Over the past nine years, NCIA has advocated for the fair and equal treatment of the legal cannabis industry by pushing for federal policy reforms around critical issues that threaten our industry’s growth. While we have had steady success over the years, this March was monumental for a variety of reasons.
Most notably, we celebrated the historic passage of the SAFE Banking Act out of the House Financial Services Committee, a landmark step closer to resolving our industry’s ongoing banking crisis. On a micro-level, we also saw record-breaking attendance at our March Cannabis Caucus events.
Here’s a recap of what went down and why we think these are critical indicators of a tipping point for our industry.
The passage of the SAFE Banking Act out of Committee
On March 27, H.R. 1595, the Secure and Fair Enforcement (SAFE) Banking Act of 2019, received a markup by the House Financial Services Committee and passed in a vote of 45-15, including 11 Republicans who voted in favor.
This is the first time in history that a cannabis banking bill has reached this point in the legislative process. As a reminder, a markup is the process by which a congressional committee debates, amends, and rewrites proposed legislation.
Now that the bill has passed out of the House Financial Services Committee, it will continue in the legislative process and be sent to the House Judiciary Committee. It is unclear whether or not the Judiciary Committee will waive its rights to the legislation. But, since Rep. Doug Collins, the ranking member of the House Judiciary Committee sent a letter in favor of a hearing for the STATES Act, it seems like the prospect is positive. If the Committee does waive its rights, the SAFE Banking Act will then be referred to the powerful House Rules Committee before receiving a floor vote from the full House.
As a reminder, Secure and Fair Enforcement (SAFE) Banking Act was introduced in the House of Representatives by Reps. Ed Perlmutter (D-CO), Denny Heck (D-WA), Warren Davidson (R-OH) and Steve Stivers (R-OH) less than three weeks ago. In a stunning, historic showing, the legislation was introduced with a whopping 108 original cosponsors, and that number has already risen to 158 – more than a third of the entire House.
Record-breaking attendance at Cannabis Caucus events
Over the past three years, we have hosted nearly 120 Cannabis Caucus events nationwide. What sets Cannabis Caucuses apart from our other regional events is their focus on federal policy news and ways that attendees can take action.
While these events are always well-attended, with a noteworthy lineup of speakers, our recent March Cannabis Caucuses were extraordinary.
For one, the events in San Francisco, Los Angeles, Denver, Lansing and Philadelphia saw a whopping 1,200 total attendees – more than any other Cannabis Caucus event series in our history.
Equally as notable was the turnout in what is expected to be the largest cannabis market in the world – Michigan. In Lansing, we partnered with the Michigan Cannabis Industry Association and hosted more than 400 industry professionals and advocates with an impressive lineup of guest speakers.
Not only were the guest speakers in Michigan tremendous, but across all events, we had noteworthy guest speakers discussing the importance of citizen lobbying. In Northern California: Jose Herndandez, Deputy Director, Rep. Barbara Lee’s Office; in Southern California: Nicolas Rodridguez, District Director, Rep. Ted Lieu’s Office; in Colorado: Rep. Diana DeGette (CO-1st District); in Michigan: Dana Nessel, Attorney General, Michigan and lastly in the Northeast: Shanita Penny, Executive Director of Minority Cannabis Business Association.
Despite the fact that visible progress on the Hill has been slow over the years, it is obvious that the passage of the SAFE Banking Act has transpired into a feeling of unity and strength for industry professionals and advocates alike. The outstanding attendance at our most policy-focused regional events aptly demonstrates this and continues to be a positive indicator of our industry’s momentum.
Were you at the March Cannabis Caucus events? Tag yourself in the Facebook photo album!
STATES Act reintroduced in Congress
While this didn’t happen in March, it deserves a note anyway. On April 4, the STATES Act to end cannabis prohibition was reintroduced by Sens. Cory Gardner (R-CO) and Elizabeth Warren (D-MA) in the Senate and Reps. Earl Blumenauer (D-OR) and Dave Joyce (R-OH) in the House. This would allow states to determine their own cannabis policies without fear of federal interference.
The timing of the reintroduction of the STATES Act is crucial because bipartisan support for cannabis policy reform is at historic levels in Congress and the general public. This legislation would allow the growing number of state licensed cannabis businesses to simply exist in peace, without fear of federal interference.
What’s next?
Overall, the course of events in the past month has proven that we are living through historic times for our industry. With that, we have every reason to believe that we’re getting close to a tipping point for our industry’s continued expansion at the federal level. As we continue this journey to achieve the fair and equal treatment our industry deserves, it is important to stop and celebrate our macro and microcosmic victories that denote extraordinary progress.
If you want to take the next step in supporting the legal cannabis industry, consider joining the nearly 2,000 business-members that make up NCIA’s membership base. By joining NCIA, you also get exclusive access to the industry’s most impactful advocacy event of the year – NCIA’s 9th Annual Cannabis Industry Lobby Days on May 21-23 in Washington, D.C.
For nine years, Lobby Days has been our industry’s opportunity to form a unified front on the Hill in advocating for the fair and equal treatment of our industry. This year – more than ever – we believe that telling our representatives why the SAFE Banking Act and the STATES Act need to be passed might be the final push our industry needs.
If increased consumer spending is any indication, April 20 has solidified itself as the ultimate cannabis holiday.
Average dispensary sales around last year’s high holiday experienced a 51% increase, beating 2017’s numbers by an impressive 30%. With more U.S. states having legalized cannabis since 2018, April 20 falling on a Saturday, and this year being Canada’s first as a legal nation, 420 is set to break even more records in 2019.
It’s not enough for cannabis retail owners to simply open the doors April 20 and wait for products to fly off the shelves. Everything from marketing and merchandising strategy, to ensuring your staff and operations are prepped, factor into how well your dispensary will perform. For cannabis retail owners wondering how to prepare for 420, Cova’s latest white-paper details 5 key ways to make April 20 your best business day all year:
Marketing Must-Haves: Customers expect dispensaries to offer deals and specials in celebration of the 420 holiday, but creative marketing is what helps bring the heat. For retail owners wondering how to boost sales on 420, learn how creative marketing initiatives can build early buzz, engage your customers, and take your sales from uptick to off-the-charts.
Prep Your Tech, Systems, and Processes: Is your POS ready for larger than usual weekend foot traffic? Find out which critical features your POS software should have to reliably and compliantly handle increased transactions, and how optimizing technology and store flow can help improve the customer shopping experience overall.
Square Away Inventory, Promotions, and Merchandising: On 420, dispensary owners have the opportunity to create an experience that’ll keep their customers coming back all year long. Discover how making key merchandising decisions on the sales floor and in the stockroom, and offering unique cannabis retail holiday promotions will make your 420 event unforgettable while also helping you move through inventory.
Empower Your Staff: Your dispensary team is invaluable, but especially so over the busy 420 weekend. Learn how communication, training, and the right technology can empower your employees, help them feel prepared, and set them up for success.
Review, Analyze, and Plan for Next Year: It’s never too early to start planning for next year. Discover why you shouldn’t procrastinate when it comes to reviewing and analyzing the 420 experience with your staff, how to make the conversation productive, and how to turn your findings into action items for next year’s 420.
Gary leads Cova’s charge into the legal cannabis space by guiding the vision, strategic development, ‘go to market’ plans and culture.
Before joining Cova, Gary was a principal in over a dozen tech start-ups in the mobile communications industry ranging from small VC funded companies to Fortune 100 firms, including Onavo, which was later acquired by Facebook. In those companies he led sales, marketing, business analytics and market expansions. He has also held a multitude of leadership roles with Verizon and AT&T.
Gary holds a degree in finance with a master’s in marketing from the University of Colorado.
VIDEO: Member Spotlight – Silver State Wellness
Get to know NCIA members Silver State Wellness in this month’s video spotlight. We speak with co-founder Ed Bernstein and general manager Emmett Reistroffer to learn more about their state-of-the art infused product manufacturing facility based in Las Vegas, Nevada. Their facility produces both medical and adult-use brands ranging from edible products, topicals, and infused beverages including beer, coffee, and tea. Silver State Wellness has also formed a joint venture agreement with Dixie Elixirs & Edibles, a Dixie Brands, Inc. company. Hear about how IRS Tax Code 280E and lack of access to banking impacts their business.
If you’re not yet a member of the National Cannabis Industry Association, log on today and join the movement.
WEBINAR: Cannabis Testing & How to Read Test Results
Learn from expert panelists: Alena Rodriguez, Managing Director, Rm3 Labs; Garrett Cropsey, Project Manager, Canna Advisors; and Tiffany Coleman, Director of Quality, Copperstate Farms.
Without delving too much into the testing methodologies used, we discuss reporting limits and some reasons for variability in test results. We also discuss the basic terminology used in test reports, provide examples of test results, and show you how to read them.
This webinar is great for general audiences that want to learn more about why we test in cannabis, how to interpret test results, and how you can use results as a consumer or cannabis business.
The Scientific Advisory Committee (SAC) is comprised of practicing chemists and other scientific field professionals to advise other NCIA committees as they work to develop standards and guidelines for the various sectors of our industry, ensuring that any formal recommendations produced by other NCIA committees are scientifically sound, sustainable, and legitimate.
For a deeper dive into cannabis testing policy, download this report prepared by NCIA’s Policy Council, where we explore recommendations for cannabis testing policies including requirements for proficiency, contaminants, potency and active ingredients, as well as records retention and laboratory accreditation.
MCBA’s Model Municipal Social Equity Ordinance
Recently, NCIA’s Policy Council contributed toward a larger effort by the Minority Cannabis Business Association (MCBA) to create model social equity legislation for cities across the country. The legislation’s drafting committee started with the basic framework of the RESPECT Resolution introduced by Congresswoman Barbara Lee in 2018. The drafters also “borrowed liberally” from social equity ordinances in development in other cities such as Los Angeles, Oakland, San Francisco, and Sacramento, “attempting to improve upon these pioneering works with the benefit of hindsight.”
Khurshid Khoja, co-chair of the MCBA Policy Committee and Vice Chair of NCIA’s Board of Directors, led the drafting team. “The Model Ordinance is a statement from the communities we represent to the local lawmakers, regulators, entrepreneurs and other stakeholders who are building our nation’s cannabis industry one town at time – social equity is not only possible, it should be the industry standard moving forward. Our work gives those actors the tools they need to make equity a present reality in our industry rather than a lost opportunity.”
“We are grateful to have had the opportunity to assist the Minority Cannabis Business Association with crafting this important model ordinance,” said Aaron Smith, executive director of NCIA. “As we replace prohibition with regulated cannabis programs, it’s important that the communities most adversely impacted by the disastrous war on marijuana have access to the new economic opportunities of the post-prohibition era. Policymakers across the country should look to this model ordinance as the framework for ensuring that their local cannabis market is inclusive and reflective of the broader community.”
The beginning of a new year brings an opportunity to take stock of your cannabis business and ensure you’re doing everything possible to succeed. And because packaging is such a critical piece to brand wins and losses in this market, now is an ideal time to evaluate your process. It’s absolutely possible for your cannabis packaging to stand out while staying operationally efficient, it just takes careful planning. Get started with these four steps to streamlining your cannabis packaging process.
Step 1: Look for Flexibility
Rules and regulations for the cannabis and hemp industries are continually evolving. Streamlined cannabis packaging and labeling should accommodate data that changes regularly—as well as any required content that may be revised in the future. Always leave space on your package for legibly printed variable data (state-mandated warnings, potency, testing results, etc.). Utilizing secondary labels are often an unfortunate necessity of cannabis packaging. However, if these additional labels are composed creatively, they can actually serve a functional purpose and enhance the package design. A great example of this is a well-designed label that offers messaging while making the package tamper-evident. If possible, consider using an on-demand printing system on pre-printed label stock to minimize material cost and waste.
Step 2: Confirm Compliance
Now that you’ve dialed in your packaging options and are confident you can be agile with information, it’s time to ensure your product is compliant with state regulations. Brands with non-compliant packages can have their products pulled from store shelves or even face fines from state regulators. Re-printing labels or packaging can be very costly in print, labor and time.
Confirm that your package or label includes correct warnings, universal symbols, and produced with the correct material thickness and opaqueness if necessary. Edible products may need to include allergen information and other FDA requirements. Many states require tamper-evident or child-resistant packaging. Verify that your packaging container is compliant by requesting child-resistant certification from your supplier, or check to see if it is already on your state’s pre-approved packaging list.
It is highly recommended that brands don’t rely on their own interpretation of the laws. Consulting legal counsel is well worth the investment of confirming your packaging meets all the necessary requirements.
Step 3: Efficient & Effective from Sale to Shelf
Key to streamlining the packaging process is making sure your packaging is efficient and effective from the time you sell it, to the moment it’s merchandised on shelf. This relates to both the process of packaging your product and protecting your profits. Being efficient and effective with packaging will have a significant impact on your bottom line.
We suggest brands design their packaging to fit the size of the item. Oversized packaging costs more and can be misleading to the customer. In addition to selecting an appropriately sized package, brands need to accurately determine the labor cost associated with packaging options. Adding a sealed pouch for a pre roll takes labor hours. Consider the amount of time it takes to package a single product in comparison to the wholesale unit price. It’s easy to overdo packaging for a small profit margin. Make sure to test prototypes or samples with your production team or partners before you order a large quantity of packaging or labels. It’s essential to understand what the package will be subjected to once it leaves your facility. If at all possible, consult with existing distribution associates or wholesale customers for their input before investing in packaging. For example, your retail clients may prefer to display their products utilizing slat wall, which means that peg holes would be a valuable consideration to your package design.
Another consistent issue is knowing how dispensaries store your product in the back of house. If you have big mylar packaging for a small item, organizing those in bins, drawers or big safes becomes a mess down the line. Wholesale cannabis producers can also benefit from a primary panel label paired with a child-resistant container or mylar bag to streamline their distribution or sales process.
Step Four: Timing is Everything!
Advice we consistently offer brands? Understand your production timeline before you place any packaging order.Think about the implications of ordering stock or custom containers, and your shipping options. While custom containers and labels ensure differentiation in retail stores, they may take longer to produce than ordering off the shelf solutions. Processing art, approving proofs, production and shipping will all impact how fast your product can get to market. Packaging shortages in the cannabis industry are widespread so if you do decide to use stock containers such as glass jars or child-resistant tubes, make sure to place an order far in advance or well before you run out of packaging. Having a plan B can also be helpful. Ordering custom packaging may take longer, so stock items (like a label on a pouch or pop-top) can be used in the interim and may also be used for samples.
One Last Tip
It’s always smart to network with other brands that have similar packaging challenges to you. If they are willing to share them, lessons learned in the market are invaluable to brands making packaging decisions. Doing your fair share of market research by seeing what’s working in retail can also guide you in the right direction.
Have any tips yourself? We’d love to hear them in the comments!
The Top Four Reasons to Attend NCIA’s Industry Socials
Expand your network, meaningfully.
As the industry grows, it’s increasingly important for you to harness only the most efficient opportunities to expand your business’ reach. NCIA’s new Industry Socials were designed to meet the demand for more meaningful, quality networking opportunities in new cities and emerging markets nationwide. Touring the East Coast in April, Industry Socials are the premier opportunity for cannabis professionals to harness NCIA’s extensive national network by creating meaningful connections with each other in a fun, relaxed cocktail-hour setting.
Registration is complimentary for members and 25% off for non-members (until March 19)
One of the many benefits of NCIA membership is complimentary access to all 35 of our regional networking events, including the new Industry Socials. Even better, depending on your membership level, you can grant up to five of your colleagues complimentary access as well.
If you’re an NCIA member and you aren’t taking the opportunity to attend these events, it’s money left on the table.
If you’re not yet an NCIA member, you can take 25% off your registration by registering between March 12-19 or join NCIA today and get complimentary registration!
Connect and learn from other industry professionals
Across the board, experts agree that people with the most connections are the most successful. In our industry, connections can help you stay current on the latest industry trends, gain insights into market forecasts, find solutions to shared challenges, and stay motivated.
As the largest industry trade association, representing nearly 2,000 business-members, NCIA serves as the networking nexus for the industry. We know that 70 percent of the individuals who attend NCIA events have executive level decision-making authority and 30 percent have heavy decision-making influence. This means that the caliber of the meaningful connections you will make have the potential to benefit your business in very real ways, and quickly. You never know what you might learn from other professionals in your area: find out new solutions to shared challenges, learn about deals that haven’t been publicized, get the latest tips, trends and techniques and build your shared-knowledge community.
Strengthen your business and our industry
This April, NCIA is thrilled to be cultivating community in Portland, ME, Jersey City, Pittsburgh, Baltimore and Miami. After all, we know that your business and our industry are only as strong as the connections we make.
In fact, all event revenues support the work NCIA is doing to lobby on behalf of your business on Capitol Hill and to build public support for the cannabis industry. This makes NCIA events uniquely positioned as delivering both B2B connectivity and political influence at the same time.
Lastly, but certainly not least, at Industry Socials you can expect hors d’oeuvres, live local music, classic games like giant Jenga, Connect Four, and drinks at a cash bar all in a relaxed, cocktail-hour setting.
Join us to cultivate community in your city – registration for the East Coast Tour is now open! Non-members take 25% off between March 12 – 19. (Discount automatically applied).
Member Blog: Cannabis Edibles – Preparing for Government Regulations & Inspections
by Martha Ostergar, Content Marketing Manager of RizePoint
Advice from RizePoint, a leader in the quality assurance and regulatory compliance space for over 20 years.
As more states legalize medicinal and recreational marijuana, more companies are getting into the business of cannabis infused food products (CIFPs), more commonly known as edibles. These food products can take many different forms such as baked goods, sweets, oils, capsules, and tablets. As an alternative to smoking or vaping, cannabis-infused products are already on track to become a 5.3 billion-dollar industry over the next five years.
But if cannabusinesses want to get into the edibles production industry, their products need to comply with new cannabis-related city, state, and federal regulations, as well as established regulations for food and pharmaceutical products. The cannabis edibles industry is still in its infancy, and many states are still deciding how to best regulate these new products for public health and safety. This means navigating regulations can be tricky, but there are a few things to keep in mind to stay above board in this developing market.
Evolving Cannabis Edibles Regulations
Cannabis is considered a Schedule 1 controlled substance according to the U.S. Drug Enforcement Administration (DEA), and an “adulterated food product” under the U.S. Food and Drug Administration (FDA). However, the cannabis edibles industry as a whole lacks systematic federal oversight. At this stage, this means that states must decide on how to best regulate these products once voters and legislators have agreed to legalize recreational or medicinal marijuana in each respective state.
This lack of federal oversight can lead to a great deal of confusion in the industry. Nearly 100,000 packages of CIFPs have been recalled over the last few years due to inaccurate labeling, the use of banned pesticides, and other regulatory hiccups. In fact, a recent study of edible label accuracy revealed that 83% of CIFP labels differed from the actual contents of the product by over 10%, and only 17% were labeled correctly.
Key Regulatory Concerns
If cannabusiness owners want to avoid similar quality and compliance issues, they need to make sure they are following their state’s laws and regulations regarding CIFPs. That being said, some states have yet to decide how they will regulate this industry, which can leave businesses on unsure footing or without a viable quality management plan. However, the cannabis industry isn’t totally in the dark — they can look to other industries and resources to create quality-related processes that will help them protect their products, their customers, and their bottom line.
For example, cannabusinesses can look to the National Environmental Health Association (NEHA) for guidance. The NEHA has established a list of regulatory guidelines that states and other regulatory bodies can use as a reference point when drafting legislation.
Here are some examples of regulatory guidelines from NEHA’s list:
All ingredients used in CIFPs should be from FDA-approved sources, including suppliers that maintain good agricultural, manufacturing, and processing practices.
All CIFPs should be safe for public consumption and should not exceed the Code of Federal Regulations tolerance levels for controlled substances such as THC.
CIFPs should be handled in a manner similar to the methods used by the pharmaceutical industry, including accurate product labeling, product homogeneity, and accurate information regarding dose concentration per serving and as a total.
CIFPs should comply with the food laws laid out by the regulatory body, including portions, labeling, processing, and packaging.
CIFPs should not be made to appeal to children or those under the age of 21, such as using words like “candy” on product labels and in product advertising.
Additionally, looking to established federal and state regulations in the food and pharmaceutical industries can help businesses proactively understand and set important quality standards until cannabis regulations become more consistent and clear.
CIFP Quality Assurance Management
With these regulatory concerns in mind, cannabis companies can start adjusting their business operations. Proactively creating a quality management plan with high standards and consumer safety in mind is the most important step businesses can take to prepare for official regulations.
The next step is to focus on the supplier quality management process. Whether suppliers or vendors are supplying cannabis ingredients or raw agricultural ingredients, suppliers also need to meet outside regulations as well as internal brand standards that reflect a company’s specific business goals. An edibles business will need to make a plan that includes auditing suppliers at least once a year, collecting relevant and current certifications, and tracking supplier performance.
After that, quality assurance falls to the production process. As mentioned above, government regulations are only part of the quality management process. Each company will have different internal standards they wish to meet that reflect their goals as a brand, including how to produce each product consistently for a better customer experience. This process involves collecting data from yearly or quarterly audits and daily checks as well as taking corrective action when those audit questions or daily checks fail. Best practice includes reviewing and analyzing quality data to proactively understand and improve any failings in the process.
Tools for Cannabis Quality Management
That brief overview may sound like a lot, and frankly, it is. The good news is there are already tools and resources available to help the cannabis industry create and manage quality and compliance processes.
Technology is key. It’s tempting for new CIFP companies to manage everything with pen and paper and spreadsheets as a cost-saving measure. But if you look at the food industry (among many others), it becomes quickly apparent that tech and software are needed to keep up with ever-changing regulations and to properly scale a growing business. Quality management software (QMS) helps businesses gather data efficiently to create a single source of truth. But the right QMS can also help you easily analyze that data so you can spot trends, gain actionable insights, and proactively fix issues before they become bigger problems.
These types of software have helped many other industries with regulatory compliance as well as quality consistency and brand standards. However, not every QMS is created equal, so it’s important to take your time in finding a digital solution that is right for your compliance and quality needs as well as your budget.
Consultants can help. Several cannabis consultancies already exist to help new and seasoned business owners set up and maintain internal programs for regulatory compliance and quality management. Most consultancies will be able to assess and advise cannabusinesses in cultivation, manufacturing, or dispensary management, and some have resources to do all three.
Consultants are not there to set goals for you, but the right consultant can help you achieve your goals. Before contacting a consultant, it’s crucial to think about your specific needs based on your business goals so each party can manage expectations about responsibilities and deliverables. Choose a consultant that gives you a plan upfront that includes a clear timeline as well as the detailed steps you will each take in your partnership to achieve success. It’s also a good idea to be wary of consultants in any industry that ask for payment with equity.
Takeaways
No matter how much rules and regulations change, you can keep a competitive edge with little disruption to you business. If you model your quality management system on other regulated industries — such as food safety and pharmaceuticals — you’ll proactively create a robust, government-friendly plan. Additionally, when you have a comprehensive plan in place, it’s easier to pivot when there are changes, to train new employees to meet the required standards, and to scale your efforts as your business grows.
Martha Ostergar is the marketing content manager at RizePoint, a quality management software company that has helped top brands to digitally manage compliance, quality assurance, corporate social responsibility, and supplier quality management for over 20 years. VisitRizePoint.com for more information.
Member Blog: Top 3 Reasons Cannabis Angels, VCs, & PEs Use Data To Analyze Deals
For cannabis investors focused on private companies, larger deal flow means better investments
Vetting cannabis companies is complex, time-consuming, and expensive
Using a data-driven deal analyzer automates top-level due diligence, resulting in more deals processed, better fits, and overall higher returns
The emerging cannabis industry is in a state of rapid growth – over 30% compound annual growth rate (CAGR) for the next 5 years – and investors are starting to really pay attention. Angel investors, venture capitalists, and private equity groups are raising funds dedicated to cannabis and they’re starting to grow their portfolios.
To make smart investments, investors of all shapes and sizes need to review a large volume of deals to find the best picks that fit their investment strategy, often referred to as their investor or portfolio “thesis.” But wading through all those decks and conversations can be very difficult and draining.
Investors (and businesses) lose time, energy, and money qualifying and chasing poor fit deals
Cannabis investors spend tremendous amounts of time and energy talking to and qualifying potential deals, only to realize much too late in the process that this company is not a good fit. Although every conversation yields an opportunity to learn, some conversations are much more interesting and productive than others. In the worst case scenario, investors don’t realize the deal is a dud until after deploying capital, resulting in direct portfolio losses.
No one, neither investors nor businesses, wants to waste their precious resources on deals and discussions that will go nowhere. More importantly, these wasted resources result in overall market friction that reduces the rate and acceleration of industry growth as well as investor return on investment (ROI). Double whammy!
So any investor that can review more deals faster, and quickly isolate the most relevant opportunities to pursue further, has a considerable advantage in snapping up the best investments before others get a chance.
Maximizing cannabis investment ROI requires a data-driven deal flow
From our first-hand experience raising capital, as well as second-hand experience talking to investors, one of the biggest challenges is quickly and efficiently identifying a good match on industry vertical, business focus, traction, and values. Beyond these foundational considerations, the next round of challenges revolves around product-market fit, growth potential, and deal terms.
Simply put, there is a standard list of 15-20 questions that every investor should ask a prospective investment (and every company should ask a prospective investor). But these questions can drag on for multiple discovery conversations or documents, ultimately wasting time and energy on both sides.
Some investor platforms, such as Leafwire or Arcview, ask a small set of these questions to help grease the wheels. Cannabis Big Datauses a deal analyzer that algorithmically matches investors & potential deals based on self-reported preferences. Think of the tool like Match.com for investor deal flow with a compatibility score based on profile overlap.
Regardless of the platform or format, investors that have an automated, dynamic way to speed up their deal flow will be able to review more deals faster and find the best companies that fit their thesis. It also means investors have more time for due diligence on the highest value deals, ultimately resulting in higher portfolio returns from investing in stronger, more aligned companies.
For entrepreneurs, a standardized set of investor questions means more time and mental space to focus on developing their product or service and growing their customer base. For the industry, accelerating investment due diligence means less friction in the capital markets and happier humans doing more meaningful work with more time to care for themselves, their customers and their families.
Beyond the immediate and impactful value of a data-driven investor thesis to save time, energy, and money for both investors and businesses, there is also a longer term impact and benefit to cannabis capital bearers.
Over time, cannabis investors can run historical correlative analyses identifying the core considerations that are most likely to impact success and, most importantly, returns on investment. Said in the lexicon of a data nerd, this is a machine learning protocol and predictive model with historical data-driven deal assessments as a training dataset. In plain English, this is a computer algorithm that looks back in time, figures out what worked and what didn’t work, and applies those lessons learned to the matching score for future potential deals.
Overall, what’s true for companies is true for their investors: those most adept at activating their data will quickly dominate the market. So investors need to consider an automated deal analyzer to save time, energy, and money in the short-term while also get smarter picking the best bets that yield the highest returns in the long-term.
Henry Finkelstein, CEO & Founder of Cannabis Big Data, empowers colleagues and clients by spinning data into gold with intuitive, actionable insights. After working in e-commerce, consulting, healthcare and government contracting, Henry saw the opportunity to create a modern-day data toolkit for cannabis businesses that connects the data dots with one-click reports & dashboards that help companies earn more and stress less.
Henry’s person-centric approach to the power of data is summed up as “Let’s count what counts & celebrate our successes because the only relevant data is actionable data.”
VIDEO: Member Spotlight – Silver Sage Wellness
We’re kicking off the month of March with this video spotlight on NCIA members Silver Sage Wellness based in Las Vegas, Nevada. Meet husband-and-wife team Jim and Pam Blasco, special-needs patient advocates with a powerful story about how cannabis changed their lives, as well as the challenges they experience running a cannabis dispensary in the face of unfair tax burdens caused by Section 280E of the IRS Tax Code.
The SAFE Banking Act: What To Expect
As our readers saw in last week’s blog, this month has been a milestone for cannabis banking reform.
Earlier this month, the Subcommittee on Consumer Protection and Financial Institutions held its first ever hearing on marijuana and financial services, entitled: Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses. Up for discussion was a new draft of the Secure and Fair Enforcement (SAFE) Banking Act, which is expected to be introduced any day. The bill is being sponsored by Reps. Ed Perlmutter (D-CO) and Denny Heck (D-WA) in the House, and by Sen. Jeff Merkley (D-OR) in the Senate. All of them have been longtime champions of this cause.
Watch this video for an update on the February 13 hearing:
Because cannabis remains illegal under the federal Controlled Substances Act, individuals who grow, possess, use, sell, transport, or distribute cannabis remain subject to federal criminal prosecution. Under current law, financial institutions providing banking services to legitimate and licensed cannabis businesses under state laws are subject to criminal prosecution under several federal statutes such as “aiding and abetting” and money laundering.
Regardless of whether they’re state or federally chartered, all banks are federally regulated (by FDIC, OCC or the Fed), and thus subject to these rules.
The SAFE Banking Act seeks to harmonize federal and state law by prohibiting federal banking regulators from:
Threatening or limiting a depository institutions’ access to the Deposit Insurance Fund
Discouraging, prohibiting, or penalizing depository institutions for servicing cannabis related businesses
Taking any action against a loan made to a covered business
Forcing a depository institution to halt providing any kind of banking services to state-legal cannabis related businesses
The bill has a few changes from last Congress, including:
Protections for ancillary businesses from money laundering and other laws
Changes the language addressing businesses in Indian Country.
Adds requirement that Financial Institution Examination Council develop guidance to help credit unions and banks understand how to lawfully serve cannabis businesses.
Adjusts the definition of “Cannabis-related legitimate business” to match up with the definition used in last session’s Senate language
Once the SAFE Banking Act is introduced, NCIA will begin gathering cosponsors from both sides of the aisle for the legislation, and will be working with the House Financial Services Committee and its members to advocate for a mark-up of the bill.
While NCIA is making change and advancing our issues every day, there’s still much work to do! Make sure to mark your calendars for our 9th Annual Cannabis Industry Lobby Days in Washington, D.C. on May 21-23 so that you can tell congressional offices your personal story. There’s strength in numbers, and we can’t do it without you!
VIDEO: Capitol Hill Update On Cannabis Banking Hearing In Congressional Committee
Every day, our Government Relations team is keeping our finger on the pulse of what’s happening on the Hill and how it affects our industry. In this case, we have important news from D.C. about movement to fix the banking crisis faced by cannabis industry operators.
Watch this video to learn more about the historic hearing that took place on February 13 in the Subcommittee on Consumer Protection and Financial Institutions. They held the first ever hearing on marijuana and financial services, entitled: Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses. Up for discussion was a new version of the Secure and Fair Enforcement (SAFE) Banking Act.
There’s no better way to stay informed and connected with what’s happening in federal policy than by being a member of NCIA – the largest and most influential national trade association representing the legal cannabis industry. We fight on your behalf year-round in the halls of Congress for our industry to be treated fairly like any other legitimate industry in this country.
Be sure to register in advance for our popular Cannabis Caucus event series – tickets are complimentary for NCIA members, and a limited number of non-member tickets are available. Join us throughout the month of March in Los Angeles, San Francisco, Denver, Lansing, and Philadelphia. For more information, visit our website.
And now is the time to start planning your trip to Washington, D.C. to join us on Capitol Hill! For the 9th year in a row, we’re hosting our Annual Cannabis Industry Lobby Days on May 21-23. This is your chance to walk the halls of Congress and make your voice heard about the unfair tax and banking policies that cripple our industry. This event is exclusively for current NCIA members, so if you’d like to join us for what NCIA members say is “the most important and exciting NCIA event of the year,” then now is the time to join NCIA at one of our three levels of membership, and then join us in May in our nation’s capitol.
If you’re already planning to join us, now is a perfect time to read up on our latest Policy Council report to learn more about priorities for our industry in the 116th Congress.
Five Reasons Why NCIA’s Industry Socials Were A Huge Success
At the end of 2018, NCIA’s events team looked ahead at how to make our line-up of 2019 events even better and respond to an increasingly popular demand for more networking opportunities. As a team we dreamed up how to make a B2B networking series that was not only delivered maximum ROI, but was super fun and fit the cannabis industry culture.
Ultimately, we devised what might be the magic elixir of networking events. Artsy venues, delicious drinks and food, live local music, old-school Nintendo, giant Jenga and Connect Four. We even threw in a raffle-wheel contest to win limited edition NCIA merchandise. The result? NCIA’s January Industry Socials were a total hit. Although there are many, here are the top five reasons why NCIA’s Industry Socials were a huge success.
1. Impressive Attendees
Throughout January, Industry Socials kicked off with a West Coast Tour in Seattle, WA, Portland, OR, Las Vegas, NV, Salt Lake City, UT and Phoenix, AZ. We were excited (and a bit nervous) about the turn-out for the Utah Industry Social in Salt Lake City, since the exciting passage of Utah’s Proposition 2 happened only a few months before the event. As NCIA’s Aaron Smith remarked “we’re excited to bring our world-class industry events to new markets like Utah, and later this year in Missouri, North Dakota, and Texas!”
Overall, January’s Industry Socials turned out about 500 impressive cannabis industry professionals and advocates, representing 250 current NCIA member companies! Even better? We saw more than 75 attendees in the brand new Utah market!
2. Incredible Feedback
The post-event survey results are in and they are stellar! The majority of survey respondents reported that they would highly recommend the event series to a friend or colleague.
More than 50% of survey respondents said they made between 11-20 new contacts at the event and that at least three of these contacts were potential sales deals.
When asked what the biggest return on investment of the event was attendees stated:
“Getting to know our local business community.”
“The low key but targeted exposure in our local market.”
“Continued relationship building and network expansion.”
“We gained a lot of insight into the industry and where we fit as a company… the insights we gained were invaluable.”
“Foot in the door to get involved in rule making and learning about the application process in Utah.”
Kyle Rooney from Have A Heart, Sustaining Members with adult-use dispensaries in four states, says that “attending NCIA’s new Industry Socials is a chance to network in a more personal and low-key environment. National conferences are great, but these events provide a platform to talk to people in the regions that you want to connect with.”
RizePoint, who became members of NCIA just a week before the event in Salt Lake City, attended with several team members. Ed McGarr, RizePoint’s Vice President of Sales and Marketing says, “We began working with cannabis companies last year to advise on food safety, quality control and management for adult-use and medical cannabis edible products. NCIA’s Industry Socials provide a forum for us to connect with the industry and learn from them, as well as gain new business contacts. The event was priceless relative to networking and establishing ourselves further in the cannabis industry. It was refreshing that NCIA helped to establish the networking opportunities in a new, emerging market like Utah.”
3. Innovative Networking and Entertainment
Introducing a retro arcade station including Super Mario and PAC-MAN at our Industry Socials was the brilliant idea of our events team. Now that we know how fun it was, we’re seriously considering having it as an NCIA event standard.
But seriously, we now know that a cash bar is not the only way of lubricating conversation and community building. Adding fun games like Nintendo, giant Jenga and Connect Four is another way cannabis industry professionals can “connect” in an authentic, fun, and meaningful way. If more networking happened while playing a competitive game of PAC-MAN, the business world would be a much better place.
Additionally, at every event we had talented local DJ sets and interactive activities like a raffle-wheel and Polls Everywhere with cannabis industry trivia. As a value-added complimentary activity at our Nevada Industry Social, attendees had the opportunity to participate in two private tours of the world’s only immersive cannabis museum, Cannabition!
4. Our Sponsors and Partners
From helping us spread the word, to investing in NCIA’s Industry Socials, none of these amazing events could have happened without the help of our sponsors and partners.
Lastly, a huge thank you to our promotional partners: Growers Network, Cannabis Collaborative Conference, Utah Patients Coalition, Epilepsy Association of Utah, Marijuana Policy Project and TRUCE Utah.
5. Setting the Stage for 2019 Events
To kick off 2019 with a successful inaugural event series sets the stage for an incredible year of NCIA events. We are looking forward to hosting the next tour of Industry Socials in new cities and markets again in April and August.
But, you don’t have to wait until April to attend more NCIA events. NCIA’s March Cannabis Caucus series is kicking off soon, followed by the most impactful cannabis industry advocacy event of the year – NCIA’s 9th Annual Cannabis Industry Lobby Days.
Lastly, thank you to our nearly 2,000 member-businesses and to all event attendees for supporting NCIA’s mission. NCIA’s event revenues support the work we are doing to lobby at the federal level on your behalf on Capitol Hill and to build public support for the cannabis industry.
If you were at the January Industry Socials, be sure to check out our Facebook album and tag yourself!
VIDEO: NCIA Submits Testimony At U.S. House Committee On Financial Services
Last week, as NCIA wrapped up another successful Seed to Sale Show, we were vigilantly preparing for a historic hearing about the issue of cannabis banking and the SAFE Banking Act. This is an incredible milestone for our industry. If this bill passes, it would allow marijuana-related businesses in states with existing regulatory structures to access the banking system.
The Consumer Protection and Financial Institutions Subcommittee of the U.S. House Committee on Financial Services held this historic hearing about a draft bill that provides safe banking services for legal cannabis businesses. This was the first Committee hearing on stand-alone legislation that is a priority for our industry. Learn more about the hearing from NCIA’s Aaron Smith.
Read NCIA’s Executive Director and Co-Founder, Aaron Smith’s official testimony here.
To find out more about what NCIA is doing to support this bill and other legislative priorities, join us at a Cannabis Caucus event near you!
Top Five Reasons to Attend Cannabis Caucus Events
1. Registration is complimentary for members!
Back with a fresh new look, NCIA’s popular Cannabis Caucus Series are meaningful networking events that pop up in five of the most burgeoning cannabis markets every three months. We launched this event series three years ago as an exclusive opportunity for NCIA members and their guests to connect with each other, learn about regional issues from influential guest speakers and get the latest news about NCIA’s federal policy work
One of the many benefits of NCIA membership is complimentary access to all of our 15 Cannabis Caucus events a year. Even better, depending on your membership level, you get complimentary tickets for up to to five of your colleagues! This is equivalent to $250 worth of tickets! If you’re an NCIA member and you aren’t taking the opportunity to attend these events, you’re leaving money on the table.
This year, we’re offering limited complimentary tickets to a select group of non-members who are passionate about advocacy and want to join the movement to protect our industry. If this is you, please fill out this form and we will follow up shortly.
Of course, if you’re not yet an NCIA member, you should consider joining to receive unlimited access to these events and more! Contact Membership@TheCannabisIndustry.org for more information!
2. You’ll make meaningful connections with industry leaders
During last year’s Cannabis Caucus events, more than 1,000 attendees turned out for our 32 events nationwide. This means that although these events are growing increasingly popular, they are still small enough to make meaningful connections with other industry leaders in your region. Instead of just making small talk with someone in passing, you’ll get to to have real conversations with some of the most influential leaders in the industry. Year after year, we hear about people striking business partnerships, friendships and impactful connections at these events because they offer the time, space and opportunity to do so.
3. NCIA convenes industry influencers
As the largest national trade association in the U.S. and the only organization representing nearly 2,000 cannabis-related businesses at the national level, we have pretty deep connections. We know that 70 percent of the individuals who attend Cannabis Caucus events have executive level decision-making authority and 30 percent have heavy decision-making influence. All of this is to say that the caliber of the meaningful connections you will make have the potential to benefit your business in very real ways and quickly. We also know that these boutique events are frequently attended by industry pioneers and dedicated policy reform advocates, the movers and shakers of the industry, who have helped support the movement for decades.
4. Simplified, accurate federal and regional policy updates
For many people, federal policy developments can seem a bit dry and/or overly complex. However, in our industry, understanding and staying current on the changing tides of policies can make or break your business. At Cannabis Caucuses, we’ll break down all of the recent federal policy issues you need to know in order to protect your business. Better yet, our intel is coming straight from our Government Relations team on the Hill. Consider this your opportunity for simplified, accurate federal policy insights to inform your business strategy.
At every event, we also recruit influential policy makers, government officials, or industry executives as guest speakers to shed light on important regional issues. Take the opportunity to meet the guest speakers afterwards to ask questions during the nearly two hours worth of networking. When else would you get this opportunity?
5. They’re fun!
This might not be one your boss cares so much about, but we do. Your registration includes hors d’oeuvres, plus enjoy drinks from a cash bar in a relaxed, sophisticated setting. Repeatedly, we hear from guests that Cannabis Caucus events are their favorite because of the quality of the event, the caliber of the attendees and the sense of community and camaraderie they foster.
Member Blog: 5 Mistakes New Cannabusiness Owners Make, And How to Avoid Them
by Ellie Herring, Marketing Director of Dime Bags, a subsidiary company of Head Choice Inc.
Advice from Dime Bags, a leader in the hemp space that’s been in the industry for over a decade.
Business is booming for those who are successful in the cannabis industry. With over $9 billion in sales reported for the marijuana industry in 2017, it’s no surprise entrepreneurs are looking to fill the needs of millions of new customers that join the market each year. While the cannabis industry may look like a fail-safe investment to some, those who’ve successfully established themselves in the market know that starting a cannabusiness is nothing short of an enormously challenging feat. Regulatory laws, unforeseen roadblocks with city stipulations and auxiliary businesses, and an oversaturation of the market are some of the many challenges new cannabis business owners face.
With over a decade of first-hand knowledge in the industry, Dime Bags has experienced the many ups and downs of starting and successfully running a business in the hemp market. To save new cannabusinesses the trouble of making these mistakes on their own, we’ve compiled a list of the top five mistakes new cannabis businesses make (and how to avoid them).
Creating Unrealistic Expectations
Inexperienced entrepreneurs look at the cannabis industry and assume that because the marketing is booming and continuing to grow, it’s a fail-safe investment. This couldn’t be further from the truth. Penetrating a saturated market takes substantial dedication to the product or business and a wealth of knowledge of both the industry and regulations. What may look like a fool-proof business plan could completely dissolve with one legality mishap. In addition, a business plan with no passion or knowledge of the industry can easily fall behind in the saturated market of cannabis aficionados who quite literally eat, sleep, and breathe cannabis.
Be passionate about the business you’re starting or investing in and set realistic expectations for growth. While the cannabis industry has plenty of potential for successful ventures, they don’t come without their fair share of complications.
Assuming Other Businesses Are Willing to Work with You
Even in recreationally legal states, cannabis-related products and businesses still constantly face roadblocks in every operational endeavor. Dime Bags creates protective bags for glass transportation and uses hemp to make the fabric of our products. The bags arrive at our warehouse in Colorado Springs already constructed. There is no raw hemp at our building and certainly no cannabis on the premises, yet we’ve faced backlash and pushback from many companies. We’ve been turned down by insurance companies, faced difficulties finding a bank, and even experienced direct pushback from the surrounded storefronts for the product we make and market. Even if you’re starting a business in a recreationally legal state, do not expect others to always welcome you with open arms.
Properly research banks, accounting firms, lawyers, insurance companies, the location of your business and every other possible partnership beforehand to find those who support and are willing to work with cannabis businesses. As long as cannabis remains federally illegal in the United States, cannabusinesses will experience some pushback from other industries who are unwilling to take the risk. However, as public perception shifts and more states become legal, there’s been a noticeable increase in cannabis-friendly ancillary businesses and finding the right partnership is no longer completely impossible.
Not Adapting
As with starting any business, not being adaptable will cause your business to fail. In an industry where everyone’s trying to get in while it’s on the rise — the effects are tenfold. The cannabis industry is constantly changing with the growing market and if you’re not fully committed to adapting with the industry, your business will fail. As the cannabis industry is still so new and not yet worldwide, changes in behavior, attitudes, interests, and trends are moving at a rapid rate.
Stay up-to-date on the latest discoveries in the industry so you can be ahead of the curve for the “next big thing.” Having a solid understanding of the plant itself and the interests of consumers will allow you to recognize trends before they take off. While Dime Bags originally only made bags with hemp, we adapted to expand our line to include smell-proof technology as we recognized the demand from consumers. While it’s important to have a vision and roadmap for your brand, be open to changes in the market and stay on top of trends so you can execute changes before the rest of the industry.
Breaking the Law
While acute knowledge of state and federal regulations is a critical part of any cannabusiness, breaking the law goes beyond the day-to-day operations. Be especially mindful of how your employees and company conduct themselves. While your business may operate according to state laws, that doesn’t always protect you from random searches or anonymous tips given to regulatory officers. If your business hosts a launch party or industry event, ask yourself if on-site consumption is worth losing your business over. That’s not to say that it can’t be done according to the laws for your state, but one underage person caught smoking or someone enjoying a joint outside the front door of your shop could spell serious trouble for you.
Clearly outline your expectations for your employees including how they should conduct themselves at industry events and define the laws and regulations for everyone so there’s a solid understanding of what is legal.
No Back Up-Plan
As Benjamin Franklin famously quoted, “by failing to prepare, you are preparing to fail.” Part of working in the cannabis industry is constantly preparing for the worst. Always have a back-up plan when executing your strategy. The city may revoke a permit for an event you sponsored due to public concern, your packaging may not hold up to new regulatory laws, the possibilities are endless.
While it’s impossible to predict every issue that may arise, have enough capital to handle sticky situations and plan for alternatives before it’s too late. As a general rule of thumb, have at least three months worth operating expenses saved to account for unexpected situations.
The cannabis industry is an exciting and lucrative field for those who prepare and fully dedicate themselves to learning the ins and outs. With national (and hopefully worldwide) legalization on the horizon, it’s set to be one of fastest growing industries over the next decade. By following the advice of those who’ve paved the way, we hope your business has a successful launch in one of the most exciting times for the industry.
Good luck!
Ellie Herring is the Marketing Director for Dime Bags, a Colorado Springs-based but globally recognized glass protection brand that specializes in hemp fabric, smell-proof carbon filtered technology, and everyday accessories for hemp and cannabis enthusiasts alike. Dime Bags is a subsidiary company of Head Choice Inc. For more information about Dime Bags, please visit DimeBags.com.
Member Spotlight: Consumer Research Around Cannabis
In this month’s member spotlight, we learn more about Consumer Research Around Cannabis from Vice President, Jeffrey Stein. The mission of Consumer Research Around Cannabis is to deliver market research that merges cannabis & marijuana usage data, perceptions, and attitudes regarding marijuana, with hundreds of local consumer-level demographics, lifestyle information, shopping trends, media habits, and numerous plan-to-purchase targets.
Consumer Research Around Cannabis
Member Since:
November 2018
Industry Sector/Business Type: Data Services
Tell us a bit about you, your background, and why you launched your company?
I spent many years in the broadcast industry in sales & management. Driving revenue in this sector has not only been about quantitative ratings, but about the qualitative position of your audience – in demonstrating that a properties audience matched the consumer characteristics of the proposed client. When a client leans more on the qualitative aspect of a media property, they always enjoy more success – revenue – ROI. This was an area that always fascinated me and where we had the most success.
Consumer Research Around Cannabis is the sister company of The Media Audit – a company which surveys local markets in order to help broadcasters and publications better position its audience against consumer characteristics like income, demographics, education, plan to purchase and hundreds of other consumer targets. With this expertise already in place, it made sense to add cannabis consumer questions to the consumer surveys. This is how Consumer Research Around Cannabis was born.
What unique value does your company offer to the cannabis industry?
The cannabis industry is no different than any other consumer industry. Products are developed and put on the market. There is no consumer products company which does not lean on consumer research to help them make better decisions on products, packaging and marketing – the cannabis industry is no different. What is obviously unique is that cannabis is relegated various laws on a state by state basis.
Through our proprietary software, we can take cannabis consumer targets (legal opinions, purchasing, category choices, and behavioral choices) and cross tab that against traditional consumer data to help answer questions facing cannabis companies today and into the future. And we do it on a market by market and state by state basis.
What kind of challenges do you face in the industry and what solutions would you like to see?
In order to continue to be relevant, we have to adjust our questions and offerings as the cannabis industry grows. One example is merging our data with other databases to further refine our research. We also have to be cognizant of new cannabis products and the ever growing cannabis research, especially on the medical side. And of course, evolving state regulations.
Why did you join NCIA? What’s the best or most important part about being a member?
As a small, growing company, we have a limited budget so we have to choose the organizations we join carefully. NCIA seems to be the place where all cannabis companies come together to further the industry and, to see how other cannabis companies are evolving.
NCIA at the Washington Cannabis Summit
by Rachel Kurtz, Outreach Manager
NCIA had the pleasure of attending and presenting at the recent 5th Annual Washington State Cannabis Summit, presented by The Cannabis Alliance, Washington state’s leading trade association for the cannabis industry and a member of NCIA’s Allied Associations Program. This conference is always extremely well done, with high caliber speakers on informative panels covering topics such as cannabis economy and markets, agronomy, and therapeutic values. Plenty of time left for Q&A allowed further engagement with the audience, sparking deeper conversations throughout the day.
NCIA’s Government Relations manager Michelle Rutter spoke on a policy panel about what’s happening around cannabis at the federal level in the other Washington, D.C. The panel was a holistic view of policy from around the country, including panelists Casey Houlihan, Executive Director of the Oregon Retailers of Cannabis Association; Cat Packer, the first Executive Director of the Department of Cannabis Regulation for the City of Los Angeles; and Rick Garza, Director of the Washington State Liquor and Cannabis Board (WSLCB).
The attendees were very interested in the social equity work happening around the country, and we learned that the WSLCB is making efforts in that area. It was also heartening to see Rick Garza taking notes when Cat Packer spoke about ways that California is trying to help the industry reach its customers by allowing consumption events without compromising safety or the integrity of the traceability program.
The highlight of the event came early in the day when Governor Jay Inslee, who had just three days prior announced his candidacy for President, told the room he planned to pardon thousands of people convicted of small cannabis possession charges. This would be done by creating an expedited process where people could apply for and receive a pardon in a simple fashion without needing a lawyer. It is expected to affect around 3500 people.
VIDEO: Member Spotlight – NuLeaf Dispensary
In this month’s video member spotlight, we visit with NuLeaf Dispensary in Las Vegas, Nevada. Adult-use cannabis was legalized in the state on January 1, 2017, though licensed dispensary sales were slowly implemented throughout the year. Learn more about how NuLeaf’s marketing team overcomes the many challenges to both print and online advertising through in-store events and content marketing in tourist-friendly Las Vegas.
Expand your network and cultivate community with us in a fun, relaxed, cocktail-hour setting at NCIA’s new Industry Socials event series this year!
Our West Coast tour includes a stop in Las Vegas on January 22, 2019. Register now to secure your spot!
Note: NCIA member profiles highlight members and stories within our cannabis industry community. They do not constitute an endorsement or recommendation of specific products or services by NCIA.
Allied Association Blog: Nevada County Cannabis Alliance Update
The Nevada County Cannabis Alliance is a trade association in California whose mission is to Advocate, Educate, and Connect. The Alliance advocates for reasonable local policies and a fair county ordinance. We believe in empowering community success through education, and connecting stakeholders with opportunities to participate and collaborate in the industry.
Nevada County has a renowned history of heritage cannabis cultivation that has played a crucial role in the community and economy over the past decades. Our community is well known for high quality, craft cannabis farming as well as for our unique quality of homesteading life. The Alliance seeks collaborations with organizations that value high quality, craft, California cannabis, grown by farmers with a unique history and story.
What issues are we working on?
Completing the comprehensive Environmental Impact Report necessary prior to the final completion of our local cannabis ordinance.
Providing essential education to the farmers throughout the regulatory transitions to assist with permitting and licensing.
Developing relationships with distributors and partners to bring our farmers to market.
Challenges
One challenge we face as a member based organization is maintaining and continuing to grow our membership numbers. The quintessential financial sustainability quagmire. Ever changing regulations and market uncertainty has caused reluctance from many small farmers. The Alliance works hard to reinvigorate and provide hope throughout the local cannabis community, but the reality is that there has been a decline in membership. Maintaining and continuing to grow our membership numbers, business sponsorships and financial stability is a constant need in order to continue working for a thriving cannabis industry for our region.
Another challenge is connecting our small- batch (10,000 sq ft farmers) into the supply chain with distributors who are interested in craft product.
What’s happening that’s important?
Ensuring that permitted local farms have access to the market via various distribution channels.
Decreasing barriers to entry for farmers within our local policy and ordinances. For example, local farmers are restricted to holding only 3 cultivation permits and local farmers also MUST have a permitted residence on the land to which they farm cannabis.
What advice or education do you have for others?
To counties that may still have complete cultivation bans, hang in there. Policy work is thankless, not pretty, and not why anyone began farming and living off of the land. Celebrate each and every small victory and step in the right direction, they truly add up. It is crucial for the greater community to support those that are willing to do the policy work and for there to be consistent representation with local officials. These relationships are everything, so continue to build bridges and nurture every community relationship. Nevada County worked its way out of a 2016 ban and we will be home to a thriving cannabis community and industry. It is important to organize and show strength in numbers.
VIDEO: Member Spotlight – Growcentia
Based in Fort Collins, Colorado, NCIA member Growcentia specializes in organically-derived microbial nutrients, as well as agricultural research and development in both outdoor and greenhouse cultivation. Meet some of the Growcentia team to learn more about their work in both the laboratory and in the fields, and the challenges they still face due to strict federal laws.
Massachusetts Officially Joins The Legal Cannabis Market
Legal cannabis sales for adults 21 and over launched on Tuesday in Massachusetts, marking the first legal adult-use dispensaries to open on the East Coast! The first customers to purchase cannabis were two U.S. military veterans, including Northampton Mayor David Narkewicz.
Residents in the Bay State voted to legalize cannabis in 2016. While only two dispensaries are currently licensed and open for business, a slow rollout of additional licenses are expected to be fully realized over the coming years. The market in Massachusetts is expected to grow to over $1 billion by the year 2022, according to Arcview Market Research.
“Congratulations to Massachusetts for taking this important step toward implementing the rational cannabis policies supported by voters across the commonwealth,” stated NCIA executive director Aaron Smith in response to the launch of regulated sales. “It’s been a long time coming but we look forward to the development of a prosperous cannabis industry in the Bay State, as criminal markets are replaced by licensed businesses that create jobs and tax revenue while responsibly serving adult consumers safe cannabis products.”
In the densely populated Northeast region of the U.S., Massachusetts is setting the stage for nearby states to adopt similar cannabis policies.
Over 3,000 industry leaders looking to tap into the emerging East Coast markets will be attending NCIA’s 3rd Annual Seed to Sale Show coming up February 12-13, 2019 in Boston. Register before December 6 to save $400!
Thanksgiving: NCIA Members Are The Reason For The Season
by Jeremy DePasquale, NCIA Membership Director
This Thanksgiving holiday, we wish to simply say THANK YOU for being a part of the next great American industry, and for taking this journey with us as we all create a responsible, legitimate cannabis industry together.
As the NCIA staff begins to wrap up the year 2018 and look ahead into 2019, not only is there so much to be thankful for in this year alone, but also in the last eight years since NCIA’s founding in 2010. Our membership has grown to over 1,700 member companies strong, and we’ve seen the industry evolve and mature at an impressive pace during this time.
NCIA’s executive director and co-founder Aaron Smith is “…deeply grateful for the hundreds of responsible cannabis businesses that have invested in the vital work needed to advance our industry through their membership with NCIA. Our members have made it possible to gain real traction and support in Congress over the last year and those who donated to our PAC have helped us elect an even better Congress going into 2019.”
The NCIA staff, now a vibrant team of twenty passionate and driven individuals, are focused on providing the best service and support to our ever-growing membership in the form of helpful member benefits, opportunities to get involved, and valuable networking opportunities for you and your business.
This year and every year I’m thankful for you, our members. I’m constantly amazed and inspired by your passion to continue making our industry the gold standard. NCIA is as strong as it is because of the support and engagement of our members, and we are working on new and exciting ways to keep you engaged. Here’s to 2019!
Save the Dates! NCIA’s New 2019 Events Just Announced
Ready to hang your 2019 calendar on the wall? You’re in luck, because NCIA has just published the 2019 event calendar! Due to popular demand for even more regional networking opportunities nationwide, NCIA is launching two new regional event series in 2019: Industry Socials and Harvest Celebrations and refreshing our well-known Cannabis Caucus Series.
NCIA’s Industry Socialsare about cultivating regional communities of industry professionals, so that they can connect and learn from each other. Cultivating community is the most effective way to strengthen our industry and your business. Touring five cities in the West Coast, East Coast and Heartland regions, NCIA’s Industry Socials are the premier opportunity for cannabis professionals to harness NCIA’s extensive national network by creating meaningful connections with each other and with NCIA staff in a relaxed cocktail setting. Join us to expand your network and cultivate our community! Tickets to Industry Socials are complimentary to NCIA members and only $25 to non-members. Registration opens for the West Coast Tour on November 27!
NCIA’s Harvest Celebrationswill be hosted in five cities in October to honor the cannabis harvesting season and celebrate the continued growth of our industry! Proceeds from NCIA’s inaugural Harvest Celebration events will foster support for NCIA’s federal lobbying work on behalf of businesses serving the industry and the industry at-large.
In light of these new 2019 NCIA events, we also have exciting new sponsorship opportunities to offer! Download the 2019 Event Sponsorship Deck or contact us for more information. Consider this your opportunity to get your brand in front of thousands of new businesses in diverse regions nationwide. We’ll see you there!
Wrapping Up 2018 Cannabis Caucus Events, Introducing New 2019 Events!
October marked the last NCIA events of the year with Cannabis Caucus events in eight regions nationwide and an outstanding 2nd Annual California Cannabis Business Conference in Anaheim, California. As this year’s events comes to a close, we have so much to reflect on and exciting new events to announce!
During this quarter’s Cannabis Caucus events, more than 400 NCIA members, representing 250 member companies, totaling in more than 750 attendees turned out for our eight events nationwide. This means that although these events are growing increasingly popular, they are still small enough to make meaningful connections with other industry leaders in your region. Instead of just making small talk with someone in passing, you’ll get to to have real conversations with some of the most influential leaders in the industry. Year after year, we hear about people striking business partnerships, friendships and impactful connections at these events because they offer the time, space and opportunity to do so.
In the industry’s largest markets, Northern California, Southern California, and Colorado, more than 100 industry professionals turned out at each event. But, perhaps most impressive was the 75 plus attendance in the Midwest, maybe a harbinger of the positive momentum garnered by statewide reform initiatives in this year’s midterm elections!
Cannabis Caucus Highlights
A the Northeast event, attendees heard the latest news surrounding medical cannabis in Maine from State Sen. Eric Brakey (R-District 20), as well as Maine’s adult-use cannabis laws from David Boyer, Maine Political Director at Marijuana Policy Project.
The event in Northern California featured special guest speaker Heidi Mattos, a payroll tax specialist from the State of California Employment & Development Department, who shared critical insights into state payroll tax regulations. In Southern California, we heard a special presentation on “Understanding California Agricultural Labor Laws As It Relates to Cannabis Cultivators” from guest speaker Eduardo Blanco, Special legal Advisor from the CA Agricultural Labor Relations Board.
The Southwest event featured Ryan Black, Campaign Co-Chair for Anita Malik, Candidate for Arizona’s Congressional District 6, discussing federal cannabis reform. Lastly, in the Pacific Northwest, Lara Kaminsky, Executive Director of The Cannabis Alliance (an NCIA Allied Association), spoke about the latest developments in Washington state’s cannabis industry, including the current status of the edibles product ban.
As the largest national trade association in the U.S. and the only organization representing more than 1,700 cannabis-related businesses at the national level, we have pretty deep connections. We know that 70 percent of the individuals who attend our regional events have executive level decision-making authority and 30 percent have heavy decision-making influence. All of this is to say that the caliber of the meaningful connections you will make have the potential to benefit your business in very real ways and quickly.
We also know that these boutique events are frequently attended by industry pioneers and dedicated policy reform advocates, the movers and shakers of the industry, who have helped support the movement for decades. Repeatedly, we hear from event attendees that these events are their favorite because of the quality of the event, the attendees and the sense of community and camaraderie they foster.
What’s Next? NCIA’s New 2019 Regional Event Series Announced
NCIA’s Industry Socialsare about cultivating regional communities of industry professionals, so that they can connect and learn from each other. Cultivating community is the most effective way to strengthen our industry and your business. Touring five cities in the West Coast, East Coast and Heartland regions, NCIA’s Industry Socials are the premier opportunity for cannabis professionals to harness NCIA’s extensive national network by creating meaningful connections with each other and with NCIA staff in a relaxed cocktail setting. Join us to expand your network and cultivate our community! Tickets to Industry Socials are complimentary to NCIA members and only $25 to non-members. Registration opens for the West Coast Tour on November 27!
NCIA’s Harvest Celebrations will be hosted in five cities in October to honor the cannabis harvesting season and celebrate the continued growth of our industry! Proceeds from NCIA’s inaugural Harvest Celebration events will foster support for NCIA’s federal lobbying work on behalf of businesses serving the industry and the industry at-large.
In light of these new 2019 NCIA events, we also have exciting new sponsorship opportunities to offer! Download the 2019 Event Sponsorship Deck or contact us for more information. Consider this your opportunity to get your brand in front of thousands of new businesses in diverse regions nationwide.
Member Blog: First Blush And Branding Need To Go Hand In Hand
Budding cannabis companies: Pay attention to labels from the get-go
Cannabis companies starting up in states where recreational and medicinal marijuana are just being legalized need to pay close attention to their label branding from the get-go. Too often, this critical part of a successful cannabis business becomes an afterthought — which can lead to major problems in compliance, competitive positioning and credibility in the marketplace.
As the cannabis industry expands in the U.S. and now Canada, it’s also maturing. Gone are the days when a purveyor could hang out a shingle and open their doors to teeming masses of buyers without any substantive concern about packaging and labeling beyond early-day regulatory compliance.
With the industry maturing, so is the sophistication of entities charged with compliance. As more is learned about all aspects of the industry — from edibles to raw cannabis — requirements being placed on purveyors are getting more complex. Plus, there are municipal and state regulations that may cross over one another.
Competitive Positioning It’s never too soon to get into the branding game, and distinctive labels that grab attention and share important information accurately are key to making a name for yourself.
A Forbes article earlier this year made the case: “Tim Calkins, Clinical Professor of Marketing at Kellogg School of Management at Northwestern University, foresees a highly competitive environment… an outburst of marketing and branding innovation… ‘We will see very creative brand-building activities in the years to come. I anticipate that marketing investment will grow exponentially as companies work to carve out a leading position and capture value in an emerging market…It isn’t often that you see an entirely new market emerge on the scene, especially one where brands will play a key role. Many people first experienced cannabis as a[n] unbranded plastic bag. This is not likely to be the future state. Cannabis will become a market dominated by strong, vibrant brands.’”
Compliance In their startup enthusiasm, purveyors may miss something on the label compliance scene. It’s easy to do, but can be very hard to fix. Products have had to be recalled, companies have been fined or even shut down for running afoul of regulations. Labels, as a product’s “front door,” are especially susceptible.
A Manufacturing.net report reinforces the point: “Often, cannabis products require specialized labels for traceability and stating suggested medical applications. State laws still vary greatly, and companies should be careful to know and have tools to track their compliance in all states and countries that they do business.”
Bottom line, newcomers to the industry need to be as diligent about their labeling and packaging as they had to be to get license approval. Anything less may result in more headaches than they can imagine.
Credibility in the Marketplace In Colorado’s early days of cannabis legalization, some labeling and packaging looked — to put it mildly — homespun. The look and feel of that early-day branding pales in comparison to the much more sophisticated label and packaging branding typically seen today.
But for industry newbies, there can still be a temptation to move ahead on operations at lightning speed, with branding, packaging and labeling lagging behind.
Ultimately, that may stifle credibility, giving competitors an opportunity to get a leg up. Ontario, Canada’s experience so far showcases how label problems can hamper credibility. Their online marketplace is the only “game in town” so far; there are no brick-and-mortar establishments. But, in a competitive marketplace, purveyor missteps can cause reputation damage as well as regulatory repercussions.
Notes a Civilized.life article, “Ontario Cannabis Store Faces Backlash Over Improperly Labeled Products… When Peter Lyon logged on to the OCS website on October 17, he did so with the intention of buying a strain high in THC — the compound in marijuana that gets you high. However, that is not what he got… Not only is the error in the product labeling upsetting for customers who won’t be getting what they paid for, cannabis retailers have a legal obligation to ensure that their labelling is accurate. Otherwise someone looking to unwind with a low-THC strain could wind up having a panic attack because the product they bought is way too potent.”
The first blush of entering a new marketplace deserves branding, labeling and packaging that measure up.
Gary Paulin is Director of Sales and Client Services for Lightning Labels, a Denver-based label printer that has been offering state-of-the-art affordable, full-color custom labels and custom stickers of all shapes and sizes to cannabis purveyors for more than a decade. They offer many options for materials and laminates and special effects to achieve digital short-run requirements (50 minimum) on up to 15 million labels, plus Lightning fast delivery. For more information and to place orders online, visit LightningLabels.com. For the latest in packaging news and labeling promotional offers, find Lightning Labels on, Facebook, Instagram, Twitter (@LightningLabels), Pinterest, Google+ and LinkedIn.
Committee Blog: Transacting in Equity – The Basics
by Charlie Christopher, VP, Finance, Cirrata NCIA’s Finance and Insurance Committee
“A prudent man must seek to satisfy himself about the means to an end. This demands that he must revisit, again and again, the very elemental principles of his craft independent of how others think and act.” – Tony Deden
In businesses of all sizes it is common to transact in a number of currencies other than cash. The focus of this piece is on transactions involving common equity, the most fundamental unit of business ownership. The first section establishes a framework for how to view equity as currency, and what differentiates equity from other mediums of exchange such as cash. The second section introduces the process for creating reasonable projections based on sound logic. The third section demonstrates a somewhat novel application of concepts, and provides an example of the flexibility that can be introduced into the process. The conclusion is a reminder that these concepts can easily be misused, and that nothing should replace common sense when dealing with extreme uncertainty.
The Problem
Valuing any business is hard. Valuing a start-up is even harder still, not because of process, but because of the ambiguity associated with the output. When a valuation is based on multiple layers of high variance variables then the resulting distribution of value is rightfully broad. This poses a major challenge for operators and investors trying to agree on fair terms, and it can lead to irreparable damage to a young company.
Imagine for a second that you, and everyone else, have a crystal ball that can see the future with just enough variance to keep things interesting. How would that change the way you think about your equity? Would you be offering the same equity deals to your entire team? Would you be flexible with investors interested in your business? Of course not, you would look into the future every morning, update your projections and you would transact in equity in a similar manner to how you would with cash. Even though we do not have a crystal ball in the real world, it stands that to transact in equity with absolutely no opinion of value is the equivalent to being indifferent between paying $.10 or $100,000 for the same product or service.
Equity is a form of currency. It has value. However, its value has a built-in variance that rewards beating expectations, and punishes missing expectations. This is why equity awards are typically used to incentivize contributions that can increase the odds of achieving the former. The act of issuing the reward, in theory, immediately increases the value of the firm through the alignment of incentives. The common exaltation of the aforementioned qualitative attributes of the incentive over the quantitative attributes is also why the standard practice of ignoring a non-cash expense like share-based compensation is so indefensible. The value creation may be real, but to deny that a currency has transacted to create that value is to double count the benefit to shareholders.
The Process
Valuing a business begins from the top down and ends from the bottom up. Top down refers to projections based on the broader market while bottom up refers to firm specific capabilities extrapolated into the broader market. A common mistake operators make is to build up based on capabilities with no regard for how the aggregate ecosystem will react to the sum of all fundamental behaviors in the ecosystem. Starting from the top-down with a defensible position regarding both the size of the addressable market and the number of competitors participating in the market provides parameters for the business’s potential revenue.
Arguing for market share using a top-down analysis is fundamentally flawed if it does not reflect the true capacity of the business. A bottom-up analysis reflecting firm-specific capabilities should be compared to the top-down analysis for reasonableness. Ultimately, bottom-up analysis drives operating assumptions, and operating assumptions are the inputs to nearly every valuation technique.
I subscribe to the theory that posits that the variance in all of the assumptions can be quantified using an appropriate discount rate. In other words, if I’m uncertain and find my forecasted outcome to be highly unreliable I may choose to use a much higher discount rate to calculate the present value of the business than for a business with lower variance assumptions. When valuing a start-up company, I consider the corresponding ultra-high discount rate to cloud too much insight. For start-ups I first calculate a probability of firm failure in each of the forecast years and multiply my operating assumptions by the cumulative probability of success, I then use a more reasonable discount rate as if the firm was not highly speculative. This allows start-ups in the seed stage to more easily defend increases in value before launch. For example, the filling of a major executive leadership position justifies a small reduction in the probability of failure. Thus, your first executive hire has a reason to have received a higher percentage equity award than your last hire, even though the dollar value of the award might be equal. The process facilitates fair negotiations among all shareholders who may commit under vastly different circumstances and with different information. All too often this doesn’t take place, and the animosity that can develop as a result is as real as it is avoidable.
Valuation is admittedly more art than science. Many astute readers will point out that markets don’t operate in the orderly, fundamental matter I’ve proposed. Those critics are absolutely correct. It is a fair caution that not only are the trappings of certainty intoxicating, but sometimes simply observing how others are transacting is sufficient to make decisions. The market is often wrong, but it’s also often right. Remember to update your assumptions as new information becomes available.
Charlie is a Co-Founder of Cirrata where he lends his extensive knowledge from being both an entrepreneur as well as a securities analyst. As VP of Finance, Charlie combines his skills to assist clients through the application process, ongoing operations, and exit strategies.
Prior to joining Cirrata, Charlie co-founded a luxury women’s ready-to-wear label where he oversaw two separate rounds of funding as CFO. He has consulted numerous clients in the cannabis, construction, music, financial services and software industries in which his primary focus was on information systems, optimization, cash forecasting, securities offerings, licensing and capital allocation.
Member Spotlight: RoseRyan
In this month’s member spotlight we caught up with Maureen Ryan of RoseRyan, a finance and accounting consulting firm based in Silicon Valley that officially launched its cannabis solutionthis April. Finance is the language of business, and her firm, since 1993, has helped hundreds of companies get their financial house in order, efficiently and effectively, so they can go further, faster. Passionate about women in business and excited for the racial equity that she sees in the cannabis field, Maureen believes her firm’s best practices and proven approach are a match for many emerging growth companies in our field. To learn more about finance fundamentals, tune into our conversation with her colleagues that we hosted on the NCIA podcast on June 12.
Cannabis Industry Sector: Finance & Accounting for emerging growth companies and large enterprises
NCIA Sponsoring Member Since: August 2016
Tell me a bit about your background and why you launched your company?
My career at RoseRyan has mostly centered around the finance needs of fast-moving tech companies. That changed a couple of years ago after working with a cannabis biotech company and loving it. Around the same time, our consulting firm saw signs that recreational cannabis was headed for legalization in California, and it was then that we realized many cannabis companies of all sizes were going to need the kind of professional finance and accounting support that we offer.
Our focus on the high tech and life sciences markets here in Silicon Valley has put us in tune with the needs of companies that move rapidly and that need to work with government agencies to get their products market ready — much like the cannabis industry. We’ve responded with a specialized solution that will take cannabis companies further, faster.
What unique value does your company offer to the cannabis industry?
From working with fast-moving Silicon Valley companies for 25 years now, we’ve been able to apply our expertise and best practices to the cannabis market quickly and easily.
In addition, we know what investors want. Whether they are private equity or venture capital players, investors want a rational strategic plan, timely, reliable and accurate financials and a solid budgeting framework, just to name a few. Given the current cannabis environment with Canada, these expectations have become even more critical for companies to meet.
From working with over 275 life sciences companies through the years, we also know how to relate to government agencies, like the FDA. And from working with over 325 tech companies to date, we have experiences with helping companies scale fast, in a variety of business situations.
In a nutshell, we help cannabis companies get their financial house in order. Finance is the language of business, so companies absolutely need to get it right. No matter where they are in the business lifecycle — when starting up, growing at high velocity, tackling a tricky transaction or maturing as an ongoing enterprise—cannabis companies need to have their finance function tightly managed for ultimate success.
Our Cannabis Solution offers four levels of finance: 1) a rapid diagnostic review, 2) an outsourced CFO and accounting team to strategize and set up all the essential financial systems and processes, 3) partner referrals to build up or build out a trusted ecosystem, and 4) financial prep for potential merger and acquisition transactions.
Is cannabis that much different when it comes to finance and accounting?
Frankly, no. Let’s face it, when companies are starting out, their books are typically a mess, whether you’re talking about cannabis companies or companies in any other industry. Business leaders are typically not focused on their finance operations — they have so many other parts of the business to attend to, and we get that.
Many of the same business situations that happen to tech and life sciences companies are happening to those in the cannabis market. They’re dealing in the early stage with worries about survival and running on fumes, before they’re able to fundraise and determine their top investments for growth. When the business reaches velocity or even hypergrowth, they have careful decisions to make. Opportunities for a major transformation can spring up, like an IPO or a merger or acquisition. Every industry has their nuances, but many of the business situations that CFOs and accounting teams face are similar in nature.
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?
We recognize that women and people of color are heavily involved in this industry, which we love. As a woman-owned business, we support and promote the further advancement of diversity. We also find that working with cannabis companies to professionalize their financial operations helps the entire industry, as it creates a stronger, leveled up playing field for their business interactions. A strong finance function is essential for cannabis companies to raise funds. It’s imperative for their valuation, should an IPO, merger or acquisition transaction arise in the future. Accurate financials and tight operations are a direct reflection on the experience of the management team and, to a larger extent, the industry as a whole.
What kind of challenges do you face in the industry and what solutions would you like to see?
If a cannabis company lacks best practices in their essential finance operations, they’re going to run into trouble when dealing with hypergrowth situations. It happens with founders in every field—they’re passionate about their businesses yet many struggle to keep the business running at today’s standards. This is a challenge for any cannabis company that has blinders on and only seeks advice from other cannabis companies or experts who focus on just one industry.
What’s needed is a crystal clear understanding of the critical aspects of a company’s finances, or strategic decisions will be off-base because they don’t have accurate data on hand. Cannabis companies also risk a slowdown if they’re missing a key partner at a critical time, such as valuation, tax, marketing or legal expertise.
We’d love to see cannabis companies absorb the best practices and talent from other explosive-growth industries that’s tailored to meet their exact needs. No need to pave a new trail when one exists already.
Why did you join NCIA? What’s the best part about being a member?
We joined NCIA to be part of the industry-leading association that is dedicated to the industry’s success. NCIA brings key players together, inspires community, shares best practices and keeps us up to date on the industry trends and news. We also like that NCIA is an active investor in cannabis companies. By being part of NCIA, we can stay informed and play a vital role in this burgeoning industry.
What’s it take to be successful in your business? In addition to the June podcast with NCIA on finance fundamentals with RoseRyan, you can check out the firm’s webinar for California-based businesses here: http://bit.ly/thepotthickens
Member Blog: Common Cannabis Capital Cadence
by Sumit Mehta, CEO of MAZAKALI
NCIA’s Finance and Insurance Committee
Companies often benefit from capital infusions that can help them grow their businesses. When and how much capital to raise is a common question, once that is best addressed by balancing need for cash with dilution of equity. This article outlines typical stages for corporate growth along with potential sources of capital and required documentation along the way.
Common Cannabis Capital Cadence
Introduction
While a business does not need to raise money to be successful, one of the primary reasons businesses fail is that they run out of money. Businesses that do need money to survive or to accelerate growth can benefit from outside capital balanced by the related loss of ownership. Effective capital management is thus crucial to business growth and success.
Access to necessary capital can be a significant challenge, as money is cheapest to borrow when you least need it. Access to liquidity, while difficult in any industry, is even more challenging in the cannabis industry for a myriad of reasons. Despite these challenges, cannabis capital infusions are at an all-time high. Companies are well-served to be focused on ‘capital readiness’ well in advance of their desired capital needs.
The true entrepreneur does more and dreams less
Fail to prepare and you may be preparing to fail. Maintaining focus on cash needs and related documentation at every stage of your business growth is crucial to its ultimate success.
Idea Stage – Founders
A founder collaboration agreement can help lay out a working agreement along with conflict-resolution steps for future disputes. A common stock purchase agreement is a binding contract which highlights basic terms for the sale of shares to founders. This agreement will define the parties, the shares to be sold, the purchase price, the timing and method of payment, and the closing date. A shareholder agreement typically accompanies the stock purchase agreement and highlights shareholder rights, pricing mechanisms, voting arrangements and shareholder privileges and protections.
Documentation: Founder collaboration agreement, common stock purchase agreement, shareholder agreement.
Early Stage – Friends & Family
Friends and family can be some of the easiest sources of capital. They are typically more forgiving about business ups and downs, and having a resourceful network of trusted early investors is a good step towards securing money from future investors. It is common to use convertible notes at this stage, and relevant here are a convertible note purchase agreement along with a board of director consent. The intention of this note is that it converts to equity when the company conducts an equity financing.
Documentation: Convertible note purchase agreement, board of director consent.
Seed Stage – Angel Investors
An angel or seed investor is an affluent individual who provides capital for a business start-up, usually also in exchange for convertible debt. An advantage of this type of financing is that it is less risky than debt financing. In the event of business failure, invested capital does not have to be paid back. In addition to the documentation above, most angels will want to see a business plan and a pitch deck.
While the term ‘Venture Capital’ broadly applies to any capital provided to a venture, it typically describes a structured institutional scenario. Advantages of venture capital include amounts typically larger than angel funding rounds along with valuable information and resources that can contribute to business success. Challenges here include the length and complexity of the diligence process along with the documentation burden as highlighted below.
Documentation: A robust data room that includes the above documents along with a 5-year pro-forma model, cap table, valuation, subscription agreements, stock purchase agreements, incorporation documents & bylaws; and vendor, contractor & employee agreements.
Growth Stage – Private Equity
Private equity investments typically result in either a majority or a substantial minority ownership stake in a company. These generally come with strings attached, which can be wound tightly at times. While private equity offers the opportunity to raise large amounts of capital, it is also often accompanied by a loss of control. In order to amplify returns, private equity firms typically raise a significant amount of debt to introduce leverage into the transaction. This has helped coin the term ‘Leveraged Buyout’.
Documentation: A robust data room as above with PE specific documents that may include supply chain verification, tax and audit, legal reviews, intellectual property opinions and management team background checks.
Final Stage – Public Equity
A substantial increase in liquidity is one of the main advantages of this final stage of liquidity. Other advantages include increasing brand and prestige, attracting employees with a stock option plan, and making acquisitions with company stock. Going public is no easy task and requires a large absorption of new obligations, including filing SEC reports, getting shareholder approval for corporate actions, additional legal liabilities and other regulations as introduced by the Securities Act of 1933 and its many subsequent amendments.
Documentation: In addition to compliance with Regulation FD and Sarbanes-Oxley, filing and reporting requirements include annual reports, quarterly reports, proxy statements and insider holding filings.
Conclusion: A sustained and successful capital cadence raises investor confidence and subsequent recommendations to others. Determining a timeline for liquidity is the cornerstone of capital raise decision-making, and a plan created with financial rigor is useful for management and investors alike. While the preservation of liquidity is of primary importance, this is best balanced by the desire to retain ownership and control. When and how to raise money are amongst the biggest challenges for any business, and preparation is paramount to the capitalization of the arrival of opportunity.
Chance often favors the prepared.
In addition to his role as Founder and CEO at MAZAKALI, Sumit is a consultant to The Arcview Group and the Managing Partner of Emerald Ventures. A frequent speaker at investment seminars, Sumit acts as a mentor to Arcview and Canopy companies and serves on the Canopy Investment committee as well as the NCIA Finance & Insurance committee. Sumit and MAZAKALI support NCIA, the Marijuana Policy Project and Students for Sensible Drug Policy.
Sumit has earned an MBA from the University of Michigan, a BA in Economics with Honors from the University of Texas and currently holds Series 7, 63, 65 and 79 licenses. He resides in San Francisco where he enjoys riding his motorcycle, yoga, and craft beer.
VIDEO: Hear From NCIA Members Why You Should Join The Movement!
With more than 1,700 member companies coming together to share best practices, advocate for our industry, and create community, there’s now more reasons than ever to join the movement by becoming a member of NCIA. We recently spoke with a few of our members to find out what’s most important to them about being part of the National Cannabis Industry Association.
If you are a cannabis business owner, the time is now to join nearly 2,000 of your fellow industry professionals in advocacy, education, and community by becoming a member of your national trade association!
Watch this webinar from 
Martha Ostergar is the marketing content manager at RizePoint, a quality management software company that has helped top brands to digitally manage compliance, quality assurance, corporate social responsibility, and supplier quality management for over 20 years. Visit
Henry Finkelstein
Back with a fresh new look, NCIA’s popular Cannabis Caucus Series are meaningful networking events that pop up in five of the most burgeoning cannabis markets every three months. We launched this event series three years ago as an exclusive opportunity for NCIA members and their guests to connect with each other, learn about regional issues from influential guest speakers and get the latest news about NCIA’s federal policy work 
During last year’s Cannabis Caucus events, more than 1,000 attendees turned out for our 32 events nationwide. This means that although these events are growing increasingly popular, they are still small enough to make meaningful connections with other industry leaders in your region. Instead of just making small talk with someone in passing, you’ll get to to have real conversations with some of the most influential leaders in the industry. Year after year, we hear about people striking business partnerships, friendships and impactful connections at these events because they offer the time, space and opportunity to do so. 
5. They’re fun!
One challenge we face as a member based organization is maintaining and continuing to grow our membership numbers. The quintessential financial sustainability quagmire. Ever changing regulations and market uncertainty has caused reluctance from many small farmers. The Alliance works hard to reinvigorate and provide hope throughout the local cannabis community, but the reality is that there has been a decline in membership. Maintaining and continuing to grow our membership numbers, business sponsorships and financial stability is a constant need in order to continue working for a thriving cannabis industry for our region. 
In the industry’s largest markets, Northern California, Southern California, and Colorado, more than 100 industry professionals turned out at each event. But, perhaps most impressive was the 75 plus attendance in the Midwest, maybe a harbinger of the positive momentum garnered by 
The Southwest event featured Ryan Black, Campaign Co-Chair for Anita Malik, Candidate for Arizona’s Congressional District 6, discussing federal cannabis reform. Lastly, in the Pacific Northwest, Lara Kaminsky, Executive Director of The Cannabis Alliance (an 
My career at RoseRyan has mostly centered around the finance needs of fast-moving tech companies. That changed a couple of years ago after working with a cannabis biotech company and loving it. Around the same time, our consulting firm saw signs that recreational cannabis was headed for legalization in California, and it was then that we realized many cannabis companies of all sizes were going to need the kind of professional finance and accounting support that we offer.
Frankly, no. Let’s face it, when companies are starting out, their books are typically a mess, whether you’re talking about cannabis companies or companies in any other industry. Business leaders are typically not focused on their finance operations — they have so many other parts of the business to attend to, and we get that.
