Progress and history are being made in New York for adult use cannabis. Recently, Governor Hochul signed an amendment to New York State Cannabis Law which permits the Office of Cannabis Management (OCM) to award conditional licenses to certain adult use cultivators and processors, allowing hemp farmers in New York to grow cannabis in the 2022 growing season. And now, the application period to obtain a conditional license is officially open and available for qualified candidates. New York is moving full speed ahead in the hopes of creating one of the most inclusive adult-use cannabis industries in the nation.
What Does a Conditional License Mean?
With this legislation, New York State is creating a new conditional adult use cannabis cultivator license, allowing hemp farmers to grow cannabis in the 2022 growing season – helping to fast-track the state’s adult-use cannabis program. Under the law, conditionally licensed cannabis farmers must meet certain requirements, including safe, sustainable and environmentally friendly cultivation practices.
Highlights of the Bill & Legislation
Industrial Hemp First
To qualify for an adult use cannabis conditional cultivator license, only companies and individuals currently licensed with the state for cultivation or processing of industrial hemp can apply for the conditional licenses. Applicants must have been an authorized industrial hemp research partner for the Department of Agriculture and Markets, and industrial hemp cultivators must have grown and harvested the crop during at least two of the past four years.
Growing Locations
Licensed cultivators will be authorized to grow indoors, outdoors, or a combination of both, subject to space and lighting limitations in the law. With a conditional adult use cannabis cultivation license, farmers can grow outdoors or in a greenhouse for up to two years from the issuance of the license. It also allows them to manufacture and distribute cannabis flower products without holding an adult use processor or distributor license, until June 1, 2023.
Expanding Abilities with License
Conditional licensees will have temporary authority to conduct additional activities not included in their license. Cultivators are allowed to both minimally process and distribute flower, and processors can distribute their products.
Requirements of Conditional License
Hemp farmers in New York could be licensed to grow cannabis for the 2022 growing season.
As listed in the bill, conditional licensees must abide by all regulations, including those issued after receipt of the license. Applicants must also participate in a soon to-be-developed mentoring program for individuals interested in joining the industry through the social equity component of the Marijuana Regulation & Taxation Act, as well as actively participate in an environmental sustainability program. And lastly, applicants must begin operations within six months of receiving their license, and grant OCM employees’ access to the premises for inspections to ensure all rules are being followed.
Future Outlook on Cannabis Industry in New York
With the opening of the application portal for conditional licenses, this advances the Governor’s first-in-the-nation Seeding Opportunity Initiative, which positions individuals with prior cannabis-related criminal offenses to make the first adult use cannabis sales with products grown by New York hemp farmers. While this news is a positive step, there remain many unknowns about how the conditional licensing process will unfold. Applications can be filed with the OCM for Conditional Cultivator Licenses through June 30, 2022, with a $2,000 non-refundable application and licensing fee. For hopeful applicants, gathering a team of professional advisors to plan for the application process and operating an adult-use business is essential. Consulting with an accounting team or financial advisors from a tax standpoint, will be critical to establish systems and controls to maintain separate accounting records for your industrial hemp and adult use activities.
According to a press release published last week, Cresco Labs has come to an agreement with Columbia Care Inc. to acquire the company. The $2 billion deal, expected to close in the fourth quarter of 2022, will create the largest multi-state operator (MSO) in the country by pro-forma revenue.
Cresco Labs is already one of the country’s largest MSOs with roots in Illinois. With a footprint covering a lot of the United States, their brands include Cresco, High Supply, Mindy’s Edibles, Good News, Remedi, Wonder Wellness Co. and FloraCal Farms.
Columbia Care is also one of the largest cannabis companies in the US, with licenses in 18 jurisdictions and the EU. They currently operate 99 dispensaries and 32 cultivation and manufacturing facilities. Their brands include Seed & Strain, Triple Seven, gLeaf, Classix, Press, Amber and Platinum Label CBD.
Under the agreement, shareholders with Columbia Care will receive 0.5579 of subordinate voting share in Cresco for each common share they hold. Columbia Care shareholders will hold approximately 35% of the pro forma Cresco Labs Shares once the deal goes into effect.
Coming out of the deal, Cresco’s total revenue will hit $1.4 billion, making it the largest MSO in the country. Their footprint will reach 130 retail dispensaries across 18 different markets. The companies already have the largest market share in Illinois, Pennsylvania, Colorado and Virginia and are of the top three market shares in New York, New Jersey and Florida, which gives them unique opportunities to capitalize on emerging adult use markets.
Charles Bachtell, CEO of Cresco Labs, says the deal is very complementary and they are excited about long-term growth and diversification. “This acquisition brings together two of the leading operators in the industry, pairing a leading footprint with proven operational, brand and competitive excellence,” says Bachtell. “The combination of Cresco Labs and Columbia Care accelerates our journey to become the leader in cannabis in a way no other potential transaction could. We look forward to welcoming the incredible Columbia Care team to the Cresco Labs family. I couldn’t be more excited about this enhanced platform and how it furthers the Cresco Labs Vision – to be the most important and impactful company in cannabis.”
By Abraham Finberg, Simon Menkes, Rachel Wright 1 Comment
New York is embarking on a great social undertaking. In awarding its adult-use cannabis licenses, under the plan laid out by Gov. Kathy Hochul on March 10, the state is attempting to right generations of wrongs caused by the war on cannabis. The wrongs are numerous and include mass incarceration and complex generational trauma, prevention of access to housing and employment and the forming of an illicit market – all of which have had a disproportionate impact on African-American and Latinx communities.1
In addition to generating significant revenue for the state, New York hopes to make substantial investments in the communities and people most affected by cannabis criminalization and address the collateral consequences of that criminalization, reduce the illicit market for cannabis and illegal drugs, end the racially disparate impact of existing cannabis laws and strengthen New York’s agriculture sector.2
50% of All Licenses Will Be Social Equity
To accomplish these lofty aims, the state’s goal is to award 50% of adult-use cannabis licenses to social and economic equity applicants – and these licenses will be the first issued.3,4 The state’s entire focus is on this social equity licensing program; issues regarding non-social equity licenses are not being addressed at this time.
No one knows yet how many licenses will be issued. There are currently only 38 medical licenses in the state, although everyone expects the number of adult-use licenses to be significantly higher. (These medical licenses serve around 140,000 patients with sales in 2021 of around $300 million.)
The First 100 to 200 Licenses
Chris Alexander, executive director of the state’s Office of Cannabis Management, says he expected between 100 and 200 licenses to go first to people who were convicted of a cannabis-related offense before the drug was legalized, or those who have “a parent, guardian, child, spouse, or dependent” with a cannabis conviction. Alexander also said his office would evaluate applicants on their business plans and experience in retail.5
What’s the Timeline?
In a recent Q&A interview, Tremaine Wright, chair of New York’s newly-formed Cannabis Control Board (CCB), which will be overseeing the licensing process, stated: “We are setting up a system soup-to-nuts … [final] regulations for the state’s marijuana startups will be issued by the Cannabis Control Board this winter [2022] or early spring [2023] … recreational dispensaries should be licensed to operate by summer 2023.”6
Whom Is New York Looking For?
New York has defined social equity applicants as being:
Individuals from communities disproportionately impacted by the enforcement of cannabis prohibition
Minority-owned businesses
Women-owned businesses
Minority and women-owned businesses
Distressed farmers
Service-disabled veterans.7
Extra priority will be given to an applicant who:
Is a member of a community disproportionately impacted by the enforcement of cannabis prohibition
Has an income lower than 80% of the median income of the county in which the applicant resides
Was either: (a) convicted of a cannabis-related offense prior to the effective date of the N.Y. Cannabis Law; (b) or had a parent, guardian, child, spouse or dependent; or was a dependent of an individual who was convicted of a cannabis-related offence prior to the effective date of the N.Y. Cannabis Law.8
Social Equity Licenses Come With Strings Attached
Social equity licenses cannot be transferred or sold within the first three years of issue. An exception will be made if the license is transferred or sold to another qualified social and economic equity applicant, but this must first be approved in writing by the CCB.9
Types of Licenses
While most people appear to be interested in a cannabis dispensary or lounge license, there will be nine types of licenses available: cultivator, nursery, processor, distributor, retail-dispensary, delivery, on-site consumption, adult-use cooperative and microbusiness.
“I don’t hear many people [talking about] processing and manufacturing,” says CCB chair Wright. She noted that processor licenses cover the production of edibles like candy and baked goods, which create a good opportunity to establish a brand.10
CCB Priorities
Wright also noted delivery companies would likely be capped at 25 employees in order to prevent behemoths like Uber from entering the market. “We’re trying to focus on not creating a space where monopolies can take over and kill all our small businesses,” Wright says.11
License Application Costs
The cost for an adult-use cannabis license in New York is still unknown, so the experts are looking at the cost for a medical cannabis license as the baseline, with a greater cost likely for adult-use. Each applicant was required to submit two fees with its medicinal application: a non-refundable application fee in the amount of $10,000 and a registration fee in the amount of $200,000. The $200,000 registration fee was refunded to the applicant only if the applicant was not issued a registration.12
The Marijuana Regulation and Taxation Act (MRTA) states, however, that fees may be waived for social equity applicants.13
Funding Assistance for License Applicants
Because of the requirement that each applicant be from one or more of the social equity classes, it is quite likely many of the applicants will lack the necessary funding to open a cannabis business currently.
New York Governor Kathy Hochul
On January 5, 2022, Gov. Hochul pledged to commit $200 million to support social equity applicants in building adult-use cannabis businesses. New York’s Office of Cannabis management expects that around $50 million of the fund will be raised from registered organizations licensed to operate medical cannabis businesses in NY and that $150 million will be raised from private investors.14
Wright commented, however, that those loans aren’t guaranteed to be available for the first round of licensing because the money to fund them will largely come from tax revenue generated by the industry. “[The Office of Cannabis Management] is not going to be able to right all the wrongs of the financial services industry,” she added.15
This lack of capital will offer opportunities to those who might want to invest with a social equity license applicant.
Requirements for Those Who Invest With Social Equity Applicants
Any person or entity investing with a social equity applicant must keep in mind the State’s following requirements:
Any entity applying for a New York cannabis license will need to be owned at least 51% by a social equity class applicant.
That ownership must be “real, substantial, and continuing.”
The social equity applicant must have and exercise the authority to control independently the day-to-day business decisions of the enterprise.
The individual or entity seeking the license must be authorized to do business in the state and be independently owned and operated.
The individual or entity must be a small business.16
Business Experience & Labor Union Representation Needed
The state is also looking for applicants with previous successful business experience and competency, and preference will be given to those who can demonstrate such experience.17
Additionally, the state would like to see that the applicant “has entered into [an] … agreement with a bona-fide labor organization that is actively engaged in representing or attempting to represent the applicant’s employees, and the maintenance of such [an] agreement shall be an ongoing material condition of licensure.18
New York’s Careful Approach
New York has moved slowly and thoughtfully in getting into the recreational cannabis market. Its leaders have studied the experiences of other states, noting complications and pitfalls that have arisen in such states as California, where small cannabis operators have been squeezed out and a large illicit market has grown to dwarf the tax-paying legal sector.
By opening up New York’s initial adult-use licenses to small, social equity applicants and requiring they have solid business experience, New York is hoping to give awardees a foothold in the cannabis market, enabling them to flourish and build strong roots before the onslaught of sophisticated, multi-state cannabis operators enter the fray.
Additional Keys to a Successful Application
New York City Image: Rodrigo Paredes, Flickr
Beyond fulfilling the ingredients of the social equity applicant “recipe” outlined above, the key to a successful application will come down to the perception it gives the Cannabis Control Board of the applicant’s commitment to the state’s mission. In other words, how committed is the applicant to using his or her license and business to attempt to right some of the social wrongs perpetrated by the state and federal war on cannabis?
In addition to having an owner-applicant from a social equity class, the MRTA gives other clues of steps applicants can take (and discuss in their application) which could put them ahead of the competition in obtaining licensure.
The MRTA suggests the applicant demonstrate that they will “contribute to communities and people disproportionately harmed by enforcement of cannabis laws … and report these contributions to the board.”19
The MRTA asks each applicant to submit documentation of the racial, ethnic and gender diversity of the applicant’s employees and owners. In addition, the MRTA suggests each applicant consult with the CCB’s Chief Equity Officer and Executive Director “to create a social responsibility framework agreement that fosters racial, ethnic, and gender diversity in their workplace.”20
New York is serious about its mission to use the legalization of cannabis to right some of the social wrongs of the past. An applicant’s dedication to this mission, as evidenced by a well-crafted application that emphasizes these values, may be the deciding factor on whether that applicant is rewarded with one of the state’s “Golden Tickets”. With a population of 20.2 million citizens, New York will be the second largest adult use cannabis marketplace behind California. Initial access to such a valuable and important market is worth the commitment of resources to creating not only a well-crafted application, but a well-crafted management team and business as well.
References
New York Consolidated Laws, N.Y. Cannabis Law § 2, added by New York Laws 2021, ch. 92, Sec. 2 (eff. 3/31/2021) [hereinafter, N.Y. Cannabis Law].
Cannabis continues to be a hot sector across the United States; buoyed by its ‘Essential Business’ status during the pandemic, a surge of plant touching and ancillary service providers have set up shop in the past 12 months to capture a share of this burgeoning growth. The cannabis industry is currently the leading job creator in the country, employing almost 430,000 workers according to a recent report from Leafly. Estimates on the overall size of the industry vary depending on the source, but projections of over $100bn in value by 2030 are not uncommon, while M&A activity continues to gather pace after a downturn in 2019. Clearly, investors and the public are bullish on the industry as a segment, with further state legislation to expand the number of adult use and medical markets to come. So why is the directors & officers (D&O) and management liability insurance market not embracing this growth industry?
At its core, a good D&O policy will protect the individual directors, officers and executive teams of companies, including their personal assets, in the event of suits and allegations filed based on their running and oversight of their business. For private companies, this also extends to balance sheet protection and coverage for the entity; for public companies, coverage for securities suits and claims.
The cannabis industry, despite the macro factors propelling its growth, faces numerous challenges when trying to procure D&O insurance. Very few D&O and management liability carriers are willing to entertain cannabis and related risks; even fewer are specialty underwriters willing to provide meaningful, expert coverage which truly addresses the exposures faced by executives and operators in the cannabis industry.
Cannabis D&O premiums can cause sticker shock, typically priced 4 to 10 times higher than non-cannabis businesses. Some operators have an air of invincibility and forego the purchase, believing it is not worth the cost. Meanwhile, the ability to attract and retain talented executives and directors away from other industries typically depends on having this coverage purchased and in place. Yet the outlay can be a burden in an industry which already faces fierce competition for market share, and a disparate tax treatment at a state and federal level.“The value of a D&O policy cannot be overstated.”
Even those carriers and underwriters who do entertain cannabis risks are constantly evaluating the nuances of the space: an ever changing complex state regulatory environment; the relative immaturity of the industry and the hyper-focus on growth; the lack of standardized valuation and accounting; the lack of access to institutional financing; the continued uncertainty of insolvency or restructuring in lieu of federal bankruptcy protections for plant touching companies; the operating inefficiencies for MSOs across state lines and the lack of interstate commerce; in short, the cannabis industry certainly poses its own unique and evolving risks for D&O insurers.
Ultimately the market will continue to evolve for cannabis insureds, as the data matures and the regulatory landscape become clearer. The value of a D&O policy cannot be overstated. Most public companies purchase D&O as a matter of course, but even for private cannabis companies, the right coverage is invaluable. Not having the protection afforded by a D&O policy can be ruinous for a cannabis operator, particularly in a niche area where defending claims and circumstances is complex, time consuming and ultimately expensive – typically much more so than the upfront cost of the D&O policy.
Partnering with the right broker who specializes in both management liability and cannabis is step one to getting the best value coverage. Step two is securing a policy from a dedicated market with underwriters who truly understand the cannabis space and tailor coverage to protect the executives, boards and companies that are driving this exciting growth industry.
Ted Harris, Founder & Executive Managing Director, Sweet Leaf Capital
This presentation delves into the craft cannabis market, genetics, going beyond potency, looking into cannabinoids and terpenes, quality vs. yield and much more.
Beyond Terpenes: What Else Is There and Why Should You Care?
Dr. Aldwin Anterola, Chief Science Officer, Veda Scientific
Leo Welder, CEO of Veda Scientific
Using GCxGC MS technology, we found that on average 40% of terpene content was not accounted for by the 40 standard terpenes used in cannabis testing labs. We have also detected other volatile compounds including alcohols, aldehydes, alkanes, aromatic and other hydrocarbons, esters, fatty acids, ketones and thiols. We will discuss the implications of this more comprehensive “volatilome” data including its significance in characterizing cannabis, distinguishing strains from each other, breeding for desired traits, improving quality and consistency of cannabis products, and even selecting better and safer processes and packaging
Hardy Diagnostics Sponsored TechTalk
Jessa Youngblood, Food and Beverage Market Coordinator, Hardy Diagnostics
Applying Integrated Pest Management to Cannabis Cultivation
Dan Banks, CCA, Co-Founder, Precision Crop Consulting, LLC
Attendees can expect to learn about: an introduction to IPM and how this approach to pest management applies to cannabis production, the components of an effective IPM program (Pest monitoring and identification, Structural & Environmental controls, Cultural practices, Resistant varieties, Biological controls, Compliant pesticide use) and actionable tips and suggestions relating to each component of a Cannabis IPM program.
Characterizing Nuisance Biofilms with NGS to Adopt Better Water Treatment Program
Taylor Robinson, Director of Analytical Services/R&D, Silver Bullet Corp.
Attendees can expect to learn about what biofilms are, how and why do they form, what is NGS and how can it be used in the context of biofilm analysis, and how can we use modern analytical techniques to implement more efficient treatment strategies.
Federal regulation of the cannabis and hemp sectors is coming sooner rather than later — and this is mostly good news for cannabis businesses and consumers. But cannabis producers already struggling to meet complex and ever-changing local regulations (where they exist) will be facing a new set of challenges with another level of regulatory oversight and compliance.
Navigating multi-jurisdictional regulatory compliance management requirements is near-impossible with legacy manual systems. That’s why it’s time to leverage the right enterprise resource planning (ERP) system, so that you and your team can meet these compliance management complexities with confidence and ease. Whether you manufacture flower, edibles, beverages, supplements or other dispensary products, here’s what you need to know to stay agile and profitable as more changes loom.
Federal Legalization is Coming
To date, there are 18 states with adult use cannabis markets, 37 with medical cannabis programs, and an additional 13 that have some level of decriminalization. At the federal level, there have already been several attempts at cannabis law reform, with even more on the table in the coming year.
One of the most promising is the Republican-led States Reform Act, filed in November 2021. The central tenant of this proposed legislation is to remove cannabis and cannabinoids from listing as a Schedule 1 Drug under the Controlled Substances Act.
Importantly, if this law passes, it would allow individual states to pursue their own cannabis policies and remove the current risks companies face when going against current federal anti-cannabis scheduling.
The States Reform Act also proposes a three percent federal tax on all cannabis sales and that all cannabis sales fall under the Alcohol and Tobacco Tax and Trade Bureau’s (TTB’s) control. The States Reform Act would — finally — guide the regulation of hemp-derived products through the Food and Drug Administration (FDA).
US Senate Majority Leader Chuck Schumer has also been working on another reform bill, specifically the Cannabis Administration and Opportunity Act (CAOA), which he plans to introduce in April 2022 to further emphasize the criminal justice aspects of legal reform in the context of the War on Drugs.
While the government’s track record on cannabis regulatory reform hasn’t been as progressive as many would like, at this point there is widespread public support and proposed bills from both sides of the aisle. As a result, the US may finally see some movement on cannabis law reform in the very near future.
How to Prepare for Federal Regulatory Compliance Management
With federal regulation looming, it’s time for licensed producers to elevate their internal systems. Whether you work with tetrahydrocannabinol (THC) or cannabidiol (CBD), the regulatory protocols in an already complex marketplace are going to change.
This is especially paramount for those producing cannabis or hemp beverages, edibles and supplements. You will need comprehensive and efficient systems to facilitate this transition. An ERP should reduce compliance headaches and ensure your business is ready to scale when a national marketplace launches.
Automate Data Gathering
It is no longer cost effective to manage seed-to-sale traceability with manual data capture. With the thousands, if not tens of thousands, of data points required at most commercial facilities on a routine basis, data logging is by far the best way to start compliance automation.
Automated ERP systems, which capture essential information across your entire operation, ensure access to real-time data for forecasting, accounting, regulatory compliance reporting and traceability. That means using software that captures and logs intel from across your organization about quality control, inventory and traceability, all without arduous manual input.
The best and most successful ERP systems should be used by all employees to collect data, from sorters/pickers to fork lift drivers to supervisors to senior management. For this to happen easily, the solution must be accessible and user friendly for all employees. ERP systems that can be easily integrated with tablets and smartphones (as well as IoT devices) reduce the need for expensive terminals on the production floor and make data collection a straightforward part of daily operations.
Build Systems to Facilitate Growth from the Start
A rigid ERP system that can’t grow with you is not a smart long-term investment. An adaptable multi-platform system evolves with your company and constantly changing regulatory compliance requirements. A solution that provides access to the entire facility, instead of being limited to individual users, ensures that growing teams can easily contribute to data quality from the plant floor all the way up to the executive office for actionable insights.
Markets are opening up across the country and quite soon, many companies will be looking to expand their operations nationally. As a result, you’ll need systems that can scale, cover additional facilities, keep up with increased production, and even work across different jurisdictions.
Having instant access to detailed operational information delivers greater business oversight at the micro and macro levels – insight that is crucial for expansion, profitability, and cost-cutting measures. Companies with the right systems in place will effectively manage the resulting federal complexities to deliver on regulatory expectations and capture a competitive market share.
Leverage Regulatory Frameworks and Technology from the Food Industry
The Canadian example demonstrates clearly that the regulatory frameworks from the food and beverage industry are the most applicable to the cannabis sector – more so than for pharmaceuticals, nutraceuticals or alcohol. This is most obvious in lucrative value-added markets like edibles and extracts, which are actually also food products.
Issues like dosage standardization, controlling common hazards, managing traceability chains and inventory, and introducing quality standards (including third party certifications like organic and SQF) are all crossovers from the food industry.
Just as the compliance automation wave has hit the food industry in recent years, manufacturers of infused products and extracts can then use the same technology to reduce safety and quality control costs as well as documentation and administrative costs. The lesson? Cannabis industry leaders don’t need to totally reinvent the wheel.
Cannabis Producers Need an ERP System Tailored to Their Needs
In Canada, cannabis manufacturers have learned all too well what a few little mistakes can do to reputation and profitability. MJBiz Daily reported in 2021 that the Canadian government had issued more than CDN $1.3 million (USD $1 million) in fines since legalization. That’s a lot of regulatory compliance issues. Considering there are nearly 500 compliance fields to fill out for monthly reporting, mistakes are difficult to avoid, especially if you rely on a manual system.
The story is similar in the United States. State regulatory compliance management requirements are complex and arduous for individual companies and employees. When federal regulation does come, US-based producers will very likely face even more strenuous reporting requirements to multiple jurisdictions.
Cannabis companies will need a data-driven system in place to align with the FDA’s Cannabis-Derived Products Data Acceleration Plan. Finding food safety and traceability software that makes reporting easier, automatic, and less prone to human error is paramount to success. As you prepare for the looming federal legislation, look for an ERP system that covers all the bases, including one that:
Improves Market Agility: Expedites opening new facilities in new markets as they come online
Evolves with Regulatory Changes: Facilitates the transition from unregulated markets into federally regulated ones
Automates Reporting: Protects you from regulatory compliance management bumbles stemming from manual input and human error
Reduces Workload: Optimizes workflow and reduces labor costs associated with manual input
Is Comprehensive: Covers all bases, including food safety, quality control, traceability, production management, and even occupational health and safety
If you aren’t automating the capture of essential information across the entire operation, you won’t be prepared for the regulatory burdens likely to come with federal cannabis legislation. To stay compliant and on top of what will likely be an incredibly competitive marketplace, you are going to need real-time data — data that will provide precise seed-to-sale traceability, product recall capability, and reporting.
Digitizing safety, traceability and complex production management through one state-of-the-art ERP system allows cannabis companies to reap the rewards of data-driven, automation technology almost immediately without the significant capital expenditure on large-scale equipment or robotics. From there, navigating regulatory complexity becomes not only streamlined and operationalized, but an actual market advantage for future growth.
Risk management is the process of identifying potential hazards, assessing the associated risk, then implementing controls to mitigate those risks. With Salmonella and Aspergillus being two of the leading causes of cannabis contamination that can occur throughout the supply chain, applying upstream risk management strategies can keep supplier contamination issues from impacting your products.
Salmonella enteritidis
In recent months cannabis products have been recalled for Salmonella and/or Aspergillus contamination in several states, including California, Arizona, Michigan, Florida, as well as Canada. While the recalls impacted retail products, in most cases, the contamination occurred farther back in the supply chain, as evidenced by recalls that impacted several dispensaries or other sales locations.
For example, the November 2021 Arizona recall caused multiple establishments and dispensaries to recall product due to possible contamination with Salmonella or Aspergillus; the Michigan recall of an estimated $229 million in cannabis products due to “inaccurate and/or unreliable results of products tested.” While a lab lawsuit against the recall released some of the product to market, the companies faced significant impact – in both removing and returning the product.
While microbial contamination can occur throughout the supply chain, Aspergillus is ubiquitous in soil and the flower, leaves, roots of the cannabis plant are all susceptible to such contamination. The mold also can colonize the bud both during growing and harvesting. Salmonella can be introduced during growing through, untreated manures, direct contact with animal feces, or contamination of surface water used for irrigation. However, the plant matter also can be compromised during drying, storage and processing from environmental contamination.
Aspergillus flavus
Supply chain risk management. To prevent a supplier’s contamination issues from becoming your problem to deal with, each facility at each step of the chain should develop a supply chain risk management program to assess and approve each of its upstream providers. Following are 5 key steps to assessing and managing risk in your supply chain:
Conduct a hazard analysis. A complete supply chain assessment should begin with a hazard assessment of all the ingredients, products or primary packaging you receive. There are two essential steps involved in conducting a hazard analysis: that is the identification of potential hazards – considering those related to the item itself, as well as the supplier environment and process as well as item – and an evaluation to determine if each hazard requires control based on its severity and likely occurrence.
Evaluate the risks. Based on the hazard analysis, the next step is to determine the associated risk. As defined by the European Food Information Council (EUFIC), “a hazard is something that has the potential to cause harm while risk is the likelihood of harm taking place, based on exposure to that hazard.” For example, the higher the exposure, the higher the risk.
Ensure risk control. Once risk is determined, it is critical to ensure that it is being controlled, who is controlling it and how it is being done. Depending on the risk, that control may need to be conducted by the supplier, by you or even by a downstream customer.
Require documentation. No matter which step in the chain is controlling the risk, it is essential that all be documented with records easily accessible – including the controls, any out-of-compliance events and corrective actions. The adage, “If it’s not documented, it didn’t happen,” is very applicable here, particularly should a problem arise and an inspector appear at your door.
Use only approved suppliers. Implementation of the above steps enable the development of a supplier approval program focused on quality, safety and regulatory compliance. Use of only suppliers who have been assessed and found to meet all your standards will help to protect your product and your brand.
Salmonella and Aspergillus contamination can occur throughout the supply chain, but implementing a supply chain risk assessment and management program will enable you to determine where the greatest risks lie among your ingredients and suppliers, allowing you to allocate resources based on that risk.
The United States Department of Agriculture (USDA) issued a Final Rule (FR) on hemp testing that went into effect on 22nd March 2021. Consequently, all hemp testing laboratories must familiarize themselves with what is stipulated in the FR and do all that is required to comply.
The 2014 Farm Bill put to an end to years of hemp prohibition, at least to some extent. It also paved the way for the 2018 Farm Bill that brought hemp at par with other agricultural crops. States, through their departments of agriculture and institutions of higher learning, were allowed to cultivate industrial hemp for research purposes, under what was called the hemp pilot programs. Some states also allowed individuals to cultivate hemp to investigate the economic and agronomic viability of the crop. This increased the acreage of industrial hemp from zero to about 90,000 by 2018 when the Agricultural Act that legalized hemp was passed. Some of the states that participated in this program included Colorado, Kentucky, Montana, and Oregon.
As expected of a new project, some challenges cropped up, including:
Inconsistency in the quality of hemp produced for research
Varying hemp laws between states
Maintaining regular supplies of inputs such as seeds and pest control
Lack of appropriate knowledge and technology
The 2018 Farm Bill addressed some of these challenges through the Hemp Farming Act that proposed to remove hemp from Schedule 1 of the Controlled Substances Act. Hemp, in this case, refers to cannabis sativa that contains less than 0.3% THC by “dry weight.” Proposals in the hemp act were incorporated into the 2018 U.S. Farm Bill and it became law in December 2018, thus making hemp legal at the federal level.
Unlike other agricultural commodities, hemp is a highly regulated crop because of its close association with cannabis which is still under Schedule 1 controlled substances. Once hemp exceeds the 0.3% THC threshold, it becomes classified as cannabis and is, therefore, governed under a different set of regulations.
The next step after the legalization of hemp was to roll out a nationwide hemp cultivation and distribution program. Consequently, the U.S. Food and Drug Administration (FDA) was instructed to develop a national framework to regulate the production of hemp in the U.S. An Interim Final Rule (IFR) was published in October 2019 to set the ball rolling. A final rule was published as an improvement of the IFR in January 2021. The Final Rule was created based on public comments received during the period as well as direct lessons learned in the 2020 growing season. The Final Rule took effect on 22nd March, 2021.
A schematic representation of the key federal rules for hemp testing laboratories (Figure courtesy of CloudLIMS)
The USDA requires that all hemp be tested by a third-party laboratory to ensure that quality is maintained and that the THC threshold is not exceeded. The Final Rule made significant changes tothe USDA’s hemp testing rules that will affect how laboratories carry out their operations. While the guidelines were issued on January 15, 2021, they went into effect on March 22 of the same year. If you are a hemp-testing laboratory, here are the most important changes that you should brace for.
Nine Changes Hemp Testing Labs Must Comply With
Changes in sampling
Previously, samples to be tested were restricted to the top third portion of the hemp plant. With the Final Rule, samples can be taken anywhere from 5-8 inches from the main stem (including the leaves and flowers). This provision offers greater flexibility and reduces the chances of “hot” hemp.
Laboratories shall use specific testing methods
According to the Final Rule, hemp-testing laboratories must use reliable methods to test for THC concentration. This includes methods such as post-decarboxylation; they take into consideration the conversion of THCA to THC after decarboxylation. Currently, methods that meet these requirements include gas chromatography and liquid chromatography.
The USDA also expects that laboratories demonstrate consistent testing reliability and validity. The test methods used must have high specificity for THC and other tested compounds.
Negligence limit raised to 1% THC
Negligence limit refers to the extra wiggle room that is advanced to hemp farmers in regards to THC testing. In the IFR, hemp that tested above 0.3% THC but lower than 0.5% was considered negligence and not a violation of federal laws. This limit for negligence has now been pushed from 0.5% to 1%. As much as the Final Rule has maintained the THC limit for hemp at 0.3%, growers now have a wider margin of error to work with.
For hemp-testing laboratories, all samples that test above 0.3% THC are still considered hot hemp and must be destroyed or remediated. However, samples testing below 1% THC are considered a negligent violation and not a criminal offense.
All hemp testing laboratories need to be DEA registered
The Final Rule made it mandatory for all hemp-testing laboratories to be registered with the Drug Enforcement Agency (DEA). Getting this registration is time intensive and the number of registered laboratories is few. With this in mind, the USDA had extended the registration deadline to the last day of 2022. After the expiry of this period, laboratories that are not registered with the DEA will be barred from conducting hemp testing.
Laboratories to calculate Measure of Uncertainty (MU)
With the Final Rule, laboratories are expected to calculate and include the MU when reporting test results. The Guide to the Expression of Uncertainty in Measurement (GUM) defines MU as “a parameter, associated with the result of a measurement, which characterizes the dispersion of the values that could reasonably be attributed to the measurand.”
While there is no upper or lower limit for the MU, it is controlled using performance standards such as AOAC Standard Method Performance Requirements. Organizations such as ISO and Eurachem also provide guidelines for calculating MU. Hemp testing laboratories can refer to those guidelines as well.
Adherence to the ISO 17025 standards
While this is not an enforceable rule, the USDA strongly recommends all hemp testing laboratories be ISO 17025 compliant.
Laboratory SOPs
Testing laboratories must have an internal SOP for testing and retesting hemp. This SOP should be available upon request by state sampling agents or other responsible agents. Laboratory managers should ensure that all staff members follow the SOPs.
Reporting of THC
Once a laboratory has completed the test, whether failed or passed, they should share the results with all stakeholders:
The licensed producer
The appropriate State Department of Agriculture or Tribe
The USDA using AMS Form 22.
The THC should be reported on a “dry weight” basis.
Remediating and retestingof hot hemp
Once a laboratory finds a sample that has tested above 0.3% THC, it has to flag it as “hot” hemp. Previously, all hot hemp had to be destroyed but with the FR, parts of the hemp (excluding the flowers) can be salvaged.
A Laboratory Information Management System (LIMS) to manage multi-analyte test results and flag hot hemp (Figure courtesy of CloudLIMS)
The licensed producers (LP) are required to shred the hemp into biomass and send a sample back to the laboratory for retesting. The laboratory shall use the same procedure to retest the biomass and report the results back to the LP and the USDA.
The hemp final rule took full effect on the last day of 2021. The only extended deadline is the one requiring that all hemp-testing laboratories be registered with the DEA that still has a few more months to go.
Fast Track Your Laboratory’s Preparedness with a LIMS
Becoming compliant with USDA’s hemp testing rules can be quite challenging for a laboratory simply because there’s too much to keep up with. A laboratory must monitor samples, analyze and report test results, and at the same time maintain internal quality protocols.
Fortunately, digitization can help streamline processes and accelerate the preparedness of laboratories for the new federal rules. A cloud-based Laboratory Management Information System (LIMS) takes the hard work out of compliance by keeping track of compliance processes seamlessly and in real-time.
A LIMS enables laboratories to:
Track samples through their lifecycle
Automatically share results with stakeholders
Flag hot hemp samples
Generate certificates of analysis (COAs) in prescribed formats
Meet regulatory compliances
Manage SOPs, staff training, and QA/QC protocols
Hemp that tests above the 0.3% THC mark is considered cannabis and is therefore illegal under federal law. Consequently, hemp testing is a highly sensitive process that is strictly regulated. Hemp-testing laboratories must optimize their processes to ensure efficiency at all times and assure the validity of their test results. This can be made possible with a LIMS.
Medicinal Genomics announced today that they have received AOAC International certification for their PathoSEEK® Salmonella and STEC E. coli multiplex assay. In combination with their SenSATIVAx® extraction kits, labs can simultaneously detect Salmonella spp. and STEC E. coli with a single qPCR reaction for flower, concentrates and infused chocolates using the Agilent AriaMx and the BioRad CFx-96 instruments.
The certification came after the multiplex assay was validated according to the AOAC Performance Tested Method Program. According to the press release, the PathoSEEK platform now has more cannabis matrices accredited for Aspergillus, Salmonella, and STEC E. coli than any other product out on the market, according to their press release.
The PathoSEEK microbiological testing platform uses a qPCR assay and internal plant DNA controls for reactions. The two-step protocol verifies performance while detecting microbes, which allegedly helps minimize false negative results from human error or failing conditions.
“AOAC’s validation of our Salmonella/STEC E. coli assay across the various cannabis matrices is further proof of our platform’s robustness and versatility,” says Dr. Sherman Hom, director of regulatory affairs at Medicinal Genomics. “We are excited that our PathoSEEK® platform is moving in concert with the FDA’s new blueprint to improve food safety by modernizing the regulatory framework, while leveraging the use of proven molecular tools to accelerate predictive capabilities, enhance prevention, and enhance our ability to swiftly adapt to pathogen outbreaks that could impact consumer safety.”
EDGARTOWN, MA, Feb. 21, 2022 – Innovative Publishing Company, Inc., the publisher of Cannabis Industry Journal, has announced the return to in-person events with the Cannabis Quality Conference & Expo (CQC), taking place October 17-19, 2022 at the Hilton in Parsippany, New Jersey. Presented by Cannabis Industry Journal, the CQC is a business-to-business conference and expo where cannabis industry leaders and stakeholders meet to build the future of the cannabis marketplace.
“Cannabis markets in New Jersey, New York, Connecticut, Pennsylvania and Massachusetts are all beginning to get off the ground,” says Aaron Biros, editor of Cannabis Industry Journal and director of the Cannabis Quality Conference. “Taking place in a pivotal year for the cannabis industry and in a location surrounded by new market opportunities, the CQC will deliver hands-on education, networking and business discussions. The venue setting, just a short train ride from New York City and Newark International Airport, coupled with highly focused content, creates a unique business meeting environment.”
The 2022 program will have three separate tracks of educational presentations and panel discussions, focused on Regulations & Policy, Safety & Quality and Business & Operations.
Due to safety protocols and venue restrictions, limited space is available for sponsors and attendees. The CQC is a hybrid event, meaning attendees will have the option to either attend in-person in New Jersey, or attend remotely via the virtual platform. Registration is now open. Click here to stay up to date on lodging, early bird pricing, keynote announcements and more.
Cannabis Industry Journal is a digital media community for cannabis industry professionals. We inform, educate and connect cannabis growers, extractors, processors, infused products manufacturers, dispensaries, laboratories, suppliers, vendors and regulators with original, in-depth features and reports, curated industry news and user-contributed content, and live and virtual events that offer knowledge, perspectives, strategies and resources to facilitate an informed, legalized and safe cannabis marketplace.
About the Cannabis Quality Conference & Expo
The Cannabis Quality Conference & Expo is an educational and networking event for the cannabis industry that has cannabis safety, quality and regulatory compliance as the foundation of the educational content of the program. With a unique focus on science, technology, safety and compliance, the “CQC” enables attendees to engage in conversations that are critical for advancing careers and organizations alike. Delegates visit with exhibitors to learn about cutting-edge solutions, explore three high-level educational tracks for learning valuable industry trends, and network with industry executives to find solutions to improve quality, efficiency and cost effectiveness in the evolving cannabis industry.
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To qualify for an adult use cannabis conditional cultivator license, only companies and individuals currently licensed with the state for cultivation or processing of industrial hemp can apply for the conditional licenses. Applicants must have been an authorized industrial hemp research partner for the Department of Agriculture and Markets, and industrial hemp cultivators must have grown and harvested the crop during at least two of the past four years.
