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HACCP

HACCP for Cannabis: A Guide for Developing a Plan

By Radojka Barycki
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HACCP

Hazard Analysis and Critical Control Points (HACCP) is a systematic approach that evaluates hazards that may potentially be present in food products that can harm the consumer. The process used to manufacture the product is evaluated from raw material procurement, receiving and handling, to manufacturing, distribution and consumption of the finished product1. The documented process is what is known as HACCP plan. Although HACCP was designed to evaluate hazards in foods, it can be used to assess or evaluate hazards that may potentially be present in cannabis consumable products (edibles and vaping) that can cause harm to the consumer.

HACCP plan development requires a systematic approach that covers 5 preliminary steps and 7 principles. A systematic approach means that each step must be followed as outlined. Skipping a step will result in a HACCP plan that most likely will be ineffective to control potential hazards in the product.

The 5 preliminary steps are:

  1. Establish a HACCP team
  2. Describe the product
  3. Establish the intended use of the product
  4. Develop a flow diagram
  5. Verify the flow diagram

The 7 Principles are:HACCP

  1. Conduct a hazard analysis
  2. Identify the critical control points (CCPs)
  3. Establish critical limits (CL)
  4. Establish monitoring procedures
  5. Establish corrective actions
  6. Establish verification procedures
  7. Establish records and record keeping procedures1,2

It is important to mention that HACCP plans are supported by programs and procedures that establish the minimum operational and sanitary conditions to manufacture safe products. These programs and procedures are known as pre-requisite programs (PRP) or preventative controls1,2.

Figure 1. Flow Diagram

A multidisciplinary team must be established in order to ensure that all inputs of the product manufacturing process are considered during the hazards analysis discussions. The description of the product and its intended use provides detail information on ingredients, primary packaging material, methods of distribution, chemical characteristics, labeling and if any consumer might be vulnerable to the consumption of the product. A verified flow diagram is an accurate representation of the different steps followed during the product manufacturing process and will be used to conduct a hazard analysis. An inaccurate flow diagram will set the stage for an inadequate HACCP plan. Therefore, it is important that the HACCP team members verify the flow diagram. Figure 1 is a flow diagram for a fictional infused apple juice manufacturing plan that I will be using as an example.

The hazard analysis is the backbone of the HACCP plan. There are two elements that must be considered when conducting the hazard analysis:

  • Identification of the hazard associated with the ingredient(s) and/or the product manufacturing steps. These hazards have been categorized as: Biological, chemical (including radiological) and physical. Biological, chemical and physical hazards should be considered for each ingredient, primary packaging and process step. Also, it is important that the team is specific as to what hazard they are referring to. I often find that biological hazards are identified as “pathogens” for example. The team has to be specific on which pathogen is of concern. For example, if you are processing apple juice, the pathogens of concern are pathogenic coli and Salmonella sp. However, if you are processing carrot juice, you need to add Clostridium botulinum as a biological hazard also. If the choice of method to eliminate the hazards is pasteurization for example, the processing temperature-time combinations will differ greatly when manufacturing the apple juice vs. the carrot juice as C. botulinum is an organism that can sporulate and, therefore, is harder to kill.
  • Characterization of the hazard. This implies determining the significance of the potential hazard based on the severity of the consequence if it is consumed and the likelihood of occurrence in the ingredient or process step. Only steps in the process that has significant hazards should be considered further.
Table 1. Ingredient Hazard Analysis

In my professional experience, the hazard analysis is one of the most difficult steps to achieve because it requires the expertise of the multidisciplinary team and a lot of discussion to get to the conclusion of which hazard is significant. I find that a lot of teams get overwhelmed during this process because they consider that everything in the process may represent a hazard. So, when I am working with clients or providing training, I remind everyone that, in the bigger scheme of things, we can get stricken by a lighting in the middle of a thunderstorm. However, what will increase our chances would be whether we are close or not to a body of water for example. If I am swimming in the middle of a lake, I increase my chances to get stricken by the lighting. In comparison, if I am just sitting in my living room drinking a cup of coffee during the thunderstorm, the likelihood of being stricken by a lighting is a lot less. The same rationale should be applied when conducting the hazard analysis for manufactured products. You may have a hazard that will cause illness or death (high on the severity chart) but you also may have a program that mitigates the likelihood of introducing or having the hazard. The program will reduce the significance of the hazard to a level that may not need a critical control point to minimize or eliminate it.

Table 2. Process Hazard Analysis (1)

Clear as mud, right? So, how would this look like on the infused apple juice example? Table 1 shows the hazard analysis for the ingredients. Tables 2 and 3 show the hazard analysis for the part of the process. In addition, I have identified the CCPs: Patulin testing and pasteurization. There is a tool called the CCP decision tree that is often used to determine the CCPs in the process.

Once we have the CCPs, we need to establish the critical limits to ensure that the hazard is controlled. These limits must be validated. In the case of Patulin, the FDA has done several studies and has established 50 ppm as the maximum limit. In the case of pasteurization, a validation study can be conducted in the juice by a 3rd party laboratory. These studies typically are called thermal death studies (TDS) and provide the temperature and time combination to achieve the reduction of the pathogen(s) of concern to an acceptable level that they do not cause harm. In juice, the regulatory requirement is a 5-log reduction. So, let’s say that the TDS conducted in the infused apple juice determined that 165°F for 5 seconds is the critical limit for pasteurization. Note that the 5 seconds will be provided by the flow of the product through the holding tube of the pasteurizer. This is measured based on flow in gallons per minute.

Table 3. Process Hazard Analysis (2)

Monitoring is essential to ensure that the critical limits are met. A monitoring plan that outlines what, how, when and who is responsible for the monitoring is required.

Ideally, the system should not fail. However, in a manufacturing environment, failures can happen. Therefore, it is important to pre-establish steps that will be taken to ensure that the product is not out of the control of the facility in the event of a deviation from the HACCP plan. These steps are called corrective actions and must be verified once they are completed. Corrective actions procedures must address the control of the product, investigation of the event, corrective actions taken so the deviation doesn’t reoccur and product disposition.

Table 4. HACCP Plan Summary

Verification activities ensure that the HACCP plan is being followed as written. Typically, verification is done by reviewing the records associated with the plan. These records include but are not limited to monitoring records, calibration records, corrective action records, and preventive maintenance records for equipment associated with the CCPs. Record review must be done within 7 working days of the record being produced.

Finally, establishing records and record keeping procedures is the last step on developing HACCP plans. Records must be kept in a dry and secure location.

Table 4 show the summary of the HACCP plan for the infused apple juice example.

For more information on how to develop a HACCP plan for your facility, read the resources below:

  1. HACCP Principles and Application Guidelines – The National Advisory Committee on Microbiological Criteria for Foods (NACMCF)
  2. ASTM D8250-19: Standard Practice for Applying a Hazard Analysis Critical Control Points (HACCP) Systems for Cannabis Consumable Products

How to Streamline Labeling from Seed to Sale in The Time of COVID-19

By Travis Wayne
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As if the cannabis industry doesn’t regularly go through enough rapid change, with COVID-19, cultivators, processors and dispensers of all sizes are trying to do more with less. Lower operational headcount and unpredictable production volume, along with a rapidly-changing supply chain – make eliminating manual steps a necessity. Labels include barcodes or various barcode symbologies to help companies manage inventory, identify products and ultimately ensure that the right products get to the right customers at the right time. By eliminating manual steps in your labeling environment, you can address these issues through automation, scalability, efficiency and accuracy: benefits that will last through the pandemic and position you well for the recovery period.

Automation

Automation of many kinds is being implemented from seed to sale including barcode label printing automation. Integration of labeling software and seed to sale traceability systems including METRC, BioTrack, Leaf Data and others enables streamlined barcode label data population and high-volume label printing to counteract the decreasing operational headcount and eliminate manual touchpoints.

Print automation can be defined as “a centralized technology that replaces the manual process of triggering a print job within a labeling environment.” Look for a labeling software solution that allows you to:

    • Completely automate your label printing process
    • Print to a greater number of printers
    • Initiate printing directly from any business system
Integrating your label printing system with your seed to sale traceability system can minimize errors, increase print speeds and maximize your ROI.

By integrating your label printing system with your seed to sale traceability system, you can expect to minimize errors, increase print speeds and maximize your ROI. Your business system already holds the variable data such as product names, license number, batch or lot codes, allergens, net quantity, cannabis facts, warning statements and more. By systematically sending this data to the right label template at the right time, labeling becomes an efficient and cost-effective process.

Scalability

One of the most important considerations for cannabis cultivators, processors and dispensers is to invest in solutions that can grow and pivot quickly as the business changes. Whether you are responding to temporary requirements or changes, or your business needs to scale up quickly to respond to a spike in demands as a result of COVID-19 or to prepare for coming out of this pandemic. Whatever your needs are, think about short-term and long-term goals for sustainable business solutions. Scalability includes:

Printing to a greater number of printers

As needs and automation requirements change, and your printer inventory has the possibility of increasing, make sure your labeling design software can be licensed per simultaneous user, with cost-effective, multi-user networking licenses. That way, you don’t run the risk of paying for more printers as you grow or going over budget with each additional printer.

Print documents and labels from the same application

If you use the same data for your documents (like order receipts, bills of materials or packing lists) and labels, moving document printing into your label design software makes sense logistically. An advanced label creation and integration software enables label and document printing standardization by allowing multiple database records to be on one file. That means when new documents or labels come into your database, your software can seamlessly integrate.

Efficiency and accuracy

In a time where responding to the changing market needs to happen very quickly, where costs are being scrutinized and when errors cannot happen – you need to set up your labeling environment to have high levels of accuracy and control. With increased accuracy you will reduce waste, eliminate returns due to mislabeled product, efficiently track product and gain more efficiencies that will save you money and time.

Cutting manual steps out of the process

Removing manual steps in your printing process is a sure-fire way to gain efficiency and accuracy in your labeling environment. Look for labeling software features that allow you to add variable data from a device to your labels automatically, which limits the human interaction with your labels and in turn helps minimize human errors. Other efficiencies include:

On-demand color labeling streamlines efficiency and accuracy across a wide variety of labeling needs.
  • Increased print speed within your labeling environment
  • Reduced label waste
  • Collection of data from several devices such as:
    • Scanners
    • Scales
    • Keyboards

On-demand color labeling

On-demand labeling is specifically helpful in the cannabis labeling world because of all the regulations you must comply with. Each state has its own regulations, which means each label throughout the cannabis supply chain must be compliant with whichever state they are located. With on-demand labeling, cannabis companies print labels as needed and make changes as they go without the risk of wasting obsolete pre-printed label stock. This is beneficial as pre-printed labels often have large minimum order quantities. On-demand labeling also helps companies maintain better control of their own branding and graphics.

With on-demand labeling, label information can be populated by using pre-approved label templates in order to save you time with the variations of cannabis labels. This gives you the ability to print the specific label you need without having to waste your pre-printed label stock, or spend time switching out your pre-printed label stock in your printer.

Cannabis cultivators, processors and dispensers are faced with many obstacles during these challenging times due to COVID-19 – ensuring workers are safe, keeping operations at 100% capacity with potentially fewer people, creating contingency plans that may be changing daily. In an environment that is changing very quickly, consider how labeling solutions can evolve. You may also need to lean more on your partners than you ever have in the past.

Turning Over A New Leaf: Faces of Courage In A Pandemic

By Marguerite Arnold
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The cannabis industry is not immune from global setbacks. Discussions about how resistant the vertical is to this (next) setback have been widely disseminated, from mainstream news to the blogosphere.

Yes, the UN punted global reform down the pike another 9 months – affecting the international industry. And so far, the entire vertical has been left out of the relief bill in the United States (although there are lobbying efforts everywhere to correct the oversight on subsequent bills now almost inevitably in the legislative hopper).

However, there are signs that the industry is actually gaining credibility if not forging new victories during a time likely to go down as this century’s “Great Depression.”

Here is a look at some of the trends afoot that are already bearing fruit and bringing relief.

Cannabis Business Is Essential Business

Some important battles have been won in many states in the U.S. as well as several other countries (including but not limited to Canada). This starts with the designation of the industry as “essential,” at least on the medical side. The issue of delivery and cashless payments have been on the front burner just about everywhere. And this time, there are few if any objections with a national lobby to voice said concerns.

In Europe of course the conversation is also different depending on where you are, but there are still signs that things are clearly changing.

In the UK, authorities have made it easier for cannabis importing. In Germany, pharmacies are on the front line in a way unseen just about anywhere else.

And in Spain, with most patients reliant on cannabis clubs, the lockdown and subsequent hardship for the most vulnerable has led to widespread calls to make deliveries a possibility. Even if the clubs are not functioning as “lounges,” their operators might not get fined for opening their doors, much less “importing” product from the outskirts of town to a central distribution point.

Pivoting To Respond In Times Of Crisis

It is impossible to forget that the emergent industry has been on the forefront of the medical industry and certified production for a long time, even if that, at least up to this point, has received little respect.

Health Canada has asked testing labs to repurpose their activities for Covid-19 testing.

Canadian and American producers are also on the front lines of providing PPE (personal protective equipment) that can be multi-purposed. Masks, gowns and gloves have all been donated from multiple companies. Others are literally repurposing ethanol used for extraction to make hand sanitizer for vulnerable populations. More than a few, including in Europe, have directly been involved in helping to fundraise for foodbanks.

GMP Licensing and Other Developments Still Cooking

While some companies waiting for certification have been stymied because of a lack of foreign travel (EU-GMP requires German inspectors to travel to Canada for example), there are other indications that global companies are finding the way through anyway.

GMPNew deals are being inked all over the planet, including international provision deals from unlikely places. This is in part because new export and sales channels are being forged – literally out of desperation. See the story of Little Green Pharma and Astral Health, an Australian company now exporting to the UK (a first). Or the New Mexico company Ultra Health, which just started to export to Israel. Not to mention the source of Israel’s other international purchase of cannabis this month –  from Uganda of all places.

Down under, things are certainly developing in an interesting way during the crisis. Indeed, New Zealand decided to proceed with its own cannabis cultivation, with signs that more reform is on the agenda for later in the year.

Back in the Northern Hemisphere, North Macedonia, home of one of the most developed cannabis economies adjacent to Europe, is literally one amendment away from entering the European and global business with flower as well as extracts (which is on the table this month as the government begins to reconvene.)

In summary, while times are tough, everywhere, the entrepreneurs who have forged their way through laws of man to create reform, are also showing up to battle against this century’s so far most emergent threat.

Soapbox

Confront Poor Medicinal Cannabis Policies to Save Lives

By Dr. Jordan Zager
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For me, the opioid epidemic was never a theoretical crisis. The mounting lives lost to overdoses weren’t just numbers in news reports to me, but names. A high school lab partner, little league teammates, a cook at my first restaurant job and others in my hometown were lost to the epidemic. By the time I graduated high school, seven people in my life died due to complications arising from opioid use.

What’s not lost on me now, after earning my PhD in plant biochemistry and founding a startup focused on bringing consistency and scientific credibility to the cannabis industry, is how a stigma around medicinal cannabis seems like such a contributing factor in their deaths.

Cannabis, although fully illegal in only eight U.S. states, still qualifies as a Schedule 1 drug on the federal level, legally equivalent to LSD or heroin. Crystal methamphetamine and cocaine as Schedule 2 drugs have lower penalties and even have federally approved medical applications. This is where we’ve failed as a broader scientific community.

The reason is this: Medicinal cannabis produced from the same genetic replicates, but grown in separate locations, or even different seasons, will possess different bioactive compounds. In short, their effect on patients will be different depending on the various bioactive compounds produced by the plant. Prescription medications do not come with that major caveat.

Dr. Jordan Zager, CEO and co-founder of Dewey Scientific

There’s a quality assurance problem, compounded by a lack of science that’s been shackled by the criminalization of cannabis since 1937.

We do know that the primary benefits of cannabis are three-fold: First, there’s pain management, as 28 well conducted randomized clinical trials (RCTs) have documented that cannabinoid agents are effective analgesics for chronic pain. Second, while potentially psychologically addictive, so people may desire the “high” produced by cannabis, THC is not chemically addictive and does not create a biological desire for the drug, much like the craving induced by the absence of, say, cocaine or heroin has on regular users. And finally, patients cannot overdose.

As a scientific community, there are three things we need to start doing today to change the narrative around medicinal cannabis and help bring this safer alternative therapy to more people. We need to provide a larger body of evidence about the benefits. We need to drive increased consistency in cannabis products themselves. And we need to confront stigmas rooted in misinformation. The sooner we can succeed here, the sooner we can hope for a day when we see fewer devastating opioid overdoses and deaths.

I am driven by a vision for a future when people can have access to safe, trusted and consistent cannabis for their medical and recreational uses, and we as a society are able to fully realize the therapeutic benefits of this amazing plant. As scientists, my colleagues and I are committed to doing our part to bring the credibility and advancements that will help this vision become a reality.

Using tools rooted in science–including functional genomics and secondary metabolite pathway expression profiling–cultivators can learn to fully “know” the plants they grow and hone in on producing the same bioactive compounds and in the same ratios that show medicinal promise. Cultivators can learn the genetic effect that their facility has on their genetics and why those genetics lead to a different chemical profile when grown elsewhere. Together, we can identify the driving factors of what makes a variety help with whatever ailment you are trying to treat.

I’m buoyed by data that shows states that have legalized and provided access to recreational cannabis have between 20% and 35% fewer reported opioid deaths, and lower rates of opioid prescriptions. But more needs to be done. I plan to become a more vocal voice, advocate for sound science, consistency in medical cannabis and better access to natural plant-based medicines without the stigma of yesteryear.

The time has come for our policy makers to step up. We cannot afford to just be observers when the cost of remaining on the sideline is measured in lives.

Cannabis Businesses Remain Ineligible To Receive Federal Financial Assistance

By Steve Levine, Megan Herr
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In our previous post, we touched on the fact that state-legal medical and recreational cannabis businesses (including indirect cannabis businesses) could not receive federal financial assistance due to the continued Schedule I status of cannabis under the Controlled Substances Act (CSA). While state-legal medical and recreational cannabis businesses have been adversely affected due to government imposed shelter-in-place restrictions across the United States, they are unable to take advantage of the multi-trillion dollar stimulus packages that are designed to help small businesses because they are engaged in “federally illegal” activities. As described below, applicants applying for federal loans must certify, under penalty of perjury, that they are not engaged in “illegal” activity.

While it is our view that state-legal medical and recreational cannabis businesses should be entitled to assistance as they are hurting like every other business, we explain why such businesses cannot receive financial assistance under the Paycheck Protection Program and the SBA’s Economic Injury Disaster Loan Program due to the facts that these businesses do not comply with federal law.

CARES Act

As previously discussed, Section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the “Act”) directed $349 billion to the Small Business Administration (SBA) to administer to small businesses harmed by COVID-19. As a result, businesses can apply for Paycheck Protection Program (PPP) loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), traditional 7(a) loans, 504 loans, and microloans, and can also receive investment capital from the Small Business Investment Company program.

Paycheck Protection Program (PPP)

Generally, the following businesses are eligible to receive loans under the PPP:

  • Any business, 501(c)(3) nonprofit organization, 501(c)(19) veterans organization or Tribal business with not more than 500 employees whose principal place of residence is in the United States;
  • Any business that meets the SBA employee-based size standards for the industry in which it operates (if applicable);
  • Any business that is a “small business concern” as defined in Section 3 of the Small Business Act, 15 U.S.C. 632, and meets the SBA employee-based or revenue-based size standards corresponding to its primary industry; or
  • Any business that is a “small business concern” under the SBA’s “alternative size standard” as of March 27, 2020, which standard is met if the business has not more than:
    • (i) maximum tangible net worth of $15 million, and
    • (ii) an average net income of $5 million (after Federal income taxes, excluding any carry-over losses) for 2 full fiscal years before the date of application.

Importantly, to apply for PPP, an applicant must make a good faith certification that the applicant is eligible to receive a PPP loan. An applicant must certify, under penalty of perjury, that it “is not engaged in any activity that is illegal under federal, state or local law.” (Borrower Application Form, page 2).

Consequently, because state-legal marijuana businesses (including indirect marijuana businesses) are operating in violation of federal law, applicants cannot make such certification, they remain ineligible to participate in the PPP.

 Economic Injury Disaster Loans (EIDLs)

 The CARES Act also provided a slew of changes to the SBA’s pre-existing EIDL program, which provides small businesses with working capital loans of up to $2 million to assist to help overcome the temporary loss of revenue as the result of a declared disaster.

The Act set out new rules making it easier for small businesses harmed by COVID-19 to receive loans quickly and efficiently; the Act added $30 billion to the EIDL loan fund, with an additional $10 billion added for the EIDL Grants connected to the EIDL loans.

The CARES Act also expanded eligibility to include businesses with no more than 500 employees, any individual operating as a sole proprietor or an independent contractor, and tribal businesses, cooperatives and ESOPs with no more than 500 employees. Small business concerns and small agricultural cooperatives who meet the SBA’s applicable size standards are also eligible, as well as most nonprofits.

However, to receive an EIDL loan, applicants must make a good faith certification that the applicant is eligible to receive an EIDL. An applicant must certify, under penalty of perjury, that it “is not engaged in any illegal activity (as defined by Federal guidelines).” (COVID-19 Economic Injury Disaster Loan Application).

The SBA has clarified that the limitation on applicants “engaged in any illegal activity” (13 CFR § 120.110 (h)) refers to all applicants engaged in “illegal activity under federal, state, or local law.”

In a Statement of Position issued on April 1, 2019 (the SOP), the SBA clarified that “illegal activity” includes “[a]pplicants that make, sell, service, or distribute products or services used in connection with illegal activity, unless such use can be shown to be completely outside of the Applicant’s intended market.” (SOP 50 10 5(K))

The SOP indicated that both (i) Direct Marijuana Businesses1 and (ii) Indirect Marijuana Businesses2 cannot receive SBA assistance due to the limitation on applicants “engaged in any illegal activity.”

It is the SBA’s position that, “because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity.”

Consequently, because state-legal cannabis businesses (including indirect marijuana businesses) are operating in violation of federal law, applicants cannot certify that they are “not engaged in any illegal activity,” they are not eligible to receive EIDLs.

  1.  “Direct Marijuana Business” mean “a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to recreational use and medical use even if the business is legal under local or state law where the applicant business is or will be located.”
  2. “Indirect Marijuana Business” means “a business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to aid in the use, growth, enhancement or other development of marijuana. Examples of Indirect Marijuana Businesses include businesses that provide testing services, or sell or install grow lights, hydroponic or other specialized equipment, to one or more Direct Marijuana Businesses; and businesses that advise or counsel Direct Marijuana Businesses on the specific legal, financial/ accounting, policy, regulatory or other issues associated with establishing, promoting, or operating a Direct Marijuana Business. However … [the] SBA does not consider a plumber who fixes a sink for a Direct Marijuana Business or a tech support company that repairs a laptop for such a business to be aiding in the use, growth, enhancement or other development of marijuana. Indirect Marijuana Businesses also include businesses that sell smoking devices, pipes, bongs, inhalants, or other products if the products are primarily intended or designed for marijuana use or if the business markets the products for such use.”

Buyer Beware For Distressed Cannabis Assets

By Joanne Molinaro, Geoffrey S. Goodman, Ronald Eppen
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The legalized cannabis industry remains a budding market in the United States. As the legislative dominoes started to cascade from state-to-state across the country, entrants of all categories—operators, investors, lenders, and retailers—were willing to stand in line for their tickets.  However, signs of fatigue, caused largely by the continuing murkiness of regulatory guidance and investors’ waning appetite for reading the legislative crystal ball, were already surfacing towards the end of 2018 and continued its slide downward into 2019. From March 2019, market capitalization for the 33 biggest cannabis stocks was down 45% by the end of 2019, falling from $54 billion to $30 billion and projected revenues dropped a whopping 17% as well.

Has COVID Made Things Worse?

Against this backdrop, COVID-19 arrived on the scene. Surprisingly (or perhaps not), cannabis seemed to be somewhat insulated from unprecedented disruptions to supply chains and artificial nose dives in demand. Many operators noted a sharp uptick in sales as states implemented shelter-in-place orders. Ironically, the supply chain hurdles created by the lack of federal legalization rendered operators—even multistate operators (MSOs)—uniquely equipped to handle the supply chain woes that others were struggling to contain. Meanwhile, as more and more states slapped the essential label onto both medical and adult use cannabis, operators were permitted to run business as usual (under the circumstances) and legalized cannabis started to look a little more “normal” in the most abnormal of times.

Thus, for a moment, cannabis looked like it might be a counter indicator (or recession-resilient)—while others were going down, cannabis was going up. But, after this brief surge, sales settled down and states began reporting decreases from this time last year and the outlook for the cannabis industry remains unclear.

Is This An Opportunity?

Declining demand, coupled with the issues described above, spells cash-flow problems for cannabis companies – many of which are still relative “infants” compared to their consumer goods counterparts and thus may have yet to create a “rainy day fund.” However, liquidity issues can create opportunities for those who still have cash to inject. In the last year, 13 special-purpose acquisition companies (SPACs) have listed on exchanges with an eye towards “cheap cannabis assets.”Cheap cannabis assets (or distressed cannabis assets) can offer a lowered barrier to entry into what many still believe to be a bull market. However, investors should proceed with caution. While the assets themselves may bear bargain basement price tags as the world grapples with the current recession, the cost of entry is more onerous than many realize. It is thus critical for potential investors to do their pre-due diligence on the who, what, when, where and how of acquiring distressed cannabis assets.

Where Do Distressed Cannabis Companies Go?

Ordinarily, distressed companies requiring capital restructuring look towards the US Bankruptcy Code. Deploying the broad injunctive relief afforded by the automatic stay as both a sword and shield, ailing companies can focus on lining up debtor-in-possession financing while they prospect feasible long-term exit strategies (through a reorganization, asset sale, or some combination of the two). The other major advantage of a chapter 11 is, of course, the “free and clear” order—the veritable clean slate provided by a federal court to good faith purchasers of the distressed assets that allow buyers to proceed with very few strings attached.

These federal benefits are not available to adult use and medical cannabis companies (hemp companies can file for chapter 11). Indeed, some bankruptcy courts have shut the door on not just the operators themselves, but companies that have even tangential dealings with cannabis companies.  With federal legalization, that will likely change; however in the meantime, distressed cannabis companies must look to pseudo-bankruptcy proceedings that offer some of the benefits that a federal bankruptcy can.

Is A State Receivership A Good Restructuring Vehicle For Distressed Cannabis Companies?

The number one option for many distressed cannabis companies will be state receivership. Much like a chapter 11 bankruptcy, the receivership provides for a stay against actions against the company’s assets, i.e., the breathing space it needs to hatch a plan for rehabilitation or exit the game as painlessly as possible. The receiver will be empowered to run the business while ironing out its operational/cash issues or conduct an orderly sale of the assets, usually through an auction process, during which the secured lender will be afforded the right to credit bid. The costs associated with that sale may be charged to the sale proceeds. Thus, in many ways, the state receivership acts like a federal bankruptcy.

How Is A State Receivership Different From A Federal Bankruptcy?

There are two main differences that investors should be aware of between a federal bankruptcy and a state receivership.

As with anything else that’s up for sale, where there’s a will, there’s a way.First, the court appointed receiver (often handpicked by the company’s primary secured lender) will be calling most of the shots from an operational, transactional, and financial perspective. That receiver may not have the kind of operational know-how of running a cannabis company that a typical debtor-in-possession might, making any major transaction more challenging. Even if the receiver has some background in the cannabis industry, he or she will still have a steep learning curve when it comes to the company’s specific business.

Second, the laws vary from state to state on whether a receiver can sell assets free and clear of any and all liens, claims, and encumbrances without the consent or satisfaction of those claims. Accordingly, buyers of distressed cannabis assets will want to take a close look at potential successor liability risks on a state-by-state basis.

Can Anyone Buy Or Invest In Distressed Cannabis Assets?

While many industries offer pay to play options for investors and lenders, the cannabis industry may not be as welcoming. Many lenders eyeing potentially lucrative refinancing possibilities that include an “equity kicker” (e.g., warrants) should be aware that states and municipalities often require investors aiming to own or control a substantial portion of the company’s business to satisfy most, if not all, of the regulatory requirements for holding the various licenses for operating in the cannabis space. For those interested in MSOs, a deep dive into each applicable state or city’s licensing requirements will be necessary.  Similarly, many states have onerous disclosure requirements for owners or financial interest holders of cannabis companies. Failures to disclose can lead to license suspensions or even forfeitures.

These are just some of the hurdles potential investors and lenders may need to scale. But as with anything else that’s up for sale, where there’s a will, there’s a way.

Processes, Protocols and Layers of Protection: Essential Security Measures for the Medical Cannabis and Hemp Industries

By Joshua Wall
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As legalization of cannabis products from hemp to medical cannabis takes root across the U.S., there’s a growing need to understand and build good security practices. While many think of security as safeguarding assets like facilities and product, effective security does much more. It protects a business’ workers, providing them secure workplaces and incomes. Ideally, it reaches from supply chain to customers by ensuring consistently safe products.

To truly understand the value of this for a brand or for the industry as a whole, consider the opposite: the destructive effect – on a brand and on the industry at large – of unsafe or tampered product reaching customers, or of crimes occurring, just as the industry seeks to demonstrate its validity and benefits. Security is vital not only to individual farmers, processors or customers but to all who value what the industry brings to those who rely on CBD or medical cannabis products for their wellbeing.

Know the Threats.

Part of the learning process involves understanding the value of the product.Security is all about anticipating and reducing risks. These can include physical threats from natural sources – think flood, fire, tornado or crop fail – or from human threats. Human threats can arise from organized criminals, hackers, amateur thieves, vandals – or insiders.

As regulated industries, hemp and cannabis businesses also face risk of losses, which can be significant, from penalties ranging from fines to being shut down for non-compliance. While rules vary from state to state and continue to change, a disciplined approach to security is foundational to reducing risk at many levels. Rigorous operational processes must incorporate security that addresses risks at multiple points of access, transport and sale of products.

Learn the Rules.

In a rapidly evolving industry, one of the most important things producers can do is to learn. Security requirements vary by region and providers need to be aware of what is available. Get to know your state, local and federal resources for your operating area. California law, for example, specifies use of high-resolution video surveillance in dispensaries, while others do not.

Joshua Wall, Chief Operating Officer at Harvest Connect LLC

Part of the learning process involves understanding the value of the product. With medicinal cannabis, it’s helpful to grasp both its commodity value and the street value that could make it attractive to thieves. In “Why Marijuana Plant Value is So Important for Adjusters,” Canadian Underwriter Magazine gave examples that indicate the size of losses that may occur in growing and processing operations:

“In the medical marijuana space, ClaimsPro has already seen losses primarily between $150,000 and $750,000. These losses, mostly on Vancouver Island, were for fire and water damage, as well as boiler machinery issues, physical damage to buildings and specialized greenhouse equipment, as well as extra expense and business interruption.”

The same article notes a claim over $20 million at another single flower greenhouse. Security needs to reflect what’s present on our premises.

Educating the community can reduce risk as well. Producers of industrial hemp may need to inform would-be thieves that what they are looking at is not street-valued product. To protect the crops, which are generally grown outdoors and do not require a full security detail, a best practice is simply posting signs on the property that say explicitly “No THC.” 

Begin with a Risk Assessment.

Security begins with a professional evaluation of site vulnerabilities, examining key weaknesses that could be exploited by attackers. These include:

  • Monitoring access to the site is a foundational principle of security.
  • Design limited access points into the facility as well as prepare for possible facility breaches with perimeter access control, technological redundancies and ballistic glass for defensive architecture measures.
  • Look at route vulnerabilities as well.
  • Hedge site risk by not limiting your operation to a single site where one incident could wipe out an entire year’s crop.

The nature of threats is always changing. A 2018 Newsweek article described the struggles of legal cannabis farmers against illegal and potentially cartel-backed and violent operations in California. While a 2020 Business Insider report described indications that legalization was prompting some cartels to leave cannabis alone and move on to fentanyl and meth. “While Mexican drug cartels made their money predominantly from marijuana in past decades, the market has somewhat dissipated with the state-level legalization of cannabis in dozens of states across the US.”

Define Levels of Risk and Access.

The best security matches spending to risk in a commonsense way. Are you more at risk from the occasional smash and grab incident or is there reason to anticipate an organized assault? As in many industries, the greatest risk often comes from employee fraud or theft. Hiring carefully, paying fairly and training staff well are important to long term security.

Iron Protection Group in a training session
Image credit: Tampa Bay Times

How will the product be moved around within the facility and beyond it – and what staff are responsible for each part of the journey? Who can enter the cultivation areas and what protocols must they follow? On site staff should be trained on what to look for if they observe a security breach. Consider biometrics such as retinal scans, fingerprint scans or similar.

In cases where valuable product or cash is present, guards can play an important role. Harvest Connect uses only high-level former military or police officers in these roles, an approach recognized by many. Hunter Garth of Iron Protection Group notes they have “the ability to de-escalate a potentially harmful situation and the fortitude to see a mission through to completion, no matter what external circumstances may arise.”

Inventory and Transaction Controls

Inside threats from sloppy processes can be just as insidious as attacks. Poor tracking of inventory by Oregon’s legal cannabis producers made headlines in 2018 as The Oregonian reported, “U.S. Attorney Billy Williams told a large gathering that included Gov. Kate Brown, law enforcement officials and representatives of the cannabis industry that Oregon has an ‘identifiable and formidable overproduction and diversion problem.’’ Discipline, applied by state pressure but carried out by producers themselves, has begun to reduce the diversion of untracked product into the black market a year later.

Cannabis businesses need a professional approach to monitoring all product and money that moves through its systems. These operational processes can include time, date and attendance stamps on all inventory. Similarly, accounting systems and software must follow the highest professional standards. Lastly, when breaches occur, it is essential that fraud and theft are caught, eliminated and prosecuted as appropriate.

Nurturing an Emerging Industry

Security resources are an integral part of maintaining the integrity of a business’ supply chain. As the product moves from the fields to processing centers to consumers, purity assurance becomes an operational objective. Ultimately, protecting the product through secure and professional practices is the optimal way to serve customers, build a brand, and sustain the industry.

PJLA

Perry Johnson Laboratory Accreditation (PJLA) Pivots to Virtual Assessments

By Cannabis Industry Journal Staff
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PJLA

In a letter sent out to clients last week, Perry Johnson Laboratory Accreditation (PJLA) notified their partner labs that they will be conducting virtual assessments.

PJLA typically conducts assessments on-site. . However, given the current situation, with CDC recommendations for social distancing and mandatory stay-at-home orders in some states, the laboratory accreditation company is pivoting to virtual assessments to help their clients maintain accreditation.

Tracy Szerszen
Tracy Szerszen, president/operations manager, PJLA

Virtual assessments are not the norm, but they are allowed to offer them during crises where on-site assessments are not possible. PJLA is sending their clients virtual assessment surveys to check the viability of a remote assessment. That includes making sure there’s a video camera in the lab, capability to use remote meeting software, and capability for remote screen sharing during a quality review. Take a look at the letter PJLA sent their clients last week:

Dear PJLA Clients,

Considering the COVID-19 pandemic, business and the conduct of audits has changed dramatically.  We at PJLA are doing all we can to maintain accreditation while keeping the health and safety of our auditors, our clients, and their families a priority.

To keep your accreditation valid, we have been able to implement Virtual auditing technology to do entire audits – or at least parts of audits – remotely, using virtual audit techniques.  These types of audit are offered for crisis situations where we cannot perform routine on-site assessments (natural disasters, emergencies, travel restrictions).

Clients will be receiving a virtual assessment survey

  • Allowing for virtual (i.e. cameras in the lab)
  • Capability to use virtual systems
  • Having equipment with cameras/remote screen sharing for quality review and laboratory operations

Upon review of the survey, organizations and assessors will be provided with the decision that the assessment can be conducted fully or partially remote. Following approval, assessors and clients will have a discussion to determine the planning of the virtual assessment.

We have a team dedicated to providing support, but we still ask for your patience during this time.  It may take some time for everyone to become comfortable with the software. We will be reaching out to each client to hear about their experience to continually improve this process.

We thank you for participating in this new and exciting assessment option.

Respectfully,

Tracy Szerszen

President/Operations Manager

Perry Johnson Laboratory Accreditation, Inc.

755 West Big Beaver Road Suite 1325

Troy, MI 48084

Phone: (248) 519-2603

www. pjlabs.com

Following Up: Questions From The Infused Products Virtual Conference Answered

By Ellice Ogle
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If you missed the Cannabis Industry Journal’s 3rd Annual Infused Products Virtual Conference last week, one of the speakers, Ellice Ogle, founder and CEO of Tandem Food presented on Food Safety Culture in the Cannabis Industry. An overview of the information in the presentation can be found here, Concentrate On a Food Safety Culture In Your Workplace. Below are answers to some of the post-presentation questions we received, but were unable to answer during the Q&A session. To get your additional questions answered or for a complimentary consultation for your company, specially provided to readers of Cannabis Industry Journal, contact Ellice Ogle at Ellice@tndmfood.com.

Question: What are some recommended digital programs for internal auditing?

Ellice Ogle, founder and CEO of Tandem Food

Ellice Ogle: Before looking at the tools for conducting an internal audit, understand the goal of the internal audit. One key aspect of internal auditing is knowing which standard(s) to audit against. For example, regulatory audits for cGMP certification are different than optional third-party certifications such as any GFSI scheme (SQF, BRC, PrimusGFS, etc). While the standards ultimately have the same goal of food safety with varying focuses, it is important to have an experienced food safety specialist conduct the audit as realistically as possible. The experienced specialist will then be able to recommend an appropriate tool for internal auditing moving forward, whether it is software such as FoodLogiQ, SafetyChain, Safefood 360°, among many others, or simply providing a template of the audit checklist. Overall, the risk of foodborne illnesses can be minimal, but it takes persistence and commitment to achieve a successful food safety culture. Metrics can assist in assessing the commitment to food safety and, as a result of these efforts, you will minimize the risk of compromising the health and safety of your guests, employees, foods and business. If you want a specific example, I’d like to direct you to a case study in partnership with Heylo LLC in Washington state, posted on the Tandem Food website.

Q: What are examples of ways to share environmental monitoring results to enhance a good edible safety culture?

Ellice: In the Control of Listeria monocytogenes in Ready-To-Eat Foods: Guidance for Industry Draft Guidance (2017), the FDA states that “a well-designed environmental monitoring program promotes knowledge and awareness of the environmental conditions that could result in product contamination and is a more effective program than product testing alone.” In other words, environmental monitoring programs and results can identify environmental conditions within a facility that could cause potential contamination. Publishing these findings, for example in the form of a case study or sharing the details of the practice, can enhance the food safety culture in the specific niche industry. For example, to borrow from the meat industry, Tyson Foods, Inc developed and shared environmental monitoring programs that are used by their peers, promoting a unified food safety culture, rather than competitive, guarded secrecy.

Q: Are the food safety requirements the same for retail and manufacturing?

Ellice: The food safety requirements are not exactly the same for retailers and manufacturers. The difference is inherent that retailers are working with finished product while manufacturers are working with raw ingredients and the manufacturing process to develop the finished product. Let’s take a closer look at cannabis regulation in Washington state. Chapter 314-55-104(12) states “Processors creating marijuana extracts must develop standard operating procedures (SOPs), good manufacturing practices (GMPs), and a training plan prior to producing extracts for the marketplace.” Compare this to the requirements for retailers, 314-55-105(11) which states “A marijuana producer, processor or retailer licensed by the WSLCB must conduct the production, processing, storage, and sale of marijuana-infused products using sanitary practices.” While SOPs and GMPs are not explicitly mentioned for retailers as they are for manufacturers, sanitary practices could be documented as Sanitation Standard Operating Procedures (SSOPs). Proper storage practices can also be an overlapping food safety concern with respect to temperature control or pest management systems. Overall, food safety should remain a top priority in maintaining the integrity of the products throughout the supply chain.

Q: To your knowledge, has there been a food safety outbreak associated with a cannabis-based product?

Ellice: One possible cannabis-related death investigated in 2017 uncovered deadly pathogens in medical cannabis. However, to  my knowledge, I have not seen a food safety outbreak associated with a cannabis-based product. There might be any number of reasons that this is so, for example, possibly because a food safety outbreak associated with a cannabis-based product might not have had a large impact to make headlines. Although, with the cannabis industry already misunderstood and a stigma so prevalent to even promote fake news, it is better to prevent an outbreak from ever occurring. One thing to note is that ultimately cannabis is just another ingredient in existing products, of course with special properties. So, the common food safety offenders are present: listeria, Salmonella, E. Coli, among others. On the plant, cannabis food product manufacturers must minimize the risk of mycotoxins produced by molds, pest contamination, and pesticide contamination. For products that contain cannabis infusions or extractions as an ingredient, there is the possibility of the growth of Botulism toxin. Many of these pathogens can be minimized by appropriate heat treatment or maintenance of refrigeration, testing, and by practicing preventive measures. Arguably, the largest potential for pathogenic contamination is due to improper employee handling. To refer to what we discussed earlier, employee training is key, as well as proper enforcement. Having a strong food safety culture ensures that people have the knowledge of food safety risks and the knowledge of preventing outbreaks.

Q: Do any of the panelists know of any efforts to develop a food safety-oriented standard for the cannabis industry?GMP

Ellice: One example of a specific effort to develop a food safety-oriented standard for the cannabis industry includes TraceTrust A True Dose™ & hGMP™ certification. However, there are efforts for other standards that have food safety included. Take organic certification, there are several companies creating and auditing against their own standard such as Clean Green Certified, Oregon Sungrown Farm Certification, or Washington Sungrowers Industry Association. The California Department of Food and Agriculture (CDFA) is also preparing a cannabis program comparable to the USA National Organic Program.

Q: Can you assist with cGMP certification?

Ellice: Yes, Tandem Food LLC is positioned to consult on cGMP certification for manufacturing facilities in the cannabis industry. First, a gap assessment can be conducted to obtain useful actionable data for you, rather than be an intimidating experience. Working from the identified baseline, Tandem Food will work with you to create and implement all related documentation and programs, providing training as necessary. Overall, with the right commitment, cGMP certification can take 6-12 months.

FDA Says No, CBD Does Not Cure COVID-19

By Aaron G. Biros
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Former NFL player Kyle Turley made headlines this week for some eye-catching remarks. The retired offensive lineman entered the cannabis industry in 2017, when he launched Neuro Armour (now called Neuro XPF), a brand of CBD products.

Turley and his Neuro XPF brand made claims in recent weeks, both on their website and in various social media posts on Facebook and Twitter, saying that their CBD products can cure COVID-19. Two quotes below, one from their website and one from a Facebook post, show how the company touted CBD as an effective medicine for treating COVID-19.

  • “Crush Corona . . . While scientists around the world are working 24/7 to develop a COVID-19 vaccine, it will take many more months of testing before it’s approved and available. However, there’s something you can do right now to strengthen your immune system. Take CBD . . . CBD can help keep your immune system at the stop of its game. . . . We want everyone to take CBD and take advantage of its potential to help prepare your body to fight a coronavirus infection. So, we’re making all of our products more affordable.”

  • “Crush Corona! Your best defense against the COVID-19 blitz starts with a strong immune system. It’s what protects your body from the everyday attacks of bacteria, viruses, parasites and a host of other nasties. Learn more here: https://neuroxpf.com/crush-corona/” FDAlogo

The U.S. Food & Drug Administration (FDA) got wind of these marketing tactics and sent Turley and his brand a warning letter. “FDA is taking urgent measures to protect consumers from certain products that, without approval or authorization by FDA, claim to mitigate, prevent, treat, diagnose, or cure COVID-19 in people,” reads the warning letter. “As described below, you sell products that are intended to mitigate, prevent, treat, diagnose, or cure COVID-19 in people. We request that you take immediate action to cease the sale of such unapproved and unauthorized products for the mitigation, prevention, treatment, diagnosis, or cure of COVID-19.”

Before entering the cannabis space, Turley was diagnosed with chronic traumatic encephalopathy (CTE) and then early onset Alzheimer’s as a result of sustaining head injuries while playing in the NFL. Turley has a reputation for being an outspoken cannabis activist, crediting cannabis with improving his quality of life and eliminating the need for prescription opiates.

In a tongue-and-cheek response to the FDA, Turley posted the following on twitter: “OK OK, YOURE ALL RIGHT, ILL ADMIT IT! CHEAP CBD BRAND PRODUCTS WILL NOT PREVENT OR CURE COVID19!” Turley, making light of the situation, inserted the term “cheap” in there, almost challenging the FDA and disregarding their warning letter.

However, the FDA is not joking when they send these warning letters. According to the letter, Turley and his company have 48 hours to remediate the situation or face a federal court injunction.