Between October 2017 and May 2018, 180 employees in the cannabis industry completed an Employee Engagement & Satisfaction survey, created by Needle Consultants, LLC. The survey was promoted and sponsored by the National Cannabis Industry Association. The intent of the survey was to obtain national baseline data regarding cannabis companies’ engagement of their employees and, potentially related, workers’ overall satisfaction with their employers. The narrowly designed survey collected data on employee satisfaction, employee desires around benefits (traditional and nontraditional), and employee opportunities to engage in communities, as well as gathering general, anonymous demographic data. What follows is a summary of the data and some conclusions.
Needle Consultants, LLC is a Denver-based Corporate Social Responsibility consulting firm. Marc Ross, Needle’s Chief Instigator, is a 25-year attorney, with experience in the public, private, and nonprofit sectors. Mr. Ross helps to build purpose-driven businesses, specializing in community and employee engagement, strategic philanthropy, and sustainability. He is the former founder and Executive Director of Rock the Earth, a national environmental advocacy organization that works with the music industry, as well as former in-house environmental counsel to Alcoa Inc. He holds certificates in Corporate Social Responsibility from the University of Colorado, Leeds School of Business and Sustainability Leadership and Implementation from the University of Denver, Daniels College of Business, a Juris Doctorate from the Penn State Dickinson School of Law, and a Bachelors degree from the Pennsylvania State University.
Member Spotlight: ProGrowTech
This month, we speak with Andrew Myers, the Co-founder and CEO of ProGrowTech, which is based in Flagstaff, Arizona. ProGrowTech provides LED lighting solutions for grower operations of all sizes.
Industry Sector:
Cannabis Cultivation Supply
NCIA Member Since:
December 2017
Tell me a bit about your background and why you launched your company?
I spent more than 14 years in state and national politics before founding ProGrowTech with my partners. I was especially involved in Arizona’s budding cannabis industry, serving as campaign manager and chief spokesperson for Proposition 203, Arizona’s successful effort to legalize medical marijuana. I was also one of the authors of the 2010 Arizona Medical Marijuana Act, and co-founded the Arizona Medical Marijuana Association, an organization for licensed medical marijuana dispensaries. I also served as executive director of the Arizona Dispensaries Association.
My team and I founded ProGrowTech because we knew cultivators were unhappy with the quality of grow lighting available. None of the established players in the marketplace had developed a solution that fully met the needs of commercial growers. We designed our Evolve Series LED fixtures to address common grower pain points, helping them conserve energy, increase the quality and quantity of their harvests, and improve profitability.
What unique value does your company offer to the cannabis industry?
Beyond providing top-tier, energy efficient technology, our team works one-on-one with growers, assisting with facility design, energy rebate applications, installation, advanced growing techniques and ongoing maintenance to help their operations succeed. Growers can consider ProGrowTech a long-term partner who can help them elevate their operations in a sustainable way.
Cannabis companies have a unique responsibility to shape this growing industry to be socially responsible and advocate for it to be treated fairly. How does your company help work toward that goal for the greater good of the cannabis industry?
The cannabis industry is still very much in its infancy, which gives businesses like ProGrowTech the unique opportunity to make a meaningful impact. Our team has had a long-standing commitment to supporting responsible growth in the industry.
We’re members of the Resource Innovation Institute’s Founder’s Circle and sponsor and sit on the board of the Cannabis Certification Council. Both of these organizations are hyper focused on improving the efficiency, sustainability and ethics of commercial cannabis operations. We’re also members of NCIA, which has supported, protected and advocated for the cannabis industry since its founding.
My experience with Arizona’s medical cannabis legislation and other team members’ experience as cultivation facility owners and growers themselves has given us a unique, holistic perspective on the industry and where we can make a difference.
What kind of challenges do you face in the industry and what solutions would you like to see?
In the lighting industry, our main challenge is to bring cultivation lighting technology into the 21st century. A lot of large cultivation facilities were built years ago when there wasn’t as much openness in the industry and high quality, energy efficient lighting was scarce. Our role is to not only provide the world class technology growers are missing, but also to educate them. We can help growers expand their vision of what is possible in their facility, allowing them to increase yields while lowering operations costs so they can remain competitive.
Why did you join NCIA? What’s the best part about being a member?
We joined NCIA because we believe in and support the organization’s mission. I have been supportive of NCIA since its founding, and have known NCIA co-founder Aaron Smith for many years.
Most importantly, NCIA brings together innovative, engaging cannabis industry leaders at numerous events each year. These events have been tremendously valuable for ProGrowTech, allowing us to spread our message, showcase our technology and connect with like-minded people across all facets of the cannabis industry.
New Bill: Fairness in Federal Drug Testing Under State Laws Act H.R. 6589
In the 115th Congress, there are more cannabis reform bills than ever before — dozens, as a matter of fact! This week, we want to highlight another brand new bill introduced in the House of Representatives.
Bill: H.R. 6589: Fairness in Federal Drug Testing Under State Laws Act
Introduced by: Congressman Charlie Crist (D-FL) and Congressman Drew Ferguson (R-GA)
What It Does: This bill would protect federal workers “whose residence is in a State where that individual’s private use of marijuana is not prohibited” from being denied employment or being “subject to any other adverse personnel action” as a result of a positive cannabis test. There is, however, an exception is laid out if there is “probable cause to believe that the individual is under the influence of marijuana” at the workplace. The bill’s language applies only to civilian federal employees across departments and agencies, from being punished for their off-the-job cannabis consumption as long as it is in accordance with a state law — whether that be medical or adult-use. The bill does not cover those applying for or holding positions involving “top secret clearance or access to a highly sensitive program.”
What To Expect: Now that the bill has been introduced, NCIA will continue to gather cosponsors for the legislation, as well as advocate for a hearing. With August recess underway and midterm elections in November (register here), timing will be of the essence.
NCIA’s government relations team was happy to work with Congressman Crist’s office on the Fairness in Federal Drug Testing Under State Laws Act’s language and roll-out. It is undoubtedly time for federal law to respect states’ decisions to legalize cannabis — and protect consumers and employees alike.
What to Know About the New bill: Marijuana Data Collection Act
In the 115th Congress, there are more cannabis reform bills than ever before — dozens, as a matter of fact! This week, however, a brand new bill was introduced that actually does not involve the cannabis plant at all, but rather focuses on data collection and information that can be gathered from states that have chosen to legalize cannabis in some form.
Bill: The Marijuana Data Collection Act
Introduced by: Congresswoman Tulsi Gabbard (D-HI) and Congressman Carlos Curbelo (R-FL)
Original Cosponsors: Reps. Don Young (R-AK), Darren Soto (D-FL), Beto O’Rourke (D-TX), Earl Blumenauer (D-OR), Dana Rohrabacher (R-CA), Matt Gaetz (R-FL), Peter DeFazio (D-OR), Eleanor Holmes Norton (D-DC), Dina Titus (D-NV), Charlie Crist (D-FL), Tom Garrett (R-VA), Lou Correa (D-CA), Barbara Lee (D-CA), Mark Pocan (D-WI) and Salud Carbajal (D-CA)
Endorsements: National Cannabis Industry Association, National Organization for the Reform of Marijuana Laws (NORML), Third Way
What It Does: This bill requires data collection and study with regard to the impact of state-regulated cannabis legalization on revenues and state allocations, the medicinal use of cannabis, (other) substance use, criminal justice, and employment. Specifically, this bill requires the Secretary of Health and Human Services to coordinate with the Department of Justice, the Department of Labor, and relevant state agencies. The bill also directs the National Academy of Sciences (NAS) to publish a biannual study on the health, safety, and economic effects of state legalized cannabis programs– whether they be medicinal or adult-use. The report will also outline best practices for state-led data collection, as well as recommendations to overcome any barriers preventing data collection and gaps in data.
What To Expect: Now that the bill has been introduced, NCIA will continue to gather cosponsors for the legislation, as well as advocate for a hearing. With August recess around the corner and then midterm elections in November (register here), timing will be of the essence.
NCIA’s government relations team was happy to work with Congresswoman Gabbard’s office on the Marijuana Data Collection Act’s language and roll-out. While many studies have looked individually at many of the effects that the Marijuana Data Collection Act seeks to, this is the first time a congressional bill has directed federal agencies to research, collect, and aggregate such data in one report. At a time when “fake news” and misinformation run rampant, we can’t think of a better thing than a bill solely directed at data.
A year ago, NCIA’s Infused Products Committee (IPC) made the decision to tackle the issue of cannabis testing. It is an issue we feel is at the heart of cannabis legalization and is negatively impacting cannabis businesses across the nation. Although it has been a struggle to get comparable lab results across different labs, IPC believes there is a future where cannabis testing will reach consistency.
We began our process by asking several questions and with the assistance of the NCIA, we crafted a survey that was sent to experts in the field. During our preliminary research, we discovered that most cannabis testing labs view their protocols and procedures as proprietary information.
To gain better insight about the testing sector, we asked Alena Rodriguez, a member of NCIA’s Scientific Advisory Committee (SAC) to participate in an interview. Alena represents Rm3 Labs, a cannabis testing laboratory in Colorado.
IPC: Are you concerned about the inconsistent and varying test results and the impact it has on consumer safety?
Alena: Yes, I’m concerned. I do not take my job lightly; I know that contaminated cannabis can be harmful and sometimes life threatening. That is why I am involved with state regulators and groups like NCIA’s SAC and Testing Policy Working Group. We aim to educate regulators and stakeholders on the importance of practices such as independent audits, proficiency testing and ISO/IEC 17025 accreditation for cannabis testing labs.
IPC: Do you think we are close to having consistent cannabis test results from different laboratories?
Alena: We are well on our way. In Colorado, licensed labs must undergo Proficiency Testing (PT) twice per year. PT is done through an inter-laboratory comparison where participating labs receive the same sample and analyze it using their methodology. Even though our procedures are not standardized to one method, most of the labs arrive at the same result. Unfortunately, not all states require PT yet, but I feel more and more states will adopt these programs.
Along with PT, consistent testing across labs requires the use of high-quality reference materials that are used to validate analytical methods and calibrate instruments. Cannabis testing labs in the United States have limited access to reference standards. Like cannabis, most industries started with limited resources, but over time the science will progress as federal barriers are lifted to make more research and better standards possible. It took decades to develop standardized, consistent methods in other industries, such as in pharmaceuticals and food testing. I don’t see the cannabis industry being any different.
IPC: Should there by penalties if a testing lab consistently provides drastically different results from prior tests of the same product?
Alena: It depends on the situation. If the lab is knowingly breaking the rules or trying to cheat the system, then absolutely. But, most of the time inconsistent results have causes other than fraud or negligence. This industry produces new products every day and some manufacturers and laboratories don’t “get it right” on the first try. There is a lot of research and development that is involved. Three of the biggest hurdles for consistent testing of cannabis products are 1) the variety of sample types 2) the lack of certified reference materials for uncommon cannabinoids and terpenoids and difficulties in obtaining concentrated standards and 3) inhomogeneity in some infused products or concentrates. Product uniformity is critical and should be confirmed by analytical testing for consumer safety. Variable results across multiple labs may suggest a product lacks uniformity.
IPC: Do you believe testing procedures and protocols areproprietary?
Alena: Yes, third-party cannabis laboratory protocols are just as proprietary as the protocols developed by cultivators, concentrate extractors and infused product makers. Testing labs having proprietary methods is not novel to this industry. If a lab in any other industry (e.g. food, medical, agriculture, environment) develops an alternative method to the standard method, they can use it if they can validate against the reference method.
IPC: Should labs be required to prove their analytical methods are accurate by submitting their practices confidentially to a regulatory body?
Alena: Absolutely! Colorado labs are currently required to send all new Standard Operating Procedures (SOPs) and method validations to the CDPHE prior to implementation. I hope more states adopt this practice, if they aren’t doing so already. As of January 1, 2019, all cannabis testing labs in Colorado will be required to be ISO/IEC 17025 accredited. ISO/IEC 17025 accreditation is the international gold standard for assessing the competence and quality management systems of testing labs across all industries to ensure consistent, accurate test results. More than a dozen cannabis labs have achieved this accreditation across the country.
IPC:Are you aware that the ASTM Committee D37 reportedly drafted testing procedures? If published, will cannabis testing labs follow published procedures that are not their own?
Alena: Yes, I’m excited! This is a great step for our industry. I imagine the committee will develop similar protocols to those being used by third-party labs. But as I mentioned before, labs will have the choice to use the published standard methods or their own alternative method, granted it is validated against the reference method. I expect some labs will attempt to validate their methods against the standard methods and some will adopt ASTM’s methods.
IPC: Are you aware of testing labs that allow for “tipping” on their order forms? Does this concern you, and why?
Alena:It concerns me that there are bad actors in the testing sector of the cannabis industry but I’m afraid there are bad actors in every segment of every industry. At Rm3 Labs, we do not participate in or condone unethical behavior such as paying for the results you want. We would never risk falsifying test results because we are aware immunocompromised individuals and children are possibly taking the products we are testing. I would not risk my entire scientific career to give you 5% higher THC potency results or lie about your contaminant testing results. I advise all cannabis testing labs to always act ethically because you are in the business of public safety and your lab is subject to investigation by regulatory agencies at any time.
IPC conducted the above enlightened interview with SAC. While we were inspired by some of the answers, much like our survey attempt this past year, many of our questions remain unanswered. For example, we don’t agree that cannabis cultivators or manufacturers are to blame for receiving inaccurate “clean/approved” test results from labs due to products being inhomogeneous.
That said, it is clear by a couple of the responses that some states, like Colorado, are making substantial progress in oversite and legal requirements for testing laboratories, while other states, like California, are still leaving significant and dangerous gaps.
In our opinion, the industry’s need for consistent and accurate testing results remains at the forefront of the issues facing commercial cannabis today. The ability to send the same sample, from the same batch, under the same conditions, and have it tested by multiple labs, achieving the same results, is paramount to our industry’s future and success. State laws should require it. The industry should demand it. And the consumers most certainly deserve it.
As such, the IPC will continue its mission to drive this conversation forward with both testing labs and operators alike. Only together, can we really solve this crucial issue facing our amazing industry.
Member Blog: Risk Factors in Private Placement Memoranda for Cannabis Businesses
Conflict between state and federal law gives rise to unique risk factors in private placement memoranda for cannabis businesses. Equity interests in private businesses are frequently offered to investors by means of private placements. The standard disclosure document for private placements is the private placement memorandum, or PPM. One section of the PPM is “Risk Factors,” which discusses various possible sources and areas of risk in the private placement. This paper examines whether risk factors that are conventionally included in a PPM for a cannabis business that touches product are sufficient to address this tension between federal and state law.
Disclosure to Investors
Federal securities laws and regulations, as well as the securities laws of many states, are based on the “blue sky” concept of disclosure, rather than value. For publicly traded securities, this disclosure takes the form of initial and ongoing public filings with the Securities and Exchange Commission (SEC); private companies often employ a less rigorous form of disclosure – the PPM.
The exemption from filing for a private placement is set forth in section 4(a)(2) of the Securities Act. Most private placements are made pursuant to Rule 506 of Regulation D to this section, which is the safe harbor rule for private offerings. Rule 506 permits an unlimited amount of money to be raised from an unlimited number of accredited investors in addition to up to 35 unaccredited investors.
Use of a PPM is optional if all investors are accredited and sophisticated, and given an opportunity to make inquiries about the offering. However, use of a PPM is highly advisable, if only to estop the investor from claiming reliance on information outside of its four corners.
The structure of a PPM is set forth in Regulation S-K, 17 C.F.R. Part 229. For our purposes, the most significant part of the document is the discussion of “Risk Factors,” which is required under a concept with the ungainly name of the “Bespeaks Caution Doctrine.” Risk factors are described as follows in 17 C.F.R. §229.503(c):
Risk factors. Where appropriate, provide under the caption “Risk Factors” a discussion of the most significant factors that make the offering speculative or risky. This discussion must be concise and organized logically. Do not present risks that could apply to any issuer or any offering. Explain how the risk affects the issuer or the securities being offered. Set forth each risk factor under a subcaption that adequately describes the risk. The risk factor discussion must immediately follow the summary section. If you do not include a summary section, the risk factor section must immediately follow the cover page of the prospectus or the pricing information section that immediately follows the cover page. Pricing information means price and price-related information that you may omit from the prospectus in an effective registration statement based on §230.430A(a) of this chapter. The risk factors may include, among other things:
Your lack of an operating history
Your lack of profitable operations in recent periods
Your financial position
Your business or proposed business
The lack of a market for your common equity securities or securities convertible into or exercisable for common equity securities.” 17 C.F.R. §229.503(c)
By way of example, a risk factor addressing a lack of an operating history might read as follows:
The Company Has No Operating History
The Company was established on [DATE]. It remains a development stage business with limited operating history. There can be no assurance that the Company will be successful in building its business or that its business model will prove to be successful.
This, in fact, would be an appropriate risk factor for many of the California cannabis startups that focus on recreational use. By contrast, many of the entities that were set up to serve the medicinal use market have been structured as mutual benefit associations. As such, they would not in general be engaged in securities offerings.
How should cannabis business PPM risk factors address the federal-state tension?
The cannabis industry is broad, and “cannabis businesses” can include the following:
Cannabis grow facilities
Grow facility support businesses, such as potting soil and soil amendments, fertilizers, grow lights, irrigation and hydroponic systems
Extraction services and extraction equipment
Laboratory testing services and testing equipment
Transportation of cannabis products
Sale of cannabis products to consumers
Leasing of real estate to any of these business lines.
All of these businesses are subject to some level of economic risk if the sale of cannabis products is interrupted by enforcement of federal law; however, this article will focus on those businesses that “touch product” and on private placements by those businesses. The discussion of this issue will be organized according to suggested risk factor headings.
An example of a risk factor recently used in a PPM for a debt offering by a medicinal cannabis dispensary reads as follows:
Cannabis is a DEA Schedule 1 Substance and risk exists related to its status as an illegal drug under federal law.
The current regulatory climate for the marijuana industry is inherently risky. The substance is illegal under the Controlled Substances Act and its current DEA Scheduling. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana preempts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with our business plan. Noteholders may be exposed to legal prosecution under federal law and assume any and all risk associated with prosecution including incarceration and asset seizure.
On the face of it, this risk factor appears to be ample: It states that marijuana is illegal under federal law, that there are inherent risks even in states where it is legal under state law, and that strict enforcement of federal law could be fatal to the business plan. In terms of sanctions, it lays out the worst-case scenario: incarceration and asset seizure.
Clearly, this is sufficient to apprise the prospective investor that the investment is risky. But does it adequately warn of the full range of potential hazards?
A careful reading of Regulation S-K would suggest that it does not. It is true that the words “most significant factors” in the phrase “the most significant factors that make the offering speculative or risky” could be taken to mean the maximum penalty that might be incurred. However, it also could be read to refer to the likelihood that an event will occur, rather than the severity of its consequences. And in the cannabis business, lots of things can happen.
What risk factors are more likely to affect cannabis companies?
Securities
The company could be precluded from debt or equity fundraising, whether by means of a public offering or a private placement. Securities are regulated at both the federal and state levels. Engaging in criminal activity at the corporate level can result in sanctions, including suspension of trading. At the federal level, the SEC has given no clear indication whether it intends to pursue sanctions against cannabis companies that touch product.
Banking
The company is not permitted to open a bank account or to engage in banking transactions. Banks are regulated by federal statutes and regulations, and do not currently permit cannabis businesses that touch product to open accounts or engage in banking transactions. This creates a number of risks for the company, including lack of verifiable financial records and accumulation of cash.
Real Estate
The company’s access to real estate could be limited, its rights to such real estate could be voidable, and it could be forced to incur substantial extraordinary costs. In the view of many landlords and neighboring tenants, cannabis businesses contribute to an undesirable environment for a variety of alleged reasons: cash accumulations and the presence of cannabis create a target for theft; some customers are loud and unruly; and some processes, such as extraction, can create unpleasant odors. Therefore, many landlords will refuse to rent to cannabis businesses, or will do so only on condition that the tenant installs substantial and costly security devices.
Under the terms of many standard commercial leases, a cannabis business could be subject to cancellation on the grounds that illegal activity was being conducted on the premises. If a landlord’s real property were to be seized in the course of a raid by federal drug enforcement authorities, the company could become liable to the landlord for the value of that property.
Management
The company could experience difficulty in attracting qualified senior management and directors. Negotiated settlements in SEC actions often involve an agreement by a sanctioned executive not to act as an officer or director of a publicly traded company for some period of years. This prospect, should the SEC adopt a negative posture toward the cannabis industry, could discourage experienced executives from serving in such capacities in cannabis businesses.
Transportation
The company’s ability to transport its products is limited. Interstate commerce in cannabis products is a felony. Transportation of cannabis products from one state to another, even if cannabis is legal in both states, is prohibited. Within a state, transportation via air or sea is subject to federal regulation, and therefore illegal. Whether transportation intrastate on federal highways also is felonious is an open question.
Intellectual Property
The company’s proprietary intellectual property may not be protectable under patent, copyright or federal trademark law. Inventions, logos or other intellectual property that the company develops or acquires may not be afforded protection under federal law. Trade secret or state level trademark protections may be available.
Bankruptcy
The company may not be accorded the protection of federal bankruptcy laws. Most bankruptcy law is federal law. A cannabis company that wishes to obtain temporary protection from creditors may seek protection under common law or state laws relating to creditors’ rights, but may not be able to use the protections afforded under Chapter 11 or other provisions of the Bankruptcy Code.
Immigration
Involvement in the company’s business could jeopardize the visa status of non-citizens.
Visas may be denied or cancelled upon conviction of a crime. Investment in, or management of a cannabis company could result in deportation or cancellation of an existing visa.
Insurance
The company may not be able to obtain insurance of any kind. Insurance companies generally do not insure illegal activity. While a small number of companies are venturing into the cannabis space, companies in this industry may have difficulty obtaining insurance for loss, liability, business interruption, director and officer liability, errors and omissions, and other matters.
Firearms
Involvement in the company’s business could prevent a person from legally acquiring a firearm. All firearms transfers in the United States must include the filing of ATF Form 4473, the “Firearms Transaction Record.” This form is filled out by the buyer and seller of the firearm and forms the basis for the buyer’s background check. Statements are made under penalty of perjury, and false statements are grounds for disqualification. Sections 11 and 12 of the form consist of a series of yes or no questions.
For example, Question 11e. asks: “Are you an unlawful user of, or addicted to, marijuana or any depressant, stimulant, narcotic drug, or any other controlled substance?” And lest there be any confusion as to the meaning of the word “unlawful,” the following appears in boldface:
Warning: The use or possession of marijuana remains unlawful under federal law regardless of whether it has been legalized or decriminalized for medicinal or recreational purposes in the state where you reside.
While this question would appear to indicate that the Bureau of Alcohol, Tobacco, Firearms and Explosives comes down squarely on the side of the prohibitionists, it is noteworthy that the warning contains the words “use or possession,” but the question only asks about use. This is one of only two questions in Sections 11 and 12 (the other refers to straw-man purchases) that contain a warning.
Conclusion
This should not be treated as an exhaustive catalog of industry-specific risk factors, nor should it be imported wholesale into every PPM for a cannabis offering. The PPM should be tailored carefully to the specific business, and an important part of the job of a securities lawyer is to select those risks that are most noteworthy without so heavily padding the Risk Factors section as to render it unreadable and therefore ineffective.
William Tolin Gay is an attorney in the Business Services Group in the Los Angeles office of Wilson Elser Moskowitz Edelman & Dicker. He graduated from the University of Washington, where he also received his J.D. in 1982, his MBA in 1983 and his LL.M. in Japanese law in 1984.
From 1984 to 1988, he practiced law in Tokyo, where he represented U.S. companies in their Japanese operations, and Japanese issuers and underwriters in Eurobond securities issues. He speaks and reads Japanese.
Since 1988, he has worked in Southern California, where his practice focuses on corporate finance, mergers and acquisitions, real estate and technology transfers. He is a certified mediator. In 2001, he was named one of “The Hot 25 People of Orange County” by OC Metro magazine.
He is currently a member and Chief Financial Officer of the Executive Committee of the International Law Section of the California Lawyers Association, and is the former Chief Financial Officer of the Business Law Section of the State Bar of California, and former Chair of its Committee on Cyberspace Law, and past President and Board Member of the Corporate and Business Law Section of the Orange County Bar Association.
Video Spotlight: W Vapes
Learn more about NCIA member W Vapes in this month’s video spotlight. The California-based, award-winning vaporizer company focuses on pure, pesticide-free, CO2 extracted, lab-tested oil. Their products are now also available in Nevada.
Member Blog: Increased Enforcement Is Coming – Takeaways for California and the Broader Cannabis Industry
As June came to a close, so too did California’s phase-in “Transition Period” of cannabis regulation. As a result, a number of additional labeling and testing requirements are now live. And with those newly effective regulations, there are also heightened prospects for enforcement actions. But the lessons from California’s regulatory rollout do not stop at the state border.
What should California cannabis businesses be doing differently? The simplest answer is, of course, the same as in every state cannabis market: follow the rules that are in effect. But it is a universal truth of highly regulated industries that not every possible scenario will be addressed by the rules. That is, in cannabis as in all highly regulated industries there are potential ambiguities and questions of interpretation inherent in the regulations.
California Bureau of Cannabis Control chief Lori Ajax recently tried to help calm industry concerns by offering insights into her team’s enforcement mindset. Ajax noted that “[t]here’s a lot of confusion out there” on what is and is not compliant. As a result, she explained that when the Bureau finds conduct it concludes is a violation, the regulatory response will be informed by whether the business “honestly thinks they’re in compliance.”
So how should a business go about demonstrating its good faith attempts to comply with cannabis regulations, in California and in the other state-legal markets?
Start at the Top
Good compliance practices start with the tone at the top of the company. There is a reason why so many of the nation’s leading companies involve their senior executives in formulating and promoting compliance efforts. Doing so sends a strong message to the entire organization that compliance is a priority, and that the path to corporate advancement does not involve cutting corners. Putting real resources into compliance provides a powerful indicator of a company’s values, and senior executives’ time is a key corporate resource. Put another way, if a regulator is trying to decide whether you have made a good faith effort to comply with the rules, you do not want to lay the decision at the hands of an inexperienced intern.
Build Strong Processes
Leaders in highly regulated industries tend to implement strong compliance processes. Why? For one thing, clear written policies help staffers understand what they can and cannot do. And these policies are a permanent resource for your team, even when your compliance staff is not on premise. But in addition to helping your team follow the rules, strong processes also help regulators understand what you are doing. If, for example, a regulator wants to see if you “honestly think[]” you are in compliance, one of the best pieces of evidence is a clear roadmap of your efforts to be in compliance.
Maintain Focus
This is a fast-moving industry, and the rules are rarely static. A business could have a strong commitment to compliance and detailed processes, but if its compliance efforts are keyed to regulations that have been out of date for many months that is unlikely to sway a regulator. For example, regardless of what they may have done in the past, a Colorado retail licensee would likely receive little sympathy from regulators if they failed to update their policies regarding statements on possible health benefits of their products in the wake of the MED’s recent bulletin regarding retailers recommending cannabis for morning sickness. A regulator will have little sympathy for a business that fails to alter its compliance efforts in the wake of contrary guidance. Effective compliance requires vigilance.
In short, cannabis businesses in California can likely expect heightened levels of enforcement as these additional rules come into effect. But the best practices for California businesses are no different than for those around the nation: by prioritizing compliance throughout the organization and building and updating strong compliance procedures, a highly regulated business takes key steps towards demonstrating its good faith, honest attempts to comply with the law.
Michael Cooper is the co-founder and managing member of MadisonJay Solutions LLC, a leading regulatory advisor to cannabis companies and a member of the NCIA.Agraduate of Harvard College and Harvard Law School, he previously served as General Counsel of MHW, Ltd., which provides compliance services to the beverage alcohol industry, and in the litigation department of Cravath, Swaine & Moore LLP, known as one of the nation’s premier law firms for nearly two centuries.
Top Three Ways to Support Policy Reform During Congress’ August Recess
Between vacations and time with the family, July’s Quarterly Cannabis Caucus events, and running your business, summer is a jam-packed season. Every year, Congress recesses for the month of August. Traditionally, this time has been used for those Members to leave the Capitol and return home to their districts and meet with constituents and, of course, campaign for re-election. Though this makes August a quiet month in D.C., it’s a great time for you and your colleagues to get involved with the political process, engage with Members of Congress, and educate them on the benefits of a legal, regulated cannabis industry. Here are the top three ways you can get involved in your home state during August recess:
Attend a town hall
Town hall meetings are an excellent way for businesses, local leaders, and representatives of the cannabis movement to communicate with elected officials about issues affecting your community. Make sure you call or check your Representatives’ and Senators’ websites to see if any town halls have been scheduled during August recess. If they aren’t planning on holding one, consider planning a town hall yourself and inviting various elected officials to talk about cannabis policy in your community and on the federal level. Check NCIA’s Facebook page regularly for information about upcoming town hall events in your region.
Invite Members of Congress or their office on a tour of your business
Even though cannabis is arguably more mainstream than it’s ever been, many elected officials still have not had the chance to experience what the responsible and legal cannabis industry looks like with their own eyes. Whether you’re involved with growing, processing, or dispensing cannabis, or operate an ancillary business, a tour with a member of Congress and/or their staff can be eye-opening and educational to them. Reach out to your elected officials’ district office and ask if they would be interested in a tour – their answer may surprise you!
Schedule a meeting with your Member’s district office
August recess means members of Congress are home for an entire month and it is a great opportunity to meet with them and their staff! There are very few things more compelling than a personal story when talking to elected officials, so whether your experience has been with the benefits of medical cannabis, the unfair tax burden of 280E, or the struggle to gain, and keep, access to traditional banking, be sure to schedule an appointment with your district office to tell that story.
We all have a responsibility to educate and engage with elected officials in order to change the perception surrounding cannabis. August recess is the perfect opportunity to get involved with federally elected officials without having to leave home! If you need advice, help, or materials to assist you, remember to contact NCIA’s Government Relations team in Washington, D.C. by emailing michelle@thecannabisindustry.org.
The Push for Equity in the Cannabis Industry
by NCIA Editorial Staff
It’s no secret that the cannabis industry still has much work to do in terms of building a diverse, equitable, and inclusive workforce. But what barriers stand in the way, and how can we overcome them?
According to the ACLU, cannabis use is roughly equal among African-Americans and whites, yet African-Americans are nearly four times more likely to be arrested for possession of the substance. Higher arrest and incarceration rates for these communities are not reflective of increased prevalence of drug use, but rather of law enforcement’s disparate focus on urban areas, lower income communities, and communities of color.
People of color are unequivocally and disproportionately affected by the prohibition of cannabis — so, what happens when a state decides to end prohibition?
Many states that have chosen to tax and regulate cannabis have included provisions in those laws that prohibit individuals with any prior convictions from working in a licensed cannabis company. Not only that, according to the Minority Cannabis Business Association, “heavy regulation, the high cost of entry, and information gaps hinder minorities from entering the industry as owners, employees, and patients & consumers”.
Not all states have taken that route, however. Massachusetts state law requires the Cannabis Control Commission to promote full participation in the industry by people disproportionately harmed by marijuana prohibition and enforcement. The goals of Massachusetts’ social equity program include reducing barriers to entry to the adult-use cannabis industry and providing technical services and mentoring to individuals facing barriers.
Action is also being taken at the local level. In January, the District Attorney’s office in San Francisco announced that they would be retroactively applying Proposition 64, which legalized the possession and recreational use of cannabis for adults ages 21 years or older, to misdemeanor and felony convictions dating back to 1975.
The important message of social equity, diversity, and inclusion in the cannabis industry has also reached the halls of Congress. A year ago, Sen. Cory Booker (D-NJ) introduced S. 1689: The Marijuana Justice Act, which was the first piece of federal legislation to ever order federal courts to expunge cannabis convictions and actually punish states that have racially disproportionate arrest rates or disproportionate incarceration rates for marijuana offenses.
Just last week, Senate Minority Leader Chuck Schumer (D-NY) introduced the Marijuana Freedom and Opportunity Act, which creates a dedicated funding stream for women and minority-owned cannabis businesses that will be funded by revenue generated by the industry and directly linked to the industry’s growth. Not only that, the bill provides $100 million in grant funding to encourage state and local governments to develop, enhance or expand expungement or sealing programs for individuals convicted of marijuana possession.
In addition to these pieces of legislation, there have also been resolutions filed that address these disparities. In June, Congresswoman Barbara Lee (D-CA) introduced the Realizing Equitable & Sustainable Participation in Emerging Cannabis Trades (RESPECT) Resolution, which encourages equity in the cannabis industry. The resolution urges state and local leaders to implement a series of practices when granting licenses for legal cannabis businesses to improve access for communities of color to the nascent industry, such as minimal application and license fees, no caps on the number of licenses, increased local control of the licensing process, and removing broad felony and cannabis convictions as automatic disqualifiers for participation. NCIA was proud to endorse this resolution and looks forward to advocating for its passage.
There’s still an incredibly long way to go before we have a cannabis industry that’s as diverse and rich as the cannabis community as a whole. Here at NCIA, we know the task of representing the legal and legitimate cannabis industry is more than just advocating for the biggest or richest companies — we’re also here to advocate for diversity, inclusion, and equity in this industry that we are all building together.
VIDEO: Join us at a #CannabisCaucus near you this month!
NCIA’s popular Quarterly Cannabis Caucus event series returns to a city near you in July! Watch this video to learn more about the event series and to hear from NCIA members why you should attend, like garnering insights about how recent policy developments impact your business, and connecting with other industry executives in your region! This event is free for NCIA members, and just $50 for non-members.
This month, we reached out to Sirita Wright, a co-founder of the multimedia company EstroHaze. Sirita, along with her co-founders Kali Wilder, and Safon Floyd, focus their company’s mission on highlighting the businesses and lifestyles of multicultural women in the cannabis industry.
Cannabis Industry Sector:
Media/Entertainment
NCIA Member Since:
January 2018
Tell us about your background and why you launched your company?
Storytelling is the heart of what we do. We found a void in mainstream media’s coverage of minorities building brands within the industry and we decided to start EstroHaze for the purposes of uplifiting those voices. Having worked together for years at another media company, we saw a great opportunity to build a bridge for others looking for opportunities in the cannabis industry.
What unique value does your company offer to the cannabis industry?
Photo by Rich February
Our value lies in our ability to represent and truly connect with our community via ‘edutainment’. From our original video series EstroHaze Escapades, where we explore the inner workings of the legal cannabis industry in states like Colorado and take in cannabis experiences like ganja yoga; to our podcast where we talk startup life and brand-building, as well as interviews with cannabis thoughtleaders and influencers. If that isn’t enough, head to our website where we feature dynamic profiles, blueprints for building your own cannabusiness, cannabis recipes, information on lobbying and more! Bottom line, EstroHaze provides a connection to cannabis and culture that resonates with the people.
Cannabis companies have a unique responsibility to shape this growing industry to be socially responsible and advocate for it to be treated fairly. How does your company help work toward that goal for the greater good of the cannabis industry?
This is the reason why we started EstroHaze – to be a space that amplifies voices that are shaping this industry, voices that, far too often, have been ignored. With ever-expanding cultural influence and increasing buying power it’s reckless to ignore one of the fastest-growing, most educated, and entrepreneurial demographics in the world. In telling stories – the good, bad and ugly of the cannabis industry – we ensure that people are aware of bias and held accountable. The cannabis industry is bigger than any of us and has the power to save lives and improve well-being. Recognizing this, EstroHaze serves a higher purpose and we create content and partner with brands that are intentional about that higher purpose.
What kind of challenges do you face in the industry and what solutions would you like to see?
The challenges we face are typical of any startup, to be honest. Add being women and a woman of color led brand and those issues just compound! Access to capital, government support as a small business, social stigma towards the use of cannabis, etc. We are a startup like any other with opportunity to grow to unlimited heights and that takes capital. The solution is simple–-show us the money and access to opportunities to produce content on a larger scale. For instance, Netflix, VICE, and HBO are just a few networks that have cannabis themed content that is not led or hosted by women of color, specifically black women. Enough already! EstroHaze as content creators can help with that.
Why did you join NCIA? What’s the best part about being a member?
Our NCIA membership was actually gifted to us by a member who was impressed with us and our Demo Day pitch at Canopy Boulder. This membership has given us an opportunity to build more bridges with other like-minded brands, get industry data that is not available to the public, which is priceless, and access to informative conferences and trade-shows.
Industry Sector:
Michael Cooper is the co-founder and managing member of 
