Tag Archives: Technology

Is the Cannabis Industry Sitting On An Untouched Gold Mine Of Innovation?

By Pam Chmiel
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Universities across the country are working in all areas of research and development to advance cannabis cultivation, medicine, drug delivery and technology. But these innovations are collecting dust because the universities are not in the business of commercializing products in the marketplace.

In 1980, the federal government passed a law that said universities that receive federal funding, which most of them do, will have the option to own whatever intellectual property or invention they develop from that federal funding. Initially, universities resisted the idea feeling they were selling their souls to the private sector and corporate America. But opinions have changed, and the marriage between universities and industries is a common and rewarding business strategy for both sides.

I interviewed Lance Anderson, a partner at the law firm Dickinson Wright who is uniquely positioned to play matchmaker to research universities, entrepreneurs and VCs to help them uncover cannabis innovations and create partnerships. Lance is also educated in life sciences, including proprietary plants, genetics and plant-derived products, and served as in-house counsel and lead IP attorney for a large public research university system and an early-stage venture capital company.

Pam Chmiel: What led you to play matchmaker to universities and cannabis businesses?

Lance Anderson: I learned that universities are interested in commercially benefiting from some of their innovations when I worked in the technology commercialization office at Texas Tech University right out of law school.

The concept of “technology transfer for commercialization” already exists in universities and presents a vast opportunity for cannabis businesses to commercialize their innovations.

Lance Anderson, an attorney at Dickinson Wright

“Technology Transfer” agreements refer to moving technology, knowledge or innovations from one organization, such as a research university, to another entity, such as a cannabis company, through licensing agreements that grant permission to use intellectual property (IP), patents or proprietary technology for commercial purposes.

Even though legalization is sweeping the country, I’m finding that academic institutions and their administrators are concerned they will lose all federal funding and are hesitant to take the chance on a cannabis research project. They are still getting comfortable with the opportunities to work with the industry, and the farm bill act of 2018 gave them the push to do so.

And why not tap into these universities, which receive millions and millions of dollars in funding? You’re not out a lot if you properly structure your relationship with them. You do not have to pay them millions and millions of dollars to get this technology. Knowing what the university wants and how to structure that relationship is key.

Pam: What are some of the benefits a business can gain by forging a partnership with a university?

Lance:

  1. Cannabis companies benefit by gaining access to cutting-edge research, expertise and resources that can accelerate and elevate their product development and market entry.
  2. The association with academic institutions can help build trust among consumers, investors, and lawmakers.
  3. Working with university research students may create a pipeline of qualified employees who may want to work for the company.
  4. Submitting a joint proposal with a university seeking government grants may lead to additional funding for the research project.

Pam: What types of partnerships do you currently see in development?

Lance: Pharmaceutical companies have collaborated with research universities for years on drug development and undoubtedly have their eye on the cannabis industry. Federal agencies like the USDA lean on academic partnerships to develop unique plant traits to improve crop production. You’ve got institutions developing new mind-blowing genetics, like polyploid species, that allow you to fine-tune the plant traits you’re interested in. There are always advances going on.

Clemson and Cornell Universities are leading the charge in cultivation by partnering with farms to develop techniques to grow better crops and increase profitability. And interestingly, many of the land grant institutions that receive federal grants, like Mississippi State, Michigan State and Texas A&M, are now diving into plant trait development. And it’s not unrealistic to think they will transition into plant-touching technologies ripe for the cannabis industry to come in and run with it from there.

“Researchers are now getting more access to cannabis strains that are more like what we’re seeing on the market, but it’s still not where we need to be”

But the research desperately needed to move the industry forward is medical research because lawmakers want proof that cannabis has medicinal benefits before they are confident in pushing for legalization. Unfortunately, the US government has been part of the problem in making it hard to conduct research, whether clinical trials, clinical research or simple preclinical studies on cannabis. Until recently, the University of Mississippi was the only university allowed to cultivate for research. So the researchers are now getting more access to cannabis strains that are more like what we’re seeing on the market, but it’s still not where we need to be. Not even close.

Academic partnerships are not a new concept, but the cannabis industry has yet to embrace it fully. Opportunities are beginning to develop where government agencies will participate and or fund the work in cannabis from the university standpoint. The National Institute of Health has a program that’s getting kicked off for cannabis research. And they all understand and recognize that the fact we don’t have enough clinical data available is a major hindrance to the advancement of this industry.

Pam: What is legally involved in a technology transfer partnership?

Lance: Collaboration between cannabis companies and research universities can take various forms, such as research partnerships, sponsored research agreements, joint ventures, or licensing arrangements. The specific model depends on the goals, resources, and intellectual property involved in the collaboration. An attorney can structure an agreement in a manner that lets everyone slowly advance into the relationship and get satisfied with the milestones they want and at which point this thing begins to take shape.

“Opportunities are beginning to develop where government agencies will participate and or fund the work in cannabis from the university standpoint.”

Cannabis businesses are no strangers to utilizing multiple entities in their corporate structuring. They may have a holding company that owns the real estate, a staffing company that manages the HR for the flower-touching operations, and another that holds the intellectual property. You’re seeing an entire industry familiar with IP licensing for the first time in a long time, and universities want in by licensing their intellectual property.

The university may require a licensee to have a product in the marketplace and a first sale within two years. So that introduces the concept of perishable intellectual property rights where you can default or don’t meet the licensing requirements. That perishable concept sometimes makes it hard to raise money because the investors prefer a guarantee that you have the license and will not default.

The takeaway is universities are thirsty for partnering and looking for strategic initiatives. Universities have access to patient populations, and the cannabis industry has the business know-how to take their innovations to market. It will take some culturing of both sides to understand the opportunities. But once everyone’s on the same page, the deals will look like the licenses and joint venture deals we see now with multi-state operators.

Pam: Lance, do you have any closing thoughts for our audience?

Lance: I’ve thought about this potential synergy for years as I’ve watched these two areas I practice in often. Academic partnerships are the catalyst to move the cannabis industry forward and are right in front of us. The time is now, and I’d love to be there.

Brooke Butler, Simplifya
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Five Reasons Everyone in Cannabis Should be Using RegTech

By Brooke Butler
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Brooke Butler, Simplifya

As the cannabis industry continues to grow, regulations will only get more onerous and complex, and enforcement will ramp up. In order to survive, it’s imperative for cannabis business owners and the ancillary companies that support them – such as banks, insurance agencies, law firms and marketers – to keep on top of regulations.

Due to cannabis’ fractured regulatory environment, confounding state and local laws, and the fact that regulations are constantly changing, keeping track of it all can nearly seem impossible at times. But companies don’t need to reinvent the wheel and handle compliance on their own.

There are a host of tools on the market today that can help cannabis related businesses (CRBs) streamline their operations. RegTech solutions can drastically reduce the challenges of navigating compliance, saving companies significant time and money so they can focus on their core competencies. Here, let’s take a look at five of the main reasons everyone in the cannabis ecosystem should seriously consider adopting RegTech solutions today.

1. Simplify the Complex

The heart of RegTech solutions is taking out the guesswork when tackling compliance while mitigating risk. Besides there being a vast number of regulations that vary by state, they’re also not easy to understand – they’re really written for lawyers, can be hundreds of pages long, and don’t offer implementation guidance. Thankfully through RegTech, operators and ancillary companies are alerted when regulations change and are given easy-to-follow implementation and remediation guidelines that can be as easy as checking a box.

Beyond just simplifying compliance, RegTech can substantially increase operational efficiency.

As the cannabis industry has been rapidly growing and maturing, we’ve been seeing a major uptick in M&A activity – M&A activity tripled in the sector from 2020 to 2021 – and with each new state a company enters, comes a host of new regulatory challenges. When expanding to a new state, RegTech solutions provide updates in real time, making sure, for example when you expand to Ohio, it’s not at the expense of complying with regulations in your core market of Illinois. Also, from an operations strategy perspective, RegTech solutions can be incredibly useful in helping companies decide what markets to pursue, as they can offer regulatory snapshots that compare tax laws, average margins, consumer segments, product stipulations, marketing restrictions and more. Thus besides simplifying compliance, RegTech can substantially increase operational efficiency.

Since cannabis is such a highly regulated industry, there are a ton of documents an operator has to keep on hand and be able to produce in a moment’s notice. Through RegTech, operators can store and organize all documents that are applicable to them electronically. So, when an inspector comes into a dispensary for a surprise inspection, rather than sweating bullets and digging through six filing cabinets trying to locate say a visitor log from three years ago, using RegTech a manager can quickly search records electronically, download and print the needed document, pass the inspection and go back to work.

2. Save Costs by Streamlining Compliance

While adopting RegTech solutions has a cost, the cost savings companies yield from RegTech way exceed the investment. RegTech providers have teams of dedicated analysts constantly tracking regulations and providing updates, making it so companies don’t need to hire much more costly lawyers to track regulations and amend policies and procedures. Rather, they can tap into RegTech solutions and leverage decades of experience and lean on the best regulatory experts in the field, while saving a lot of money.

RegTech providers have teams of dedicated analysts constantly tracking regulations and providing updates,

Just to give a small example of the cost savings RegTech can provide, on average a CRB spends over $20,000 to produce a new SOP package when using an attorney and nearly $8,000 when updating an SOP package using an attorney. Compare that to Simplifya’s fully customizable SOP package, where a CRB spends on average less than $1,600 to produce a new SOP package and less than $650 to update an SOP package – a 92% savings.

When considering costs, it’s important to think holistically and anticipate potential problems that could come up. One of the biggest pain points for companies starting up operations or entering new markets is complying with confusing tax codes – no industry is taxed to the degree cannabis is, and it’s easy to lose sight of tax obligations when planning operations. Unanticipated withholding requirements can create serious cash flow problems. RegTech solutions clearly outline requirements, as well as track updates, which help companies plan operations and expansion plans and prevent nasty tax surprises from creeping up, and they’re a much cheaper alternative to hiring tax lawyers.

While there are tremendous growth opportunities in cannabis, the industry is also facing significant headwinds, including the high cost of capital, supply and demand misalignments, and shrinking margins, and as we head towards recession, cost efficiency will become more and more important. Not only can RegTech help companies survive by helping ensure they stay compliant and don’t get fined or even shut down for breaching regulations, they also help companies run more efficiently and save major costs on operations.

3. Hold Your Employees Accountable

In addition to using RegTech to stay on top of compliance, it can be a powerful HR tool as well. Companies can utilize RegTech platforms to make and track assignments and tasks for employees. If you’ve already spent the time and money to create SOPs, RegTech tools are essential to making sure they’re actually being followed correctly. 

As many cannabis companies are expanding rapidly and bringing new employees into their fold – particularly those that are engaging in M&A – it can be difficult to get employees up to speed and following SOPs. RegTech automation and tracking solutions help flatten the learning curve and ensure employees are completing tasks on time, boosting efficiency and preventing problems that may arise – and if problems do arise, the tools help pinpoint where and when for efficient remediation. And if you’re an MSO or a SSO with multiple locations, RegTech allows employers to keep track of their dispersed employees without having to be in 10 places at once. This holds employees accountable for their actions for smooth operations while reducing growing pains.

4. Identify Issues Before They Become an Issue

The most compelling reason for having strict regulations in the cannabis industry in the first place is to protect consumer and patient health. Given the long, brutal history of cannabis prohibition, where lies and misconceptions about cannabis consumption being “dangerous” were perpetuated in the mainstream, the last thing the industry needs is people consuming products that are in any way contaminated. If you skirt the rules and manage to put out compromised products without a regulator catching and dinging you first, consumers may get sick. This can lead to a recall and tarnish a brand’s reputation. Competition is steep in this industry and even one incident can be irrecoverable. If consumers have reason to believe you’re not putting out consistent, safe products, they’ll buy from your competitor instead.

RegTech helps companies track all processes and procedures so that they can spot problems before they occur and ensure nothing dangerous makes its way to the public, which in turn shields brand reputation. Also, it’s important to note – in the cannabis ecosystem, every company you work with has to be licensed. If you work with an entity that’s not, you are very liable. Tracking licensing information is burdensome, especially for retailers and ancillary businesses like lenders and insurers who work with many vendors. Luckly, RegTech providers have already done the heavy lifting, pulling APIs into state databases and creating tracking systems of licenses that make it easy for companies to ensure every entity they work with is operating with a valid license. This saves companies from having to hire people to track licensing information on a weekly or even daily basis, which can be very costly, and more importantly, keeps them compliant and prevents slip ups that could jeopardize consumer and patient health. 

5. Looking Towards the Future, Regulations will Only Become more Complex – Only the Compliant Will Survive

A common misconception people have about the cannabis industry is thinking that federal policies like SAFE banking will be a catch-all to their banking woes, opening up the floodgate to institutional investment. The fact of the matter is, however, SAFE banking would be ineffective without RegTech. Cannabis companies need to demonstrate reliability and a history of compliance in order to attract investors and accumulate capital, and they do this through using RegTech platforms. Conversely, financial institutions also use RegTech to verify licenses, ensure legitimacy and assess lending risks based on the locations in which their borrowers operate. After SAFE banking is finally enacted, since larger institutional investors have so much on the line, they’re going to be particularly careful and only invest in those companies that can comprehensively demonstrate a history of compliance. This will also be the case for major CPG companies looking to acquire cannabis companies – they’ll want companies that have used RegTech to show compliance and optimize operations, since those companies will be more trustworthy and transitioning them under new management will be easier. In every major industry other than cannabis, RegTech solutions have been adapted. This is where cannabis is headed, and the companies that adopt solutions and demonstrate compliance will come out ahead.

Cannabis companies need to demonstrate reliability and a history of compliance in order to attract investors and accumulate capital

The other major misconception some people have about the cannabis industry is that once cannabis is legalized on a federal level, state and local regulations will somehow just go away, so current RegTech solutions may become ‘obsolete.’ This couldn’t be further from the truth. In no world is there going to a federal legalization system that says states can no longer create their own rules around cannabis. Think about the alcohol or gambling industries. Alcohol and gambling are federally legal, but every state – and even some counties and cities within those states – can have very different rules. Federal legalization will just mean additional regulations will be piled on and thus RegTech will only become more important.

While many companies in the cannabis space have already adopted RegTech solutions, there are still many others that have taken a reactive rather than proactive approach towards compliance. When major legislation like SAFE banking or federal legalization is approved, there will be a paradigm shift and RegTech will be deemed more essential quickly. Those who have implemented RegTech will have distinct advantages. To survive and thrive in the industry going forward, it’s prudent to proactively handle compliance and adopt RegTech solutions today.

The Top 3 Ways to Find the Right Automation Tools for Your Cannabis Operations

By Nohtal Partansky
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In an emerging industry like cannabis, there’s always going to be the latest and greatest tool or technology to improve operations that are just in their infancy. In fact, as a cannabis business operator, it’s likely you hear from at least one or two salespeople a week, selling the next best thing to make your operations that much more efficient.

But, not every piece of technology or tool is well-suited for each individual operation. Even more, some solutions are just temporary band-aids and aren’t built for longevity or for the future maturation of the budding industry.

Of course, at a time when cannabis businesses are struggling to even turn a profit – it’s even more important to look at your processes, and automate or optimize what you can to increase your bottom line.

So, how can you make the right decision when it comes to making an investment in automation technology? Keep reading to learn the top 3 tips for successfully vetting automation tools for efficacy, efficiency and cost-effectiveness.

Tip #1 – Identifying what to automate

The goal of streamlining operations with automation technology isn’t to ‘automate anything and everything’. It’s automating the right parts of production to help scale growth and increase profitability. To do so, operators should look at bottlenecks in their production line or process.

An automated pre-roll infusion robot

Once you’ve identified the areas that slow production, it’s time to look at which areas are better candidates for automation than others. For instance, tasks that are highly variable are not ideal for automation. That’s because every time a variance occurs, you’ll spend extra time and effort reconfiguring your automation tool or technology to match.

It’s those bottlenecks in production that are repetitive and don’t vary often that are optimal to increase efficiency. For instance – infusing pre-rolls, filling vape carts or packing master cases would be prime candidates for automation.

To dip your toes into the automated waters – find one of those highly repeatable tasks, purchase a small, cost-effective solution and see just how it impacts productivity. If you see that a small change made a big difference – there’s scalability. After this due diligence, you can move forward in contacting more robust manufacturers for improved equipment designed for long-term use and wide scale implementation.

Tip #2 – Choosing the right manufacturer

Speaking of manufacturers – choosing the right one is just as crucial. It shouldn’t come as a shock that not all technology or equipment can be treated equally. If the type of automation technology or equipment you choose is produced by a variety of manufacturers, here are the top things to consider when deciding which is right for you:

  • Customer support – You might think, ‘how hard can it be’ or fall for the sales pitch that a tool or piece of equipment is so easy to implement – reliable, dependable, and accessible support isn’t necessary. But that could not be farther from the truth. When questions or issues arise with the automation technology you choose – you don’t want to lose time, production, or money while you wait for a solution. Even though technology with customer support may cost more upfront, think of it this way. You’ll either pay up now or later. So, what will you choose? Paying a premium from the start to hit the ground running with 5-star equipment, technology and support? Or, saving a couple of bucks now, just to lose time and productivity due to a lack of customer support and lower-quality technology later.
  • Manufacturer experience – In cannabis, most manufacturers come from other fields and lend their experience and skills to new areas of operation and production. That means you’ll want to take a hard look at the team’s core roots and where they come from to understand just how their work will translate. Looking for professionals who are trained in high-tolerance, precision engineering is ideal for automation. Working with teams with this temperament ensures that they typically hold themselves to a high standard. Just remember, the team you’ll work with is a culmination of people who create a result. It all comes down to whether the team you choose has a track record of doing so, and how well they’ve served prior customers, too.
  • Customer reviews – Want to discover how good or bad the team is, beyond what they tell you themselves or before it’s too late? To truly find out, ask their past or current customers.

Tip #3 – Learning from others

Of course, looking at successful operations and what they’ve chosen to automate for efficiency always helps, too. So, what is one common area that operators are increasingly optimizing for significant ROI on automation investments and efforts?

Most operations can increase efficiency by automating labeling.

Label applications. Label application is one process that almost any cannabis business can see an immediate return on investment in, across the board. While other areas of automation will vary and rely heavily on your volume, individual bottlenecks, and unique drops in productivity – most cannabis operations can increase efficiency by automating this non-varying, highly repeatable task.

The Final Word – Using Automation To Your Advantage 

Automation technology exists for a good reason. It helps cannabis business operators maximize efficiency, stay in compliance, reduce costs over time and, in turn, increase profits. But the wrong automation technology for your processes won’t do anything of the sort. It will only muddy operations, waste precious capital and set you back in the long run.

So use these three tips to find the right automation technology tools, software and solutions to use to your advantage – before your competitors get a leg up.

An Interview with Bespoke Financial Co-Founder & CEO George Mancheril

By Aaron Green
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Founded in 2018, Bespoke Financial is the nation’s first fintech lender focused on the cannabis industry. Led by a premier team of experts in the credit, technology and cannabis industries, Bespoke Financial has financed more than $800M in GMV across the US cannabis industry and is on track to deploy $1B by end of year 2022 via their revolving lines of credit. Bespoke’s financing empowers cannabis companies to increase purchasing power, remove working capital limitations and accelerate growth in a rapidly growing industry. The company is backed by respected venture capital firms such as Casa Verde Capital, The General Partnership, Greenhouse Capital Partners and Ceres Group Holdings.

Bespoke recently entered into a milestone partnership with Blaze as the cannabis industry’s first tech-enabled B2B lending product available in CA & MA. Through this partnership, Bespoke and Blaze will be the first to bring “Buy Now Pay Later” to the industry. With just the click of a button, vendors can utilize this BNPL feature by paying directly within the Blaze platform via Bespoke’s financing with a 60-day repayment term on all vendor payments while minimizing dispensaries’ reliance on cash transactions. 

We caught up with George Mancheril, co-founder and CEO of Bespoke Financial to learn more about trends in cannabis lending and their unique partnership with Blaze. George was the company’s CFO prior to taking the CEO position in 2019. Prior to Bespoke, George was a VP at Guggenheim Partners in California. 

Aaron Green: What does it mean to be a fintech lender in cannabis?

George Mancheril: Bespoke Financial is a first mover in fintech lending for the cannabis industry, equipped with a robust network of investors, industry expertise and a multi-year track record solidifying our credibility in the space. We are focused on working with established cannabis companies who can use our financing to unlock growth, profitability, and success in the near- and long-term future.

Cannabis lenders must navigate a complex web of both cannabis and financing regulations, specific to each state, while trying to identify good borrowers in a nascent industry comprised of new companies. This has caused banks, traditional lenders, and institutional investors to avoid cannabis despite the unique growth opportunities and economic potential of the industry overall.

Green: What makes Bespoke different from other cannabis lenders in the business?

Mancheril: Unlike the few cannabis lenders active in the market, Bespoke Financial combines best-in-class technology and lending products designed to address the specific financing needs of the industry to better serve our clients. Our tech platform offers a simple interface for our clients to easily access financing, monitor loan balances, and manage payments. Bespoke’s technology allows us to service a broad array of clients in numerous markets across the US, offering our clients a reliable financing partner for their immediate and future needs.

Green: What markets do you serve in cannabis? Are you able to finance plant-touching operations?

George Mancheril, Co-Founder & CEO of Bespoke Financial

Mancheril: Bespoke works with cannabis companies across the entire supply chain within 15 U.S. cannabis markets, with the vast majority of our borrowers being plant-touching operations, Our portfolio comprises cultivators, manufacturers, distributors, dispensaries, non-plant touching cannabis brands, ancillary service providers and CBD companies. Our financing options have helped a wide variety of cannabis operations overcome working capital limitations and capitalize on new growth opportunities and increase profitability.

Green: You recently announced a “Buy Now Pay Later” partnership with Blaze. What problems do dispensaries have that you are solving for there?

Mancheril: As broader economic activity slows in the US with the threat of a recession impacting both businesses and consumers, dispensaries face supply, demand, and fundraising challenges:

  1. Consumer demand challenges:
    1. Cannabis consumers in 2022 are significantly more price sensitive than recent years for several reasons.
      1. High inflation over the past 1yr+ has reduced disposable income for consumers in the US.
      2. Post-COVID return to normalcy has allowed consumers to spend disposable income on many goods and services which were largely been unavailable since the beginning of 2020 (ie travel).
      3. Concern about a recession and slower wage growth has further reduced consumer spending.
      4. Illicit cannabis has always been the main competition for legal dispensaries with little enforcement or curtailing of black-market activity to note in the US.
    2. New cannabis consumers are gravitating towards smaller (but growing) product categories (edibles, concentrates, infused beverages, etc.) as opposed to just purchasing packaged flower. Dispensaries must carry a wide array of products and brands in order to better attract and service new and existing customers.
  2. Supply side challenges:
      1. Mature cannabis markets, such as California, have been saturated with over supply since Q2 2021 leading to inventory build ups and declining wholesale prices for cultivators, manufacturers, and brands (collectively referred to as suppliers). In this environment, suppliers are offering discounts to incentivize customers (i.e. dispensaries) who can:
        1. Purchase larger quantities more frequently to allow suppliers to move inventory before the product quality degrades.
        2. Pay COD for purchases as cashflow and capital are very important for suppliers during periods of economic stress.
      2. Dispensaries without the financial means to conform to suppliers’ preferences will be at a considerable disadvantage as they will continue to have trouble sourcing popular products at the lowest possible cost.
  1. Fundraising challenges:
    1. Cannabis’ federal illegality has resulted in a much smaller universe of potential capital providers. Once a potential lender or investor is identified, typically the application process requires time and resources to complete which puts dispensaries in an especially disadvantageous position. Large MSOs, who tend to attract most of the available capital, can rely on internal finance teams to source capital whereas dispensaries are much more constrained and require a simpler, faster, and easier application process.

Our partnership with Blaze to offer B2B BNPL to dispensaries addresses these challenges and more. With access to our financing, dispensaries are empowered with:

  1. Fast access to financing without a lengthy application process, entirely housed within the Blaze POS’ platform
    1. Dispensaries on the Blaze platform do not need to seek out lenders or weigh various financing options.
    2. No materials need to be gathered for the application.
    3. At the click of a button, dispensaries gain access to capital which they are free to use as they see fit with no obligation.
  1. Easy to understand financing
    1. No obligation: dispensaries have full discretion to use our financing only when they choose.
    2. No prepayment penalties or additional fees.
  1. Increased purchasing power, enabling dispensaries to
    1. Carry a wider array of cannabis products and brands to better service consumer needs.
    2. Purchase a higher quantity of inventory from suppliers to qualify for volume-based discounts.
    3. Pay COD for purchases to qualify for early payment discounts.
    4. Offer lower prices to cautious consumers as a result of these discounts, thereby increasing sales and gross profit while strengthening their relationships with suppliers.

Green: Can you explain your decision to launch in CA and MA first? 

Mancheril: While our ultimate goal is to offer B2B BNPL in all legal cannabis markets, we launched in CA and MA first because these states represent the largest and fastest growing markets in the US respectively. California was the first state that both Bespoke and Blaze launched in individually, so it was a natural starting point for our BNPL partnership. Massachusetts’ continued growth is compelling for any service provider and we believe our BNPL financing will be as successful addressing the needs and challenges in this newer market alongside those in more mature states.

Green: What trends are you seeing in US cannabis debt financing?

Mancheril: Since 2020, we’ve seen many MSOs increasingly rely on debt financing as opposed to equity capital. MSOs accounted for over ~80% of the debt raised over the past 2 years despite only representing a fraction of the broader cannabis market. Additionally, commercial real estate financing options for cannabis companies have increased over the same time period, driven by the growth of cannabis focused REITs. In general, by the end of 2021, we saw an increasing number of debt investors focused on higher yields participate in cannabis deals.

The recent macroeconomic volatility, increase in rates, and widening credit spreads in 2022 have slowed and slightly reversed the trends seen over the past 3 years. While banks and traditional lenders continue to wait for federal legalization, the vast majority of cannabis companies continue to have very limited access to debt financing options. Over the past quarter, we have seen debt investors leverage the recent illiquidity to negotiate higher interest rates and equity components in new debt deals, a trend we expect to continue until the broader economy strengthens or federal legalization gains traction.

At Bespoke, we empower entrepreneurs to grow their businesses without having to surrender control of their companies or visions. We are excited to continually be market leaders addressing this very vital need for cannabis companies of all sizes in all market environments.

Green: What trends are you following in US regulations and emerging markets?

Mancheril: The most recent headlines have been mixed for US cannabis regulations. Federal legalization is a huge point of focus with SAFE Banking failing (again) to survive the US Senate while the introduction of the revised CAOA offers a glimpse of hope. We believe federal regulatory changes will continue to be debated and discussed without any meaningful progress over the next 2 years but the current discussion of the CAOA revisions will provide the best insight on lawmakers’ priorities. On the local level, the list of states with adult-use sales continues to expand and we would expect to see a handful of new markets ushered in by voters in 2022.

Green: What would federal legalization mean for the cannabis lending industry? How do you stay ahead of the curve?

Mancheril: Federal legalization can occur in a variety of ways, including rescheduling cannabis (currently Schedule 1), descheduling cannabis entirely from the CSA, deferring to state specific regulation, implementing a national cannabis regulatory framework, or some combination of all of the above. The complexity of future regulatory changes makes the timeline for legalization difficult to forecast but we believe that the path forward will be comprised of multiple legislative changes over a number of years as opposed to a comprehensive reform addressing all the relevant points at once.

Based on the interests and goals of all stakeholders in this conversation, we believe that:

  1. Cannabis de-scheduling or rescheduling is unlikely to occur before 2025
  2. Any federal legislation which is approved will require long transition periods for new rules to be finalized, implemented, and adopted by relevant stakeholders (state regulators, courts, cannabis operators, financial institutions, etc.)
  3. Federal lawmakers may allow for financial institutions to service the cannabis industry prior to de-scheduling through limited scope legislation like SAFE banking
  4. Federal legislation will have a difficult time balancing deference to state specific cannabis regulation while enabling federal agencies such as the FDA and Treasury department to issue guidelines and rules for the broader industry. Too much federal agency interference will jeopardize existing & functioning cannabis markets while too much deference will impede vital oversight and consumer protection.
  5. We believe interstate commerce will not be allowed immediately following federal legalization. Interstate commerce will benefit larger MSOs and states with mature cannabis markets (which are hampered by oversupply) at the expense of smaller single state operators and new markets. State governments are motivated to legalize cannabis in the pursuit of tax revenue and economic opportunity for their constituents, both of which would be significantly reduced for newer markets competing with out of state operators.

Regardless of which path federal legalization takes in the coming years, the net benefit for the industry overall will be clear. Setting aside the societal benefit from expunging criminal records for non-violent offenders and freeing enforcement agencies to focus on more serious issues, any progress towards legalization would significantly reduce the challenges that cannabis operators face today. Cannabis companies will see a reduction in operating expenses, a wider array of options for basic business services like insurance and marketing, and an increase in consumer demand as the stigma of illegality fades into memory. Allowing banks to service the industry would remove cash as the primary form of payment, entice larger pools of capital to enter the cannabis market, and in general de-risk the industry tremendously. Bespoke will continue in our role as market leader and cannabis industry advocate in this new paradigm by empowering our clients with even greater access to the capital and services vital to their continued success.

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Where the Cannabis Industry is Headed in 2022

By Serge Chistov
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Federal legalization of adult use cannabis is still out there as a potential, but ultimately, there are no guarantees that come with such a move. Further, even with legalization, the state-to-state variations in regulations for everything from cultivation standards to packaging and transportation will make marketing country-wide a difficult proposition for most cannabis businesses. The businesses that will grow and thrive will be ones that embrace trends and opportunities that are on the horizon for 2022 and beyond.

Economic resilience even in challenging times
Large scale companies are dealing with the issue of state-to-state differences in regulations by building branded verticals in each state: from growing to packaging, as well as building stores, in order to avoid the issue altogether. It’s an expensive proposition that is out of reach for the smaller entrepreneur, but it creates an almost regulation-proof setup for these organizations.

One interesting trend that would never have been as clear if the pandemic had not occurred is that cannabis is being generally viewed as a recession-proof industry. The pandemic has put the same types of constraints on consumer activity as a recession does and the results are clear: people are still interested, perhaps more so, in cannabis-related products and will choose to continue using them, even in times of restraint.

This economic resilience has also encouraged the growth of investment opportunities in the cannabis industry. ETFs (exchange-traded funds) that cover the industry are growing in number, as more cannabis related businesses grow in size and go public.

While banking through traditional institutions will continue to be difficult for cannabis businesses, pending federal legalization, there is a lot of money being funneled into the industry, through venture capital and angel investments. There is no question that it is still a growth industry now, and into the next decade.

Technological advancements 
Now more than ever, cannabis has gone mainstream. The medical uses for it in terms of stress reduction, mental health and so on, have built up markets that might have otherwise looked to more traditional pharmaceutical options. There is an interesting portion of this new mainstream market that is interested in the therapeutic effects of cannabis but not in the traditional consumption method of smoking. In addition to wanting to avoid inhaling smoke, this same section of the market is acutely aware of what they put into their bodies and what impacts their choices have on the environment at large. The result? Organic, ethically sourced and developed cannabis products are becoming more and more the norm.

Some of the many infused products on the market today.

Products that include oils, tinctures, topicals and edibles are all within the scope of what the discerning cannabis consumer is looking for. The only downfall for many of these types of products, versus a smokable, is the effectiveness of the THC. For example, edibles can take upwards of an hour to produce any psychoactive effects. That limits the function of these types of products, so the next generation of these requires technological innovation to find a solution to that limitation, such as nano emulsions.

For example, we have innovated by leveraging technology that reduces THC particles to a nano size and creates a barrier around the particle so that they can be absorbed into the bloodstream, bypassing the neutralizing effects of the digestive system. This effectively creates edibles that produce a high that is comparable to what can be obtained by smoking a joint, therefore solving the issue that edibles have had in the past.

Multinational growth opportunities
With the inability to export from the US to other growing markets, there is the opportunity for cannabis companies to expand as multinationals. Growing and marketing cannabis products elsewhere and exporting to other countries that will accept the imports, is a big opportunity. To use an existing example, Uganda has established a government sponsored program to produce and export medical cannabis to Germany. This is an important change that has other countries in particular watching to see how this evolves. Certainly, from the point of view of local economic development, it’s too good an option to ignore.

We are partnering with a chain of medical clinics in Tanzania—“Your Local Clinic”—to provide local medical practitioners with the ability to prescribe medical cannabis, once legalization is realized. This is the first step in a longer term plan that will allow us to build up legal exports to Europe.

Export to the European Union (EU) is expected to grow dramatically by 2025, leaving plenty of expansion opportunities for US companies to take their growing practices, as well as available technology for irrigation, to the next level, via Africa and potentially even Latin America.

Leaders in Cannabis Formulations: Part 5

By Aaron Green
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Natural cannabinoid distillates and isolates are hydrophobic oils and solids, meaning that they do not mix well with water and are poorly absorbed in the human body after consumption. Cannabinoid oils can be formulated into emulsions to form a fine suspension in water to modulate bioavailability, stability and flavor.

Happy Chance is a cannabis infused products company offering better-for-you products to their customers. Happy Chance recently launched a low-glycemic index fruit bite line made from fresh ingredients, distinguishing them from traditional gummies. Splash Nano is a cannabis infused products ingredients company specializing in nano emulsions. Happy Chance utilizes Splash Nano technology in their fruit bites formulations.

We spoke with Katherine Knowlton, founder of Happy Chance, and Kalon Baird, co-founder and CTO of Splash Nano to learn more about their products and how they came to do business together. Prior to Happy Chance, Knowlton worked as a chef. Prior to Splash Nano, Baird was a consultant to the cannabis industry.

Aaron Green: Katherine, how did you get involved in the cannabis industry?

Katherine Knowlton, Founder of Happy Chance

Katherine Knowlton: I am a chef by trade. I went to culinary school in 2015. My partner also got into the cannabis space in 2017, which was right around the time when adult use cannabis became legal in California. As a chef, I am very passionate about cooking for optimal health and well-being. I noticed right away the abundance of candy- and sugar-laden products on the market. I set out to create a wellness driven product blending healthy, whole foods with a better value proposition, better-for-you and better-for-the-planet.

Green: Okay, great. Kalon, same question: how did you get involved in the cannabis industry?

Kalon Baird: I left a corporate job in 2011 and started cultivating in Southern California. I started to develop techniques for horticulture and developed a connection with the plant. I was a consultant for many years, and then decided to take a different path when legalization happened and got into the regulated manufacturing space. My goal was to bring new products to market to help satiate the demand for the infused category, the non-smokeable categories and to pursue niche product development.

Green: Tell me about your recent product development interests?

Kalon Baird, Co-Founder and CTO of Splash Nano

Baird: We’re interested in the research that comes out regarding cannabis minor constituents. We work with other research labs doing two-dimensional chromatography. We’re trying to figure out what compounds exist in the plant that aren’t just the major cannabinoids, and how to work with them in a pharmacological context so that they can be standardized and replicated at scale.

So, it’s not just about making a sugary THC gummy, it’s about seeing what minor cannabinoids, what minor terpenoids and what other unknown compounds can we explore, and then put back into products.

Green: That’s 2D GC-mass spec?

Baird: Yeah, it’s GC-by-GC and tandem mass spec. There are only a couple people that make that piece of equipment. The lab that we work with on that project is called Veda scientific. They’re one of the only people in the cannabis space that uses that machine. And they’re right in our backyard. The tech enables us to further quantify terpene profiles and helps to differentiate our products.

Green: I’d like to focus first on the Splash Nano technology and then we’ll dig into how you got to know each other, and then we’ll finish off with learning more about Happy Chance. So Kalon, tell me more about Splash Nano.

Baird: We employ nano emulsion technology. It’s essentially the science of making oil and water compatible and suspended in a way that reduces droplet size. With nano emulsions, you create an interfacial layer that enhances absorption and solves technical problems like being able to make cannabis oil compatible in water-based matrices, and sometimes in non-water-based matrices. The idea is that as we spread out the particles and as we change attributes of how they’re coated, they’re more bioavailable, and you get a more consistent and faster onset experience like you would in the pharmaceutical or alcohol industry. It’s bringing the industry standard up to the consumer package level and the pharmaceutical level, so that people aren’t waiting the typical hour-long timeframe to absorb that first dose.

Green: Tell me about your business model.

Baird: When we started out in 2018, we were going for a manufacturing license. In the meantime, we saw the drink category evolving and we wanted to be a part of that conversation in that ecosystem. We started developing our own nano emulsions that we knew would be useful when we got our license. We knew that we would sell the base material to co-packers who would put them into beverages. We didn’t want to co-pack the beverages ourselves. So, we developed a drink additive that was our proof of concept that had legs for the technology so that we could show people how to use it. That proof of concept spun off and became its own product and now it’s in the market under the brand name Splash Nano and comes in four distinct product SKUS using minor cannabinoids as differentiators.

The Splash Nano drink additive

Meanwhile, our bread-and-butter business was working with smaller brands, like Happy Chance that needed a path to market but couldn’t get the license or couldn’t go through that whole rigmarole of a two-year waiting period and a half a million dollars and all the other stuff. So, we started taking on all these smaller brands effectively licensing their brand IP and their ideas. In the process, we ended up learning a ton about product development and it became kind of a passion.

We have three core revenue streams. One of them is contract manufacturing, or private labeling. The other one is our own product Splash Nano which is a drink additive. And then the last is we open sourced the technology and sell that as a business-to-business platform so that people can infuse their own products with our fast-acting emulsions. We’re working on a licensing model that will allow other states to create that same consistency, where we send a black box model out to them, and then they infuse the cannabis and then turn that into a product.

Green: Moving on to Katherine here. Tell me about Happy Chance, and how you came up with the brand concept and the product idea.

Knowlton: Going back to what I touched on earlier, many traditional edibles in the space are brownies, cookies and candy type of products that do not contribute to wellness. I wanted to give the wellness driven consumer an option in cannabis. I wanted to create a powerhouse edible that was not only functional and complete but that elevated the consumer’s experience as a whole because of the ingredients we choose and the whole cannabis we source.

Some of the Happy Chance fruit bites

I’m someone who values better-for-you products that contribute to optimal health and well-being. So, I set out to make something. I didn’t really know what I wanted to make in the beginning. I bought a dehydrator and a food processor, and I started messing around with different applications in my kitchen. Over 100 variations later, the fruit bite was born.

The fruit bite is made with dates – a natural sugar that delivers nutritional power: a low glycemic index and high in vitamins, minerals and antioxidants. A sweet you can feel great about. And we use pumpkin seeds which have a lot of great protein. We are working with a company in California that takes imperfect fruits and vegetables and upcycles that back into the food supply chain. We utilize the whole fruits and vegetables as a dried intermediate, capturing all the flavor of nutrients. No added natural flavors and nothing from concentrate.

Green: How does the consistency differ from a gummy?

Knowlton: The consistency is similar to a Lara bar or an Rx bar. Essentially, it’s that same consistency in a bite form and so it’s very different than a gummy. It’s a low dose, low sugar alternative to the modern-day gummy.

Green: So, you’ve got this healthy concept for the fruit bite. You’re looking at suppliers and technologies to infuse the product. How did you finally decide on Splash Nano?

Knowlton: I watched my partner lose his company a few years ago to a larger vertically integrated company. The MSO promised the moon and the stars, and they got lost in the weeds of their eco-system, ultimately losing their company. That said, I was very sensitive when I first started on this journey. I even took on my own partners who didn’t work out either. I spoke with a lot of manufacturers in the selection process. Splash Nano was the tenth manufacturer I spoke with.

It was a very organic way of meeting. I am also based in Santa Barbara where Splash Nano is located. My partner’s brother shared an office space with Kalon, so we met through that connection. I learned right away that Splash was founded on wellness, much like Happy Chance. It was important to source clean cannabis, an aspect that Kalon and his team take pride in. We quickly discovered that Kalon’s Splash Nano technology was going to work in my product. Happy Chance immediately found a home, and it has been an organic evolution of realistic business and friendship.

Green: Kalon, I’d love to get your perspective as well. How do you think about partnering with brands?

Baird: Because of our contract manufacturing experience, we’ve been able to touch approximately 50 brands over our three-year tenure in this space. We’ve seen kind of everything from the multi-state operator to the owner-operator and everything in between. I developed a passion for working with these smaller brands for a lot of different reasons. This industry is built on the success of small mom and pops. Yes, the multi-state operators do have a place and they absolutely add a lot of value. But at the same time, they have their own natural challenges. You have essentially a culture of employees versus a business owner that’s making a lot of their own decisions.

There are advantages to somebody like Katherine, who’s in the trenches of business, and understands the ebbs and flows and ups and downs of this industry and be able to get through some of those challenges a lot more organically and a lot more sustainably. Katherine has such a deep pulse on her business and on her customer and on her own money. She tends to make a lot more calculated decisions, and I really appreciate that.

There’s a lot of waste that gets accumulated in this industry through packaging, through bad decisions, and over extensions of capital. It’s sad to watch and you see these people that have great potential, but it’s kind of lost in this sort of the framework of a large organization. Again, I like multi-state operators, they’re great. There’s nothing wrong with them, but it’s just a different flavor. I’m trying to highlight the fact that working with somebody that has a pulse on her business, and the passion for what she’s doing is wonderful. It’s not just about making money; it’s about adding value.

Green: Katherine, talk to me about sustainability and how you’ve woven that into your product.

Knowlton: We’re dedicated to supporting Product, People and Planet. That’s the whole mission and ethos of Happy Chance. As a chef, I wanted to be intentional about where our ingredients come from. We only source organic and upcycled ingredients – an essential recipe in sustaining a healthy, eco-friendly plant. Intention and integrity are always at the forefront of our products. We prioritize partnering with more transparent supply chains. We want to show the world how cannabis can promote positive lifestyle changes that support living more actively and consciously.

To reiterate, we are also not using anything from concentrate. We are using the entire strawberry, the entire blueberry and so it encapsulates all the flavor and all the nutrition that you would have from a fresh fruit into our products.

Green: How do you think about sustainability in product packaging?

Knowlton: As far as packaging goes in this industry, we’re very limited in what we can do. Compostable packaging isn’t really available, but we have partnered with a packaging company that definitely has mindfulness at the core of their mission. They have established their entire supply chain to ensure they are focusing on green practices and reducing waste each step of the way. Their energy efficient machinery creates a zero-waste manufacturing process to reduce their carbon footprint and they utilize soy and vegan inks to help reduce air pollution by minimizing toxic emissions in the air. My hope for the industry is that as it continues to evolve, we can become less wasteful as far as packaging goes.

Green: Rapid fire questions for both of you: What trends are you following in the industry right now?

Knowlton: As a chef and coming from the CPG world, I’m passionate about health and wellness. I think that it’s important to stay on trend with what we’re seeing in CPG. There’s definitely a market as far as people wanting these better-for-you products. I want to bring that into the cannabis space.

Baird: We’re seeing the inclusion of minor cannabinoids, terpenoids, standardized recipes and faster- or slower-acting delivery systems. So, I’m following trends in advanced drug delivery systems paired with minor cannabinoids.

Green: What are you most interested in learning about?

Knowlton: I’m most interested in how I can take what I’ve learned in the food space and help bring that into the world of cannabis through Happy Chance. Ultimately cannabis is plant medicine. So, how can we educate people that the ingredients we choose to make products should be good for us too. I think that there’s a lot that can be done with it from a from a health and wellness standpoint.

Baird: I’m interested in learning more about the analytical overlay between quantifying and standardizing entheogens and plant medicines like cannabis into the product development process in CPG. I’m thinking of ways to blend the two worlds of traditional science and New Age medicine.

Green: Awesome, that concludes the interview. Thank you both, Katherine and Kalon.

Technological Evolution of the Cannabis Industry

By Serge Chistov
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Discussions about the evolution of the cannabis industry are often focused on the legalization of adult use and medical cannabis, the growth of the business models associated with the industry and so on. An interesting corollary to those discussions is how technology is impacting the evolution of this growth industry. 

It’s no longer just a question of growing some buds and offering up a high, with little thought as to product, packaging, marketing or the end consumer. Technology has changed the way cannabis is being commodified, and that’s a good thing. After all, with more and more states making adult use legal, creating products that appeal to a wider market and demographic is in part accomplished thanks to tech.

From the growth stage

Few growers are using outdoor facilities, where the elements cannot be controlled. Until recently, indoor growers ran into issues like simulating natural light to a level that would be of maximum benefit to the plants. The amount of lighting required to be effective was very expensive to maintain in terms of electricity consumption, but that is changing.

Then LEDs came on the scene: high quality, low heat light with a far larger and more natural spectrum, versus blue and red light frequencies that are available in standard bulbs. Using far less electricity and emitting less heat, therefore requiring less need for additional air cooling, as well as longer bulb life spans, LEDs have become an industry standard.

Beyond the plant

LED lights use less energy and omit less heat than other more traditional options

As with any agricultural product, the important work is in growing the plants but thanks to technology, producers and manufacturers can now offer their customers a much wider array of products than buds for smoking. Edibles, vapes, oils, capsules and even creams are all products of technology influencing change in the cannabis industry. For consumers who aren’t interested in smoking directly, these offer promising options. 

The issue consumers have often had with edibles has been the lag time from consumption to high, as the THC has to pass through the digestive system, which takes upwards of an hour, and reduces the effectiveness of the dosage as some just doesn’t make it to the bloodstream. Technology has led to the creation of a method for making non-smokable forms of cannabis just as effective as a direct to the lungs hit of a joint: nanoencapsulation.

The point of nanoencapsulation is to reduce the size of the cannabinoid to a nano size and protect it—the encapsulation part of the equation—so that it becomes soluble in water, or in the body which is 75% water. The ability to bypass the digestive system and the gastric fluids that impact the effectiveness of an edible, and get it through the stomach walls to the bloodstream, means that nanoencapsulated formulations can have the virtually the same “time to a high” effects as a joint, without the need to inhale smoke.

It’s now possible for consumers to quantify exactly how much THC they are consuming, allowing for new and different consumption styles, including micro-dosing. Finding the right “dosage” for each individual—as everyone responds differently to cannabinoids—isn’t a simple task but newer technology is setting up a path to personalization that will make it easier.

Personalization

Imagine being able to take a test that would allow you to determine the perfect balance of THC and CBD dosage, as well as the right strain of cannabis, to create the desired effect. Whether that’s a reduction of anxiety, improved sleep or the psychoactive high that cannabis is known for, technology is leading the path to ending the guessing games as to dosage and blending of different cannabinoids.

A perfect example of this is CannabisDNA, a saliva-based swab test that evaluates over 70 of an individual’s genetic markers to establish what strains and dosages are most compatible with that person’s physiology. It’s a matter of time before this technology becomes more readily available and consumers will be able to obtain a range of products created with their personalized profile in mind.

In addition to matching cannabis to an individual’s DNA, there are efforts to decode the DNA of the various strains of cannabis, to better clarify important elements like THC, CBD and other cannabinoids like CBC. This last and far more rare cannabinoid has been associated with very strong anti-inflammatory reactions. This kind of deconstruction of cannabinoids at the DNA level will make it easier for producers and manufacturers to create products that address specific needs, both medical and recreational.

Purchasing power

Boutique dispensaries are popping up to make the more mainstream consumer comfortable. And thanks in part to the recent pandemic, online purchasing has jumped, with apps and websites being developed for purchasing and shipping just the right product, any time. 

Ads for CBD products online regularly perform very well

As has occurred in other areas of agriculture, there is a push towards transparency on product provenance and growth methods, so that the end consumer can make choices about what they are putting into their bodies, with as much information as possible. Field to dispensary tracking is on the table as a method to keep consumers educated and informed, which ultimately improves the connection between producers and consumers. 

Add to these ideas the fact that there are serious improvements in packaging being developed, which allow buds to remain fresh and full of flavor by eliminating light, air and moisture, while still remaining child proof. This is all part of the evolution of the cannabis industry, with a view to keeping customers happy and interested in the product.

Technology within the cannabis industry isn’t an end in itself: after all, the most important part of the effort is the growth of the plants themselves. But technology can change the evolution of the industry in ways that make it more interesting for everyone, from the grower, to the manufacturer of products, the dispensary owner and the consumer as well.

Leaders in Cannabis Formulations: Part 4 – LifeTonic

By Aaron Green
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Russell is the CEO of NES Technology Holdings, a technology development and marketing company that operates Vapor Distilled and LifeTonic Brands. NES Technology Holdings has invented a technology portfolio of more than 160 granted and pending patents that cover inventions across several high-value industries, including cannabis, beverage, fragrance and nutraceuticals. The company is currently in license acquisition diligence processes with 7 of world’s 10 largest fragrance companies and has received a joint venture offer from a $3 billion fragrance company to produce perfumes with its extraction technology. It is also launching ionized cannabis beverage products that provide effects as quickly as alcohol in Nevada and Colorado this fall.

Vapor Distilled invented and commercialized an evaporative extraction process with 40 international patents granted and pending that, along with CO2 extraction, is one of only two fundamentally new extraction processes invented in the last 50 years. Instead of using solvents or hydrocarbons to extract oils from plants, evaporative extraction directly evaporates essential oils from plants and condenses the evaporated compounds into an extract. The process takes less than two seconds to complete and extracts higher levels of volatile terpenes than existing extraction methods. Vapor Distilled has built a fleet of commercial-scale extraction machines and has supplied some of the cannabis industry’s largest brands. The company is currently licensing its evaporative extraction technology within the perfume industry and is marketing an aroma hop extract to replace the dry hopping step when making beer.

LifeTonic invented a drug delivery technology with 56 patents pending and granted, that turns oil-based plant compounds like CBD and THC into electrically charged cannabinoid ions that dissolve completely in water without emulsifiers or additives. When cannabinoids are ionized, absorption is significantly enhanced and their effects can be felt in minutes. The effects of a LifeTonic ionized CBD beverage can be felt by most people in less than 5 minutes, whereas the effects of a LifeTonic ionized THC beverage can be felt by most people in less than 8 minutes. For reference, typical onset times for cannabis beverages are 30 minutes or longer. LifeTonic beverage technology will allow cannabis beverages to work as quickly as alcohol, enabling cannabis to become a social drink.

Russell Thomas, CEO of Vapor Distilled and LifeTonic

We spoke with Russell Thomas, CEO of Vapor Distilled and LifeTonic about his cannabinoid evaporation process and rapid onset beverage technologies. Thomas is a career entrepreneur and inventor with 21 years of experience inventing and protecting intellectual property. Russell’s team has generated more than 160 granted and pending patents. Prior to entering the cannabis industry, Thomas worked in the cleantech industry.

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

Russell Thomas: I came to the cannabis industry from the cleantech industry where I worked on technologies that improved the fuel economy of vehicles. I saw opportunities in the cannabis industry to improve cannabis extraction, which was one of the most important supply chain verticals in cannabis. Every product, from edibles to beverages and vape products, requires a cannabis extract. Any product that needs to be accurately dosed requires an extract. The old way of making edible products with cannabis butter was simply not viable as the industry matured, and most people were rapidly moving away from smoking cannabis and embracing vape products. Even with the entire industry almost completely dependent on extraction, no fundamental innovation was occurring. The primary ways that cannabis was being extracted were chemically intensive. The cleaner methods, such as CO2 extraction, were slow and expensive for terpene recovery. I saw this as a great opportunity to provide a better solution within a primary funnel of the cannabis supply chain.

We commercialized an extraction technology that evaporates cannabinoids directly from plant material in the form of vapor, and then recondenses that vapor back into an essential oil. The entire process takes less than two seconds to complete and preserves fragile terpenes. That technology, called Evaporative Extraction, is the foundation of Vapor Distilled.

Green: What timeframe was that roughly?

Thomas: We capitalized our company in 2015 and began selling wholesale extracts in 2017.

Green: Can you talk more about the evaporative extraction process?

Thomas: Our process works in a similar way to a cannabis vaporizer, but on a massive scale. Our extract is literally recondensed cannabis vapor. In one step, we extract, refine, and activate cannabinoids. On one end, plant material goes in the machine, and on the other end, extract and depleted plant material comes out. Our total extraction time is less than two seconds if you measure the time from when the plant material goes into the extractor and when the extract is condensed.

The LifeTonic logo

A continuous feed of dry plant material is introduced into a heated air stream. The air stream pneumatically conveys the plant material through a series of turbulent, heated evaporation chambers. Upon entering the evaporation chambers, volatile plant compounds are instantaneously distilled from the plant material. A centrifugal separator removes the depleted plant material from the air stream. The air stream is rapidly cooled, causing the volatile plant compounds to condense into an essential oil.

We achieve nearly total activation of THCA to THC simultaneously during extraction and, on average, we extract approximately two to four times more terpenes than a conventional extraction process. The cannabis industry is rampant with exaggeration about terpenes, but we are the only cannabis company negotiating a joint venture with a $3 billion fragrance company to produce perfumes, and I think that says a lot about our process.

Green: Is the extract coming out then as an oil?

Thomas: Our extract comes out of our machines as a fully-activated, high-terpene content, full spectrum oil. Unlike the THC crude that emerges from other processes, our extract requires no further distillation, activation or refinement. You can put it straight into a product.

Green: How about terpene recovery?

Thomas: This is by far what we do best. We excel with the recovery terpenes and volatile compounds from plant material. From day one, we noticed that our evaporative extraction process yields about two to four times more terpenes by mass compared to traditional extraction methods.

While we started as a cannabis company, we recently received a compelling joint venture offer from a $3 billion fragrance company to produce perfume products with our technology. We are also under NDA with 7 of the world’s 10 largest fragrance companies to complete diligence processes to license our extraction technology.

As part of our licensing diligence process, we are performing paid fragrance extraction research for three multi-billion-dollar fragrance companies. Our evaporative extracted fragrance extracts are presenting a broader and more complete range of volatile compounds compared reference samples. We are also seeing substantially improved yield of volatile fragrance compounds. Combined, this gives us the advantage of being able to produce more extract at a lower cost, while also producing a superior product. This combination is how licensees can take market share away from any fragrance company that does not have access to our technology, and it is why we are seeing so much rapid traction in this area.

We have also extracted hops with our technology. If you’ve ever smelled a traditional hops resin, it smells good, but the smell doesn’t fill the room. If you put just a drop of our hops extract on any surface, the entire room will smell strongly of a premium IPA beer. It’s so potent you don’t want to get it on your hands or clothes because you will smell like beer for hours. It’s powerful and wonderful stuff!

Green: What is your business model?

Thomas: At our core, we are a technology development and licensing company. We first identify what we believe to be critical verticals and bottlenecks in high-value industries, then we develop and patent highly differentiated and disruptive technology solutions that we believe exist nowhere else. We then demonstrate both market fit and viability at scale through proof-of-concept sales of branded and high-profile, white-labeled products produced with our unique technologies. Finally, we systematically license and exit the various portions our IP portfolio though the orchestration of highly competitive bidding processes that promote both defensive and strategic acquisitions of our technologies. We are currently at the final phase of our model with licensing our extraction technology, and we are receiving offers as part of a competitive bidding process.

Green: Okay, let’s change gears here and start talking more about LifeTonic and your cannabinoid ionization technology. Can you talk high level about the onset times of cannabinoids in different matrices and media?

Thomas: Through LifeTonic, we invented 56 international patents granted and pending cannabinoid ionization technology that compresses the normal onset time of cannabis beverages from 30 minutes down to just a few minutes. Our cannabinoid ionization technology can also be used as a rapid onset vape alternative when sold in a breath spray format. We are currently selling hemp-based versions of these products through LifeTonic.com, and we are bringing THC versions of these products to market in Nevada and Colorado this fall and winter under the brand name LifeTonic.

All conventional and even nano-emulsified cannabis edibles and beverages take a long time to work. A cannabis chocolate can take 45 minutes to two hours before the effects kick in. Cannabis gummies are faster, but it still takes half an hour to 45 minutes to feel the effects. The very best nano-emulsified cannabis beverages take about a half an hour to work on average, if you are lucky. That long of a time delay effectively eliminates the social aspect of consuming cannabis, so most people instead choose to vaporize or smoke cannabis.

If you look at the largest investments that have been made across cannabis, some of the most prominent have been made by alcohol companies. Constellation Brands invested nearly $4 billion into Canopy Growth, with a mission to find an alternative to alcohol in cannabis. Molson Coors has partnered with Hexo and AB InBev has partnered with Tilray, both with that same mission. Even after all this effort and investment, cannabis beverages represent just a sliver of the market because current cannabis-based beverages take too long to work. The fastest ones on the market, on average, take around a half hour to kick in.

Imagine going to a bar and knowing that every time you got a shot of tequila or a shot of whiskey it’s going to take thirty minutes or more for the effects to even begin to kick in. That would be terrible. That would be the end of social drinking. Unfortunately, that is how a conventional cannabis beverage works.

You can’t really get a social drinking experience with cannabis yet, so most people vape it because it’s fast. But a lot of people don’t want to smoke something; in fact, they don’t want to inhale at all. So, we saw beverages as a huge opportunity. How do we make cannabis beverages work as fast as alcohol? That’s what our ionization technology delivers. From all the people we’ve surveyed – hundreds of people – they say that they reliably feel an onset within about seven to eight minutes with our technology. That is just about as fast as a shot of tequila or whiskey.

“With our partners, we will be featuring LifeTonic beverage products on tap in a cannabis cocktail lounge right off the Las Vegas strip, where social consumption rules are welcoming.”What we’ve done is very different from available nanoemulsion technologies. All those technologies try to mix oil and water, and oil and water don’t mix. In a nanoemulsion, you mix cannabis, a carrier oil, an edible detergent and water, and then you run it all through an ultrasonic homogenizer that breaks the cannabinoids and oil into microscopic droplets suspended in water. There are a lot of styles of nanoemulsions, from spray-dried nanoemulsions to liquid liposomal encapsulations, and they all confer certain absorption benefits when compared to straight-up oil absorption. But still, even the microscopic oil droplets suspended in water are quite large compared to what we have done, and still take quite a long time to digest.

We looked at the cannabis molecule and we said, “You know what? If we can put a strong negative charge on it, if we can ionize it, then we can make it behave more like a dissolvable salt instead of an oil.” When we treat it this way, the cannabis molecule dissolves completely in the water without emulsifiers or additives. When something is dissolved, there is no nano-emulsion droplet size. It is single molecules dissolved water. A single ionized cannabinoid molecule is about 1,000 times smaller than an average nano-emulsion droplet – and this greatly enhances absorption. The onset speed of ionized cannabinoids compared to nanoemulsions is measurable as just a few minutes instead of a half hour or more.

We have 56 granted and pending patents on LifeTonic’s ionization technology. We can ionize THC, CBD, CBG and CBD – most cannabinoids are compatible. There are also several herbal products that are compatible with our ionization technology, like the curcuminoids in turmeric, which are normally very hard to get into water. We can also ionize the eugenol that is in cloves. Ionized eugenol is an intoxicant, so we have big plans for alcohol alternatives outside of cannabis.

We’re using this technology to enter the Nevada cannabis market with one of the largest dispensary chains and cannabis product manufacturers in Nevada. With our partners, we will be featuring LifeTonic beverage products on tap in a cannabis cocktail lounge right off the Las Vegas strip, where social consumption rules are welcoming. We’ll craft every kind of cocktail you can imagine, only without alcohol. All these beverages will work in a matter of minutes to provide the first true social drinking experience with cannabis. After you enjoy a beverage, you may purchase a package of ionized THC beverage powder sachets in the cannabis cocktail lounge or at any of the dispensaries within our distribution network. You can pour the powder into any beverage, and it becomes a friendly, fast-acting THC beverage that will get you high, but not leave you with a hangover. We will also be selling a breath-spray format that works almost as quickly as vaping.

Green: What kind of validation studies have you done?

Thomas: We have conducted several broad market studies for our ionized products and almost all people report a profound onset within a few minutes. We have not completed a formalized clinical trial, but we are closing a major funding round that will allow us to do so. We plan to begin controlled pre-clinical trials focused mainly on ionized CBD because it’s far easier to get FDA approval for clinical trials on CBD than for THC. Our studies will monitor a couple dozen volunteers with a functional MRI and watch the change in the brain using our oral spray and beverage products compared against a standard CBD tincture control. We know that we’re going to see fast action because everybody who uses it says that a feeling develops in minutes.

Green: What geographies are you active in and exploring?

Thomas: CBD and hemp products from our extraction technology have been sold in every US state and parts of Europe. Additionally, hemp-based CBD and CBG versions of our ionized products and ionized turmeric products have been sold in several states through our LifeTonic.com, our ecommerce site. We have also sold white labeled versions of our ionized products through partner brands. We will be launching THC versions of our ionized products with our partners Nevada this fall. We expect THC versions to also be available in Colorado this winter.

Green: So, you are creating the powders on site?

Thomas: Yes. We manufacture ionized CBD, CBG, eugenol and turmeric beverage powders on site. We also manufacture and fast acting ionized sprays. These products are sold through our own retail site and we white label for other brands. Per our long-term licensing strategy, these sales establish market viability through sales. Selling products and establishing market viability prior to licensing significantly increases the value of our licenses and exits. It’s very important to answer the question: Do people buy it and do people love it? So far, we like the feedback!

On the THC side, we manufacture ionized products through partners in each cannabis state that we enter. We manufacture the ionizing base here in Colorado, then we ship it to other states where our partners add the THC and package it in LifeTonic-branded packaging. The analogy is that we sell a proprietary Coca-Cola formula without the caffeine, then our partners add the caffeine and bottle it in Coca-Cola branded bottles. In this way, we ensure that the hardest part of our process is controlled house to ensure consistency and quality across all states. It also allows us to be a non-plant touching business, since we only sold upstream base products that did not contain THC. We pick the best manufacturing and distribution partner in each cannabis state and grow from there.

Green: What’s the one thing you’re most interested in learning about?

Thomas: Increasing the bioavailability of cannabis. I have been most passionate about making cannabis work as quickly as alcohol and giving people an alternative to inhaling it through smoking or vaping. That’s definitely what we’ve been most excited about as a company.

Green: Okay, great. That concludes the interview!

Thomas: Thank you Aaron!

Leaders in Cannabis Testing – Part 1: A Q&A with Milan Patel, CEO and Co-Founder of PathogenDx

By Aaron Green
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In this “Leaders in Cannabis Testing” series of articles, Green interviews cannabis testing laboratories and technology providers that are bringing unique perspectives to the industry. Particular attention is focused on how these businesses integrate innovative practices and technologies to navigate a rapidly changing landscape of regulatory constraints and B2B demand.

PathogenDx is an Arizona-based provider of microbial testing technologies. Since their inception in 2014, they have broadened their reach to 26 states in the US. In addition to cannabis product testing, PathogenDx also provides technologies for food safety testing, environmental testing and recently started offering human diagnostics testing to support COVID-19 response efforts.

We interviewed Milan Patel, CEO and co-founder of PathogenDx. Milan founded PathogenDx as a spin-off from one of his investments in a clinical diagnostics company testing for genetic markers in transplant organs. Prior to PathogenDx, Milan worked in finance and marketing at Intel and later served as CFO at Acentia (now Maximus Federal).

Aaron Green: What’s the history of PathogenDx?

Milan Patel: PathogenDx was effectively a spin-off of a clinical diagnostics company that my partner Dr. Mike Hogan, the inventor of the technology, had founded when he was a professor at the University of Arizona, but previously at Baylor Medical College back in 2002. I had invested in the company back then and I had realized that his technology had a broad and wide sweeping impact for testing – not just for pathogens in cannabis specifically, but also for pathogens in food, agriculture, water and even human diagnostics. In the last 14 months, this became very personal for every single person on the planet having been impacted by SARS-CoV-2, the viral pathogen causing Covid-19. The genesis of the company was just this, that human health, food and agricultural supply, and the environment has and will continue to be targeted by bacterial, fungal and viral pathogens impacting the safety and health of each human on the planet.

We founded PathogenDx and we pivoted the company from its original human organ transplant genetics market scope into the bigger markets; we felt the original focus was too niche for a technology with this much potential. We licensed the technology, and we repurposed it into primarily cannabis. We felt that achieving commercial success and use in the hands of cannabis testing labs at the state level where cannabis was first regulated was the most logical next step. Ultimately, our goal was and is to move into markets that are approved at the federal regulatory side of the spectrum, and that is where we are now.

Green: What year was that?

Milan Patel, CEO and Co-Founder of PathogenDx
Photo credit: Michael Chansley

Patel: 2014.

Green: So, PathogenDx started in cannabis testing?

Patel: Yes, we started in cannabis testing. We now have over 100 labs that are using the technology. There is a specific need in cannabis when you’re looking at contamination or infection.

In the case of contamination on cannabis, you must look for bacterial and fungal organisms that make it unsafe, such as E. coli, or Salmonella or Aspergillus pathogens. We’re familiar with recent issues like the romaine lettuce foodborne illness outbreaks at Chipotle. In the case of fungal organisms such as Aspergillus, if you smoke or consume contaminated cannabis, it could have a huge impact on your health. Cannabis regulators realized that to ensure public health and safety there was more than just one pathogen – there were half a dozen of these bugs, at a minimum, that could be harmful to you.

The beauty of our technology, using a Microarray is that we can do what is called a multiplex test, which means you’re able to test for all bacterial and fungal pathogens in a single test, as opposed to the old “Adam Smith” model, which tests each pathogen on a one-by-one basis. The traditional approach is costly, time consuming and cumbersome. Cannabis is such a high value crop and producers need to get the answer quickly. Our tests can give a result in six hours on the same day, as opposed to the two or three days that it takes for these other approved methods on the market.

Green: What is your business model? Is there equipment in addition to consumables?

Patel: Our business model is the classic razor blade model. What that means is we sell equipment as well as the consumables – the testing kits themselves.

The PathogenDx technology uses standard, off-the-shelf lab equipment that you can find anywhere. We didn’t want to make the equipment proprietary so that a lab has to buy a specific OEM branded product. They can use almost any equipment that’s available commercially. We wanted to make sure that labs are only paying a fraction of the cost to get our equipment, as opposed to using other vendors. Secondly, the platform is open-ended, meaning it’s highly flexible to work with the volumes that different cannabis labs see daily, from high to low.

One equipment set can process many different types of testing kits. There are kits for regulated testing required by states, as well as required environmental contamination.

Green: Do you provide any in-house or reference lab testing?

Patel: We do. We have a CLIA lab for clinical testing. We did this about a year ago when we started doing COVID testing.

We don’t do any kind of in-house reference testing for cannabis, though we do use specific reference materials or standards from Emerald Scientific, for example, or from NCI. Our platform is all externally third-party reference lab tested whether it’s validated by our external cannabis lab customers or an independent lab. We want our customers to make sure that the actual test works in their own hands, in their own facility by their own people, as opposed to just shrugging our shoulders and saying, “hey, we’ve done it ourselves, believe us.” That’s the difference.

Green: Can you explain the difference between qPCR and endpoint PCR?

Patel: The difference between PathogenDx’s Microarray is it uses endpoint PCR versus qPCR (quantitative real time PCR). Effectively, our test doesn’t need to be enriched. Endpoint PCR delivers a higher level of accuracy, because when it goes to amplify that target DNA, whether it’s E. coli, Salmonella or Aspergillus pieces, it uses all the primer reagent to its endpoint. So, it amplifies every single piece of an E. Coli (for example) in that sample until the primer is fully consumed. In the case of qPCR, it basically reaches a threshold and then the reaction stops. That’s the difference which results in a much greater level of accuracy. This provides almost 10 times greater sensitivity to identify the pathogen in that sample.

The second thing is that we have separated out how the amplified sample hybridizes to the probe. In the case of our assay, we have a microarray with a well in it and we printed the actual probe that has the sequence of E. coli in there, now driving 100% specificity. Whereas in the qPCR, the reaction is not only amplifying, but it’s also basically working with the probe. So, in that way, we have a higher level of efficiency in terms of specificity. You get a definite answer exactly in terms of the organism you’re looking for.

In terms of an analogy, let’s take a zip code for example which has the extra four digits at the end of it.  In the case of endpoint PCR, we have nine digits. We have our primer probes which represent the standard five digits of a zip code, and the physical location of the probe itself in the well which serves as the extra four digits of that zip code. The analyte must match both primary and secondary parts of the nine-digit zip code for it to lock in, like a key and a lock. And that’s the way our technology works in a nutshell.

Endpoint PCR is completely different. It drives higher levels of accuracy and specificity while reducing the turnaround time compared to qPCR – down to six hours from sample to result. In qPCR, you must enrich the sample for 24 to 48 hours, depending on bacteria or fungus, and then amplification and PCR analysis can be done in one to three hours. The accuracies and the turnaround times are the major differences between the endpoint PCR and qPCR.

Green: If I understand correctly, it’s a printed microarray in the well plate?

Patel: That’s correct. It’s a 96-well plate, and in each well, you’ve now printed all the probes for all targets in a single well. So, you’re not running more than one well per target, or per organism like you are for qPCR. You’re running just one well for all organisms. With our well plates, you’re consuming fewer wells and our patented foil-cover, you only use the wells you need. The unused wells in the well plate can be used in future tests, saving on costs and labor.

Green: Do you have any other differentiating IP?

The PathogenDx Microarray

Patel: The multiplex is the core IP. The way we process the raw sample, whether it’s flower or non-flower, without the need for enrichment is another part of the core IP. We do triplicate probes in each well for E. Coli, triplicate probes for Salmonella, etc., so there are three probes per targeted organism in each of the wells. We’re triple checking that you’re definitively identifying that bug at the end of the day. This is the cornerstone of our technology.

We were just approved by the State of New York, and the New York Department of Health has 13 different organisms for testing on cannabis. Think about it: one of the most rigorous testing requirements at a state level – maybe even at a federal level – and we just got approved for that. If you had to do 13 organisms separately, whether it’s plate culture or qPCR, it would become super expensive and very difficult. It would break the very backs of every testing lab to do that. That’s where the multiplexing becomes tremendously valuable because what you’re doing is leveraging the ability to do everything as a single test and single reaction.

Green: You mentioned New York. What other geographies are you active in?

Patel: We’re active in 26 different states including the major cannabis players: Florida, Nevada, California, Arizona, Michigan, New York, Oklahoma, Colorado and Washington – and we’re also in Canada. We’re currently working to enter other markets, but it all comes down to navigating the regulatory process and getting approval.

We’re not active currently in other international markets yet. We’re currently going through the AOAC approval process for our technology and I’m happy to say that we’re close to getting that in the next couple of months. Beyond that, I think we’ll scale more internationally.

I am delighted to say that we also got FDA EUA federal level authorization of our technology which drives significant credibility and confidence for the use of the technology. About a year ago, we made a conscious choice to make this technology federally acceptable by going into the COVID testing market. We got the FDA EUA back on April 20, ironically. That vote of confidence by the FDA means that our technology is capable of human testing. That has helped to create some runway in terms of getting federalized with both the FDA and the USDA, and certification by AOAC for our different tests.

Green: Was that COVID-19 EUA for clinical diagnostics or surveillance?

Patel: It was for clinical diagnostics, so it’s an actual human diagnostic test.

Green: Last couple of questions here. Once you find something as a cannabis operator, whether its bacteria or fungus, what can you do?

Patel: There are many services that are tied into our ecosystem. For example, we work with Willow Industries, who does remediation.

There’s been a lot of criticism around DNA based technology. It doesn’t matter if it’s qPCR or endpoint PCR. They say, “well, you’re also including dead organisms, dead DNA.” We do have a component of separating live versus dead DNA with a biomechanical process, using an enzyme that we’ve created, and it’s available commercially. Labs can test for whether a pathogen is living or dead and, in many cases, when they find it, they can partner with remediation companies to help address the issue at the grower level.

Another product we offer is an EnviroX test, which is an environmental test of air and surfaces. These have 50 pathogens in a single well. Think about this: these are all the bad actors that typically grow where soil is – the human pathogens, plant pathogens, powdery mildew, Botrytis, Fusarium – these are very problematic for the thousands of growers out there. The idea is to help them with screening technology before samples are pulled off the canopy and go to a regulated lab. We can help the growers isolate where that contamination is in that facility, then the remediation companies can come in, and help them save their crop and avoid economic losses.

Green: What are you most interested in learning about?

Patel: I would prefer that the cannabis industry not go through the same mistakes other industries have gone through. Cannabis started as a cottage industry. It’s obviously doubled every year, and as it gets scaled, the big corporations come in. Sophistication, standards, maturity all help in legitimacy of a business and image of an industry. At the end of the day, we have an opportunity to learn from other industries to really leapfrog and not have to go through the same mistakes. That’s one of the things that’s important to me. I’m very passionate about it.

One thing that I’ll leave you with is this: we’re dealing with more bugs in cannabis than the food industry. The food industry is only dealing with two to four bugs and look at the number of recalls they are navigating – and this is a multi-billion-dollar industry. Cannabis is still a fraction of that and we’re dealing with more bugs. We want to look ahead and avoid these recalls. How do you avoid some of the challenges around antimicrobial resistance and antibiotic resistance? We don’t want to be going down that road if we can avoid it and that’s sort of a personal mission for myself and the company.

Cannabis itself is so powerful, both medicinally as well as recreationally, and it can be beneficial for both consumers and industry image if we do the right things, and avoid future disasters, like the vaping crisis we went through 18 months ago because of bad GMPs. We must learn from those industries. We’re trying to make it better for the right reasons and that’s what’s important to me.

Green: Okay, great. That concludes the interview. Thank you, Milan.

Patel: Thank you for allowing me to share my thoughts and your time, Aaron.

The Importance of Smart Cannabis Packaging

By John Shearman
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Regardless of their size, all consumer package brands spend a significant amount of money and resources on packaging to attract consumers’ attention. We are all very visually oriented and gravitate to items that pique our interests. Cannabis brands are no exception when it comes to branding their products. Packaging plays a big part in carrying their brand forward and standing out on the dispensary shelves. When I was in Las Vegas at a CBD tradeshow in early 2020, I visited a dispensary, and it was beautiful. I remember commenting to a colleague that was with me how spectacular the product packaging was in the glass cases. One had unique artwork on each different product they offered, and it was indeed art. Yes, I did purchase this one that pulled me in.

The cannabis industry in the United States presents a challenge to brands because there is no overall federal guidance for packaging. Each state is controlling the cannabis legislation and, with it, the packaging guidelines. So multi-state operators (MSOs) have to manage each state as a separate entity and abide by the packaging regulations, which is not very efficient and adds a cost burden. As the industry matures and becomes federally legal across the country, packaging regulations will be easier to implement.

Louis Vuitton bags are one of the many goods that are commonly counterfeited
Image: UK Home Office, Flickr

Let’s take a look at counterfeit products across all product categories. There is a significant global problem with counterfeits, as articulated by the below statistics.

The total global trade in fakes is estimated at around $4.5 trillion. 

Fake luxury merchandise accounts for 60% to 70% of that amount, ahead of pharmaceuticals, entertainment products and representing perhaps a quarter of the estimated $1.2 trillion total trade in luxury goods.

Digital plays a big role in this and perhaps 40% of the sales in luxury fakes take place online.

Customs and Border Patrol confiscated $1.3 billion worth of counterfeit goods in the U.S. for Fiscal Year 2020. (The value of 2020’s seizures are actually down compared to the $1.5 billion worth of counterfeit goods seized by CBP in 2019).

Unfortunately, the figures above are concerning, and the cannabis industry will face the same counterfeit issues that will add to these stats in the future. What can be done to help fight the problem and alleviate the pain for cannabis brands? Smart technology.

The trend towards “smart technology” varies by sector, but the underlying concept involves building levels of technology systems designed to impede or limit the highly sophisticated counterfeiter from replicating or replacing products. These levels typically include a forensic level control on the product, digital systems to track the material and customer facing systems to articulate the underlying value to the consumer.

Building these levels of smart technology into cannabis-products and packaging allows consumers to authenticate real versus fake, and in the case often in cannabis, legal versus illegal. Molecular technology is one forensic level of control option that can be used as a unique identifier for product authentication. Each brand would get its unique identifier to apply to the raw materials that make up its product, such as oil or an isolate. Then a sample can be tested at the origin point and subsequent nodes in the supply chain using a remote testing device. All the digital data is captured in a secure cloud database for traceability and transparency to the end consumer, to show them the authenticity of the product they are consuming. The same molecular technology can be applied to the ink or varnish for packaging and labels. A great application to help combat counterfeits and product diversion across the globe.

Counterfeiters can create near duplicate versions of the original

Another engaging platform is called StrainSecure by TruTrace Technologies. Their SAAS platform allows cannabis manufacturers to track all their product batches and SKUs tied to a blockchain. It also facilitates the interaction between the manufacturer and third-party testing facilities to conduct product testing and reporting. The data is captured within the platform, and with easy access dashboard views, it provides the insights to authenticate products at any time.

A company out of Australia called Laava is producing a product called Smart Fingerprints. It’s the next evolution of QR codes. The Smart Fingerprints can be applied to each package, providing a unique identifier that consumers can read with a mobile phone application. The consumer is provided with information concerning the product’s authenticity and any additional information the brand wants to share with the user. Smart Fingerprints are a great example of customer engagement at the point of activity that is secure.

The above three solutions show the availability of advanced technologies the cannabis industry can implement on its packaging and products to ensure authentic and safe products are sold to consumers. It provides consumers with vital information and insights about products so they can make informed buying decisions. There is no one silver bullet solution that provides all the answers. As with every high value product, counterfeiters will work to create near duplicate versions of the original until it becomes unsustainable to do so. It will take a technology ecosystem to seamlessly connect and provide actuate and timely information between supply chain partners and ultimately the end consumer. As the US works to separate the legal from illegal production for both the adult use and medical supply of cannabis, the looming challenge will be on protecting and communicating authenticity, packaging will be the first step in this.