority Having Jurisdiction (AHJ). Facilities should provide standard symbols to communicate fire safety, emergency and associated hazards information as defined in NFPA 170, Standard for Fire Safety and Emergency Symbols 27.

  1. Gas detection

Processes that utilize flammable gasses and solvents should have a continuous gas detection system as required per the IBC, Chapter 39, Section 3905 9. The gas detection should not be greater than 25 percent of the lower explosive limit/lower flammability limit (LEL/LFL) of the materials. Gas detection systems should be listed and labeled in accordance with UL 864, Standard for Control Units and Accessories for Fire Alarm Systems 16 and/or UL 2017, Standard for General-Purpose Signaling Devices and Systems 17 and UL 2075, Standard for Gas and Vapor Detectors and Sensors 18.

Product and Process Flow

Product and process flow considerations include flow of materials as well as personnel. The classic product and process flow of a facility is unidirectional where raw materials enter on one end and finished goods exit at the other. This design minimizes the risk of commingling unapproved and approved raw materials, components and finished goods. Facility space utilization is optimized by providing a more streamlined, efficient and effective process from batch production to final product release with minimal risk of errors. Additionally, efficient flow reduces safety risks to employees and an overall financial risk to the organization as a result of costly injuries. A continuous flow of raw materials and components ensures that supplies are available when needed and they are assessable with no obstructions that could present a potential safety hazard to employees. Proper training and education of personnel on general safety principles, defined work practices, equipment and controls can help reduce workplace accidents involving the moving, handling, and storing of materials. 

Facilities Management

Facilities management includes the processes and procedures required for the overall maintenance and security of a cannabis operation. Facilities management considerations during the design phase include pest control, preventative maintenance of critical utilities, and security.

Damage from whiteflies, thrips and powdery mildew could be prevented with an appropriate PCP

A Pest Control Program (PCP) ensures that pest and vermin control is carried out to eliminate health risks from pests and vermin, and to maintain the standards of hygiene necessary for the operation. Shipping and receiving areas are common entryways for pests. The type of dock and dock lever used could be a welcome mat or a blockade for rodents, birds, insects, and other vermin. Standard Operating Procedures (SOPs) should define the procedure and responsibility for PCP planning, implementation and monitoring.

Routine preventative maintenance (PM) on critical utilities should be conducted to maintain optimal performance and prevent microbial and/or particulate ingress into the work environment. Scheduled PMs may include filter replacement, leak and velocity testing, cleaning and sanitization, adjustment of airflow, the inspection of the air intake, fans, bearings and belts and the calibration of monitoring sensors.

In most medical cannabis markets, an established Security Program is a requirement as part of the licensing process. ASTM International standards: D8205 Guide for Video Surveillance System 23, D8217 Guide for Access Control System[24], and D8218 Guide for Intrusion Detection System (IDS) 25 provide guidance on how to set up a suitable facility security system and program. Facilities should be equipped with security cameras. The number and location of the security cameras should be based on the size, design and layout of the facility. Additional cameras may be required for larger facilities to ensure all “blind spots” are addressed. The facility security system should be monitored by an alarm system with 24/7 tracking. Retention of surveillance data should be defined in an SOP per the AHJ. Motion detectors, if utilized, should be linked to the alarm system, automatic lighting, and automatic notification reporting. The roof area should be monitored by motion sensors to prevent cut-and-drop intrusion. Daily and annual checks should be conducted on the alarm system to ensure proper operation. Physical barriers such as fencing, locked gates, secure doors, window protection, automatic access systems should be used to prevent unauthorized access to the facility. Security barriers must comply with local security, fire safety and zoning regulations. High security locks should be installed on all doors and gates. Facility access should be controlled via Radio Frequency Identification (RFID) access cards, biometric entry systems, keys, locks or codes. All areas where cannabis raw material or cannabis-derived products are processed or stored should be controlled, locked and access restricted to authorized personnel. These areas should be properly designated “Restricted Area – Authorized Personnel Only”.

Future Expansion

The thought of expansion in the beginning stages of facility design is probably the last thing on the mind of the business owner(s) as they are trying to get the operation up and running, but it is likely the first thing on the mind of investors, if they happen to be involved in the business venture. Facilities should be designed so that they can be easily expanded or adjusted to meet changing production and market needs. Thought must be given to how critical systems and product and process flows may be impacted if future expansion is anticipated. The goal should be to minimize down time while maximizing space and production output. Therefore, proper up-front planning regarding future growth is imperative for the operation to be successful and maintain productivity while navigating through those changes.

References:

  1. United States Environmental Protection Agency (EPA) Safe Drinking Water Act (SDWA).
  2. United States Pharmacopeia (USP) Chapter <1231>, Water for Pharmaceutical Purposes.
  3. United States Pharmacopeia (USP) Chapter <61>, Testing: Microbial Enumeration Tests.
  4. United States Pharmacopeia (USP) Chapter <62>, Testing: Tests for Specified Microorganisms.
  5. United States Pharmacopeia (USP) Chapter <643>, Total Organic Carbon.
  6. United States Pharmacopeia (USP) Chapter <645>, Water Conductivity.
  7. ASTM E108 -11, Standard Test Methods for Fire Tests of Roof Coverings.
  8. UL 790, Standard for Standard Test Methods for Fire Tests of Roof Coverings.
  9. International Building Code (IBC).
  10. International Fire Code (IFC).
  11. National Fire Protection Association (NFPA).
  12. National Electrical Code (NEC).
  13. Institute of Electrical and Electronics Engineers (IEEE).
  14. National Electrical Safety Code (NESC).
  15. International Energy Conservation Code (IECC).
  16. UL 864, Standard for Control Units and Accessories for Fire Alarm Systems.
  17. UL 2017, Standard for General-Purpose Signaling Devices and Systems.
  18. UL 2075, Standard for Gas and Vapor Detectors and Sensors.
  19. International Society for Pharmaceutical Engineers (ISPE) Good Practice Guide.
  20. International Society for Pharmaceutical Engineers (ISPE) Guide Water and Steam Systems.
  21. ISO 8573:2010, Compressed Air Specifications.
  22. ISO 22196:2011, Measurement Of Antibacterial Activity On Plastics And Other Non-Porous Surfaces.
  23. D8205 Guide for Video Surveillance System.
  24. D8217 Guide for Access Control Syst
  25. D8218 Guide for Intrusion Detection System (IDS).
  26. National Cannabis Industry Association (NCIA): Committee Blog: An Introduction to HVACD for Indoor Plant Environments – Why We Should Include a “D” for Dehumidification.
  27. NFPA 170, Standard for Fire Safety and Emergency Symbols.

FDA Issues Warnings on Delta-8 THC Products

By Cannabis Industry Journal Staff
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On September 14, the FDA published a consumer update on their website, seeking to educate the public and offer a public health warning on delta-8 tetrahydrocannabinol, otherwise known as delta-8 THC.

For the uninitiated, delta-8 THC is a cannabinoid that can be synthesized from cannabidiol (CBD) derived from hemp. It is an isomer of delta-9 THC, the more commonly known psychoactive cannabinoid found in cannabis. Delta-8 THC does produce psychoactive effects, though not quite as much as its better-known cousin, delta-9 THC.

FDAlogoDue to loopholes in federal and state laws, namely the 2018 Farm Bill specifying that hemp must contain less than 0.3% Delta-9 THC, delta-8 THC is technically legal across the country. It grew in popularity across the United States very quickly over the past year, largely due to online sales.

Following the surge in sales, a number of states including Colorado, Alaska, Arizona, Arkansas, Delaware, Idaho, Iowa, Mississippi, Montana, Rhode Island, Utah and Washington have implemented some form of regulation or outright ban on products containing delta-8 THC. Christopher Hudalla, president and chief scientific officer of ProVerde Laboratories, told Chemical & Engineering News that he has a lot of safety concerns about the whole delta-8 THC craze. Hudalla says he’s more concerned about the processing involved to produce it in large quantities. “These are pretty aggressive synthetic conditions that use strong acids,” Hudalla says. “They might be using strong bases to neutralize. They can use metal catalysts. I hear different people doing it different ways.”

The FDA’s consumer update included this picture at the top of the page

The FDA shares similar concerns. Their fourth point in the consumer update mentions that delta-8 THC products “often involve use of potentially harmful chemicals” in its production. They even claim that some manufacturers might be using unsafe household chemicals to synthesize delta-8 THC. “The final delta-8 THC product may have potentially harmful by-products (contaminants) due to the chemicals used in the process, and there is uncertainty with respect to other potential contaminants that may be present or produced depending on the composition of the starting raw material,” reads the FDA report.

In their consumer update, they note that between December 2020 and July 2021, they received 22 adverse event reports. Of the 22 reports, 14 were hospitalized following ingesting a delta-8 THC product. Notably, those reports included reactions consistent with symptoms from overconsumption of delta-9 THC, such as vomiting, hallucinations, trouble standing, and loss of consciousness.

The chemical structure of Delta 8 THC.

The FDA says that national poison control centers received 661 cases of delta-8 THC products, with 41% being unintentional exposure, 39% involved pediatric patients and 18% required hospitalization.

In the consumer update, they tell the public that delta-8 THC products have not been evaluated by the FDA and that they “may be marketed in ways that put the public health at risk.” This includes marketing it as a hemp product, which it is. Still though, many consumers associate hemp products with somewhat innocuous things, like CBD oil, which is mostly harmless.

The FDA also mentions in the update that delta-8 THC does have psychoactive and intoxicating effects. The FDA says they are notifying the public about the delta-8 THC due to an uptick in adverse event reports, marketing that is appealing to children and concerns regarding manufacturing with unsafe chemicals and contaminants.

WeedMaps Acquires Sprout

By Cannabis Industry Journal Staff
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The WeedMaps parent company, WM Technology, Inc., announced this week that they have acquired Sprout, a cloud-based CRM and marketing platform in the cannabis industry. Sprout’s CRM software is used by dispensaries, distributors and cultivators in 28 different states and offers a variety of marketing services like text marketing, email marketing, coupons, surveys and more.

The Sprout Messenger software was launched back in April of this year and at the time was touted as a gamechanger in marketing technology, allowing companies to interact with their customers via email, text and their in-house chat in two-way chats.

WM Technology, Inc. was originally founded in 2008. Based in Irvine, California, the company’s business-to-consumer platform, WeedMaps, is known as a go-to resource for consumers seeking cannabis retailers. The app and website now offer online ordering, brand listings, product information and consumer education.

On the business-to-business side, WM Technology, Inc. has grown to include WM Business, a cloud-based SaaS solutions platform with offerings like point of sale, logistics, wholesale and ordering solutions software.

The acquisition of Sprout will help the WM Technology team grow their WM Business portfolio to offer more software solutions, according to Chris Beals, CEO and chairman of WM Technology, Inc. “Our strategy focuses on establishing WM Business as the software solution of choice for cannabis businesses,” says Beals. “With the addition of Sprout, we are one step closer to realizing this vision of providing an all-in-one seamless and integrated solution to run, manage, and grow one’s cannabis business. This acquisition will allow our clients to better target, reach, acquire and retain customers at scale.”

WM Technology, Inc. did not disclose the financial details of the acquisition yet.

2021 Cannabis Labs Virtual Conference: September Program

By Cannabis Industry Journal Staff
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2021 Cannabis Labs Virtual Conference: September Program

Click here to watch the recording

Agenda

Hemp & Delta-8 in the United States: The Evolution of the Hemp Testing Market

  • Charles Deibel, President & CEO, Deibel Labs, Inc.

In this session, Charles Deibel discusses the current state of affairs across the country with respect to hemp testing. This includes a look at hemp testing rules at the state and federal level. He also provides an in-depth analysis on delta-8 THC and the controversy surrounding this cannabinoid, how to analyze samples of it and why the market has exploded around this product.

TechTalk: Hardy Diagnostics

  • Jessa Youngblood, Food & Beverage Marketing Coordinator, Cannabis Industry Specialist, Hardy Diagnostics

ISO 17025 Accreditation is NOT the Golden Ticket

  • Kathleen May, Founder & Owner, Triskele Quality Solutions

This presentation discusses where the standard falls short, how poor lab practices may negatively impact the consumer and how poor or insufficient lab practices could result in regulatory action, including product recalls, fines, and loss of licenses.

TechTalk: ANAB

  • Melanie Ross, Technical Products Developer, ANSI National Accreditation Board (ANAB)

TechTalk: Columbia Labs

  • Kelly O’Connor, Sales Director Key Accounts, Columbia Labs

Pesticides in Hemp: Challenges and Solutions

  • Grace Bandong, Business Unit Manger for Contaminants, Eurofins Food Chemistry Testing (EFCT)

This presentation takes a deep dive into understanding the requirements for pesticide testing, approaches to analysis and responding to regulatory requirements with extremely low LOQs.

TechTalk: Perkin Elmer

  • Tim Cooper, Sr. Manager, Software Development, PerkinElmer

This presentation provides an overview of how standards are developed and used, how Official Methods for cannabis are developed as well as training opportunities and proficiency testing.

What to Expect When Opening a Lab in a New State

  • Michael Kahn, Founder & CEO, MCR Labs

Kahn explores the lab’s role int he cannabis industry, the importance of knowing and understand state regulations and lessons for growing your lab while maintaining quality.

Click here to watch the recording

3 Pillars of Cannabis Banking Compliance

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

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

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

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

Pillar One: KYC-Enhanced Due Diligence

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

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

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

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

Pillar Two: Transactional Monitoring & Detection

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

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

Pillar Three: Filing and Reporting Requirements

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

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

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

Compliance Requirements After US Legalization

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

Choose Wisely: Pitfalls for Lack of Compliance

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

Summarizing Key Banking Requirements

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

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

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

Organizations Submit Comments on CAOA

By Cannabis Industry Journal Staff
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Earlier this summer in July, Senators Chuck Schumer, Ron Wyden and Cory Booker held a press conference where they introduced the first draft of the Cannabis Administration and Opportunity Act (CAOA). During the press conference, the Senators laid out the foundation for their comprehensive cannabis legalization measure, emphasizing the need to address social equity and social justice matters, while also asking for support in revising the draft bill.

Sen. Schumer unveiling the Cannabis Administration and Opportunity Act

In response to that call for input on the draft legislation, a number of nonprofits and trade organizations last week submitted comments. Among the organizations to submit comments on the new legislative proposal to end federal cannabis prohibition were a lot of cannabis advocacy organizations: The National Cannabis Industry Association (NCIA), the Marijuana Policy Project (MPP), the National Organization for the Reform of Marijuana Laws (NORML), the Minority Cannabis Business Association (MCBA) and the Coalition for Cannabis Policy, Education, and Regulation (CPEAR). To refresh your memory, CPEAR is a controversial trade organization founded in March of this year by corporate interests in big alcohol and tobacco.

Regardless of the interests behind the organizations, all of them seemed to have comments that aligned with one another. All of the comments submitted by those organizations had a common theme: social equity. Even CPEAR submitted comments highlighting the importance of “providing substantial opportunities for small and minority-owned businesses.”

The NCIA’s comments are perhaps the most comprehensive of the group, outlining an equitable, state-centric and small business-focused plan for federal cannabis reform. The MCBA’s comments reflect its mission and focus on things like restorative justice, minority participation, equitable access and inclusion.

The MPP’s comments are noteworthy because of their concerns regarding a number of regulations. Karen O’Keefe, state policies director at the MPP, says certain aspects of the regulatory scheme need clarification. “Our two major areas of concern are: the possible upending of state licensing and regulatory systems — driving sales underground — and the impact on medical cannabis access, including for those under the age of 21,” says O’Keefe.

NORML’s feedback is also particularly poignant. They ask to leave medical cannabis markets exempted from the federal excise tax proposed and for the federal government to balance roles shared between the FDA, TTB and ATF to ensure that individual state markets won’t be adversely affected by federal regulation.

To learn more, take a look at the draft legislation in its entirety here.