Committee Blog: National and International Standards & Regulatory Bodies Relevant to the Cannabis Industry
by NCIA’s Facilities Design Committee
The cannabis industry benefits from the accumulated knowledge and established standards developed by many of the organizations listed here. Understanding the regulatory ecosystem is essential for cannabis operators as well as for those who strive to shape the regulatory future of the cannabis industry.
Listed below are some of the major regulatory bodies and standards agencies that have some relevance to the cannabis industry.
The American Herbal Products Association (AHPA) was founded in 1982 to promote the responsible commerce of herbal products to ensure that consumers continue to enjoy informed access to a wide variety of herbal goods. Their seminal Herbs of Commerce (HoC) (first published in 1992) was officially incorporated by the US Federal Government into the Code of Regulations (21 CFR 101.4) establishing consistent naming of botanical ingredients for dietary supplements. With precedent for federal recognition, their active Cannabis Committee is actively paving the path for safe and consistent use of cannabis products.
The American Society of Agricultural and Biological Engineers (ASABE) is an educational and scientific organization dedicated to the advancement of engineering applicable to agricultural, food, and biological systems. ASABE develops standards through its standards committees. Relevant cannabis committees include:
ES-300 Energy Utilization & Application: Leads and coordinates the activities of ASABE in matters related to electro-technology as related to agriculture energy efficiency, electrical wiring systems, and electrical utility programs.
ES-310 Ag Lighting Group: Leads and coordinates the activities of ASABE in matters related to agricultural lighting systems (combined with ES-311 Electromagnetic Radiation Application for Plants)
The ASABE Standards Committee ES-311 X644 Working Group is developing Draft Standard ASABE X644 Performance Measures of Electromagnetic Radiation Systems for Plants.
ASABE Plants, Animals, and Facilities Systems (PAFS) Technical Community is working with ASHRAE (through its Plant and Animal Environment technical committee) to develop x653 related to HVAC and lighting for indoor plant growth without sunlight.
American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE) is a professional organization seeking to advance HVACR systems and design.
The ASHRAE Multidisciplinary Task Group coordinates technical activities related to the design of indoor plant production facilities and their HVAC&R systems and considers deliverables created by Technical Committees like:
Technical Committee 2.2 on Plant and Animal Environment (concerned with the relationships of environmental conditions and the growth, health, and reproduction of plants and animals).
Link to standards relevant to cannabis production:
Established in 1898, ASTM International formerly known as the American Society for Testing and Materials is a globally recognized leader in the development and delivery of voluntary consensus standards. Working in an open and transparent process and using ASTM’s advanced IT infrastructure, our members create the test methods, specifications, classifications, guides, and practices that support industries and governments worldwide. ASTM Committee D37 on Cannabis has 1,000 stakeholders from 30 countries working together to advance the industry by addressing quality and safety through consensus standards.
Examples of standards that have already been approved for the cannabis industry use include:
D8250 Standard Practice for Applying a Hazard Analysis Critical Control Points (HACCP) System for Cannabis Consumable Products
D8222 Standard Guide for Establishing a Quality Management System (QMS) for Consumer Use of Cannabis/Hemp Products
D8197 Standard Specification for Maintaining Acceptable Water Activity (aw) Range (0.55 to 0.65) for Dry Cannabis Flower Intended for Human/Animal Use
The Design Lights Consortium (DLC) is a non-profit organization that promotes high-quality lighting solutions in collaboration with utilities and others and establishes standards for different lighting types.
The European Hygienic Engineering & Design Group (EHEDG) was founded in 1989 as a non-profit consortium of equipment manufacturers, food producers, suppliers to the food industry, research institutes and universities, public health authorities, and governmental organizations.
The EHEDG mission is defined as:
“Raise awareness of hygienic engineering, develop guidance and solutions, and provide a platform to promote EHEDG expertise that facilitates networking between hygienic engineering experts from around the world.”
EHEDG actively supports European legislation, which requires that handling, preparation processing, and packaging of food is done hygienically using hygienic machinery and in hygienic premises according to the food hygiene directive, the machinery directive, and the food contact materials directive (see EC Directive 2006/42/EC for Machinery, EN 1672-2 and EN ISO 14159 on Hygiene requirements for the design of machinery). While EHEDG is European Initiative, the EHEDG Certification Logo is becoming more widely seen on food processing equipment sold in the US as a product differentiator, offering assurances of sanitary design, cleanability, sterilizability, and bacterial tightness. It is considered more stringent than other stamps or marks. Auditors or Regulators who might be inspecting a cannabis facility, if they understood this Certification Logo, should have an impression that the operator has invested in more hygienic equipment.
ENERGY STAR® is the government-backed symbol for energy efficiency. With oversight from the Environmental Protection Agency, this program certifies the energy usage and energy efficiency of products, homes, buildings, and industrial plants. By using a common set of metrics objectively applied across categories, companies and end-users can make comparative decisions based on energy efficiency.
In many localities, the use of ENERGY STAR® certified products or achieving certification for a building or industrial plant may qualify for rebates from local utility companies. Cannabis company eligibility to participate in these programs will vary depending on local laws, products in use, and rebates offered by local utility companies.
Founded by Thomas Edison in 1896 as the Lamp Testing Bureau and renamed to the Electrical Testing Laboratories (ETL) in 1904, ETL certifications demonstrate compliance to the requirements of widely accepted product safety standards, as determined through independent testing and periodic follow-up inspections by a Nationally Recognized Testing Laboratory (NRTL). The company is now known as Intertek.
The ETL Listed Mark indicates to distributors, retailers, and customers that a product has been tested by Intertek and found in compliance with accepted national standards. Acceptance of ETL certification varies by locality though it is widely recognized across the United States and Canada.
The U.S. Food and Drug Administration (FDA) oversees the safety of all food, drugs, medical devices, and cosmetics in the United States through the Federal Food, Drug, and Cosmetic Act of 1938. Despite the current status of cannabis as a Schedule I controlled substance, the guidance provided for analogous products, particularly current Good Manufacturing Practices (cGMPs) align with global best practices that industry can follow to ensure product quality and integrity as well as prepare for potential federal legalization. Resources on the current approval process and research pathways have been published by the FDA on their page: What you need to know about cannabis compounds, CBD, cannabidiol, products containing cannabis, scientific data, development & approval process, and much more!
Some states require compliance with The FDA Food Code in their cannabis regulations, but some reference 2013, some 2017. The next issue is expected in 2021. Be aware that The Food Code is for retail and foodservice segments of the industry. Many in the cannabis sector anticipate that when Cannabis is legalized at the federal level, FDA will apply the regulatory approach suitable to manufacturing, such as:
21 CFR 111 Current Good Manufacturing Practice in Manufacturing, Packaging, Labeling, or Holding Operations for Dietary Supplements
21 CFR 117 Current Good Manufacturing Practice, Hazard Analysis, and Risk-Based Preventive Controls for Human Food
This is a very complex topic, and depending on how the sector for THC and CBD products evolve and how the products are sold and labeled. Other regulations may become relevant, such as:
21 CFR 211 Current Good Manufacturing Practice for Finished Pharmaceuticals.
The Global Food Safety Initiative (GFSI) is a private organization that oversees and approves different auditing platforms as meeting their criteria for safe food processing. This criterion provides a universal gold-standard of recognition to specific food safety audits. There are currently 10 global GFSI schemes that can award certifications. Cannabis eligibility for certification varies based on scheme and jurisdiction. Some states are requiring a GMP audit, “such as GFSI” in their cannabis regulations.
GLOBALG.A.P is a globally-recognized certification program that began as EUREGAP in 1997 to help the supermarkets in Europe address consumer concerns about the safety of agricultural practices and products. GLOBALG.A.P. is the world’s leading farm assurance program, with over 100 countries following the requirements of Good Agricultural Practices (G.A.P.). It focuses on globally accepted criteria for food safety, sustainable production methods, worker and animal welfare, and the responsible use of resources such as water, compound feed, and plant propagation materials. As of 2020, they have begun a feasibility assessment of bringing their G.A.P certification program to the cannabis industry. Cannabis and hemp businesses that are focused on cultivation of the plant would greatly benefit from incorporating these global best practices into their operation.
The Illuminating Engineering Society (IES) is a community of lighting experts seeking to improve the lighted environment by bringing together those with lighting knowledge and by translating that knowledge into actions that benefit the public.
The IES Horticultural Lighting Technical Committee researches and develops best practices for horticultural lighting using climate-based annual daylighting and electric lighting with lighting and shading controls, with a focus on greenhouses, vertical farms (plant factories), and building atria.
The committee produces Recommended Practices documents, including one for professional lighting designers who are tasked with horticultural lighting.
The International Organization for Standards (ISO) is an independent, non-governmental international organization with a membership of 165 national standards bodies that was established in 1946. Today, it has nearly 800 technical committees and subcommittees that manage the standards development process.
ISO standards focus on the business management of an organization and how information and data are reported and responded to. Some of the most common ISO standards relevant to the cannabis space are:
ISO/IEC 17025 – General Requirements for the competence of testing and calibration laboratories
The National Sanitation Foundation (NSF) originally brought together key stakeholders back in the 1940s to develop the first consensus standards for restaurant equipment sanitation. Public health inspectors liked what they saw, and began requiring product certification to NSF/ANSI standards. Currently, many states approach cannabis regulation from a foodservice perspective and the NSF Mark is desirable for equipment in the Cannabis processing room, such as sinks, rolling stock, dishwashers, and if available for cooking and packaging equipment. Even when cannabis is legalized at the federal level and the FDA regulates following Food Safety Modernization Act regulations from 21 CFR, the NSF Mark will continue to provide assurances of the sanitary design of much of the equipment used to produce Marijuana Infused Products (MIPS) However, after federal legalization, Certifications from the manufacturing perspective, such as 3-A or EHEDG, will become, most likely, more relevant.
With the Occupational Safety and Health Act of 1970, Congress created OSHA, the Occupational Safety and Health Administration, to assure safe and healthful working conditions for all workers by setting and enforcing standards. Additionally, OSHA provides training, outreach, education, and assistance. With steep fines that can exceed $50,000 for repeat violations, this commonly overlooked agency actively inspects cannabis facilities in all states. A free Guide to Worker Safety and Health in the Marijuana Industry was developed by a State of Colorado workgroup that cannabis businesses, regardless of state, can utilize.
Resource Innovation Institute is a non-profit research and advocacy organization providing guidance and data for cultivators and their project partners to use to optimize facilities for efficiency and productivity.
Cannabis PowerScore, RII’s resource benchmarking tool, is both a voluntary performance ranking system and in some jurisdictions where benchmarking is required PowerScore is also specified as a way to report energy and water information to regulators.
UL LLC (formerly known as Underwriters Laboratories) is a global safety certification company approved by the Office of Occupational Safety and Health Administration (OSHA) as a Nationally Recognized Testing Laboratory (NRTL).
The UL Listed seal means that the product has been tested by UL to nationally recognized safety and sustainability standards. Additionally, it has been found to be free from a reasonably foreseeable risk of fire, electric shock in a Division 2 environment.
U.S. Department of Agriculture (USDA) has had a significant impact on the cannabis sector through the 2018 Farm Bill, which provided authorization for the USDA to oversee the cultivation of cannabis containing no more than 0.3% THC (i.e. hemp / CBD biomass).
Additionally, the USDA would most likely be involved after legalization if Cannabis producers decided to launch Cannabis-infused meat products. So far this has not happened and the regulatory impact would be difficult to anticipate.
The U.S. Green Building Council (USGBC) is a non-profit organization that promotes high-performance buildings through the creation of voluntary certification systems for projects and credentialing programs for professionals.
The third-party green building certification Leadership in Energy and Environmental Design (LEED), is the most widely used green building rating system for commercial buildings.
The Green Business Certification Inc (GBCI), implements the LEED Accredited Professional (LEED-AP) program to support the construction of LEED-certified buildings.
The US Pharmacopeia, formed in 1820, is an independent, scientific, nonprofit public health organization devoted to improving health through the development of public standards for medicines, food ingredients, and dietary supplements, and related programs. Over 150 countries recognize the standards set by the USP, with more than 40 integrating USP standards into law. The USP formed a Cannabis Expert Panel in 2016 to support the industry with data-driven recommendations on cannabis quality attributes for human use. The 2020 paper on Cannabis Inflorescence for Medical Purposes: USP Considerations for Quality Attributes (Sarma et al., 2020) is available for download.
The International WELL Building Institute™ (IWBI™) has created the WELL Building Standard is a standardized metric for buildings, interior spaces, and communities seeking to implement, validate, and measure features that support and advance human health and wellness.
WELL was developed by integrating scientific and medical research and literature on environmental health, behavioral factors, health outcomes, and demographic risk factors that affect health with leading practices in building design, construction, and management.
Indoor cannabis cultivation facilities are complex environments, where a large number of variables interact to create an ideal ecosystem to grow cannabis. The upside of an indoor facility is it allows a year-long growing climate, optimized for each stage of the plant grow cycle. The downside, however, is creating this ideal climate is very energy-intensive.
The total energy costs for indoor cannabis grow operations typically vary between 20%-50% of total operating costs (approximately 120-150 kWh/sq.ft). In comparison, energy use in a typical commercial building environment is approximately 25 kWh/sq. ft. As indoor cultivation facilities increase, they can be a source of strain on electrical grids. A recent study showed indoor cannabis cultivation alone accounted for 4% of the energy grid usage in Denver. (IEEE, 2020)
With that context, any areas we can identify to improve energy efficiencies without introducing a negative impact to the grow environment can have enormous bottom-line impacts for cultivation owners and society at large.
In this article, we are going to be examining two ways we can optimize HVACD systems to improve energy efficiency. When HVACD systems are designed for grow facilities, the primary variables we are looking to influence are the following psychrometric properties: temperature (either wet or dry bulb) and relative humidity. Mechanical engineers will often refer to an information-packed graph called a psychrometric chart shown below.
This chart helps to visualize the relationships different properties of air like temperature, humidity (relative and absolute) and dew points along the saturation curve have with each other. This is useful to analyze, as these are direct inputs to a scientific measure often favored by growers called Vapor Pressure Deficit (VPD).
Vapor Pressure Deficit, simply described, compares these variables to determine how much additional room for water vapor there is in the air. This is important as it determines how well cannabis plants can transpire. Controlling transpiration rates help to aid in healthy, robust growth through the plant life cycle. Growers tend to want lower VPD, and thus lower transpiration, early in plant maturity, and increase to higher VPDs, and thus high transpiration, at the flowering stage before harvesting.
So we know a successful indoor cultivation facility HVAC system will need to control temperature and humidity to ensure the desired VPD values. How can we do that efficiently?
Stand-Alone Dehumidifiers Are Inefficient
A cannabis plant can transpire up to 99% of the water absorbed through its roots. Due to this, we often tell people that designing an Indoor Cultivation Facility is like designing a Data Center with a swimming pool inside. Because of the increased humidity introduced from plant transpiration, we must pay special attention to dehumidification strategies within the grow space. Humid air requires treating significant latent loads in the grow space, requiring additional energy to remove moisture from the airstream. This is one reason HVACD systems can consume up to 50% of the energy budget in a cultivation facility. As previously mentioned, higher humidity levels will lower the VPD in the room, preventing a plant from transpiring effectively to continue healthy growth. To combat this, sometimes stand-alone dehumidifiers are added into the grow room.
While these units can do the job of removing moisture from the room, it is a very energy-intensive process. One of the issues with stand-alone dehumidifiers is that they reject heat back into the grow room, thereby adding additional cooling load onto the main HVAC equipment.
Integral Hot Gas Bypass System
An air handling unit, sometimes called an air handler or AHU, is a piece of equipment that is used to condition and circulate air as a component of a heating, ventilating, and air conditioning system.
The air handler is usually a large metal box that contains a blower, heating and cooling elements, filter chambers, sound attenuators, and dampers. It then connects to ductwork that distributes the conditioned air throughout the space before returning it back to the AHU.
Of particular interest are the units cooling coil and reheat coil. These two components are namely responsible for controlling VPD levels in our grow space. In an Integral Hot Gas Reheat AHU, the cooling coil serves as a dehumidifier, by cooling the air thereby reducing its moisture/latent load (we highly recommend capturing this water for treatment and reuse: read more here). The hot gas reheat capability utilizes heat from grow space and compressor heat to reheat the air before returning to the grow space (without using additional heating energy).
While this may seem like a minor design change, it results in a considerable reduction in energy. As the chart below illustrates, leveraging the Integral Hot Gas Bypass AHU units can result in a 30-35% reduction in HVACD energy when compared with other dehumidification systems. Additional automation capabilities built-into these systems will ensure that the grow room will remain tightly controlled within the desired state points of your grow room to optimize VPD.
This reduction in energy quickly adds up to reduced utility bills. Despite marginally higher upfront costs as compared to standard HVAC equipment coupled with standalone dehumidifiers, this option results in a lower 5-year system cost than common HVACD systems installed in cultivation facilities, and these savings will only increase over time.
Maintaining Consistent VPD, but at higher Temperature / Humidity Ranges
The second energy-saving measure we would like to discuss goes back to the earlier discussion of VPD. Recall the equation for VPD is
V P sat – V P air = VPD
This is important, as it provides growers the flexibility to fall within desired VPD ranges, but at higher temperature and humidity ranges than typically used. Many growers target maximum temperatures around 70-75F and limit relative humidity to a maximum of 50 percent, but by allowing slightly higher maximum room temperatures of 75-80F, with corresponding relative humidity increases, we can create identical VPDs. The cost-benefit of this small adjustment is considerable. The HVAC system (including cooling and dehumidification) can be sized at roughly 20-30% smaller capacity, reducing the grower’s up-front equipment costs. In addition, the system’s energy consumption and costs during operations will be significantly lower, to the tune of 30-40%. In a theoretical 30,000 square foot facility, this could result in a $1,300,000 savings in the first 5 years.
Jason Magnuson is the Director of Business Development at mintropy. Mintropy is an MEP (Mechanical, Electrical, Plumbing) Engineering Design firm, with a focus on Indoor Cultivation Facility and Dispensary design. At mintropy, we strive to minimize entropy (minimize disorder) in building systems, by creating innovative and efficient designs to meet our client’s needs. For assistance in your cultivation facility, be it auditing/upgrading existing systems or designing new, reach out to us today.
Spring Update from Capitol Hill – SAFE Banking, the MORE Act, and Appropriations
Photo By CannabisCamera.com
by Michelle Rutter Friberg, NCIA’s Deputy Director of Government Relations
It’s hard to believe that somehow it’s March again, but all the while, the NCIA team in D.C. has been hard at work lobbying and advocating on behalf of you and your business. Things are really beginning to warm up and spring into action, so keep reading below for a quick update on where things are at with SAFE Banking, comprehensive reform, appropriations, and more!
SAFE Banking
Bill reintroductions in both chambers have been off to a slow start. Between a new session, most people still working remotely, a delayed organizing resolution in the Senate, and a somewhat contentious COVID relief package that’s finallypassed, members of Congress and their staff have been incrediblybusy. But, now that that’s all behind us, I’d suggest preparing for many cannabis bills to be introduced soon.
Specifically, you can expect the reintroduction of the SAFE Banking Act to happen in both the House of Representatives and the Senate within the next couple of weeks. When the bill was introduced in the House during the 116th Congress, it had over 100 cosponsors. In the Senate, it was introduced with more than 20 — that’s more than a fifth of the entire chamber! The bill later went on to be passed by the entire House of Representatives in September 2019 by a vote of 321-103.
You’ll remember that the SAFE Banking Act addresses urgent public safety concerns by allowing tightly regulated marijuana businesses the ability to access the banking system and make our communities safer. The bill also provides protections from money laundering laws for any proceeds derived from these state-legal marijuana businesses. The bill also includes the Financial Institution Customer Protection Act and protections for hemp and hemp-derived CBD-related businesses, which sometimes still struggle in accessing financial services despite the legalization of hemp in the 2018 Farm Bill.
Don’t expect any big changes, however — the bill this Congress includes minor technical changes to the safe harbor language, strengthened hemp provisions, and other technical updates.
Comprehensive Reform
While SAFE Banking’s timeline is clear, the same can’t completely be said for more comprehensive reform. When I say comprehensive reform, I’m talking specifically about bills that would remove marijuana from the Controlled Substances Act like the MORE Act and the upcoming Schumer-Booker-Wyden bill.
In the House, we are continuing to work with various committees and members to determine the best path forward for the MORE Act and what changes should be made. I wouldn’t be surprised if that bill gets reintroduced sometime this spring, but the process is truly still in flux, so I also wouldn’t be surprised if it was postponed awhile. This will be determined by the lead sponsors’ offices and also by the congressional calendar and how various bills/issues move through the legislative process.
In the Senate, we’re excited to be working with Leader Schumer (D-NY) and Sens. Booker (D-NJ) and Wyden (D-OR) on their new cannabis bill. That bill will draw heavily on provisions from the MORE Act, but will also include expanded language on taxation and smart regulations. Now that the COVID relief bill has passed into law, I think we can expect to see their bill be introduced sometime in the near future.
You’ll also remember that NCIA was one of two industry trade associations invited to the initial meeting with those Senators to discuss this new bill. We’re looking forward to their discussion draft and offering our thoughts.
Appropriations
It’s spring, which means it’s appropriations season here in D.C.! These bills are legislation that “appropriates,” or sets aside, federal funds to be divided between specific federal government departments, agencies, and programs. For a refresh on the history of appropriations, click here, or, if you’re interested in how these provisions relate to cannabis, click here.
While the appropriations amendment that protects medical cannabis businesses, patients, and programs has been in law since 2014, we’ve had difficulty expanding those provisions and passing new cannabis-related amendments due to the formerly-Republican controlled Senate. However, now that Democrats control both houses of Congress, we’re excited to go back to the drawing board and get creative with the appropriations process to help provide some certainty and relief to the cannabis industry.
We’ll be looking at amendments pertaining to adult-use cannabis programs, banking, veterans access, allowing Washington, D.C. to finally implement a functioning 21+ cannabis program — and that’s just scratching the surface!
All of this is to say: things are really springing into action in D.C.! Prepare for many cannabis bills to begin getting reintroduced, and remember that the appropriations process takes months, so stay tuned via our blog, newsletter, NCIA Connect, and the new NCIA Mobile App to remain in the loop and get involved!
Member Blog: Is 2021 the Year that Brings Normalcy to Cannabis?
Thanks to Democracy and the grassroots efforts of cannabis advocates from coast to coast, there are now 15 holes in the cannabis prohibition wall (legal states), and 36 cracks (medicinal programs). So when will that wall come down and how fast? More importantly, what will the industry look like when the dust settles?
Over the past few weeks, cannabis media pundits from all over the world have chimed in with their predictions for 2021. (Some even pontificated before knowing the results of the Georgia State runoffs in the Senate.)
With President Joe Biden now in the White House and the Democrats controlling both houses of Congress, cannabis advocates are wondering when, and if, we will see federal legalization of cannabis in 2021. Will it succeed or will our dutifully elected politicians do something that will derail the will of the people during this Green Wave of reform?
Already, a Republican congressman from Florida, Greg Steube, decided to file the first draft of reform to a committee that will move cannabis from schedule 1 to schedule 3 on the Department of Justice list of “controlled substances.”
But for many, this does not go far enough. I recently interviewed the Media Relations Director of NCIA, Morgan Fox, who told me, “It’s not something the NCIA or other Cannabis advocacy groups is going to support….we are all focused on de-scheduling, (this draft) it just doesn’t go far enough.”
So what position are lobbyists in Washington, D.C. taking now that their arguments for reform may find a more supportive group to talk to? What is the best thing for the industry? What’s the right thing to do?
I also interviewed Michael Correia, the Director of Government Relations for NCIA, who explained that the target should be for full legalization, but that at the heart of the issue, there is something more important that needs to be dealt with – racism. In my interview with him, he said, “…let’s just stop arresting people for this. Stop arresting people in this war on drugs so no one’s lives are ruined because they’re consuming a natural plant, that 30 plus states have said, Hey, we’re okay with this. There shouldn’t be these differences. So just stopping, arresting these people, and then worrying about what’s the next step?”
Why does he feel so strongly about this? The evidence is overwhelming that law enforcement has used simple possession as a profiling tool to fill our privately run prisons with black and brown people over mere cannabis possession. “The vast majority of these arrests (92%) were for simple possession of the drug. 500,395 of [the 545,602] arrested for cannabis [crimes] were simply found [to be] in possession of cannabis.”
So are you convinced now that cannabis, a plant, is not illegal because it is considered a drug, but rather because of a racist system and the fact it can be used as a means to profile and jail black and brown people? Do you want more evidence of the racial bias in cannabis arrests? Check out this 2020 report on the racial makeup of those simple possession “crimes.”
This is despite both groups use cannabis at similar rates.
Even in western states with recreational cannabis laws, black people were 1.5-1.8% more likely to be arrested for having cannabis.”Emily Earlenbaugh, Forbes
So what’s the 2021 plan for lobbyists, policymakers, and elected officials? What exactly does this industry look like if one of the following changes happens in the next year or two?
Cole Memo reinstated
SAFE Banking
Rescheduling
De-scheduling
The MORE Act
Science and Research Grants
Each one of those changes is not only positive for this young industry but will have a ripple effect that will impact other industries. The trickle-down effect for any of these changes being implemented will impact the private prison system, banking, and financial markets, big alcohol, big pharma, social equity, expungement of past convictions, interstate commerce, and the international markets.
The cannabis lobbyists know that with Democrats in charge of the direction of the Congress over the next two years, this is their opportunity for serious reform. After all, the House passed a legalization bill, the MORE Act, in December of 2020. In 2019, the previous year, the SAFE Banking Act was also approved by the House, but neither even got to the floor of the Senate because of the then-Majority Leader Mitch McConnell’s anti-marijuana stance.
2021 is now upon us, and “grown-ups are now back in charge in D.C.” However, many advocates I’ve talked with are understandably wary and skeptical about the Federal Government dictating governance of this industry if cannabis is federally legalized and falls under the control of the alcohol and Beverage Commission.
Most cannabis advocates can at least agree that cannabis should be removed from the schedule that was created by the Controlled Substances Act in 1971. This change alone would allow banks to do business with the cannabis industry and allow for the removal of the restrictive 280E tax code that has limited the profit margins of already existing businesses.
Here are some links to other predictions from leading media sources about what cannabis reform democratic control of Congress may lead to:
So after reading all this information, here’s what I think will happen over the next four years.
First Year: Cannabis gets removed from the Controlled Substances Act schedule
Second Year:Decriminalization and expungement of cannabis possession crimes with banking reform
Third Year: Interstate commerce
Fourth Year: Full Federal legalization, international export markets open
It’s 2021, the year of the cannabis plant as a political issue is here and reform is as pungent as the odor of this amazing plant. Stay tuned, this will be an ongoing theme in D.C. politics this year as we all hopefully witness another chapter in the historic end to prohibition.
Jimmy Young is the founder of Pro Cannabis Media. An Emmy Award-winning talk show host from New England, and a resident of Massachusetts who holds a medical card after 4 major surgeries in 22 years.
The founder of Pro Cannabis Media is the current host of In The Weeds with Jimmy Young, a weekly podcast distributed over the CLNSMedia.com, site, iTunes, Spotify, Googlecast among others. In July of 2019, he teamed up with the founder of Cannabis.net, Curt Dalton, to host a two hour live monthly Weed Talk Show where the two Massachusetts natives have interviewed some of the biggest names in Cannabis, like Steve DeAngelo, Bruce Linton, and Tommy Chong. Locally local cannabis advocates and representatives from the medical establishment in the Bay State have all appeared on that show that is now being distributed nationwide. Young also produces a weekly news video, called News Dabs, highlighting and commenting on the biggest stories around the world in the emerging cannabis universe.
Committee Blog: Future-Proofing Your Business – 2021 Series Premier
The future is coming and the cannabis (marijuana and hemp) industry is uniquely positioned to offer innovative approaches to best management practices in its manufacturing sector. In 2021, the National Cannabis Industry Association’s Cannabis Manufacturing Committee formed a new group focused on addressing sustainable practices, legal protections, and policy considerations to future-proof your cannabis manufacturing business. The series, Future-Proofing Your Business, will consist of blogs, podcasts, and expert panel discussions focused on providing insight into the coming regulations, processes, facilities, and consumable products.
Extracts
With the coming vaping emissions and vape product potency regulations, the Future Proofing subcommittee will offer their expertise on what to expect and what manufacturers can do to support compliance and help protect the environment and public health. The outbreak of vaping-related respiratory illness in late 2019 demonstrated the damage a few bad actors can do in a marketplace where regulated and unregulated producers compete for consumer dollars. The committee will discuss these issues and more as manufacturers and regulators work together proactively to protect consumer health.
Processes
Manufacturing processes are evolving as the scientific understanding of cannabis consumables and their various effects and treatments deepens. In their efforts to protect environmental and worker health both inside and outside of the processing area, manufacturing best practices are changing. Regulators are also beginning to determine the standardization of these various processes in an effort to retain product quality without jeopardizing human and environmental health and safety. And new forms of competition will demand an increased focus on protecting intellectual assets. This second part of the Future-Proofing Your Business series will unpack sustainable manufacturing process design including software, equipment, and materials offering recommendations for regulatory approaches.
Facilities
Building on the processes deployed in the future of manufacturing cannabis (marijuana and hemp) products, facilities will also need to consider more efficient design strategies to reduce the use of energy & waste, increase product safety, and safeguard worker and community health. The rapid pace of energy efficiency technologies development for all utilities means most industries, not just cannabis, are playing catch up. Automation is redefining the best practices surrounding product and employee safety. Increasingly stringent testing standards are demanding greater care for waste and community health. The committee will offer their insights into the technologies and practices that are becoming popular in this multi-industry-wide push for sustainability.
Biosynthetic Manufacturing
The final topic to be addressed by the new Future-Proofing subcommittee in their 2021 series, will take a detailed look into the future of manufacturing techniques, specifically the use of biosynthetic manufacturing and how this will impact the industry. Tune in to learn more about bioreactors and their application for the concentrate market and genetic modification to cannabis (marijuana and hemp) consumable products.
Prepare to check out the first part of this integral Future-Proofing Your Business series brought to you by the Cannabis Manufacturing Committee.
Coming, February 2021.
Member Blog: Hemp Production, Testing, and the FDA
The new U.S. Domestic Hemp Program will approve cultivation plans issued by states and Indian Tribes and can approve plans submitted by producers that live in a state or Tribe where plans are not already submitted and where hemp production is not forbidden. According to the USDA website, 28 states and Puerto Rico and U.S. Virgin Islands have had their hemp plans approved by the USDA, 11 states have plans under review, 5 states have obtained a license from USDA, 5 are electing to continue under the 2014 Hemp Pilot Program, Colorado is resubmitting their plan, Alaska is drafting their plan, and Idaho is awaiting state legislation. What is surprising is that some of the biggest hemp growing states, such as Montana (44,910 acres), Colorado (20,330 acres) and Kentucky (18,910 acres) do not yet have their plans approved by the USDA. Montana is choosing to operate under the 2014 Hemp Pilot Program, Colorado is resubmitting their plan to USDA and Kentucky’s plan is still under review.
While there has been a rush to plant hemp by farmers eager to cultivate a high-priced crop with enormous demand, there has not been the same rush to set up extraction facilities. This is a critical step for the manufacture of cannabidiol (CBD) raw material. Hemp must be dried properly before extraction or it will rot so cultivating a plant that is susceptible to rot without an assigned material manufacturer (extractor) is risky. The impact of the differences between hemp and typical crop cultivation for farmers and the lack of extraction companies has been disastrous for some farmers. Hemp must be monitored for THC levels as the crop grows because any hemp harvested with an amount of THC over 0.3% must be destroyed. This is completely different from soy or cotton cultivation. And when the cost of clones to plant in a large field is included, the potential loss increases dramatically.
Then there are the Food and Drug Administration (FDA) hemp/CBD product issues. While there has been positive movement towards the legal sale of hemp products on the USDA cultivation side, the FDA has authority over foods and dietary supplements, and the FDA’s position is that the addition of hemp/CBD to a food or dietary supplement is “violative.” There is speculation that dietary supplement FDA rules are imminent but until the FDA makes those rules public, sales of finished product is still illegal.
In a Consumer Update statement revised on November 25, 2019 the FDA clearly stated that “it cannot conclude that CBD is generally recognized as safe (GRAS) among qualified experts for its use in human or animal food.” Numerous warning letters have been issued by FDA to CBD manufacturers for disease claims about their products. Whether sold as dietary supplements, conventional foods, cosmetics, animal food, so of the violative disease claims include pain relief, anti-inflammatory, diabetes, acne, anxiety, depression, and cancer. For example, one Warning Letter issued by FDA on November 22, 2019, cites 45 diseases. FDA has stated that CBD in products sold as dietary supplements does not meet the definition of a dietary ingredient in the Federal Food, Drug, and Cosmetic Act (321(ff)(B)(i)(ii)). This provision clarifies that a dietary ingredient cannot be a substance that has been approved as an active ingredient in a drug. FDA has approved CBD as an active pharmaceutical ingredient in the drug Epidiolex. Although the FDA is only taking enforcement action on companies making products that contain disease claims, once the disease claim is made the FDA will cite other regulatory enforcement issues. Companies not making disease claims have not been targeted for enforcement yet. Several states, including New York and Oregon, are following the FDA’s lead by banning some products containing CBD, mostly infused food.
In addition to these challenges, there have been a series of class-action lawsuits filed against hemp/CBD manufacturers. These are based on the fact that the FDA has stated hemp and CBD is illegal in food and dietary supplements. The lawsuits claim the plaintiffs suffered economic loss because the products were not dietary supplements according to the FDA. The 11th Circuit Court of Appeals is allowing the consumer injury requirement necessary to sustain a complaint to be satisfied by the allegation that an FDA product is “illegal.” This ruling may open the floodgates for more class-action lawsuits.
All testing of hemp must be performed by a laboratory with a Drug Enforcement Agency (DEA) license. This is because hemp that does not meet the less than 0.3% tetrahydrocannabinol (THC) does not fall under the industrial hemp definition and is still under the jurisdiction of the DEA. A list of U.S.-based licensed laboratories is available on the DEA website and also on the USDA website. Pesticide screening is one of the tests dictated for hemp in the US Domestic Hemp Program. Ten pesticides have been approved for use on hemp by the Environmental Protection Agency (EPA). The latter is a notable step since the EPA could not do this before the removal of hemp from The Controlled Substances Act. Nine of the allowed pesticides are biopesticides and one is a conventional pesticide.
Then there is the matter of CBD as either a full-spectrum oil vs. an isolate. Unlike marijuana flower which is a very popular product, hemp flower is very rarely sold at the retail level. Full-spectrum oil is extracted from the plant, and depending on the solvent used, produces an oil with the same, or close to the same, naturally occurring chemicals from the plant. The oil, therefore, includes all the cannabinoids present along with any terpenes, lipids, or other compounds present in the plant. Full-spectrum oil is a botanical extract and is a dark thick oil. Isolate is produced by separating the constituents of the full spectrum oil by molecular weights or boiling points to have very pure chemicals in the 95%+ purity range. CBD isolate is a white crystalline substance and bears the greatest resemblance to synthetic raw material and at its purest form cannot be distinguished as coming from a plant in the dirt or a synthesized chemical. Full-spectrum oil bears the greatest resemblance to a botanical dietary supplement. It remains to be seen what the FDA will allow in the future.
I believe in this industry and I am rooting for the pioneers who have taken all the risk thus far, but am concerned about the lack of understanding over FDA’s authority particularly as this industry aims to transition to a regulated future. Most don’t understand FDA’s purview or don’t think it applies to them or their products. When that day comes, bringing the hemp industry into compliance with federal regulations will be challenging.
Hemp pioneers deserve to benefit from their labor and the risk they have taken. For those hemp product companies that do not think compliance is worth the effort or cost, there are many FDA compliant human food, animal food, dietary supplement, pharmaceutical, or cosmetic companies that are waiting to take your business…
Charlotte Peyton supports EAS Consulting Group hemp, CBD and hemp clients as well as that of dietary supplement and pharmaceuticals. As an independent consultant she assists with projects ranging from startup through manufacturing and support. Her expertise includes quality, regulatory and management, method development and method validation for FDA regulated drug, dietary supplement, and bioanalytical samples. She has extensive experience in writing validation protocols, reports and SOPs and assists with implementation of stability programs and report writing for finished products.
EAS Consulting Group, a member of the Certified family of companies, is a global leader in regulatory solutions for industries regulated by FDA, USDA, and other federal and state agencies. Our network of over 150 independent advisors and consultants enables EAS to provide comprehensive consulting, training and auditing services, ensuring proactive regulatory compliance for food, dietary supplements, pharmaceuticals, medical devices, cosmetics, tobacco, hemp and CBD. www.easconsultinggroup.com
Member Blog: Risks and Values Right Under Your Feet – M&A Real Estate Considerations
by Mark Hefner, CEO of MGO Realty Advisors and Dustin Grizzle, MGO Tax Partner
In the cannabis and hemp industries, capturing the true value of real estate holdings in an M&A deal can be both elusive and central to the overall success of the transaction. Difficult-to-acquire licenses and permits are essential for operating, which often drives up the “ticket price” of property, ignoring operational and market realities that suppress value in the long run. On the flip side, real estate holdings are sometimes considered “throw-ins” during a large M&A deal. These properties can hold risks and exposures, or, in many cases, are under-utilized and present an opportunity to uncover hidden value.
Both Acquirers and Target companies must take specific steps toward understanding the varied layers of risk and opportunity presented by real estate holdings. In the following, we will address some common scenarios and provide guidance on the best way to ensure fair value throughout an M&A deal.
Real estate as a starting point for enterprise value
Leaders of cannabis and hemp enterprises must understand that real estate should be a focus of the M&A process from the very beginning. All too often, c-suite executives are well-acquainted with detailed financial analyses for other parts of the business, but have a limited or out-of-date idea of their enterprise’s square footage, details of lease agreements, or comparable values in shifting real estate markets. Oftentimes it takes a major business event, like an M&A deal, to spur leadership to reexamine and understand real estate holdings and strategy. Regrettably, and all too often, principals come to that realization post-closing and realize they may have left money on the table.
In an M&A deal, the party that takes a proactive approach to real estate considerations gains an upper-hand in negotiations and calculating value. Real estate holdings can provide immediate opportunities for liquidity, cost-reduction, or revenue generation. At the same time, detailed due diligence can reveal redundant properties, costly debt obligations, unbreakable leases, and other red flags that would undermine value post-closing.
For both sides of the M&A transaction, real estate strategy and valuation should be a core consideration of the overall goals and value drivers of the deal. A direct path to this mindset is to place real estate holdings on the same level of importance as other assets that drive value – human capital, technology, intellectual property, etc. Ensuring that real estate strategy aligns with business goals and objectives will save considerable headaches and potential liabilities in the later stages of negotiating and closing the deal.
Qualify and confirm all real estate data
One of the harmful side-effects of a laissez-faire attitude toward real estate in M&A is that the entire deal can be structured around data that is simply inaccurate or incomplete. This inconsistency is not necessarily the result of an overt deception, but too often it is simply an oversight. Valuations can also be based upon pride and ego, without supporting market data.
Let’s visit a very common M&A scenario: The Target company has real estate data on file from when they purchased or leased the property (which may have been years ago), and that data says headquarters is 20,000 sq. ft. of office space. Perhaps they invested heavily into improvements like custom interiors that did nothing to add value to the real estate. The Target includes that number in the valuation process and the Acquirer assumes it is accurate. Following the deal, the Acquirer moves in and, in the worst case, realizes there is actually only 15,000 sq. ft. of useable space. Or it is equally common that the Acquirer learns the space is actually 25,000 sq. ft. Either way, value has been misrepresented or underreported. M&A deals involve a multitude of figures and calculations, and sometimes things are simply missed. But those small things can have a major impact on value and performance in the long run.
The only solution to this problem is to dedicate resources to qualifying and quantifying data related to real estate holdings. When preparing to sell, Target companies should review all assumptions – square footage, usage percentage, useful life, etc. – and conduct field measurements and physical condition assessments (“PCA’s”). This will help your team understand the value of your holdings and set realistic expectations, and perhaps just as importantly, it saves you from the embarrassment of providing inaccurate numbers exposed during Acquirer’s due diligence—and getting re-traded on price and terms. That reputation will ripple through the marketplace.
From the Acquirer’s side, the details of real estate holdings should come under the same level of scrutiny as financials, control environment, etc. Your due diligence team should commission its own field measurements and PCA, and also seek out market comparables to confirm appraisals. It is simply unsafe and unwise to assume the accuracy of any of these details. Performing your own assessments could reveal a solid basis to re-negotiate the M&A, and will help shape post-merger integration planning.
Tax analysis will reveal risks and opportunities
The maze of tax regimes and regulatory requirements cannabis and hemp operators navigate naturally creates opportunities to maximize efficiencies. This is particularly the case when it comes to enterprise restructuring to navigate the tax burden of 280E.
For example, it may be possible to establish a real estate holding company that is a distinct entity from any “plant-touching” operations. By restructuring the real estate holdings and contributing those assets to this new entity it may be possible to take advantage of additional tax benefits not afforded to the group if owned directly by the “plant-touching” entity. This all assumes a fair market rent is charged between the entities.
Recently, operators have looked to sale/leaseback transactions to help with cash flow needs and thus these types of transactions have gained prominence for cannabis and hemp operators. It is important that these transactions be carefully reviewed prior to execution to ensure they can maintain their tax status as a true sale and subsequent lease, instead of being considered a deferred financing transaction. If a Target company has a sale/leaseback deal established but under audit the facts and circumstances do not hold up, this could open up major tax liabilities for the Acquirer.
When entering into an M&A transaction, it is important that the Acquirer look at the historical and future aspects of the Target’s assets, including the real estate, to maximize efficiencies of these potentially separate operations. It is also equally important to review pre-established agreements/transactions to ensure the appropriate tax classification has been made and that the appropriate facts and circumstances that gave rise to the agreements/transactions have been documented and followed to limit any potential negative exposure in the future.
Contract small print could make or break a deal
An area of particular focus during due diligence should be a review, and close read, of the Target company’s existing property leases and other contracts. There are any number of clauses and agreements that seem harmless and inconsequential on the surface but can have disastrous effects in difficult situations. In many cases, the lease/contract of a property is more important than the details of the property itself. For example, if the non-negotiable rent on a retail location is too high (and scheduled to go higher), there may be no way to ever turn a profit.
The financial distress resulting from the COVID-19 pandemic has brought these issues to the forefront in the real estate industry. Rent payment and occupancy issues are shifting the fundamental economics of many property deals and contracts. If, for example, you are acquiring a commercial location that is under-utilized because of market demand or governmental mandate, you must confirm whether sub-leases or assignments are allowed at below the contract price. If not, you could be stuck with a costly, underperforming asset amid quickly shifting commercial real estate demand.
In many leases and contracts, there are Tenant Improvement Allowance conditions that require the landlord to fund certain property improvement projects. If utilizing these terms is part of the Acquirer’s plans, you may need to have frank and open conversations with landlords about whether the funds for these projects are still available, and if those contract obligations will be met. Details like these are often penned during times of financial comfort without consequences to the non-performing party, but a landlord struggling with cash flow may not have the capability to meet contract standards.
These are just a few examples from a multitude of potential real estate contract issues that can emerge. It is recommended to not only examine these contracts very closely, but have dedicated real estate industry experts perform independent assessments that account for broader social, economic, and market realities. That independent analysis will help your executive team formulate a real estate strategy that better aligns with core business objectives.
Dig deep to uncover real value
There are countless scenarios where issues related to real estate make or break an otherwise solid M&A transaction, whether before or after closing the deal. The only path forward is to treat real estate holdings with the same care and attention paid to the other asset classes driving the deal. The cannabis and hemp industries have recently endured micro-boom-and-bust cycles that have left many assets under-performing. As Target companies offload these assets, and Acquirers seek out good deals, both parties must undertake focused efforts to establish the fair value of complex real estate assets and obligations.
Mark Hefner, CEO and Shareholder of MGO Realty Advisors, is a real estate investment professional with over 30 years of experience supporting occupiers and investors as they navigate commercial real estate markets. Mark focuses on providing strategic advisory, transaction advisory, capital markets guidance, and ownership formation support for all types of commercial properties, both nationally and globally.
Dustin Grizzle, CPA, Tax Partner and Office Managing Partner of MGO’s Boca Raton, has over 15 years of experience providing tax planning and compliance services to real estate management and investment companies, manufacturing companies and high-net-
worth individuals. Dustin focuses his practice on tax compliance and real estate structuring, as well as tax consulting for entities with large inventories and manufacturing-related needs. He also manages tax programs involving investment funds, corporate structuring and IRS examination representation.
About MGO
One of the top 100 CPA firms in the country, MGO has a 30-year history of providing trusted accounting and advisory services to many leading public corporations, private companies and government agencies. The MGO team has developed a suite of proven solutions to help operators, regulators and institutional investors navigate the complexities of the cannabis and hemp industries.
About the Cannabis M&A Field Guide
This serialized multi-media project is an educational resource for cannabis and hemp operators and investors. It focuses on the evolving market conditions driving mergers and acquisitions, and provides first-person insight on best practices for strategy, structuring, valuation, and other topics behind successful M&A transactions.
Member Blog: Creating a Diverse, Inclusive, and Sustainable Cannabis Industry
This year, a national outcry against police violence and the impact of COVID-19 on Black and brown communities initiated a reckoning with the legacies of oppression and injustice in the U.S. Along with recognizing our institutionalized and internalized racism, we have started to come to terms with our economic inequality now that the income gap is worse than it has been in 50 years and three families alone control more wealth than 50% of Americans.
As with the rest of the country, the cannabis industry is lived differently based on the intersectionalities of race, class, gender, orientation, (dis)ability, and veteran status. For example, already wealthy, white, male individuals have amassed fortunes in cannabis with roughly 74% of U.S. cannabis businesses owned by men and 81% by whites, according to a 2017 Marijuana Business Daily survey.
After most states designated cannabis “essential” during COVID-19, private individuals, family funds, and pension funds plowed $2.6 billion into corporate cannabis, and multi-state operators posted record sales in the hundreds of millions. Earlier in September, the second cannabis exchange-traded fund (ETF) was announced which involves an investment portfolio of multi-state operators, REITs, and CBD companies. In contrast, Black and brown communities face mass incarceration for that same plant whereby African Americans are four times more likely nationally to be arrested for cannabis offenses than whites, while in states such as Kentucky and Montana, almost 10 times more likely, cited by a 2020 ACLU report.
These economic barriers to entry entrench the lack of representation in cannabis. For most entrepreneurs, the main obstacle to starting a cannabis business is the lack of access to traditional banking. It takes at least $300,000 to open a cannabis retail store, and up to millions of dollars for other cannabis enterprises, according to the 2019 Marijuana Business Factbook. Without traditional banking, most professionals finance their businesses through family wealth or personal contacts – 84% of U.S. cannabis companies are self-funded by founders, and 22% capture additional funding through a Family and Friends Round, cited by that same report. In this system, minority entrepreneurs are at a disadvantage. U.S. median household net worth ranges from $171,000 for white families to $17,600 for African Americans, $20,700 for Latinx, and $64,800 for “Other,” based on a 2016 Federal Reserve Board survey.
In addition to funding challenges, cannabis entrepreneurs must navigate onerous state and local regulations to obtain and maintain licensing. Some states have launched Social Equity Programs to help communities historically targeted by the criminalization of cannabis to now participate in the profits of legalization. However, even Illinois’s Social Equity Program, which is considered the gold standard, awarded only 21 out of its total 75 retail social equity licenses, leaving unclaimed 54 licenses that could have transformed the applicants’ economic circumstances. The 21 finalists were taken from a total pool of 1,667 applicants, which equates to only 1.3%. Low success rates stifle market entry and ensure that corporate, multi-state operators continue to saturate the cannabis space.
Beyond media proclamations, we must actualize an inclusive cannabis industry that reflects and celebrates the rich diversity of our community and provides equal opportunities to all professionals throughout the growth cycles of the market. We must operationalize sustainable businesses that produce unionized jobs and foster generational wealth. To do so, we must not only promote our own professional aspirations, but we must champion our friends’ and colleagues’ pathways into and up the cannabis industry.
While federal legalization remains the ultimate goal, local policies that would articulate a diverse, inclusive, sustainable cannabis industry must include explicitly legalized access to banking and finance, an overhaul of law enforcement and the criminal justice system, and social equity programs that encourage market activity. Until then, we must collectivize our professional resources and knowledge to build a true business community that empowers each of us to achieve our cannabis ambitions.
Rebecca Lee Katz is an attorney at an international law firm and President of Pakaloh LLC, the free business resource for an inclusive cannabis, CBD, and hemp industry. Pakaloh offers three types of membership which are all free, and members may select as many as they choose. Membership is available to 1) “Individuals”, including new and established entrepreneurs and professionals, 2) “Providers of Products”, or plant-touching businesses, and 3) “Providers of Services”, including ancillary services.
A WOC-owned company, Pakaloh provides its members with a comprehensive suite of services, starting with free information and discounts at financial institutions like banks, lenders, and payment processors that work in cannabis. Pakaloh also features free Business Tutorials that cover a range of cannabis topics from accounting to agriculture. These are informative, introductory online videos submitted by members that allow them to reach an audience of potential clients who may need to hire their services. Additionally, members may post and search for job opportunities.
Partner companies also offer discounts for members to use on individual and bulk orders. Members network on the site by accessing directories and sending messages directly to each other. Lastly, Pakaloh curates information on professional and activist organizations and events. Pakaloh is pledged to every community, and comes from pakalolo, an embrace of generations of the founder’s family in Hawai’i. Pakaloh holds true that no matter your roots, each of us aspires toward something greater than ourselves, be it our family, our nation, our cannabis movement.
Looking Back On #10YearsOfNCIA: 2018-2019
Photo By CannabisCamera.com
by Michelle Rutter Friberg, NCIA’s Deputy Director of Government Relations
Over the last several weeks, I’ve been taking a retrospective look at the progress NCIA has made in the ten years since its inception. This is our last installment, detailing 2018-2019, and brings us up to 2020 (the year that shall not be spoken of). While this timeline is by no means a comprehensive look at everything that’s happened in cannabis policy during those years, here are some highlights:
January 2018
On January 4, 2018, then-Attorney General Jeff Sessions declared in a one-page memo that he had rescinded the Cole Memo, a similar memo related to cannabis activity on tribal land, and two other older memos. Sessions directed U.S. Attorneys to instead “follow the well-established principles that govern all federal prosecutions,” which require federal prosecutors to “weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.”
February 2018
This month was filled with the political fallout of the rescission of the Cole Memo. First, a letter was written by the U.S. Treasury Department’s assistant secretary for legislative affairs to Congress that said, “We are reviewing the [cannabis banking] guidance in light of the Attorney General’s announcement [to rescind the Cole Memo] and are consulting with law enforcement”. Then, following Sen. Gardner’s (R-CO) decision to block the Department of Justice’s nominees over the rescission of the Cole Memo in January, he released his holds on nominees for U.S. attorneys in a dozen federal districts and U.S. marshals in every district. Holds continue on the nominations of seven top Department of Justice nominees.
March 2018
In March, Attorney General Sessions spoke at an event where he acknowledged that the Department of Justice cannot use its limited resources to enforce cannabis prohibition against everyone who violates federal marijuana laws. He said, “We’re not going to be able, even if we desired, to take over state enforcement of routine cases that might occur.”
April 2018
The Trump administration officially began accepting online comments about whether marijuana should be rescheduled under international agreements. That same month, U.S. Senate Majority Leader Mitch McConnell (R-KY) filed a hemp legalization bill.
May 2018
The U.S. Small Business Administration (SBA) quietly issued a document saying that businesses that work with the marijuana industry aren’t eligible for federally backed loans. Fast forward to 2020, this document is largely what prohibited both direct and indirect marijuana businesses from receiving PPP money or federal assistance due to the COVID-19 pandemic.
June 2018
Senators Elizabeth Warren (D-MA) and Cory Gardner (R-CO), introduced the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act. Shortly thereafter, President Trump was asked if he supports new Senate legislation to let states set their own marijuana laws without federal interference, to which he replied, “I really do. I support Senator Gardner. I know exactly what he’s doing. We’re looking at it. But I probably will end up supporting that, yes.” The STATES Act has never had a congressional hearing or moved in any way through the legislative process.
July 2018
In a slight change of tone, U.S. Attorney General Jeff Sessions said that “states have a right to set their own laws and will do so” but that “the American republic will not be better if there are marijuana sales on every street corner” and “we’ll [Department of Justice] enforce the federal law.”
August 2018
A group of the top financial regulatory officials from 13 states sent a letter urging congressional leaders to solve the marijuana industry’s banking access issues. The regulators wrote, “It is incumbent on Congress to resolve the conflict between state cannabis programs and federal statutes that effectively create unnecessary risk for banks seeking to operate in this space without the looming threat of civil actions, forfeiture of assets, reputational risk, and criminal penalties.”
September 2018
NCIA worked with Congressman Lou Correa (D-CA) to send a letter to the Department of Homeland Security Secretary Kirstjen Nielsen that urges the department to develop clear guidance concerning the entry into the United States of foreign nationals with authorized work visas who are associated with the cannabis industry.
October 2018
Well-known pollster Gallup found that sixty-six percent of Americans now support legalizing marijuana. Support has remained near that number to the present.
November 2018
This month, midterm elections were held, and a number of states voted on setting their own cannabis policies. Residents of Michigan and North Dakota both voted on adult-use measures, one passing and one failing, respectively. Additionally, Utah and Missouri both passed medical cannabis ballot initiatives. While the Senate remained in control of the GOP, the House of Representatives switched from a Republican majority to a Democratic majority.
December 2018
Congress passed the 2018 Farm Bill which included hemp legalization. The bill did not create a completely free system in which individuals or businesses can grow hemp whenever and wherever they want — there are numerous restrictions — and the programs are still being adjusted today.
January 2019
The 116th Congress was sworn in and quickly filed a number of cannabis-related bills, including:
H.R. 420: Regulate Marijuana Like Alcohol Act, H.R. 493: Sensible Enforcement of Cannabis Act, and H.R. 127: Compassionate Access, Research Expansion, and Respect States (CARERS) Act of 2019
February 2019
In February, 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 the Secure and Fair Enforcement (SAFE) Banking Act.
March 2019
Quickly following the subcommittee hearing, the House Financial Services Committee scheduled a full markup for the SAFE Banking Act. The bill passed out of committee with a bipartisan vote of 45-15.
April 2019
During a House appropriations subcommittee hearing, several lawmakers asked Treasury Secretary Steven Mnuchin about what could be done to provide state-legal cannabis businesses with access to financial institutions. Mnuchin replied, “Let me just say, I hope this is something that this committee can on a bipartisan basis work with since there are people on both sides of the aisle that share these concerns. I will just say I don’t believe this is a failure of the regulators. I want to defend the regulators on this issue.”
May 2019
NCIA hosted our 9th Annual Cannabis Industry Lobby Days, bringing hundreds of professionals to Washington, D.C. Over the course of 48 hours, attendees met with nearly 300 congressional offices to share their stories and experiences and dropped off informational materials to 200 offices that we did not schedule meetings with. In addition to these meetings, we had two briefings, held a PAC fundraiser, and hosted our first-ever VIP Day for members of our Leadership Circle.
June 2019
In June, the Senate Banking Committee held a hearing entitled “Challenged for Cannabis and Banking: Outside Perspectives.” NCIA was proud to have Sen. Jeff Merkley introduce for the record the testimonials of nearly 100 NCIA members during the hearing.
July 2019
The Subcommittee of the House Judiciary Committee held a hearing on ending cannabis prohibition in America. The hearing, entitled “Marijuana Laws in America: Racial Justice and the Need for Reform” will focus on the need to deschedule cannabis, the importance of equity, diversity, inclusivity in this burgeoning industry, and will also cover issues pertaining to cannabis and public health, law enforcement, and the failings of prohibition.
August 2019
When President Trump was asked at the end of August whether or not marijuana will be federally legalized during his administration, he said, “We’re going to see what’s going on. It’s a very big subject and right now we are allowing states to make that decision. A lot of states are making that decision, but we’re allowing states to make that decision.”
September 2019
For the first time in history, a standalone cannabis policy reform bill was brought before the House of Representatives for a vote and passed with an overwhelming bipartisan majority. The Secure and Fair Enforcement (SAFE) Banking Act of 2019, or H.R. 1595, was approved 321-103, including nearly half of voting Republicans, in a suspension vote.
October 2019
The U.S. Tax Court ruled this week that the tax code ban on business deductions by medical marijuana companies is constitutional. The case is Northern California Small Business Assistants Inc. v. Commissioner of Internal Revenue, docket number 26889-16.
November 2019
In a vote of 24-10, the House Judiciary Committee approved a bill that would effectively end marijuana prohibition. The Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019, or H.R. 3884, was introduced by House Judiciary Committee Chairman Jerrold Nadler (D-NY) and has been moving through the legislative process steadily. The MORE Act is anticipated to be voted on by the full House of Representatives this month.
December 2019
The Federal Reserve released guidance allowing banks to work with the hemp industry. Financial institutions are no longer required to file suspicious activity reports on customers operating a hemp business.
It’s been a wild ride to look back at the last 10 years of NCIA, and we are looking forward to serving you and your business for another 10 more!
Member Blog: Cannabis Technology – Six Predictions for the Future of Cannabis Tech
by Barry Saik, Chief Executive Officer of Greenbits
Big changes are coming to the cannabis industry.
At least, that is the outlook shared by cannabis experts and lawmakers across the political spectrum. Even people who oppose federal-level legalization have to admit that the current status quo is unlikely to hold, and that popular opinion continues to sway towards the creation of a legitimate nationwide cannabis industry. Technology is playing a crucial role in connecting people inside and outside the confines of that industry.
How Cannabis Tech Will Evolve in 2020 and Beyond
There is considerable movement towards legalization in an increasing number of states. Surging demand has been keeping the cannabis industry afloat even in the worst-hit areas of the global Coronavirus pandemic. While federal-level legalization may be a long shot for the calendar year, there is good reason to believe that several new cannabis markets will open.
Many of today’s most exciting cannabis tech trends have already started gaining inertia. These movements are likely to continue picking up steam well into 2020 and beyond, even if federal-level initiatives prove unfruitful by the end of the year:
Expanded Payment Options
So far, cannabis has been a cash-only industry. Debit card transactions are gradually making their way into cannabis markets, thanks to cashless ATM solutions and a variety of online payment processors. The trend towards cashless payments is likely to continue, whether federally-backed banks support it or not.
If the federal government approves a bill that allows banks to fund and support compliant cannabis businesses, consumers will see a remarkable surge in industry development. Online ordering will likely become the new norm, powered by increasingly sophisticated e-commerce systems.
Without the support of federally backed banks, the market is likely to rely on unicorn FinTech innovators who can find ways to sidestep federal stonewalling. Compliance and cash availability will be issues, but solutions similar to those already in place will nonetheless flourish thanks to steady demand.
Better, More Accurate Strain Profiles
Right now, cannabis experts rely on a broad range of ambiguous, anecdotal data to differentiate strain profiles and the experiences they offer. There is not enough hard data to offer a quantitative comparison between any two strains.
Terpene research is going to change this. These aromatic oils are responsible for the telltale smell unique to each strain, and they have been shown to contribute to each strain’s medicinal and psychoactive effects.
The availability of hard data will transform the way consumers categorize cannabis. The goal is to go beyond the “sativa vs. indica” distinction and tell consumers exactly what to expect from each strain on an individual basis. In time, this may lead to an entirely new system of categorization for cannabis products.
A New Spotlight On Consumer Convenience
Colorado has implemented cannabis hospitality licenses as of 2020, and cannabis legislators around the country are taking a close look at the effects of the new rule. California already has a few consumption-friendly public locations, but this is very much a brand-new field where cannabis legislation – and cannabis technology – have yet to fully intersect.
On a similar note, Colorado is following California, Nevada, Oregon, and Massachusetts in allowing for cannabis delivery. These simple regulatory changes will have effects that transform consumer expectations in the industry, and the trend is towards convenience.
Expect a new brand of cannabis entrepreneur fusing technology and cannabis culture in ways never before thought possible. People are going to develop solutions that help solidify cannabis culture’s place in the local environment, capitalizing on convenience to do so.
Operational Experts Will Become Highly Sought After Cannabis Executives
There are several high-profile companies making movements towards consolidating their multi-state presence. At the moment, this is made difficult by the fact that every state has a unique set of rules for its cannabis businesses to abide by. This makes economies of scale difficult to achieve.
Operational talent is the specific kind that these large-scale organizations are going to be looking for. Until now, many multi-state operators have been run primarily by finance-oriented executives. This provides a good basis for setting up and closing acquisitions, but it will fall on newly built operational teams to build compliant solutions for multi-state organizations.
Hemp Will Open the Door to Cannabis Agriculture
The 2018 Farm Bill has led to official, federal-level recognition of hemp products. While this has not resulted in a nationwide hemp craze, the participating states are expected to bring non-psychoactive marijuana cultivation to the forefront.
So far, the USDA has approved 2020 hemp applications in Washington, Wyoming, Georgia, Iowa, and Pennsylvania. There are also fifteen tribal plans under review. Increased attention to hemp will lead to an increased dedication of tech resources to the needs of hemp farmers – which are necessarily distinct from those of psychoactive cannabis cultivators.
Market Intelligence Will Take Center Stage
A handful of ancillary industries – from cultivation-friendly real estate specialists to cannabis law firms – are expected to grow around the burgeoning industry, but market intelligence is the one most experts are excited about.
Industry leaders in every state are looking for data on cannabis users. Sales data can help inform industry players on better, more efficient ways to use limited cultivation resources. Merchandising data can help dispensaries build lasting partnerships with non-cannabis brands. A wide array of new businesses will enter the cannabis market without necessarily being growers, processors, or dispensaries.
The ability to securely turn dispensary transaction data into readymade analytic insight will prove to be one of the most valuable assets a cannabis company can have. The fact that state regulation already requires dispensaries to gather and report transaction information means that, in many cases, half of the work is already done.
2020: The Year for Cannabis Tech
Technology has historically played a crucial role in achieving civic and social progress, which then informs newer technological initiatives. Cannabis technology is already helping regulators meet the demands stipulated by voters who want safe, legal access to marijuana products, and this trend is going to continue.
Barry Saik serves as Chief Executive Officer of Greenbits, a leading cannabis retail platform that empowers more than 1,200 cannabis retail locations across 13 states with a safer and smarter way to manage day-to-day operations and maximize store performance.
Barry leads all functions of the company, which processed $3.3 billion in legal cannabis transactions in 2019. Through its platform, Greenbits offers the full suite of services that cannabis retailers need – automated state-by-state compliance, point of sale, inventory control, and personalized insights – to enable owners, managers, and budtenders to run, protect, and grow businesses with ease.
A veteran of Silicon Valley start-ups and global tech companies, Barry brings a wealth of experience in scaling and leading integrated teams building software solutions that help small businesses grow.
Barry joined Greenbits as CEO in late 2019 after founding and running the SmartLine business at GoDaddy (NYSE: GDDY), a global company that helps entrepreneurs and businesses to be successful online. Centered around providing a second phone line that connects with a smartphone, the unit grew to $8 million in revenue in the first year under Barry’s leadership.
Before GoDaddy, Barry spent 15 years working in a variety of senior roles at Intuit (NASDAQ: INTU) and its marquis tax product, TurboTax, the leading software solution for business and personal tax filings. Early in his tenure, Barry led the founding team of TurboTax Online, which 40 million people used in 2019 to pay their U.S. taxes.
As a senior leader in TurboTax’s marketing department, Barry oversaw the creation of the company’s first television ad campaign, which resulted in a 12 percent spike in sales. He also led TurboTax’s engineering team, which is charged with programming the ever-evolving federal and state tax codes into the software, a centerpiece capability of the product.
Barry graduated from Stanford University with a B.S. in mechanical engineering and an A.B. in communications. He received an M.B.A. in marketing from the UCLA Anderson School of Management.
Greenbits Company Description
As the pioneering leader of regulated retail, Greenbits is the complete cannabis retail management platform. Founded in 2014, we empower 22,000 users in 1,200 retail locations across 13 states. As the market share leader, Greenbits rings $3.7 billion in sales annually, comprising one-third of all cannabis sales in adult-use states. With the largest and fastest-growing network of cannabis retailers, we serve the most locations, reach the most customers, process the most transactions, and ring the most sales in the industry, making Greenbits the best-selling and most trusted cannabis retail platform nationwide.
Greenbits provides smart management solutions that help cannabis retailers maximize performance and make better business decisions. Our robust retail platform – with automated state-by-state compliance, inventory control, and personalized insights – enables owners, managers, and budtenders to run, protect, and grow their businesses with ease. www.greenbits.com
During a recent webinar, we polled the audience on their current positions on offering financial services – traditional financial services – to direct marijuana-related businesses (MRBs). The results, as you might imagine, were mixed but we identified one common theme: The vast majority have taken action to address cannabis banking issues. This has been the theme we’ve been championing for years. The dichotomy between state and federal cannabis laws has placed our financial institutions in a precarious position: Bank the cannabis industry, be first to the market in doing so, create a non-traditional revenue stream and help to solve public safety and other logistical issues by solving the all-cash conundrum OR continue to watch from the periphery as others take the leap?
We see the number of financial institutions – banks and credit unions – that offer financial services to cannabis businesses expanding, but not to the level suggested by FinCEN SAR data. There remains a critical need for financial services within the cannabis industry.
Why the hesitancy in tackling this issue?
The current regulatory environment is a critical factor. As it stands, our industry is relying primarily upon the FinCEN guidelines to offer financial services to cannabis-related businesses. These guidelines, coupled with a surge of proposed legislation and a regulatory perspective on risk-based risk-taking, have allowed financial institutions across the country to effectively provide financial services to cannabis-related businesses. There is a key term we’ve been using: cannabis-related businesses. Within this term, we encompass direct and indirect marijuana-related businesses, hemp, and CBD entities. The majority of those polled feel more comfortable with hemp and CBD entities primarily due to the passage of the 2018 Farm Bill. Getting into the intricacies of how the Farm Bill and the USDA’s resulting interim final rule have added a layer of complexity to banking hemp and CBD businesses is more than we can cover in this blog post. Let’s focus instead on those providing financial services to direct MRBs, those that are state-legal, licensed cultivators, extractors, and dispensaries.
It IS possible to actively bank direct MRBs, to offer stable banking services that bring the cash off the street and provide a means for these businesses to operate more effectively and efficiently, and surely in a less costly manner than an all-cash business. The regulators are not criticizing financial institutions for providing financial services to MRBs; they review these services as they would any higher-risk, complex activity. When an institution takes on too much too fast or does not have sufficient controls to know whether it actually has a higher risk or complex business concentration within its customer base, the regulators will be critical… as they should be.
So, what are they looking for?
This goes back to the theme we mentioned: Financial institutions actively addressing cannabis banking issues.
Every financial institution, whether it intends to bank direct or indirect MRBs, hemp or CBD should have a Cannabis Banking Program that assesses the inherent risks of doing so, speaks to the controls necessary to effectively manage those risks, and determine whether they are well-positioned, or have a risk-appetite for, providing financial services to the cannabis industry. Conversely, if a financial institution that has no appetite for, or does not reflect sufficient regulatory health to bank cannabis, it must establish effective controls to ensure that position can be maintained.
But, this post is about empowerment. It is about speaking to the regulatory environment in which we find ourselves. It is about providing the perspective that banking marijuana, hemp and CBD CAN be done effectively, safely and soundly. Yes, there is a significant level of infrastructure needed to do so. Yes, it does come with the need for ongoing, strong risk management and control enforcement. Yes, it can be a bit scary. By establishing a Cannabis Banking Program, comprised of a comprehensive risk assessment that drives an equally comprehensive policy, a financial institution can provide financial services across the spectrum of marijuana, hemp and CBD, and undergo regulatory scrutiny with confidence. Moreover, such a program has become a regulatory expectation to support a financial institution’s cannabis position. This is also not a program where a financial institution will set it and forget it. The risk assessment and policy must remain dynamic as legislation evolves, as regulatory perspective changes, and as a financial institution’s position or outlook may shift.
This is an industry that has already proven prolific. This is a time that will be ingrained within our nation’s history. Let’s be remembered as those who championed the issues, established the country’s infrastructure, and set the standard for those who follow.
As a former Federal bank regulator and seasoned consultant, Angela’s knowledge of regulatory compliance, risk management and investment advisory services has established her reputation as a leading resource within the financial consulting industry, spanning consumer protection and anti-money laundering statutes, fraud and cannabis banking issues.
Angela is the Managing Partner and Co-Founder of Sterling Compliance, LLC, a consumer compliance consulting firm based out of Pittsburgh, Pennsylvania. Sterling specializes in consumer protection and anti-money laundering compliance within the community banking industry and enjoys a significant online presence with a client base spanning the coasts.
In December 2019, Angela joined Integrated Compliance Solutions, LLC (ICS) upon the ICS acquisition of Sterling Compliance as an independent operating subsidiary. Angela oversees the firm’s Compliance Strategies division, of which cannabis banking is a significant component. ICS is a financial technology, banking compliance and innovative payments solution provider helping financial institutions with complex solutions. In joining the ICS team, Angela has continued the firm’s mission of bringing its complete SEED-TO-BANK™ solution to financial institutions and cannabis-related businesses throughout the United States, and has expanded the firm’s industry engagement as a well-respected authority on the regulatory and compliance issues surrounding cannabis banking.
Member Blog: Cross-Pollination Poised to Prompt Litigation in Light of New USDA Hemp Rules
On October 29, 2019, the USDA released regulations establishing a domestic hemp production program, paving the way for hemp cultivation on an industrial scale in 2020. While the potential benefits of a robust hemp industry in California are exciting, large scale industrial hemp cultivation increases the risk of cross-pollination for hemp and cannabis growers, which may significantly impact the value of both crops.
Cannabis sativa, the plant used in both hemp and cannabis production, is a dioecious species, meaning that male and female flowers are borne on separate plants. Cannabinoids, including THC and CBD, are more concentrated in the female flower than in the male flower. Therefore, cannabis or hemp growers who desire a crop with a high yield and potency of either THC or CBD will typically use feminized seeds or clones and will weed out male plants if they appear. Growers of industrial hemp produced for seed or for fiber, however, are not concerned with producing potent cannabinoids and therefore will generally grow both male and female plants.
Cross-pollination between female and male plants can cause problems, such as seed production, lower crop yields, and altered THC or CBD content of the flowers that are produced. This can devastate the value of crops grown for their THC or CBD content. Moreover, if hemp exceeds the 0.3% THC concentration threshold allowed under the federal regulations, it must be destroyed.
Unfortunately, cannabis pollination can occur over large distances depending on the concentration of plants and weather conditions. Industry experts recommend a minimum distance of ten miles between outdoor growing operations, but research shows it is possible for cannabis pollen to travel much further. Therefore, cross-pollination is possible even if a neighboring farm is miles away. This dynamic poses a huge problem to the young industry.
At this point, there are few regulations in California designed to prevent cross-pollination. Several counties enacted temporary moratoriums on the production of hemp, primarily based on the USDA’s inaction. In those counties, cross-pollination has not been a problem since cultivation was not allowed in the first place. Now that the USDA has issued regulations governing the hemp industry generally, counties will likely lift these temporary moratoriums. But since the USDA regulations are silent as to the distance between hemp and cannabis operations, cross-pollination will almost certainly occur and will likely result in litigation in the near future. Indeed, cross-pollination has already caused litigation in other states. For example, lawsuits related to cross-pollination have already commenced in Oregon. In Jack Hempcine LLC v. Leo Mulkey Inc., et. al., a hemp grower alleges that cross-pollination by male plants on the property of several nearby growing operations raised the THC levels of the Plaintiff’s female plants, rendering his entire crop unmarketable. The grower who brought that action alleges damages exceeding $8,000,000 in lost crop value.
There are several legal theories available to growers seeking to recover damages caused by cross-pollination of their crop by a nearby hemp or cannabis operation, including negligence, trespass, nuisance, strict liability, and interference with prospective economic advantage. If your crop is or was negatively affected by cross-pollination or another grower alleged that you have damaged their crops via cross-pollination, you should contact counsel as soon as possible.
Ryan McGuire is an attorney at HK Cannabis Law, a practice group of Huguenin Kahn LLP, a full-service law firm representing clients throughout California and beyond. Ryan has years of experience litigating a broad range of legal actions, including personal injury, employment, contractual disputes, and construction defect claims. Ryan also has deep ties to California’s agricultural community, and has successfully represented growers, packers, and distributors. Ryan’s knowledge and experience are valuable assets for clients involved all aspects of cannabis production from seed to sale. Established to provide legal representation and counsel in the emerging field of cannabis law, HK Cannabis Law stands ready to serve clients at every stage of the cannabis business cycle, from business entity formation, real estate acquisition, land use, contracts, business transactions, regulatory compliance, licensing and permitting, enforcement defense and, should it ever be necessary, legal representation in both civil and criminal trials and appeals.
Felony Provisions, Harvest Schedules, and ‘Hot Hemp’ – NCIA Responds to USDA Hemp Rules
by Vince Chandler, NCIA’s Social Media Manager
On October 31, 2019, the USDA released its Final Interim Rule governing the domestic production of hemp within the United States. Going into effect immediately upon its issue, the interim rule regulates industrial hemp after the 2018 Farm Bill removed its Schedule I listing under the Controlled Substances Act. While the IFR is in effect, there is a public comment period happening right now, allowing for early input as the federal agency begins to “test drive” the program. Sunsetting after two years, the interim rules will inform permanent oversight and regulatory infrastructure after a full crop cycle has occurred.
National Cannabis Industry Association Director of Public Policy Andrew Kline formed a coalition of more than 100 leading hemp and CBD entrepreneurs, scientists, medical doctors, and FDA lawyers in May to provide comments and testimony to the FDA on their regulations and rulemaking for CBD. The committee produced 60 pages of formal comments to the FDA, as well as providing expert testimony. After the submission of the coalition’s comments, the NCIA Hemp Committee absorbed the effort to voice the cannabis industry’s position on federal regulation of low-THC cannabis.
On Wednesday, NCIA hosted a webinar with our Hemp Committee Chair Cindy Sovine and committee member Alex Buscher to discuss the cannabis industry’s official response to the USDA hemp rules. Concerns about definitions, the feasibility of harvest windows, and DEA oversight of testing laboratories all pose as potential hurdles in the program’s viability, and NCIA is committed to ensuring our members have all the resources they need to submit feedback to the USDA before the deadline.
It is important to note that, while the 2018 Farm Bill descheduled hemp with less than 0.3% THC, the federal agency has left it up to individual states to submit plans for regulations and oversight. Until a state has submitted their regulatory plan, and had it approved, the sale of hemp is not legal in that state. While states draft and submit their plans, NCIA is leading the quest for information on how federal rules will apply.
The administrative procedure for the USDA requires that they consider any comments put forth by the public, but do not have to adopt any of them. All indications are that they are open to influence and input from those, like National Cannabis Industry Association, with institutional knowledge on the matter.
Highlighted in the webinar as an action item deserving immediate attention and commentary is the USDA’s planned rule for “hot hemp.” The agricultural governing agency appears to have taken the position that they lack regulatory jurisdiction over cannabis plants that test above the 0.3% THC threshold, deferring instead to the Drug Enforcement Administration.
NCIA’s Hemp Committee recommends that, instead of handing oversight to the DEA, USDA should adopt particular procedures that will allow for the remediation of those hemp plants. This re-processing should render non-compliant plants compliant, thus allowing for their use rather than requiring the immediate mandatory disposal, per DEA regulations.
Remediation options could include:
Removal of THC through processing
Conversion of THC
Diversion to fiber market
Interstate commerce, harvest scheduling, and DEA testing laboratory registration need to be addressed, along with specifying definitions for ambiguous terminology. These issues can be changed through public comment at the USDA rules level.
Requiring legislative procedure to change is the felony provision rules in the USDA Final Interim Rule. Currently, the Farm Bill’s statutory felony provision reads, “any person convicted of a felony relating to a controlled substance under State or Federal law, before, on, or after the date of enactment on this subtitle shall be ineligible…”
The USDA could have interpreted this provision broadly, blanketing the ban to apply to anyone working in any capacity in the industry. Instead, the USDA has limited this provision in their licensure by stating that it will apply only to “key participants.” While NCIA wishes to see felony provisions removed as barriers of entry from working in the legitimate cannabis industry, our committee recognizes this liberal interpretation of the provision as a best-case scenario, until the Farm Bill is up for renewal and specific language can be amended or abandoned.
Public commentary is open until December 30, 2019, and all NCIA Members are encouraged to submit their thoughts. For suggested language or guidance shaping your comment, we’ve made available our slide show from the webinar with samples of copy and more information on individual recommended steps. If you are interested in shaping NCIA policy recommendations for hemp, CBD, or many other cannabis sectors, inquire about joining our Policy Council.
Webinar Recording: NCIA’s Official Response To USDA’s Hemp Rules
Watch this recording if you missed the live webinar on December 10 about NCIA’s official response to the USDA’s hemp rules.
On October 31, 2019, the USDA released its Final Interim Rule governing the domestic production of hemp within the United States. The USDA is currently accepting public comments to its hemp rules through December 30, 2019. There are many rules that need to be changed or clarified to make the program viable, including sampling, required DEA registration for labs, a fifteen-day harvest window, and a definition of “commingling” among other potential issues. Please join Cindy Sovine and Alex Buscher to discuss the NCIA’s public comments and steps you can take to help shape the final USDA hemp rules.
There are many ways to classify cannabis variants, but the most popular distinction is between hemp and marijuana. Although most of us take these classifications for granted, perhaps you’ve wondered if they are really legit? Put another way: are there real genetic and anatomical differences between marijuana and hemp? And, if so, what are they?
The hemp/marijuana classification is still a major debate within the cannabis community. Although up-to-date research suggests there are genetic differences, critics contend these distinctions have much more to do with legality than botany.
To better understand the complexity of the hemp v. marijuana classification, let’s quickly go through a primer on the cannabis genus. Afterward, we’ll take a closer look at the differences often associated with hemp v. marijuana and why these terms have gained such prominence.
The Basics Of Cannabis Distinctions
The first thing we should clear up is that the word “cannabis” is reserved for the plant genus. This means that both hemp and marijuana technically fall under the cannabis label. For many years, botanists have categorized the cannabis genus into the following three groups:
Cannabis sativa
Cannabis indica
Cannabis ruderalis
Of these three, sativa and indica are probably the most familiar to you. Usually, cannabis connoisseurs draw the sativa v. indica distinction to help differentiate the physiological effects of each strain. Sativa-heavy strains are said to be more energizing while indicas are supposedly more sedating.
It’s important to remember, however, that sativas and indicas were first split up due to their flowering patterns and features. Here are just a few of the key distinctions often ascribed to these two cannabis variants:
Indicas
Short
Fat leaves
Fast-growing
Enjoys mild climate
Sativas
Tall
Thin leaves
Slow-growing
Enjoys a humid climate
Ruderalis is a shrub-like variety of cannabis that evolved in harsh northern environments. Due to its history in regions with little light or warmth, ruderalis strains evolved unique genetics that allows them to flower automatically rather than relying on specific amounts of light.
Cultivators nowadays cross-breed ruderalis strains with indicas, sativas, or hybrids to create what are known as “autoflowering seeds.” These auto varieties are convenient due to their predictable flowering period, but they tend to have fewer cannabinoids than standard sativas or indicas. Most often new cannabis cultivators use auto seeds to gain valuable growing experience.
Hemp v. Marijuana: The Legal Distinction
So, why do we need a hemp v. marijuana distinction on top of all these cannabis varieties? A short answer is that drawing the line between hemp and marijuana helps a lot in the legal department.
You see, hemp is legally defined as a substance containing less than 0.3 percent of the high-inducing compound tetrahydrocannabinol (THC). Marijuana, on the other hand, could have 0.3 percent THC content or above.
Obviously, this makes it a lot easier for legal authorities to categorize what is and what is not legal. As of today, the U.S. legalized hemp at a federal level, but marijuana laws vary by state.
Beyond THC: The Different Uses Of Hemp V. Marijuana
This all doesn’t mean that the hemp v. marijuana distinction was arbitrarily drawn up to help legislators. OK, the 0.3 percent benchmark was pretty arbitrary, however, it’s true that hemp naturally produces less THC than marijuana strains. But there’s more to this story than just THC.
Now that the CBD market has skyrocketed, it’s often hard for us to imagine non-edible uses of hemp. However, for most of human history, hemp has been cultivated strictly for industrial purposes. Indeed, people have used the hemp plant’s fibrous stalks to make clothing and rope for thousands of years. Amazingly, hemp is now showing great potential in a variety of fields including papers, plastics, cosmetics, and even fuel.
Marijuana, on the other hand, has always been associated with recreational and medical use. Growers who cultivated marijuana were always interested in maximizing certain terpene and cannabinoid profiles for their chosen strain.
So, the distinction between industrial hemp and marijuana is still valid and useful as the cannabis industry expands. Growing hemp for industrial purposes is far more interested in quantity rather than quality. Marijuana cultivation, on the other hand, requires a greater degree of care and attention to detail.
Industrial hemp cultivators could often get away with planting their male and female seeds in rather tough environments. Professional marijuana cultivators, on the other hand, need to focus a lot of attention on making their environment hospitable for female seeds.
Of course, there are now many high-CBD hemp cultivators out there using similar marijuana grow methods. With that in mind, it’s still quite useful for cultivators to distinguish between industrial hemp and marijuana to better plan their growth cycle.
Does Hemp Look Different Than Marijuana?
Now we know how hemp and marijuana differ in THC content, growth features, and traditional uses… but do they look different?
To the untrained eye, mature hemp and marijuana might appear to be the same. Indeed, there are many cases of police accidentally arresting truck drivers for “marijuana possession” when they were actually transporting hemp. There are, however, a few key anatomical differences to look out for.
For instance, hemp plants are generally taller than most varieties of marijuana. Remember that many cultivators are interested in hemp’s fibrous stalks, which is why they’ve bred them to grow as tall as possible.
In addition to their height, hemp plants also tend to have thinner fan leaves compared with most strains of marijuana. These hemp leaves also tend to be concentrated at the top of the hemp flower with few leaves further down the stem. Marijuana plants, on the other hand, tend to have more leaves evenly spread throughout their branches.
Looking Into The Genes: Novel Research On Hemp v. Marijuana
After reading the above description, you might understandably conclude that hemp strains might lean more towards the sativa side. After all, sativas are typically associated with tall height and thin leaves.
While this makes logical sense, recent genetic research is changing how we think about the sativa v. indica theory. A team of Canadian researchers recently published a study examining the genetic makeup of over 80 marijuana and about 40 hemp strains. Shockingly, they found that hemp plants have a closer genetic tie to indicas rather than sativas. Most marijuana strains, however, showed a mix of sativa and indica influences.
The scientists concluded that there was enough of a genetic difference between hemp and marijuana strains to warrant the classification. Of course, more research will be necessary to understand these complex hereditary differences.
So, Is The Hemp v. Marijuana Distinction Valid?
While there will likely still be a debate about the hemp v. marijuana distinction, this classification system is popular for good reason. Also, there appears to be a scientific basis for grouping hemp and marijuana into separate genetic categories.
Distinguishing between hemp and marijuana can help consumers make a more informed decision when purchasing hemp flowers, hemp trim, oils, or other products. Plus, with the growing interest in hemp’s industrial uses, it’s important for farmers to separate out strains for industry and those for human consumption.
While it might not be a perfect classification system, “hemp v. marijuana” is still around because it continues to help cultivators and consumers make informed choices.
George Mouratidis is a cannabis writer and freelance contributor to Industrial Hemp Farms, Cannabis Tech, and Highlife Media.
IHF LLC is a Colorado-based, fully licensed & certified hemp farming and wholesale company. IHF wholesales CBD hemp biomass and many different cultivars of clones and seeds. The Company also wholesales CBD distillate, T-Free, Decarboxylated Crude, Isolate and other cannabinoids produced at our extraction facility. One of our primary goals is to make mutually beneficial deals, connections and contacts in the hemp industry.
Member Blog: Hemp And CBD Consumer Insights – Who, Why, And How
Hemp CBD became the fastest growing CPG product in 2019, following its legalization in the Farm Bill of December 2018. Consumers show great interest in its use for wellness, health & beauty applications and for pets. Its many distribution channels require integrating convenience store and shipment data not required for most dispensary products.
In U.S. Convenience Stores, total sales of CBD have increased 168% in the first half of 2019 while average weekly dollar sales increased by 235%.
The higher revenue growth accompanied CBD content per package increasing from 100mg on January 5, 2019 steadily to over 350mg on July 20, 2019, after having peaked briefly in June 2019 near 450mg per unit. See graph below.
Mg CBD per SKU at Retail
Medical Conditions Treated with Cannabis
Pain relief is the major reason cited as a medical condition for cannabis use, followed by nausea, PTSD, muscle spasms, IBD and opioid addiction as seen in the following table:
Source: Consumer Research Around Cannabis
Cannabis and Opioid Use Disorder
Of particular note is the growing number of consumers using Cannabis to treat Opioid Use Disorder (OUD). As of August 2019, seven states have approved medical cannabis for treating OUD: PA, NY, NJ, NM, MO, IL & CO. Twenty-one studies (2009-19) show the effect of cannabis on helping opioid users to reduce or eliminate the use of opioids to treat pain. NFL professional athletes have withdrawn from using opioids after they retire, with the aid of CBD and/or adult cannabis.
Consumer Purchase Drivers of OTC Hemp CBD
The top consumer drivers of OTC Hemp CBD are pain relief, reducing anxiety and helping sleep, as shown in the following graph.
Cannabis Product Composition and Patient Outcomes
Over the past several years, advances in technology have greatly enhanced the prospects for cannabis growers, processors, and dispensaries to provide medical cannabis products to patients that efficaciously treat the medical conditions and alleviate the incapacitating symptoms that they suffer.
Pre-clinical scientific research is determining the physiological effects of individual cannabinoids and terpenes on specific medical conditions and symptoms. Mobile apps are enabling the systematic querying of patients about the efficacy of specific cannabis strains and products in alleviating symptoms and conditions.
Collectively, these advances and other medical research are creating volumes of evidence to which human and artificial intelligence will be applied to develop insights for use by patients and medical researchers, growers, and processors in formulating products creating newer therapeutic options. Patients are already making informed decisions that improve individualized treatment of medical conditions progressively over time due to CBD being an approved over-the-counter consumer product.
Advanced Consumer and Patient Targeting to Improve Marketing and Medical Outcomes
Consumer attitudes, perceptions, and usage in local markets create richer, more actionable insights from customer segments, creating advanced quality scores and indices for scoring first-party internal data.
Cannabis consumer data is used for strategic and tactical product development, applications including:
Market Architecture: differentiating dimensions of product form and brand choice
Key Reasons for Use and Purchase
Affinity with Media, Channel, and other Product Categories
Multiple correspondence analysis of hundreds of consumer survey category questions is used to understand dimensional distinctions and differences between clusters. These key spatial dimensions for segmentation illuminate key differentiators, for use in innovation/new products, brand strategy, marketing execution, and digital media tactics.
Create Target Profiles
Merging cannabis consumer data with general consumer data such as Financial, Healthcare, Restaurants, Grocery/Drug Stores, and Media usage & exposure for each respondent facilitates creation of new consumer segments.
Using zip code identified respondent level data, the above Target Profile clusters can be integrated with other market and first–party data to prioritize personalization, enhance brand positioning, inform messaging, new customer marketing & acquisition efforts, and multi-touch attribution databases.
Mr. Stephen J. Gongaware is Sr. Vice President of Business Development at MSA (Management Science Associates, Inc.), a privately held diverse information technology development and service firm that for over 50 years has provided innovative solutions within its three core competencies of analysis, technology and data management. He has played a major role in developing and managing several MSA businesses in addition to his focus since 2014 on the medical value of cannabis for prospective patients, beginning with CBD and 20 other nonpsychedelic cannabinoids then measured by leading edge test labs. Other businesses he’s created and managed at MSA in the last 20 years includes services to develop/market pharma “rare disease” solutions, and MSA Casino Gaming solutions improving operation of slot floors, player satisfaction and also lead smart phone and sports book innovative projects with 6 of the Top 10 global casino operators and with several major gaming equipment manufacturers.
Prior to joining MSA, Mr. Gongaware was CEO of NetworkNext, an innovative national advertising firm; R&D Director at Cellomics, Inc. where he was awarded US Patent #US6365367; and an Electrical Engineer at Westinghouse Electric Corp. He received his BSEE degree from University of Pittsburgh in 1992 and his MBA from its Katz School of Business in 1995.
MSA is an Analytics firm with Big Data integration capability incorporated in 1963 to focus on improving government and management decisions. MSA has 800+ professionals with expertise in data science & AI, software development, test marketing, data management and management consulting and many of its innovations have become industry-standard solutions. MSA has served over 70 Fortune 500 Customers/Clients in the CPG, Media, Metals, Life Sciences & Pharma, and Casino Gaming & Sports Betting industries. It has been engaged in cannabis research since 2013 with the goal of providing the cannabis industry similar services to what has been now provided to the CPG, Steel, Tobacco, Casino Gaming, and Pharma industries for more than 50 years.
Post-Recess Predictions: Looking Into The Crystal Ball
by Andrew Kline, NCIA’s Director of Public Policy
Kids are back in school. The weather is starting to cool off. Congress’s August recess has come to a close. And it’s time to get back to the business of marijuana reform.
As 2019 starts to wind down and we gear up for 2020, it’s a great time to reflect on what we’ve accomplished, what challenges lie ahead, and what we think we can accomplish in the coming months.
Will we see Congressional action on myriad marijuana bills pending before Congress? Will we see new marijuana-related bills being introduced? Will Senate Republicans allow a floor vote on any marijuana-related legislation? Will House Democrats reach a consensus on marijuana-related priorities? Will the Presidential candidates reach consensus on the right approach for marijuana? The answer to all of these questions is… maybe. And the reason is not just that Republicans have been historically opposed to marijuana-related legislation. It’s because there is no consensus on the right approach. No consensus on a policy issue in Congress? Shocking, huh?
We’re starting to see this divide in Congress, with Democrats sponsoring legislation that de-schedules marijuana and Republicans supporting more incremental approaches like SAFE Banking and the STATES Act. Who will win the battle of the ages? It’s anyone’s guess. And while NCIA supports incremental approaches, they are plainly suboptimal. Below, I lay out two scenarios that are simultaneously at play. But first, let’s take a step back.
There’s no industry with a more impressive growth rate – and more potential than cannabis. Period. Whether you’re talking THC, CBD, CBN, or CBG, it’s all the rage. Recently, analysts called for $200 billion in yearly sales within a decade. And Congress should care about this issue because of the economics alone. But – and this is a big but, in order for the industry to reach those economic goals, or anything close to it, one thing must happen: The United States has to legalize all forms of cannabis at the federal level. And by federal legalization, I mean de-scheduling. And for those of you less familiar with Washington speak, “de-scheduling” means:
Removing cannabis from the authority of the DEA
Removing cannabis from a list of illegal drugs that have no medicinal benefits like heroin, LSD, and meth
Legalizing cannabis at the federal level so that there is no conflict with state laws
Legalizing cannabis at the federal level so that banks no longer a risk of federal money laundering charges by doing business with the industry
Legalizing cannabis at the federal level so that the federal tax code permits businesses to take small business deductions
And providing FDA and the Department of Treasury with regulatory authority like they do with alcohol, tobacco, prescriptions drugs, dietary supplements, and foods
There is no other long-term viable option for the cannabis community.
My role at the National Cannabis Industry Association (NCIA) is to lead public policy development for the industry. We’re working hard – on and off Capitol Hill – on comprehensive reforms that begin with de-scheduling. And if you’re committed to the growth of the industry, then you should join us.The Policy Council that I lead needs cannabis professionals to help us develop policies that support the best possible climate for entrepreneurs. If you care about being able to materialize the financial opportunity here, then you should care about creating the public policy climate that will allow the industry to really flourish.
Make no mistake about it: We’ve come an incredibly long way in the U.S. since the mid-90s when no state had legalized medical or adult-use marijuana, and support for legalization stood at roughly 25%. Today, two-thirds of respondents to Gallup’s annual poll favor legalizing recreational marijuana, with about 90% in support of medicinal cannabis. 33 states have approved medical cannabis in some capacity. Of these 33 states, a third (11) also allow adult-use consumption.
So, where is the federal government on this? Here are two possible scenarios.
Scenario One is that Congress passes some sort of incremental legislation in the near term.
There is a lot of cannabis-related activity going on in Washington D.C. these days. And there is good reason to believe that Congress will pass some form of cannabis legislation in the 116th Congress. But, if that happens, it’s likely to be an incremental approach – like SAFE Banking or the STATES Act – which provide protection for state-legal cannabis businesses from federal encroachment.
There was a hearing in the Senate Banking Committee on SAFE banking last month. Yes, you heard that right. There was a full committee hearing, chaired by a conservative Republican from Idaho. And Republican Senator Corey Gardner from Colorado testified in support of SAFE banking legislation. Senator Gardner is also a champion of the STATES Act, another incremental approach. This is an amazing feat, but does it mean that republican leadership has seen the light on cannabis? Maybe.
Or, maybe they just know the Presidential election will be decided by slim margins and the republicans can’t cede the marijuana issue to the democrats. Banking would be an easy win. And they wouldn’t have to support full federal legalization to support banking.
We also know that the House is poised to pass something soon. They have 206 co-sponsors for SAFE Banking. An impressive number. Word on the street is that that bill could move as quickly as this month in the House.
And think about this. Dozens of Attorneys General recently sued big pharma for knowingly selling opioids that are highly addictive and actually killing thousands of people annually. At the same time, three dozen Attorneys General sent a letter to Congress, asking that they pass the SAFE Banking Act for cannabis. Quite amazing.
Where there’s smoke, there’s fire, right? With all of this legislative activity, a bill must be coming to the floor, right? Maybe.
Mitch McConnell is not a cannabis fan, and he controls the legislative calendar in the Senate. But, hemp is a huge industry in Kentucky and NCIA has worked to have protections for hemp and CBD added to the SAFE Banking Act, so Mitch McConnell may now care more than he did just a month ago.
So, I do think that it’s likely that we will see some kind of legislative compromise on incrementalreform soon. And all signs appear to point to SAFE banking.
But, it’s unlikely that any such compromise will include de-scheduling.
And unless cannabis is made federally legal through de-scheduling, banks still risk federal money laundering charges by doing business with the industry, the federal tax code would still prohibit cannabis businesses from taking small business deductions, and possession of cannabis would still be federally illegal, setting people up for continued arrests for federal crimes that are state-legal in 33 states across the country. The economic impact of anything short of de-scheduling will continue to cripple any real small business growth.
So, while I actually think that we may see some legislative action in the coming weeks, it will likely not be the “end all be all” that some of us have been working toward. And it might not be enough to pacify investors or key constituencies.
But, it’s also possible that even small marijuana reform might not happen anytime soon.
So, here is scenario two: We don’t see any real movement in the coming weeks, notwithstanding some positive signs, for a handful of reasons:
Republicans generally aren’t fans of cannabis. Republicans have historically had a more negative view of cannabis than Democrats or Independents. In Gallup’s October 2018 poll, 75% of Democrats and 71% of Independents favored broad-based legalization, which compares to “just” 53% of Republicans – the party that controls the White House and Senate. And Senate Majority Leader Mitch McConnell, no friend to the industry, controls all of the cards in the Senate.
CBD regulations are stuck in a bureaucratic morass at FDA. Lawmakers are also taking their cues from the U.S. Food and Drug Administration (FDA), which has been contemplating how to regulate CBD for months. THC regulation will be harder. Much harder. And once Congress de-schedules, the FDA and Department of Treasury need to be ready to regulate. That is not tomorrow. Or next week. Or next month.
The U.S. Treasury is raking it in. Because cannabis businesses can’t take normal business deductions because of arcane tax rules, companies are paying an effective tax rate of more than 80%. So, the IRS is collecting massive taxes from businesses that are federally illegal. Once cannabis becomes federally legal, businesses can take normal deductions and pay less than half of the current tax rate. This would cost the U.S. treasury billions.
So, it’s possible that Congress does nothing in the short term.
No matter what, NCIA will continue to fight, on and off the Hill, for comprehensive reforms. And while we would be happy in the short term with some incremental relief, only de-scheduling solves myriad problems facing this burgeoning industry. It’s time for Congress to act. And there is no time like the present to get the ball rolling. NCIA will soon be releasing a white paper on how we believe that marijuana should be regulated at the federal level. And that plan starts with de-scheduling. We hope that Congressional leaders will take note.
Keeping the Momentum During August Recess
by Madeline Grant and Michelle Rutter, NCIA Government Relations Managers
The sun is hot, and the halls of Capitol Hill are empty… it must be August recess, but as your congressional representatives take a break from their busy schedule in D.C., we are still hard at work in the nation’s capital. We are continuing the momentum that the 116th Congress has had in changing cannabis policy. This summer there were many important hearings and events. Let’s take a look back at a few of them:
In June, the House Committee on Small Business held a hearing entitled “Unlocked Potential? Small Businesses in the Cannabis Industry.” The hearing allowed members of the Committee to learn about the opportunities the legitimate cannabis industry presents for small businesses in states with legal cannabis, as well as entrepreneurs from traditionally underserved communities. The hearing also discussed the challenges also faced by “ancillary” or “indirect” cannabis businesses. The Chairwoman of NCIA’s Banking Access Committee, Dana Chaves, testified, as well as representatives from the Minority Cannabis Business Association (MCBA), the Veterans Cannabis Coalition (VCC), and The Heritage Foundation. In the testimony NCIA submitted for the record, we wrote, “[SBA] programs were specifically designed to stimulate economic activity and create jobs through small-business enterprises. Offering funding to the emerging regulated cannabis industry, which is mostly comprised of small businesses, would perfectly align with SBA’s primary objective to maintain and strengthen the Nation’s economy.” You can read NCIA’s full testimony here.
In addition to the Small Business Committee hearing, there was a resounding, victorious Floor vote in June that put every single member of the House of Representatives on the record when it comes to cannabis. Known as the Blumenauer-McClintock-Norton amendment, this provision that was added to the Commerce, Justice, Science, and Related Agencies (CJS) Appropriations Act of 2020, passed by a vote of 267-165 and would prevent any federal funds from being used to target state-legal cannabis programs. The vote was decisive: it had support from all but eight Democrats and picked up 41 ‘Ayes’ from Republicans.
In July, for the first time ever, lawmakers in the House of Representatives held a hearing to address the disproportionate ways in which marijuana prohibition has negatively impacted people of color and marginalized communities. The hearing, entitled “Marijuana Laws in America: Racial Justice and the Need for Reform,” was called by the House Judiciary Subcommittee on Crime, Terrorism, and Homeland Security and exclusively featured testimony from witnesses in favor of sweeping cannabis policy reforms. Notably, none of the members of the subcommittee or witnesses advocated for keeping cannabis illegal.
Less than a month ago, the Senate Committee on Banking, Housing, and Urban Affairs held a public hearing, “Challenges for Cannabis and Banking: Outside Perspectives,” to discuss the current banking challenges faced by the legal cannabis industry and to assess the unintended consequences and public safety risks associated with commercial businesses operating in an all-cash environment. Earlier this year, to help find close the gap between federal and state cannabis laws, Senators Jeff Merkley (D-OR) and Cory Gardner (R-CO) introduced S. 1200 – The Secure And Fair Enforcement (SAFE) Banking Act, to provide protections for financial institutions that engage with state-legal cannabis-related businesses, including ancillary businesses that have a connection with cannabis businesses. The bill currently has 31 cosponsors in the Senate and is expected to have a House floor vote this Fall.
NCIA stayed busy outside the halls of Congress, too. In June, NCIA responded and submitted public comments to the U.S. Food and Drug Administration’s (FDA) request for comments on Scientific Data and Information About Products Containing Cannabis or Cannabis-Derived Compounds. Given the substantial interest in this topic and the need for regulations and standardization throughout the industry, NCIA and this coalition are providing specific insight into all facets the FDA would like to examine, including health and safety risks, manufacturing and product quality, and marketing, labeling, and sales.
Since your representatives are not here in D.C., you don’t need to buy a plane ticket for them to hear your voice. Many representatives take this month to listen to their constituents, so there are many opportunities to speak to your members of Congress and make your voice heard. Go to https://townhallproject.com/ to find town halls in your area, invite your members of Congress to tour your business, or go visit their local office and schedule a meeting.
This is an important time in our country – history is changing right before our eyes. Cannabis policy has taken huge steps just these past months, and we cannot let that momentum stop. With your continued advocacy and support, we can continue to lead the change in our community.
Do you have questions or want to learn more about how you can help our efforts on Capitol Hill? We’d love to connect and tell you more via email or phone. Please send an email to Madeline@TheCannabisIndustry to set up an appointment to chat.
Committee Podcast: The Emerging National Hemp Market
In this interview, industry specialist and NCIA Infused Products Committee member Ashley Hanson of Humboldt Green Light Kitchen speaks with Mike Perry, President and founder of PNX Botanicals, about the emerging national hemp market. Ashley and Mike discuss the relationship between cannabis and hemp products, the effects of regulation on small and medium-sized businesses, and testing standards for hemp CBD products. With state and federal governments rapidly developing new regulations, the conversation focuses especially on improving the conversation surrounding dosing, labeling, and product quality standards.
NCIA’s Infused Products Committee focuses on edible and topical products, reviewing existing business practices and state regulations. Regulation of these products is the IPC’s initial key focus, but the committee’s purpose is to ensure the infused product sector is helping shape its destiny, rather than being driven by differing jurisdictional regulations. The IPC is also working with the Council on Responsible Cannabis Regulation (CRCR) to develop standardized regulations for legislators and regulators to adopt as their states legalize the industry.
FDA Rulemaking on Hemp/CBD – Hurry Up And Wait?
by Andrew Kline, NCIA’s Director of Public Policy
In April of 2019, the National Cannabis Industry Association (NCIA) formed a coalition of more than 100 CBD/Hemp entrepreneurs, scientists, medical doctors, and FDA lawyers to inform and influence FDA rulemaking on cannabis and cannabis-derived compounds. Over the past two months, coalition members worked tirelessly to draft public comments. Our goal was to answer all of the questions posed by FDA (including scientific questions), to be helpful to FDA by informing their rule-making process, and to influence the direction of their rule-making.
NCIA Files Public Comment And Testimony
On May 30, 2019, we filed 60 pages of formal comments which can be found here. I’m really grateful for the coalition’s collaborative work and quite proud of our final product. I’m also extremely grateful to the authors, including Alena Rodriguez of RM3 Labs, Dr. Paul Murchowski of Dr. Pauls, Khurshid Khoja of Greenbridge Corporate Counsel, Vanessa Marquez and Chris Elawar of CBD Care Garden, Jonathan Havens from Saul Ewing, Andrew Livingston from VS Strategies, and many others who devoted time to produce a great submission.
On May 31, I testified before the FDA and listened intently as dozens of others spoke. My takeaways were that most of the industry echoed our sentiment – that CBD is generally safe, but that safety issues do arise with adulterated products and with irresponsible manufacturing and marketing practices. I spoke about the need for consensus-driven industry standards, to include marketing and labeling practices, and for mandated lab testing. These practices will go a long way toward making certain that the industry is safe for consumers.
Concerns And Misinformation
I am genuinely concerned that there is currently great confusion in the market. People seem to think that CBD is federally legal as a result of passage of the Farm Bill of 2019. But, that is only partially true. While CBD was de-scheduled, the FDA still retains the authority to regulate the industry as a result of their prior approval of a prescription drug for epilepsy, Epidiolex. In the absence of clear regulatory guidance, people are making health claims that violate federal law. And banks and payment processors are shutting off accounts for CBD businesses because they are having difficulty assessing whether a particular business is operating lawfully.
We hope that FDA will act with deliberate speed in drafting regulations for the industry. If FDA takes its time in crafting regulations, there is danger that many CBD companies will shudder because of a lack of banking and payment processing. And we will inevitably lose market share to Canada and other international players. As always, NCIA stands ready to help.
Learning objectives for the panel include, (1) what the FDA was interested in learning about and why, (2) understanding how our industry coalition responded to the FDA’s scientific questions, (3) predictions for how the FDA will regulate CBD/Hemp and what it might mean for cannabis regulation in the future. Panelists will include members of the coalition who drafted our public comments to FDA.
In the coming weeks, NCIA will be releasing some new policy papers via NCIA’s Policy Council – the think tank for the state-legal cannabis industry. As always, if you’re interested in joining the Policy Council or have any thoughts about how we can propel this industry, please reach out me at andrew@thecannabisindustry.org.
Member Blog: How To Build A Successful Hemp CBD Company
The legalization of industrial hemp in December, 2018, has opened the door to a host of new products and processes that have the potential to enhance health and technological innovation while being environmentally sustainable and most importantly, highly profitable.
Entrepreneurs who want to stake their claim in the hemp space face some of the same challenges as others starting a new business, but other challenges are unique. Like anyone starting a business, you must understand your market. Right now hemp’s “low hanging fruit,” cannabidiol (CBD), is gaining popularity. Established brands such as Bluebird Botanicals, Endoca, and CV Sciences – which recorded $48.2 million in revenue for 2018, an increase of 133 percent over the previous year – are taking off.
Growth like this explains why predictions for overall expansion in the CBD market are meteoric, with cannabis industry analysts The Brightfield Group predicting it could hit $22 billion by 2022. But in order to get on that ride you will need to understand CBD consumers, prepare to meet their needs, and plan to expand their awareness of ways your product or service can help them. You will also need capital.
Stand out to investors
Once you have a good idea of the market and demand, you will be ready to start thinking about funding your company. It used to be that a passionate founder with a good pitch deck could attract investors after one meeting, but times have changed. Investors want cold, hard data to back up your claims, and they will want better analysis than your gut feeling, and a larger sample size than your friends and family.
Your pitch needs to not only support your market analysis with data, but differentiate your brand from others competing for the same investor dollars. The business model and differentiation need to encompass:
Revenue source
Where will you sell your product? Options include wholesale, white label, and retail through either online, brick-and-mortar store or a third-party vendor, or a combination of those.
Product category
Will you market your product as a cosmetic, pet supplement, nutraceutical, specialty beverage, functional food or something else? You will need specific information about the market for that product category and what roles CBD can occupy in them.
Product quality
What extraction methods are you using? Is your product purity third-party verified?
Are you using the highest grade of CBD isolate or distillate in your product line?
Product sourcing
Where does your hemp and raw materials come from?
How hands-on are you with your suppliers?
How stringently do you track your product from farm to consumer?
Vertical integration is increasingly seen as the optimal approach to CBD supply chain management. Producers such as Shi Farms in Colorado specialize in vertical integration.
Cannabinoid science:
Are your product and marketing firmly grounded in the best available science supporting the uses of CBD and other cannabinoids?
Product story
Do you have a compelling narrative that explains your personal investment in making the product available to consumers?
Does your marketing comply with FDA standards?
Some things you should not DIY
The issue of FDA compliance deserves special attention and professional support for CBD businesses. It is one of a few areas where hiring a consultant can make the difference between success and failure.
Your outward-facing communications will have to walk a line between including all the required elements without making any claims that violate FDA regulations. Cosmetic and nutraceutical labeling must list all ingredients, while nutraceuticals also need to provide a dietary supplement facts panel. Structure and function claims can be particularly tricky. CBD is not classified as a drug and therefore verbs such as treat, diagnose, prevent and cure are absolutely off limits. The language has to convey that some consumers use CBD in certain ways without employing medical terms or guaranteeing any particular outcomes. You can do your own research on compliance but it is always wiser to hire a consultant who specializes in this area.
As you get past the initial planning and push to get your business started, you will find there’s no substitute for long-term planning. Collecting ongoing data on the purity and potency of your product, the costs of raw materials and effectiveness of your marketing will enable you to make mid-course corrections in your projections so that your business and revenue grow.
Long-term planning based on robust data will ultimately make a huge difference for your business. I predict a failure rate of about 70 percent for CBD companies over the next five years. Whether they are underfunded, lack an effective management structure or are out of compliance with FDA standards, many new businesses won’t be able to compete with major players like Kraft, P&G and Unilever as they enter and begin to dominate in the CBD space. But some of those starting a CBD business now will not only learn how to stay afloat, they will prosper to the point that those major players will come knocking at their doors with generous offers to buy. Build in a pathway for your desired exit strategy and have all of your operating agreements and documents at the ready. If this looks like a possibility, or you want it to become one, you will need top notch, cannabis-savvy representation like McAllister-Garfield in your corner.
Learning and networking
If you want to make a deeper dive into starting or building a CBD or hemp concern, The Hemp Biz Conference is here for you. During symposia around the country you can learn about industry trends in an interactive forum, and get access to experts in discussion and workshop sessions designed for everyone from beginners to established professionals. Scheduled tracks – agriculture, processing, manufacturing, extraction, textiles, biofuels and plastics – allow you to focus your time where it matters most to you and your business. The Hemp Biz symposia attract the hottest hemp companies, investors and entrepreneurs in the industry so you will leave with connections that will help you grow for years to come.
Christie Lunsford, CEO, leads The Hemp Biz Conference’s charge into creating a sustainable hemp industry by bringing together the best experts, entrepreneurs, farmers and scientists in the cannabis space in the Hemp Symposium Series.
Before launching The Hemp Biz Conference in 2018, Christie founded Endocannabinioidology, a consulting firm providing cannabis science, FDA compliance support, technology and education management to businesses and individuals in the cannabis and hemp communities, where she successfully wrote or advised on winning cannabis license applications in several states. She has also overseen operations for a producer of horticultural LED technology, helped formulate and launch the first retail channel of CBD nutraceutical products derived from industrial hemp in the U.S, and was named Cannabis Woman of the Year at the 2015 Cannabis Business Awards. In addition to producing The Hemp Biz Conference’s Hemp Symposium Series she is a regular contributor on the business of hemp for Green Entrepreneur.
NCIA Submits Public Comment To FDA On Hemp and CBD Products
Today, NCIA responded and submitted public comments to the U.S. Food and Drug Administration’s (FDA) request for comments on Scientific Data and Information About Products Containing Cannabis or Cannabis-Derived Compounds.
Given the substantial interest in this topic and the need for regulations and standardization throughout the industry, NCIA and this coalition are providing specific insight into all facets the FDA would like to examine, including health and safety risks, manufacturing and product quality, and marketing, labeling, and sales.
Hemp-derived CBD is in high demand by consumers, and the industry is eagerly awaiting the FDA’s regulatory framework for these products. Our industry coalition firmly believes that by working in partnership with the FDA to inform rulemaking, we can develop an appropriate regulatory framework to ensure the safety and efficacy of these important products.
CBD (cannabidiol) is everywhere right now. Front page articles proclaim its virtues and ubiquity. New retailers announce their intentions to sell CBD products almost every day. But a lot of the media coverage of CBD is inaccurate or misleading. Below are five common misconceptions about the legal status of CBD.
CBD is legal in all 50 states
Unscrupulous promoters like to claim that the 2018 farm bill has fully legalized hemp as well as any and all derivatives of hemp. That’s not true. The 2018 farm bill exempted hemp and its derivatives from the definition of marijuana under the federal Controlled Substances Act (CSA), but it does not require states to do the same. Furthermore, under the 2018 farm bill, states are permitted to prohibit hemp production and several states continue to do so. While some states explicitly authorize and regulate the production and sale of CBD, or otherwise provide legal protection for authorized individuals to engage in commercial hemp activities, other states maintain outdated drug laws that do not distinguish between marijuana, hemp and/or hemp-derived CBD, resulting in hemp being classified as a controlled substance under state law. In these states, sale of CBD, notwithstanding origin, is either restricted to state medical or adult-use marijuana program licensees or remains unlawful under state criminal laws. Additionally, a number of states prohibit the sale of certain consumable CBD products, such as CBD-infused foods or dietary supplements. So, before you start selling CBD or invest into a CBD company, do your research on the states where you will be producing and selling product; you could be violating state criminal laws.
The FDA doesn’t regulate CBD products
Although the 2018 farm bill removed hemp and the cannabinoids derived from hemp from the purview of the CSA, the 2018 farm bill expressly preserves the U.S. Food and Drug Administration’s (FDA) authority to regulate food, dietary supplements, cosmetics, and drugs, including those that contain hemp ingredients. The FDA’s position is that THC and/or CBD cannot lawfully be added to food or marketed as dietary supplements. To date the FDA has sent warning letters to several CBD companies expressing this position and requesting corrective action. Therefore, although the FDA is accepting public comment and is holding a hearing to evaluate alternative approaches for regulating CBD products, the agency currently has jurisdiction over food, supplements, cosmetics and drugs containing CBD and continues to disseminate warning letters to CBD manufacturers for violating federal laws and regulations.
CBD is non-psychoactive
CBD is often marketed as the non-psychoactive cousin of THC. This is misleading. Research has indicated CBD has antipsychotic, anxiolytic (anxiety-reducing), and antidepressant effects – clearly demonstrating that it is a mood-altering substance (i.e., psychoactive or affecting the mind or behavior). It would be more accurate to say that CBD lacks the intoxicating effects of THC. From a legal perspective this matters because making deceptive claims in advertising is illegal and can result in serious consequences. Section 5(a) of the Federal Trade Commission Act prohibits “unfair or deceptive acts or practices in or affecting commerce.” We have seen the FTC jointly send warning letters with the FDA to a number of CBD companies and ongoing litigation surrounding the marketing of CBD products demonstrates there is meaningful risk that false or misleading label claims can create a cause of action for fraudulent inducement.
CBD has no side effects
There is increasing evidence that CBD has side effects and may interact with other medications, such as the anticoagulant warfarin, especially at high doses. The FDA has identified several safety concerns associated with the consumption of certain CBD drug products, including potential for liver injury, somnolence, lethargy hypersensitivity, decreased appetite, diarrhea and sleep disorders. FDA further noted that the potentially serious risk of liver injury can be managed through medical supervision, but questioned how effectively this particular risk can be managed in the absence of medical supervision and FDA-approved labeling. While more research is necessary to better understand the impacts of long-term CBD use at various levels, blanket claims that CBD has no side effects may provide false and misleading information to consumers.
CBD can be freely included in pet products
Although CBD products are widely marketed for pets, there are currently no hemp (or CBD) ingredients that have received express FDA approval for use in animal products. The FDA cooperates with the Association of American Feed Control Officials (AAFCO) for the implementation of uniform policies regarding the regulation of animal feed products, and although the FDA does not recognize animal supplements as its own regulatory category (it either classifies such products as food or drugs), the FDA’s policy has generally been to exercise enforcement discretion, allowing animal supplements where stakeholder groups such as the National Animal Supplement Council (NASC) permit them. At present, neither AAFCO nor NASC permits the use of CBD in animal products. While NASC’s position on the use of hemp ingredients in “dosage-form products” as of January 30, 2019, is that hemp is allowed in dosage form products (i.e. supplements) provided it doesn’t contain CBD concentrates, isolates, or synthetics, and the THC content is 0.3% or less, AAFCO has not approved any hemp ingredients for use in animal feed. As with human products, risk of enforcement and regulatory scrutiny is increased where products make any disease claims, where products are marketed as containing “CBD,” and where products are advertised widely in interstate channels. In addition, a product may be considered misbranded if its labeling is false or misleading in any way or fails to include required information.
Due to the highly nuanced nature of cannabis regulation, the infancy of the domestic legal industry, and the constantly changing regulatory landscape at both the state and federal level, businesses must be sure to stay informed, educated, and vigilant.
2 – Grayson, L., Vines, B., Nichol, K., Szaflarski, J. P., & UAB CBD Program (2017). An interaction between warfarin and cannabidiol, a case report. Epilepsy & behavior case reports, 9, 10–11. doi:10.1016/j.ebcr.2017.10.001
3 – Scientific Data and Information About Products Containing Cannabis or Cannabis-Derived Compounds; Public Hearing; Request for Comments 84 Fed. Reg. 90, 12969 (April 3, 2019) (to be codified at 21 C.F.R. pt.15).
4 – Id.
5 – Hemp and CBD in Pet Supplements Weaves Same Tangled Web as in Products for Humans (Jan. 31, 2019), NUTRA ingredients-usa.com
Charlie Alovisetti, Vicente Sederberg LLC
Charles Alovisetti is a partner and chair of the corporate practice group at Vicente Sederberg LLP based in Denver. He assists licensed and ancillary cannabis businesses with corporate legal matters, and he has experience working with clients on a broad range of transactions.
Courtney Barnes and Corey Cox are associate attorneys in Vicente Sederberg LLP’s Denver office. They both aremembers of the firm’s hemp and cannabinoid practice group, where they focus on policy, regulatory compliance, and risk management in the hemp space.
Andrew Kline joins NCIA to lead Public Policy and kicks off by establishing a coalition to influence FDA rule-making on CBD/Hemp
NCIA is pleased to announce that Andrew Kline has joined NCIA as Director of Public Policy. In this new role for NCIA, Andrew will lead our substantive public policy efforts, striving to prepare and protect the state-legal cannabis industry. He will also lead NCIA’s Policy Council, a group of NCIA members interested in influencing federal and state public policy.
Andrew’s first task is to lead a coalition of CBD/Hemp businesses to prepare public comments and testimony for the purpose of educating and influencing FDA rule-making. The work begins in earnest today. If you would like to join the coalition, please email Andrew ASAP at Andrew@thecannabisindustry.org.
Kline most recently served as President of the National Association of Cannabis Businesses (NACB), the first self-regulatory organization for the high-growth cannabis industry. At the NACB, Andrew led the creation of national standards for the state-legal cannabis industry, oversaw its standards governance board, and led day-to-day operations and strategic planning.
Kline has a deep and celebrated background in public policy, law enforcement, and coalition creation/management. He is renowned for his ability to create solutions to complex domestic and global public policy issues that appeal to both private and public constituencies.
Prior to joining the NACB, Kline was Special Counsel for the Federal Communications Commission’s (FCC) Enforcement Bureau where he was responsible for high-profile investigations and public policy negotiations affecting the telecommunications, internet, cable and satellite industries. He also served as Chief of Staff and Senior Advisor for Intellectual Property Enforcement in the Executive Office of the President [Obama] where he led public-private partnership and public policy efforts to address online trademark theft, copyright infringement, consumer safety, national security, and the protection of domestic business interests globally.
Kline previously worked an Executive in Residence at American University’s School of Public Affairs where he taught graduate-level courses in public policy and law. He also served as senior policy advisor to then-Senator Biden and Vice President Biden, and spent fourteen years as a federal prosecutor.
Mr. Kline is admitted to the California, Colorado and District of Columbia Bars, and holds an MPA from Harvard University’s Kennedy School of Government.
VIDEO: NCIA Policy Webinar – Looking Ahead to 2019
As 2018 comes to a close, it’s a great time to sit down and reflect on the successes and challenges of 2018 for cannabis reform. We’re excited to present to you the first installment of our new quarterly Policy Webinar Series with NCIA’s Director of Government Relations Michael Correia, and Policy Council Chair Steve Fox. Watch the webinar and learn more about the successes our industry has had on Capitol Hill this year, the challenges that may be in store in 2019, and what you can do to take action.
The 2018 Farm Bill and the Return of Hemp to American Farms
by Michelle Rutter, NCIA Government Relations Manager
HISTORY
Farming and agriculture has long been a part of North American history. When the Great Depression hit in the 1930’s, both President Franklin Delano Roosevelt and Congress knew that the United States would struggle until the agriculture industry became prosperous again. As a result, many New Deal programs dealt with farming, but arguably the most notable agriculture related legislation was the Agricultural Adjustment Act of 1938, which was the first version of what we know today as simply the “Farm Bill” that is updated roughly every five years.
TODAY
Now, for the first time since the end of World War II, states are slated to soon be able to create federally legal hemp programs under the 2018 Farm Bill, which President Trump is expected to sign into law any day. The bipartisan legislation, which passed overwhelmingly in the Senate and House last week, would allow states to submit plans created by their respective Secretaries of Agriculture in coordination with their governors and chief law enforcement officers to the Department of Agriculture to grow and process hemp and hemp-derived products.
SEED TO SALE
As the law is written, state applications would need to include methods for tracking land used for hemp production and audit producers to make sure that the hemp they are growing contains less than 0.3% THC. Programs would also need to be approved by the Secretary of Agriculture, Sonny Perdue, in consultation with the Attorney General within 60 days of being submitted. Additionally, states would not be permitted to ban the transportation of hemp and hemp products through their jurisdictions, but production and sales would only be permitted in states with approved programs. The bill also contains a number of directives for research on hemp and hemp cultivation.
SCHEDULING
Hemp-derived cannabidiol (CBD) would be exempted from the Controlled Substances Act (CSA) in states with approved programs, but CBD will remain a Schedule 1 substance under the CSA and illegal at the federal level. The Farm Bill also does not impact the current Food & Drug Administration ban on CBD products or its ability to regulate the substance in the future.
INDUSTRY EMPLOYMENT
The law prevents anyone with a drug-related felony from working in legal state hemp industries, preventing many people who have been impacted by the unequal enforcement of cannabis prohibition from participating in the economic opportunities created by new programs. However, a late compromise led to the inclusion of a ten-year sunset period from either the date of conviction or the start of the state program, whichever is more recent.
THE FUTURE
Marijuana’s “cousin,” hemp, is generally barred because it is part of the cannabis plant, despite the fact that it contains very little of that drug’s key psychoactive ingredient, THC. In 2014, Majority Leader McConnell (R-KY) secured a hemp pilot program in that year’s farm bill. Since then, at least 35 states have taken up the offer and developed industrial hemp programs, and those states will be eligible to pursue a legal, regulated market when the bill is signed into law. The passage of this provision will surely bring about a new era for the agricultural industry, and the cannabis industry — when hemp returns to American farmlands.
Member Blog: 2018 Farm Bill – What Does This Mean For Hemp-Derived CBD?
For marijuana businesses, the 2018 Farm Bill is landmark legislation. Congress passed the Bill yesterday awaiting the President’s signature into law.
Transportation Of Hemp Across State Lines Allowed
Federal legalization of Hemp will be astounding for the cannabis industry nationwide. Drafted into 807 pages of law is Sec. 10113 [Hemp Production] and Sec. 10114 [Interstate Commerce] of Title X. Sec. 10113 adds “Hemp” to the list of “agriculture commodities” among other things. Sec. 10114(a) allows for “the interstate commerce of hemp or hemp products” and “the transportation or shipment of hemp or hemp products produced in accordance with [section 10113] . . . through the State or the territory of the Indian Tribe, as applicable.” [Sec. 10114(b)]
Hemp Means CBD
Federal Legislators defined “Hemp” as:
“[T]the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”
States May Regulate Hemp Production, But Not Interstate Commerce
The bill allows States and Indian Tribes to regulate Hemp and expressly provides for “No Preemption” of any law of a State or Indian tribe that “regulates the production of hemp” and is “more stringent” than federal law [Sec. 10113.]
However, Federal lawmakers went on to expressly provide for interstate commerce of Hemp and Hemp products [Sec. 10114] – the express language of the bill further states that “No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with [Sec. 10113.]”
While the Federal government occupies the field of interstate commerce under any circumstances, it will be interesting to see what happens in light of existing state cannabis regulations which make illegal the transport of marijuana across state lines.
Either way, when the President signs this landmark legislation into law, the entire cannabis industry, and commerce alike, will finally have breathing room. For marijuana businesses, hemp would be fully legal according to the Federal Government. Every barrier to entry in banking, commercial real estate, intellectual property and everything in between will lift – advancing the industry one monumental step further to social acceptance of marijuana as simply a commodity just like any other commodity – like cabbage perhaps.
If you would like a highlighted copy of the legislative text for the hemp sections under the 2018 Farm Bill, contact Eskaton Law.
An experienced corporate litigator having worked in both the private and government sectors, Attorney Robyn Ranke has taken a modern business approach to the cannabis industry and in working with cannabis business startups. Throughout her legal career, Robyn has represented a diverse base of business clientele in a variety of industries involving both complex and novel legal matters. Her diverse experience as a business litigator provides a valuable legal platform from which she is uniquely postured to address the regulatory hurdles, costly pitfalls, unique business transactions, and business litigation risks that confront California cannabis business owners today and into the future as state regulations continue to evolve.
Member Blog: Hemp & CBD Legalization, Regulation & Compliance – Key Language in the Farm Bill
Few developments in the world of cannabis — whether marijuana or hemp — could match the impact of the 2014 Farm Bill. But the 2018 Farm Bill, approved by the House and the Senate this week, promises to do just that.
As a quick reminder, the 2014 Farm Bill created an exception to the federal laws that prohibit the cultivation and sale of cannabis. To simplify, to the extent that a state created a pilot program to study hemp cultivation and the plants were of a sufficiently low level of THC, the resulting plant would be considered “Farm Bill hemp” and not subject to the prevailing federal prohibitions. To state the obvious, this was a very significant change. In fact, as a result of a combination of the magnitude of the change and the narrowness of the exception, apparent confusion led to periodic enforcement actions and court challenges.
As 2018 draws to a close, Congress must once again reauthorize the Farm Bill. It’s worth noting that the periodic reauthorization has nothing to do with hemp policy, and everything to do with the federal legislative process.
And the relatively narrow “exception” for hemp in the 2014 Farm Bill is on the cusp of significant expansion. Hemp, defined as cannabis plants and all their parts, extracts, “cannabinoids,” and derivatives with a THC concentration of less than 0.3%, will be subject to a regulatory scheme devised by the federal Department of Agriculture and will be removed from the federal Controlled Substances Act. States that wish to regulate hemp may propose regulations that the state “shall submit to the Secretary” of Agriculture. Notably, no state “shall prohibit the transportation or shipment of hemp or hemp products” produced in compliance with these new rules.
So, inquiring minds might wonder, what happens if 2018 Farm Bill hemp turns out to have a THC concentration of 0.31% instead of the permissible 0.3%? To the extent that higher THC concentration is the result of an honest mistake, Section 297B(e)(2) provides the answer: if the state has developed hemp regulations, and the state concludes the violation was the result of “negligence” (e.g., an unintentional oversight), the producer will be required to take corrective action. If that happens 3 times in a 5-year period, the producer will be ineligible to produce. If the state has not developed hemp regulations, the same standard will be applied by the federal Secretary of Agriculture pursuant to Section 297C(c)(2).
That is, a “negligent” mistake should not place the cultivator at risk of being placed outside of the protections of the Farm Bill (discussion of the reach of those federal laws is fascinating, but beyond the scope of this post). As a result, it will remain advisable for hemp cultivators to implement sufficient compliance efforts to avoid any potential inference that they are intentionally seeking a higher THC concentration.
Barring the unexpected, the 2018 Farm Bill will have a seismic impact on the hemp and hemp-derived CBD industry. With the nation watching, a smooth, well-regulated transition can only help to bolster calls for broader cannabis reform. As a result, once the 2018 Farm Bill becomes law, the industry will undoubtedly be paying close attention to the regulations promulgated by federal and state hemp regulators. And they will be working hard to demonstrate that they are staying within those guidelines.
Michael Cooper is the co-founder and managing member of MadisonJay Solutions LLC, a leading regulatory advisor to the adult-use cannabis industry that helps businesses understand the latest rules and build effective compliance infrastructure to address risk. He is the Vice Chair of the NCIA’s State Regulations Committee, and publishes and speaks frequently on cannabis regulation.
He is a graduate of Harvard College and Harvard Law School, and previously served as General Counsel of MHW, Ltd. and in the litigation department of Cravath, Swaine & Moore LLP. He began his legal career as a law clerk on the U.S. Court of Appeals for the Fifth Circuit. He can be reached at mcooper@madisonjaysolutions.com.
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