Member Blog: 5 Mistakes New Cannabusiness Owners Make, And How to Avoid Them
by Ellie Herring, Marketing Director of Dime Bags, a subsidiary company of Head Choice Inc.
Advice from Dime Bags, a leader in the hemp space that’s been in the industry for over a decade.
Business is booming for those who are successful in the cannabis industry. With over $9 billion in sales reported for the marijuana industry in 2017, it’s no surprise entrepreneurs are looking to fill the needs of millions of new customers that join the market each year. While the cannabis industry may look like a fail-safe investment to some, those who’ve successfully established themselves in the market know that starting a cannabusiness is nothing short of an enormously challenging feat. Regulatory laws, unforeseen roadblocks with city stipulations and auxiliary businesses, and an oversaturation of the market are some of the many challenges new cannabis business owners face.
With over a decade of first-hand knowledge in the industry, Dime Bags has experienced the many ups and downs of starting and successfully running a business in the hemp market. To save new cannabusinesses the trouble of making these mistakes on their own, we’ve compiled a list of the top five mistakes new cannabis businesses make (and how to avoid them).
Creating Unrealistic Expectations
Inexperienced entrepreneurs look at the cannabis industry and assume that because the marketing is booming and continuing to grow, it’s a fail-safe investment. This couldn’t be further from the truth. Penetrating a saturated market takes substantial dedication to the product or business and a wealth of knowledge of both the industry and regulations. What may look like a fool-proof business plan could completely dissolve with one legality mishap. In addition, a business plan with no passion or knowledge of the industry can easily fall behind in the saturated market of cannabis aficionados who quite literally eat, sleep, and breathe cannabis.
Be passionate about the business you’re starting or investing in and set realistic expectations for growth. While the cannabis industry has plenty of potential for successful ventures, they don’t come without their fair share of complications.
Assuming Other Businesses Are Willing to Work with You
Even in recreationally legal states, cannabis-related products and businesses still constantly face roadblocks in every operational endeavor. Dime Bags creates protective bags for glass transportation and uses hemp to make the fabric of our products. The bags arrive at our warehouse in Colorado Springs already constructed. There is no raw hemp at our building and certainly no cannabis on the premises, yet we’ve faced backlash and pushback from many companies. We’ve been turned down by insurance companies, faced difficulties finding a bank, and even experienced direct pushback from the surrounded storefronts for the product we make and market. Even if you’re starting a business in a recreationally legal state, do not expect others to always welcome you with open arms.
Properly research banks, accounting firms, lawyers, insurance companies, the location of your business and every other possible partnership beforehand to find those who support and are willing to work with cannabis businesses. As long as cannabis remains federally illegal in the United States, cannabusinesses will experience some pushback from other industries who are unwilling to take the risk. However, as public perception shifts and more states become legal, there’s been a noticeable increase in cannabis-friendly ancillary businesses and finding the right partnership is no longer completely impossible.
Not Adapting
As with starting any business, not being adaptable will cause your business to fail. In an industry where everyone’s trying to get in while it’s on the rise — the effects are tenfold. The cannabis industry is constantly changing with the growing market and if you’re not fully committed to adapting with the industry, your business will fail. As the cannabis industry is still so new and not yet worldwide, changes in behavior, attitudes, interests, and trends are moving at a rapid rate.
Stay up-to-date on the latest discoveries in the industry so you can be ahead of the curve for the “next big thing.” Having a solid understanding of the plant itself and the interests of consumers will allow you to recognize trends before they take off. While Dime Bags originally only made bags with hemp, we adapted to expand our line to include smell-proof technology as we recognized the demand from consumers. While it’s important to have a vision and roadmap for your brand, be open to changes in the market and stay on top of trends so you can execute changes before the rest of the industry.
Breaking the Law
While acute knowledge of state and federal regulations is a critical part of any cannabusiness, breaking the law goes beyond the day-to-day operations. Be especially mindful of how your employees and company conduct themselves. While your business may operate according to state laws, that doesn’t always protect you from random searches or anonymous tips given to regulatory officers. If your business hosts a launch party or industry event, ask yourself if on-site consumption is worth losing your business over. That’s not to say that it can’t be done according to the laws for your state, but one underage person caught smoking or someone enjoying a joint outside the front door of your shop could spell serious trouble for you.
Clearly outline your expectations for your employees including how they should conduct themselves at industry events and define the laws and regulations for everyone so there’s a solid understanding of what is legal.
No Back Up-Plan
As Benjamin Franklin famously quoted, “by failing to prepare, you are preparing to fail.” Part of working in the cannabis industry is constantly preparing for the worst. Always have a back-up plan when executing your strategy. The city may revoke a permit for an event you sponsored due to public concern, your packaging may not hold up to new regulatory laws, the possibilities are endless.
While it’s impossible to predict every issue that may arise, have enough capital to handle sticky situations and plan for alternatives before it’s too late. As a general rule of thumb, have at least three months worth operating expenses saved to account for unexpected situations.
The cannabis industry is an exciting and lucrative field for those who prepare and fully dedicate themselves to learning the ins and outs. With national (and hopefully worldwide) legalization on the horizon, it’s set to be one of fastest growing industries over the next decade. By following the advice of those who’ve paved the way, we hope your business has a successful launch in one of the most exciting times for the industry.
Good luck!
Ellie Herring is the Marketing Director for Dime Bags, a Colorado Springs-based but globally recognized glass protection brand that specializes in hemp fabric, smell-proof carbon filtered technology, and everyday accessories for hemp and cannabis enthusiasts alike. Dime Bags is a subsidiary company of Head Choice Inc. For more information about Dime Bags, please visit DimeBags.com.
Member Blog: Advice for Surviving and Thriving in the New Era of Legal Cannabis From Those Who Have Climbed The Mountain (Part 1)
The challenges facing companies pioneering a new industry where each state deals with its own issues are numerous. The importance of strategic business planning and the ability to predict future problems are essential to survival.Colorado, Washington, and Oregon have each dealt with their unique issues and challenges but there are also common problems that every cannabis business experiences: burdensome regulation, unfair taxation, and banking prohibition to name a few. Building your company and brand is dependent on your ability to maneuver your company through the obstacles that will arise in your state market while also planning for a future of legal interstate commerce through a change in federal policy. To place your company in a position to be successful, you should understand the past to predict the future.
Quick Summary of Cannabis History
The history of cannabis is long and distorted, however a few basic points of what brought us to the current state of federal prohibition and individual state markets should be noted for context.
Cannabis use as medicine dates back to 2700 BC in China, and has been used throughout history. In 1850, it was added to the U.S. Pharmacopeia. Prior to state and then Federal prohibition, cannabis was an elixir/tincture used in many common household cough/cold syrups and other medications for stomach-aches, asthma, depression, and many others. In the 1930s, cannabis was regulated as a drug in all states, and in 1937, the passing of the Marihuana Tax Act regulated it federally. Then in 1970, the Controlled Substances Act determined cannabis to be a Schedule 1 drug meaning it has no medical benefit and a high risk for abuse. From 1970 to 1996 the manufacture, use, or possession of cannabis was illegal in all fifty states.
CALIFORNIA
In 1996, California became the first state to legalize the medical use of cannabis through Proposition 215. California was the first domino to fall and further background of the early days of California medical cannabis will be addressed in later blogs in this series focusing on California. Over the next twenty years, 37 states have joined California with medically legal cannabis, and nine states have passed and implemented legal “recreational” (now referred to as “adult use”) cannabis programs.
OREGON
Oregon was the second state to pass medical cannabis in 1998 and that was the start of this author’s journey through the cannabis industry. Prior to 1998, Oregon had been a bastion of black market cannabis cultivation due to its climate and wide open spaces especially in rural southern and eastern Oregon. After 1998, the state “protections” offered by medical cannabis state law allowed the cultivation industry to flourish. However, as opposed to California the state was more focused on growing weed and selling it around the country rather than setting up a distribution system to the medical patients of Oregon. This led to some of the early challenges of the medical cannabis program in Oregon. At this time, the Oregon population was relatively small compared to the state’s cannabis production. Oregon was on its way to being one of the largest cannabis producers in the country. But because cannabis was so easily accessible there was little effort put into a healthy distribution system to Oregon patients. Most patients either grew for themselves or had a designated “grower” and that is where I started in the industry.
OREGON: FORMATION OF RETAIL ESTABLISHMENTS
As a nurse who had self medicated with cannabis for ADHD, I began growing for patients because I wanted to provide others with access to the amazing health benefits of cannabis. This was the common way most patients accessed their cannabis. There were no dispensaries when the program started and patients who didn’t have a grower were relegated to barter trade types of acquisition. In 2005, the Oregon Legislature allowed growers to be reimbursed for the cost of production and in 2010, the first dispensaries began to pop up. However, it wasn’t until 2012 that legal retail entities were allowed. This lack of a retail access point for patients was one of the first impediments to the program and allowed states like Colorado and California to take the mantel on progress of a robust program of medical cannabis distribution.
COLORADO
In 2000, Colorado became the sixth state to allow medical cannabis with Amendment 20. Its medical program remained low key until 2010 when the Colorado Medical Marijuana Code was created, which provided for licensing of production and retail establishments. This change was a giant step to the progress of cannabis legalization.
Colorado followed the early model presented in California and began implementing licensed retail establishments for card carrying medical cannabis patients. Retails stores began to flourish and this laid the groundwork for the establishment of the Adult Use program. In 2012, Colorado became the first state to legalize what was originally referred to as recreational cannabis now called “Adult Use” cannabis, which allowed the sales of cannabis to all adults aged twenty-one and older and the boom began. Colorado’s medical program developed into a rapidly growing Adult Use system and with the new federal guidance of the Cole Memo in 2013 canna-businesses began growing rapidly.
COLORADO: SEED TO SALE TRACKING
The primary language of the Cole Memo highlights a “robust tracking system” of all products produced and sold. The Cole Memo did not provide protections for cannabis businesses but provided guidance that helped assure businesses of some safety from federal interference. With the advent and implementation of a tracking system we could now be assured of where products came from and be able to track them back to their origin.
COLORADO: LAB TESTING
Once tracking was in place, lab testing for the safety of the consumer came to the forefront of industry progress. This was one of the first problems Colorado realized it had with its blossoming industry. As opposed to Oregon which required all products sold through its immature dispensary system since 2012, Colorado had not required lab testing of all its products until 2016 after several large quarantines and destruction of unsafe contaminated products. Many Colorado producers struggled with new pesticide regulations and was an early sticking point to growth of the industry. Over the first years of Adult Use cannabis program, Colorado struggled with the infancy of a brand new industry and how to regulate it and consequently, businesses suffered.
Other early challenges that the first legal state dealt with were allowable dosages and changes to dosing, as well packaging changes and the look of products, specifically how or if the products were attractive or marketed to children. The obstacles of a new industry most directly affect the businesses and their bottom lines. These are important points to consider when strategizing your business model and planning for inevitable changes to regulations. The time spent preparing for a system that will change will go a long way to ensuring for success.
WASHINGTON
Now let’s talk about Washington.
Washington was the third state to approve medical cannabis but had problems with implementation due to legislative issues. As multiple pieces of legislation were offered, adopted, and repealed, the lack of clarity prevented the medical cannabis industry from launching. Washington passed its adult use cannabis program at the same time as Colorado in 2012. In Washington, the two major obstacles the industry faced were licensing issues and taxes. A previously existing strong medical program in Colorado allowed for a seamless transition to an adult use program, but that was not present in Washington and this added to difficulties with implementing an adult use program.
Because the industry was just getting off the ground, both states relied on their medical programs as a foundation to the adult use. However, Washington’s medical program was murky and disorganized which lead to complications, Washington also limited licenses and put unfair taxes on the industry. These two factors aided in keeping the black market as the primary driver of the industry, rather than pulling people or businesses into a controlled, tracked, and regulated system.
280E TAX CODE
This provides a nice segue to one of the challenges all cannabis business face: unfair taxes in the 280E tax code. Internal Revenue Code section 280E specifically denies a deduction or credit for any expense in a business consisting of trafficking in illegal drugs “prohibited by Federal law or the law of any State in which such trade or business is conducted” which translates to only “Cost of Goods Sold” as the only deductible expenses. This means administrative costs, executive salaries, marketing and advertising, banking fees, etc., are non-deductible expenses for any cannabis business and subjects them to much higher taxes as most normal business deductions are prohibited. This challenge is one all cannabis businesses deal with and must be factored into financial modeling.
BANKING
While we are on the the subject of taxes and non-allowable deductions, banking is the other major challenge all cannabis businesses face. Due to federal policy around an illegal substance, FDIC insured institutions force canna-businesses to operate in all cash for fear of prosecution under racketeering and money laundering laws. There are a handful of financial institutions, credit unions, or state banks that offer “Enhanced Monitoring Accounts” for cannabis companies. However, they are highly priced and rare. The average cannabis bank account is likely to run $1,000.00 a month, just to have access to banking services, not including additional fees. This $12,000 a year budget line item, while not only expensive, is not a tax write-off per 280E tax code.
One can quickly see from just these two major hurdles or challenges to the industry, normal operations can be difficult. These obstacles are not to be taken lightly; they can be addressed but it must be factored into operating procedures, financial planning/budgeting, and strategic vision.
NOW BACK TO STATE SPECIFIC ISSUES
As Washington and Colorado dealt with its issues, Oregon voted to approve “Adult Use” cannabis in 2014. Using Colorado and Washington as a guide, Oregon implemented their system with more deliberation and vision based on what had been experienced in the first two states. But as was seen with the unique challenges in the first two states, Oregon encountered an entirely different set of problems. Oregon currently faces a massive oversupply problem which has affected all facets of business across the industry. In normal business and supply and demand economics, if an area is oversupplied, business move their products to where the demand is higher or the supply is lower. However, cannabis remains a federally illegal product and therefore interstate commerce remains illegal.
Oregon’s unique problem originated from two main issues:
Oregon had already established itself as a cultivation mecca
The regulatory authority decided against a cap on licenses
This lack of license caps has allowed the number of licensees to explode and thereby allowed the oversupply issue to occur and continue to grow. As stated, this is not a problem exclusive to cultivator/producers. Because of a 75% drop in value, cannabis attorneys, electricians, HVAC, security companies and other ancillary businesses are not getting paid. The oversupplied market and decreased revenue has reverberated across the industry and driven otherwise thriving companies into bankruptcy.
As you can see, each state deals with its unique challenges when implementing its Adult Use cannabis program, while we all deal with some issues that affect us all. The key to thriving… or surviving is to prepare your company to deal with the current challenges shared by us all and predict the challenges that your business will face in your state while preparation is taken for a national and international market.
James Schwartz RN, BSN, LNC, is an experienced medical legal consultant and CEO of CascadeHigh Organics with 20 years experience cultivating legal cannabis. James is a self-described organic minimalist cultivating in the most sustainable manner. James believes in clean cannabis and its use as a wellness drug. His Oregon licensed cultivation, Cascade High, has been featured in Dope Magazine and on the cover of Oregon Leaf’s Sustainability issue (March ‘18). James was featured as the Inaugural Stoner Owner by OR Leaf in Dec 2018. He has articles published by Dope Magazine about Cannabusiness and the Pharmaceutical Industry (May 2017), as well as a medical cannabis article in the Jan. 2019 Healthcare issue of OR Leaf. James is currently on the NCIA Cannabis Cultivation Committee and has presented Cannabis topics to multiple audiences at conferences including Cannabis Science Conference, PDX Hempfest, Cannabiz Convention, CBD Expo and Webinar series, Cannabis Collaborative Conference(CCC), Cannabis Nurse Conference, NCIA and educational industry mixers. His business, legal, medical, and agricultural knowledge provides a unique perspective on the industry. James has lobbied for Cannabis on both the national and state level with Oregon Cannabis Association and is a fierce advocate for the plant and all who use it.
Member Blog: Tiffany’s, Target, and Everything In-Between
I received a beautiful gift from Tiffany’s this holiday season. It was beautifully packaged in the signature Tiffany blue box, and placed in a Tiffany blue bag, along with wrapping paper embossed with the Tiffany logo. The packaging alone made me fall in love with the gift.
Everything about the Tiffany experience shouts quality. Yes, their items can be expensive, but as the saying goes, you get what you pay for, and when you shop at Tiffany’s, you can be assured that everything they sell will be of the highest quality.
Contrast this to shopping at Target. While I love Target, I wouldn’t want to purchase my jewelry there. Even if I received an identical item as the one from Tiffany’s, it just wouldn’t have the same appeal coming in the bright red-dot Target bag.
In other words, packaging matters. Branding matters. Presentation matters.
I know of a jewelry chain with stores across the United States. They are known for low-priced jewelry and they do very good business, with revenues of about $120 million per year. However, one of their biggest challenges is in convincing people that they also sell upscale items, such as flawless diamonds and rare gems.
One of the specific problems they had was in their packaging. Their low-cost boxes just did not have any panache or appeal. It’s hard to give an expensive gift in a cheap box. So, they eventually got some nicer boxes for their more expensive items.
But this did not fix the problem.
There were actually two challenges that this jewelry store faced. One was that their packaging was cheap. The other is that their brand was also cheap.
After years of becoming known as the low-price leader, it is a hard sell to try to become known for high quality as well.
Brands stick. So, you have to be careful with the path you choose.
Many companies have tried to attract new customers by changing the nature of their brand, but have failed. Oldsmobile is a textbook example.
Just a bit of history: Oldsmobile was legendary in the automotive industry. Founded in 1897, it was one of the five core brands manufactured by General Motors (GM) – the others being Chevrolet, Pontiac, Buick, and Cadillac – and helped lead the company to become the largest automotive manufacturer in the world.
For decades, Oldsmobile was a pioneering brand. However, in an effort to increase profits, GM decided that instead of preserving the unique identity of each of its brands, it would improve efficiencies through uniformity. As a result, Oldsmobile used the same parts and platforms as other GM cars, and soon they all began to look and perform alike, with only small cosmetic differences.
This resulted in a (predictable) slide in sales. Then in an effort to attract new customers, Oldsmobile fired its ad agency, and hired a new one that famously came up with the slogan: “It’s not your father’s Oldsmobile.”
The campaign failed because the brand did indeed appeal only to the older generation. Oldsmobile failed at attracting new buyers, and eventually the entire division shuttered.
Instead of changing their product, GM thought they could fool the public by changing its branding and marketing. No one was fooled.
In the cannabis industry, there will be room for low-priced brands that capture market share for those looking for a deal, and connoisseur brands that cater to a more discriminating or affluent customer.
But be careful which path you choose, because it can be difficult to change the public’s perception of your company once you have already built your brand.
My advice is simple: Build your brand in an authentic manner – meaning that your products and company support the promises made. If your products are meant to convey quality, then your packaging must be high quality as well.
You’ll have a hard time selling beautiful jewelry in a cheap box.
Remember that as you are thinking about rebranding, packaging, or launching a new product.
CEO Kary Radestock
Kary Radestock, CEO, launched Hippo Premium Packaging in March 2016 offering an array of services to the cannabis market, including: Marketing Strategy, Brand Development, Social Media, Public Relations, Graphic and Web Design, and of course, Printing and Packaging. Radestock brings over 20 years of award-winning print and packaging expertise, and leads a team of the nation’s top brand builders, marketers and print production experts. Hippo works with businesses looking for a brand refresh or an entire brand development, and specializes in helping canna-business get their products to market in the most beautiful and affordable way possible. Radestock’s Creative Collective of talent and experts, allows her to offer world-class solutions to support the unique needs of the Cannabis Industry.
Member Blog: Tackling Oregon’s Cannabis Oversupply Problem
When Oregon’s recreational marijuana program launched in 2016, the state chose not to limit the number of cultivation licenses that would be awarded. It also opted not to limit the amount of cannabis that each licensed cultivator could grow. Over the first 12 months of adult-use sales, the state issued licenses and expanded the industry.
Things were going fairly smoothly until the 2017 cannabis harvest brought in more than 1 million pounds of cannabis. For a state with just 4.1 million residents who purchased one-third of that amount in 2016, it became clear quite quickly that Oregon’s cultivators had grown more cannabis than the state’s retailers could sell. As a result, prices for legal marijuana dropped.
Unfortunately, the state didn’t learn from its mistake and the 2018 harvest brought 5% more cannabis than what was harvested in 2017. An even bigger surplus caused prices to plummet further, and many licensed growers were forced to go out of business or sell their licenses to larger companies with deeper pockets at extremely deep discounts. Those big companies could withstand price drops while smaller licensees cannot.
One of the biggest problems Oregon faces as a result of its cannabis oversupply problem is exactly the opposite of what its lawmakers wanted to happen when the recreational marijuana program was developed – many growers returned to the black market where they could still sell cannabis for a profit.
Possible Solutions to Cannabis Oversupply
As prices continued to fall and the cannabis oversupply problem continued to grow, suggested solutions came from multiple sources. Three options rose to the top as the most commonly cited. First, Oregon could cap the number of cultivation licenses it granted. With a large number of applications waiting to be reviewed and licenses to be granted, the problem with growing too much marijuana was poised to get even worse.
Both Washington and Colorado had some success solving their cannabis oversupply problems when they stopped awarding new licenses. In 2017, Washington had a 60% larger supply of cannabis than it did in 2017, which caused marijuana prices to fall in 2018. Business owners were very vocal about the need for changes to the state’s canopy limits and cultivation facility sizes. The state decided to stop issuing new cultivator licenses to solve the problem.
As the graph from the Cannabiz Media License Database shows, the number of active cultivation licenses in both Washington and Colorado varied by only 1% between January 1, 2018 and December 31, 2018. Contrast that to Oregon where the number of licenses grew by more than 26% during the same time period.
The Oregon Liquor Control Commission (OLCC) argues that only the state’s legislature can create a cap on the number of licenses issued in Oregon, but it did stop reviewing applications and issuing licenses in June 2018. While the OLCC claims the reason is because it had a large backlog of applications, it can also be assumed that the moratorium on issuing new licenses would help to quell the surging supply of cannabis in the state.
The second possible solution to the cannabis oversupply problem in Oregon is to reduce the canopy size for each license. In April 2018, Oregon modified cultivation licensing rules so new cultivators would have more limited canopy space for immature plants than existing cultivators.
The third suggested solution is to do nothing and let the market adjust and correct itself. For the most part, this appears to be the approach that Oregon is taking. While it did implement a rule in 2018 that required cultivators to notify the state of their harvests, which could bring an inspector to verify that the cultivator is adhering to cultivation rules, the state’s cultivators are still in a wait-and-see situation.
What’s Next in Oregon?
The OLCC has been doing research related to its oversupply problem and is expected to present its findings to the Oregon legislature this year. Many people assume placing caps on cultivation licenses will be on the table during those discussions.
In the near future, Oregon’s lawmakers will need to develop a strategy to deal with the oversupply problem, and it will likely include a combination of the suggested solutions. For example, a license or canopy cap and improving accessibility to marijuana products combined with allowing some consolidation to happen in the market should help to curb the oversupply problem.
Susan Gunelius, Lead Analyst for Cannabiz Media and author of Marijuana Licensing Reference Guide: 2017 Edition, is also President & CEO of KeySplash Creative, Inc., a marketing communications company offering, copywriting, content marketing, email marketing, social media marketing, and strategic branding services. She spent the first half of her 25-year career directing marketing programs for AT&T and HSBC. Today, her clients include household brands like Citigroup, Cox Communications, Intuit, and more as well as small businesses around the world. Susan has written 11 marketing-related books, including the highly popular Content Marketing for Dummies, 30-Minute Social Media Marketing, Kick-ass Copywriting in 10 Easy Steps, The Ultimate Guide to Email Marketing, and she is a popular marketing and branding keynote speaker. She is also a Certified Career Coach and Founder and Editor in Chief of Women on Business, an award-winning blog for business women. Susan holds a B.S. in marketing and an M.B.A in management and strategy.
As 2018 came to an end, the FINAL proposed text of the permanent regulations for California cannabis were submitted to the Office of Administrative Law (OAL) by the three regulatory agencies – the California Department of Food and Agriculture (CDFA), California Department of Public Health (CDPH), and the Bureau of Cannabis Control (BCC). The cannabis regulations submitted to the OAL are currently undergoing a 30-day administrative review to ensure alignment with MAUCRSA and statutory requirements. These “final’ regulations shall become effective immediately upon approval/adoption which should be on/before January 16th 2019.
What “final” means in this evolutionary process of California cannabis regulations is debatable, as there are already several Assembly and Senate bills queued up to be put through the legislative tango and all three of the regulatory agencies have indicated that there will be further clean-ups and clarifications of the “permanent” regulations. Although there will assuredly be changes ahead, this is a highlight reel of where California Cannabis stands now.
For those that dug into the October redrafts, much of the substantial changes that occurred in that version carried over into the final proposed text. Here we will highlight the top eight changes impacting cannabis businesses in California.
The Final Statement of Reasons from the BCC, which also included responses to pertinent comments received during the previous 15- and 45-day comment periods, is where some greater clarity about the regulatory changes and intents can be found. It is by spelunking into these deeper caverns of reasoning where the sweet ore of further clarity can sometimes be extracted.
Here are 8 highlights for anyone interested in California cannabis.
1. Ownership and Financially Interested Parties
In October we saw the expansion of the definition of ownership and financially interested parties that clearly sought to capture the identification of any and all warm bodies that stand to direct, control, or financially benefit from commercial cannabis. While there were some changes in sections §5003 and §5004 between the previous and current version, the scope and intent remained the same. One particularly vague line §5003.b.6.D “Any individual who assumes responsibility for the license.” was removed from the BCC’s definition of owner, this very line turned up over the in the CDPH’s update in §40102.a.4.D.
The Ownership and Financially Interested Parties disclosures dovetail into the White Labeling issues (See #2) in that “Brand Owners” that may be licensing IP to contract manufacturers have been impacted by the prohibition on non-licensees conducting commercial cannabis business with licensees. In the response to comments in the FSOR was this gem of insight, “In response to commenter’s questions, if a licensee includes as one of their owners a brand-owner, the licensee can produce the branded products because in this case the licensee is not engaged in commercial cannabis activity on behalf of an unlicensed person. Because the owner of the brand is an owner of the licensee, there is no unlicensed person involved.” Of course, before everyone runs off and adds brand-owners as owners of their contract manufacturing business, let’s take a moment to reflect on the value and critical importance of a well-drafted contract.
2. §5032 (b) The So-Called “White Label Prohibition”
5032.b shall go down in infamy as one of the more talked-about sections of the BCC’s regulations. This simple sentence, “Licensees shall not conduct commercial cannabis activities on behalf of, at the request of, or pursuant to a contract with any person that is not licensed under the Act,” brought with it a level of confusion and white-hot panic regarding the inferred white label prohibition contained therein. October’s version had more explanatory examples for the types of “on behalf of, at the request of, or pursuant to” activities that the BCC was talking about, such as, “procuring or purchasing cannabis goods from a licensed cultivator or licensed manufacturer. Manufacturing cannabis goods according to the specifications of a non-licensee, Packaging and labeling cannabis goods under a non-licensee’s brand or according to the specifications of a non-licensee, Distributing cannabis goods for a non-licensee.” This language was removed in the final version submitted to the OAL and is one of the examples of where the FSOR is enlightening.
From the BCC’s FSOR: “Initially, the Bureau determined that it was necessary to assist licensees with determining what types of activities may or may not be allowed under the Act and its implementing regulations. The initial proposed change identified certain transactions that would generally be considered commercial cannabis activities under the Act. However, the Bureau has determined that inclusion of the clarifying example transactions is causing more confusion. Accordingly, the Bureau has decided not to move forward with the proposed changes which identify examples of specific commercial cannabis transactions.” The definition of “commercial cannabis activities,” therefore, is an important one, and we can refresh ourselves on that one (Business and Professions Code §26001.k) “‘Commercial cannabis activity’ includes the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery or sale of cannabis and cannabis products as provided for in this division.”
This has been a hot, hot topic, and there have been some great analysis articles of this provision that dig further into solutions and scenarios related to this section. Get thee to Google and find out more!
3. Option to label THC/CBD post-final testing by Distributor
This was a big win for the industry! A substantial percentage of testing failures for “label claims” are due to products, previously required to be labeled with THC/CBD content prior to final testing (the one test that counts!) not falling within the 10% allowable variance threshold. It’s common knowledge that the science of cannabinoid testing is still getting dialed in, and the labs have some serious challenges in hitting the same tiny target twice. Especially when they are dealing with the vast array of cannabis product matrices, and an industry that it still learning about important things such as homogenization. The good news is, the CDPH now allows products to be labeled for THC/CBD content after that all-important final test, which should eliminate well-upwards of 50% of the product failures in California and ensure a steadier supply chain.
4.Regulation of Technology Platforms
The cannabis industry has always been a place of innovation and loophole-finding. These regulations are an attempt to close some of those loopholes that seem to have created a situation where unlicensed tech platforms were enjoying the privileges of licensed commercial cannabis without undergoing the slings and arrows of local/state licensure and regulation. Seeing themselves outside of the regulatory purview, certain business claimed that agencies such as the BCC had no dominion over their activities. Well, they may have wanted to wait until the ink dried on the final regs before making such an assertion, as now it seems the BCC has expanded its reach to embrace all kinds of advertising, facilitating, and delivery platforms.
5. Delivery to a Physical Address
This was (potentially) a huge win for patient access, however, it remains to be seen how this truly shakes out. When the BCC added the line that “a delivery employee may deliver to any jurisdiction within the State of California” it caused some serious outrage from municipalities that have banned commercial cannabis activity, the League of Cities, law enforcement, and others that saw this as a huge overstepping of the local authority ensured by Prop 64 and MAUCRSA. The LOC even launched a “wandering weed” campaign, in response to which it seems that a subsection that includes “a restriction on delivering cannabis goods to a school providing instruction in kindergarten or any grades 1 through 12, day care center, or youth center” was added to the regulations, for clarity. Whether the OAL will approve as is, and how this interacts with local bans, tax requirements, and law enforcement, and lawsuits… stay tuned! While the BPC (§26090.e & 26080.b) explicitly prohibits a local jurisdiction from preventing delivery, and transportation, of cannabis goods on public roads, it does not prevent localities that have banned commercial cannabis in their area from adopting ludicrous tax rates for deliveries that would in effect ban via taxation delivery in their area.
6. Sale of Non-Cannabis Goods (aka No Hemp)
While the seeming victory of the Farm Bill has folks leaping with joy for the future of hemp, statements from the FDA and other agencies have certainly rained on the parade of many a CBD vendor. Add to that the collections of California cannabis regulations that in effect eliminate hemp-derived CBD from cannabis dispensaries and products.
“In addition to cannabis goods, a licensed retailer may sell only cannabis accessories and any licensee’s branded merchandise.” (BCC §5407)
This limitation for retail (and retail delivery) is further clarified in the BCC’s FSOR in their responses to comments:
“Cannabis retailers are licensed to sell cannabis goods. The definition of cannabis within the Act explicitly excludes industrial hemp products. Industrial hemp is regulated by the California Industrial Hemp Program under the California Industrial Hemp Farming Act.”
“A retail license from the Bureau authorizes the retailer to sell cannabis goods and cannabis accessories. A retail license from the Bureau does not authorize licensees to sell items that are unrelated to cannabis.”
Combined with the retail prohibition on non-cannabis products, this trifecta from the CDPH extends that prohibition to manufacturers:
“A manufacturer licensee shall only use cannabinoid concentrates and extracts that are manufactured or processed from cannabis obtained from a licensed cannabis cultivator.” (CDPH §40175.c)
“Except for cannabis, cannabis concentrate, or terpenes, no product ingredient or component shall be used in the manufacture of an edible cannabis product unless that ingredient or component is permitted by the United States Food and Drug Administration for use in food or food manufacturing, as specified in Everything Added to Food in the United States, or is Generally Recognized as Safe (GRAS) under sections 201(s) and 409 of the Federal Food, Drug, and Cosmetic Act.” (CDPH §40305.a)iii. “Except for cannabis, cannabis concentrate, or terpenes, topical cannabis products shall only contain ingredients permitted for cosmetic manufacturing in accordance with Title 21, Code of Federal Regulations, Part 700, subpart B (section 700.11 et seq.) (Rev. March 2016), which is hereby incorporated by reference.” (CDPH §40306.a)
For now, it seems, non-cannabis derived CBD is DOA in CA.
7. Child Resistant Packaging (CRP) Requirement
Heads continue to spin (and cannabis business’ cash to hemorrhage) in response to the changes in the packaging requirements. As of July 1, 2018, all cannabis products were to be in child-resistant packaging, and retailers had converted back to the statutory requirement that all exit packaging was to be “opaque,” allowing them to use reusable totes and paper bags to satisfy this requirement. In the October regs, we saw a pivot that allowed for a seeming “grace period” for the child-resistant requirement to return to being able to be satisfied by the retail via CR exit bag. Some confusion remained as to whether products that were already IN child-resistant packaging would have to be put INSIDE of child-resistant packaging for the next year. The addition of the statement from the CDPH, “Until the date specified [1/1/20] the child-resistant package requirement [§26120] may be met through the use of a child-resistant exit package at retail sale.” (CDPH §40417.d) suggests that the significant ecological impact of CR packaging within CR packaging MAY be avoided, however, most legal counsel will probably be advising retail clients to use the CR exit bag to avoid potential liabilities. Viva Kafka!
In the CDPH’s Statement of Reasons, they said “This is necessary to comply with the packaging requirements in Business and Professions Code section 26120 while providing licensees with time to comply with packaging requirements.” Compliant operators were left somewhat confused, as they had been required to comply with these packaging requirements since July!
8. OSHA Training for Everyone!
All three regulatory agencies added the following requirement for OSHA training:
“For an applicant with more than one employee, the applicant shall attest that the applicant employs, or will employ within one year of receiving a license, one supervisor and one employee who have successfully completed a Cal-OSHA 30-hour general industry outreach course offered by a training provider that is authorized by an OSHA Training Institute Education Center to provide the course.”
This will be an additional training requirement, on top of existing state and local training requirements for cannabis operators. And remember, all that training documentation must be kept, like all other records, for seven years!
As with everything in life, more will be revealed as we get deeper into 2019.
Juli Crockett is a member of the NCIA’s State Regulations Committee and is Director of Compliance at MMLG. Slides from Juli’s recent Workshop on this topic are available for download here. You can also watch the workshop video in its entirety on MMLG’s Facebook page.
Member Blog: Hiring New Budtenders – Keep Your Eyes Out For These Red Flags
The success of your dispensary relies on many things – your location, the quality of the products you sell, and the people who work for you. While it might seem as if you can put just about anyone behind the counter and have them ring up transactions, the art of being a budtender is a completely different animal. Managers and owners who are in the position of needing to replace or expand their current staffing may not fully realize how their employees can make or break their business, so let’s go through a few important considerations.
It goes without saying that anyone can end up unintentionally hiring someone they shouldn’t have, so if any of the following scenarios have happened to you, don’t feel bad. This information can help in many types of businesses and will specifically save you a headache if you work in the cannabis industry.
Cannabis Knowledge
On-the-job training is certainly something that every dispensary manager should provide, as it’s impossible for someone to walk right in and run the show on their very first day. However, it’s another situation entirely if your new hire doesn’t know the first thing about cannabis. Not only is a basic understanding required pertaining to strains, methods of consumption, and weed culture in general, but if they bring knowledge to the table that impresses you, they’re a keeper.
Anyone who can’t answer simple questions about cannabis or CBD may not be the best choice for your operation unless you have the time and patience to teach someone from the ground up. Ultimately you want your customers to feel as if they’re consulting with experts, not the other way around.
Don’t Neglect Background Checks
This tip can take a two-fold approach, as the person you end up hiring is going to be trusted with access to tons of product, money, and maybe even the store keys someday. Reference checks are a must in today’s day and age, so if they don’t readily have people available for you to chat with, you may want to dig a little deeper.
Aside from simply calling previous employers, it doesn’t hurt to run a full background check on your potential new employee. You never know if people are representing themselves truthfully and it’s always better to be safe than sorry. Again, if your prospect is uncomfortable with this idea, you don’t simply want to brush it off and continue hiring them anyway. That’s not to say that you should instantly dismiss them either as some people have a criminal record they are embarrassed by but have changed.
Common Sense And Intuition
When it comes down to it, working as a budtender does require a specific set of skills but in general isn’t that much different than many other professional retail occupations. Take some time to consider everything a person brings to the table, listen to your gut, and above all else, let common sense guide you. If something doesn’t feel right about your new hire, pay attention to that notion or else it could cost you your business.
Courtney Elder is a cannabis and CBD expert. She’s a mother of 2 from Portland, Oregon and has done countless hours of research around both cannabis and CBD benefits. She’s written for some of the industries top authority sites and is the lead content creator at CBD Nerds.
Member Blog: Tax Court Decision for Harborside Health Center
The Tax Court’s recent decision in Harborside Health Center v. Commissioner is more bad news for the cannabis business community. The taxpayer, a prominent California dispensary, was assessed approximately an additional $30 million in tax by the IRS for the years 2007 to 2012, years in which Harborside had total revenue of approximately $102 million. Harborside lost, so it will have to pay that amount plus also pay another 20% of the tax owed in accuracy-related penalties – the Tax Court did not decide the penalty issue and left it for a later opinion. At this point, Harborside can either pay the tax (plus possibly penalties) or appeal to the Ninth Circuit Court of Appeals.
GROUNDS OF THE DECISION
The court decided against Harborside on every single argument made by its counsel. Three of the issues are straightforward:
The doctrine of res judicata didn’t apply, so the fact that a civil forfeiture case against Harborside had been dismissed with prejudice did not prevent the IRS from assessing a tax liability.
The language in Section 280E of the Tax Code that deductions are disallowed to a trade or business that “consists of trafficking in controlled substances” applies to businesses that have more than the one activity of trafficking. Harborside argued that “consists of” means the business must ONLY be trafficking for the disallowance to apply, and the Tax Court rejected that interpretation.
Harborside had only one trade or business so it could not deduct any expenses related to a separate trade or business. The taxpayer had argued it had multiple lines of business, but the opinion held that Harborside didn’t make significant profits from any of the other claimed lines of business so there was only one business.
MOST IMPORTANT CONSEQUENCE OF DECISION
The holding in the case that has the widest applicability to the cannabis community regards what Harborside may include in its cost of goods sold. The increase in tax owed by Harborside mostly comes from reclassifying expenses from cost of goods sold to ordinary business expenses and then denying deductions for those expenses under Tax Code Section 280E.
The taxpayer argued that the broader cost of goods sold rules under Code Section 263A applied in addition to the earlier (and narrower) definition of cost of goods sold under Section 471 However, the Tax Court endorsed the reasoning in IRS Chief Counsel Advice Memorandum 201504011 (2015) regarding the interaction of Section 263A and Section 471 with respect to cannabis-related cost of goods sold calculations. It is the IRS view that a clause of Section 263A prevents allocating indirect cannabis-related costs into cost of goods sold because the deduction for those costs would be denied under Section 280E.
Harborside contended that the Sixteenth Amendment to the Constitution compels using Section 263A rules in addition to the Section 471 cost of goods sold rules. The Tax Court was very dismissive of the argument, pointing out that “Section 471 wasn’t found unconstitutional during the many decades when it was the only means of calculating COGS [cost of goods sold], and it wouldn’t be unconstitutional now if Congress repealed Section 263A.”
It is also worth noting that the Tax Court held that Harborside was a reseller, not a producer, and that producers are subject to a different set of regulations under Section 471 that allow additional expenses to be included in cost of goods sold.
WHAT NOW?
Harborside is important because it is the first Tax Court case to squarely address the interaction between Sections 263A and 471 in the context of a cannabis business. However, there are other courts that can hear federal tax cases besides the Tax Court, and there are other arguments that can be made besides the one made by taxpayer’s counsel (even in Tax Court). While the best option for relief for cannabis taxpayers is to change the law, even if the law is changed, there will still be years of audits under the current law, so the questions raised by the Harborside decision will continue to be litigated. For further discussion, please see our blog on our website.
James B. Mann is a partner with the Tax practice group of Greenspoon Marder LLP. Mr. Mann has over 25 years of experience serving as a trusted advisor to a broad range of stakeholders in the energy and financial services industries. He counsels clients on the new changes in the tax law, as well as cannabis tax issues and cannabis tax controversy proceedings. Mr. Mann has a law degree from Harvard Law School and an MBA from Columbia University.
Rachel Gillette is among the first attorneys in the nation to dedicate her practice to the cannabis industry. Since 2010, Ms. Gillette has helped marijuana/cannabis businesses with licensing and regulatory compliance, business law and transactions, contract drafting and review, tax litigation, corporate formation, and tax matters, including audit representation. She works with startups and entrepreneurs, investors, and ancillary industry businesses to help develop the cannabis innovation ecosystem, and is a zealous advocate for the industry.
Ms. Gillette regularly represents clients before the IRS’s Examinations, Appeals, and Collections Divisions, including marijuana businesses facing the challenges of IRS adjustments under 280E. She has successfully protested local, state and federal tax deficiencies on behalf of her clients, having prevented hundreds of thousands of dollars in incorrectly assessed taxes, interest, and penalties. She can assist individual and business taxpayers in 280E proposed assessments, offers in compromise, audit examinations, innocent spouse claims, sales, use, and employment tax matters, trust fund tax penalty assessments, penalty abatement’s, and levy releases.
For several years, Ms. Gillette was the executive director of the Colorado state chapter of NORML, the National Organization to Reform Marijuana Laws. She was a founding member of Women Grow and the National Cannabis Bar Association. She an advocate as well as an attorney, and is committed to helping change laws – and perceptions – relating to cannabis and ensuring state licensed and legal marijuana businesses are fairly taxed and regulated.
Ms. Gillette received her Juris Doctorate from the Quinnipiac University School of Law in Hamden, Connecticut, where she served as Associate Editor of the Quinnipiac University Probate Law Journal. During law school, she interned with the New Haven Public Defender’s office, where she developed her commitment to advocacy for those facing the many challenges of the criminal justice system.
Member Blog: First Blush And Branding Need To Go Hand In Hand
Budding cannabis companies: Pay attention to labels from the get-go
Cannabis companies starting up in states where recreational and medicinal marijuana are just being legalized need to pay close attention to their label branding from the get-go. Too often, this critical part of a successful cannabis business becomes an afterthought — which can lead to major problems in compliance, competitive positioning and credibility in the marketplace.
As the cannabis industry expands in the U.S. and now Canada, it’s also maturing. Gone are the days when a purveyor could hang out a shingle and open their doors to teeming masses of buyers without any substantive concern about packaging and labeling beyond early-day regulatory compliance.
With the industry maturing, so is the sophistication of entities charged with compliance. As more is learned about all aspects of the industry — from edibles to raw cannabis — requirements being placed on purveyors are getting more complex. Plus, there are municipal and state regulations that may cross over one another.
Competitive Positioning It’s never too soon to get into the branding game, and distinctive labels that grab attention and share important information accurately are key to making a name for yourself.
A Forbes article earlier this year made the case: “Tim Calkins, Clinical Professor of Marketing at Kellogg School of Management at Northwestern University, foresees a highly competitive environment… an outburst of marketing and branding innovation… ‘We will see very creative brand-building activities in the years to come. I anticipate that marketing investment will grow exponentially as companies work to carve out a leading position and capture value in an emerging market…It isn’t often that you see an entirely new market emerge on the scene, especially one where brands will play a key role. Many people first experienced cannabis as a[n] unbranded plastic bag. This is not likely to be the future state. Cannabis will become a market dominated by strong, vibrant brands.’”
Compliance In their startup enthusiasm, purveyors may miss something on the label compliance scene. It’s easy to do, but can be very hard to fix. Products have had to be recalled, companies have been fined or even shut down for running afoul of regulations. Labels, as a product’s “front door,” are especially susceptible.
A Manufacturing.net report reinforces the point: “Often, cannabis products require specialized labels for traceability and stating suggested medical applications. State laws still vary greatly, and companies should be careful to know and have tools to track their compliance in all states and countries that they do business.”
Bottom line, newcomers to the industry need to be as diligent about their labeling and packaging as they had to be to get license approval. Anything less may result in more headaches than they can imagine.
Credibility in the Marketplace In Colorado’s early days of cannabis legalization, some labeling and packaging looked — to put it mildly — homespun. The look and feel of that early-day branding pales in comparison to the much more sophisticated label and packaging branding typically seen today.
But for industry newbies, there can still be a temptation to move ahead on operations at lightning speed, with branding, packaging and labeling lagging behind.
Ultimately, that may stifle credibility, giving competitors an opportunity to get a leg up. Ontario, Canada’s experience so far showcases how label problems can hamper credibility. Their online marketplace is the only “game in town” so far; there are no brick-and-mortar establishments. But, in a competitive marketplace, purveyor missteps can cause reputation damage as well as regulatory repercussions.
Notes a Civilized.life article, “Ontario Cannabis Store Faces Backlash Over Improperly Labeled Products… When Peter Lyon logged on to the OCS website on October 17, he did so with the intention of buying a strain high in THC — the compound in marijuana that gets you high. However, that is not what he got… Not only is the error in the product labeling upsetting for customers who won’t be getting what they paid for, cannabis retailers have a legal obligation to ensure that their labelling is accurate. Otherwise someone looking to unwind with a low-THC strain could wind up having a panic attack because the product they bought is way too potent.”
The first blush of entering a new marketplace deserves branding, labeling and packaging that measure up.
Gary Paulin is Director of Sales and Client Services for Lightning Labels, a Denver-based label printer that has been offering state-of-the-art affordable, full-color custom labels and custom stickers of all shapes and sizes to cannabis purveyors for more than a decade. They offer many options for materials and laminates and special effects to achieve digital short-run requirements (50 minimum) on up to 15 million labels, plus Lightning fast delivery. For more information and to place orders online, visit LightningLabels.com. For the latest in packaging news and labeling promotional offers, find Lightning Labels on, Facebook, Instagram, Twitter (@LightningLabels), Pinterest, Google+ and LinkedIn.
Committee Blog: Transacting in Equity – The Basics
by Charlie Christopher, VP, Finance, Cirrata NCIA’s Finance and Insurance Committee
“A prudent man must seek to satisfy himself about the means to an end. This demands that he must revisit, again and again, the very elemental principles of his craft independent of how others think and act.” – Tony Deden
In businesses of all sizes it is common to transact in a number of currencies other than cash. The focus of this piece is on transactions involving common equity, the most fundamental unit of business ownership. The first section establishes a framework for how to view equity as currency, and what differentiates equity from other mediums of exchange such as cash. The second section introduces the process for creating reasonable projections based on sound logic. The third section demonstrates a somewhat novel application of concepts, and provides an example of the flexibility that can be introduced into the process. The conclusion is a reminder that these concepts can easily be misused, and that nothing should replace common sense when dealing with extreme uncertainty.
The Problem
Valuing any business is hard. Valuing a start-up is even harder still, not because of process, but because of the ambiguity associated with the output. When a valuation is based on multiple layers of high variance variables then the resulting distribution of value is rightfully broad. This poses a major challenge for operators and investors trying to agree on fair terms, and it can lead to irreparable damage to a young company.
Imagine for a second that you, and everyone else, have a crystal ball that can see the future with just enough variance to keep things interesting. How would that change the way you think about your equity? Would you be offering the same equity deals to your entire team? Would you be flexible with investors interested in your business? Of course not, you would look into the future every morning, update your projections and you would transact in equity in a similar manner to how you would with cash. Even though we do not have a crystal ball in the real world, it stands that to transact in equity with absolutely no opinion of value is the equivalent to being indifferent between paying $.10 or $100,000 for the same product or service.
Equity is a form of currency. It has value. However, its value has a built-in variance that rewards beating expectations, and punishes missing expectations. This is why equity awards are typically used to incentivize contributions that can increase the odds of achieving the former. The act of issuing the reward, in theory, immediately increases the value of the firm through the alignment of incentives. The common exaltation of the aforementioned qualitative attributes of the incentive over the quantitative attributes is also why the standard practice of ignoring a non-cash expense like share-based compensation is so indefensible. The value creation may be real, but to deny that a currency has transacted to create that value is to double count the benefit to shareholders.
The Process
Valuing a business begins from the top down and ends from the bottom up. Top down refers to projections based on the broader market while bottom up refers to firm specific capabilities extrapolated into the broader market. A common mistake operators make is to build up based on capabilities with no regard for how the aggregate ecosystem will react to the sum of all fundamental behaviors in the ecosystem. Starting from the top-down with a defensible position regarding both the size of the addressable market and the number of competitors participating in the market provides parameters for the business’s potential revenue.
Arguing for market share using a top-down analysis is fundamentally flawed if it does not reflect the true capacity of the business. A bottom-up analysis reflecting firm-specific capabilities should be compared to the top-down analysis for reasonableness. Ultimately, bottom-up analysis drives operating assumptions, and operating assumptions are the inputs to nearly every valuation technique.
I subscribe to the theory that posits that the variance in all of the assumptions can be quantified using an appropriate discount rate. In other words, if I’m uncertain and find my forecasted outcome to be highly unreliable I may choose to use a much higher discount rate to calculate the present value of the business than for a business with lower variance assumptions. When valuing a start-up company, I consider the corresponding ultra-high discount rate to cloud too much insight. For start-ups I first calculate a probability of firm failure in each of the forecast years and multiply my operating assumptions by the cumulative probability of success, I then use a more reasonable discount rate as if the firm was not highly speculative. This allows start-ups in the seed stage to more easily defend increases in value before launch. For example, the filling of a major executive leadership position justifies a small reduction in the probability of failure. Thus, your first executive hire has a reason to have received a higher percentage equity award than your last hire, even though the dollar value of the award might be equal. The process facilitates fair negotiations among all shareholders who may commit under vastly different circumstances and with different information. All too often this doesn’t take place, and the animosity that can develop as a result is as real as it is avoidable.
Valuation is admittedly more art than science. Many astute readers will point out that markets don’t operate in the orderly, fundamental matter I’ve proposed. Those critics are absolutely correct. It is a fair caution that not only are the trappings of certainty intoxicating, but sometimes simply observing how others are transacting is sufficient to make decisions. The market is often wrong, but it’s also often right. Remember to update your assumptions as new information becomes available.
Charlie is a Co-Founder of Cirrata where he lends his extensive knowledge from being both an entrepreneur as well as a securities analyst. As VP of Finance, Charlie combines his skills to assist clients through the application process, ongoing operations, and exit strategies.
Prior to joining Cirrata, Charlie co-founded a luxury women’s ready-to-wear label where he oversaw two separate rounds of funding as CFO. He has consulted numerous clients in the cannabis, construction, music, financial services and software industries in which his primary focus was on information systems, optimization, cash forecasting, securities offerings, licensing and capital allocation.
Member Blog: What Every Cannabis Company Needs to Know About Their Finance Function
The finance function is an essential piece of a cannabis company’s ability to succeed. All too often overlooked by younger companies, it’s what’s needed to get a business through the survival stage and can really hold a company back if it’s not set up correctly. It gets leaders to spend wisely—and conserve cash when necessary. And it also helps companies scale for growth while being competitive in an increasingly crowded field.
Every finance function looks different, depending on where the company is in its business lifecycle. As they start out, companies may not yet have a full-time CFO and may rely on an outsourced team to access high-level expertise. As the company grows, so does the finance function itself and the areas it needs to cover and manage.
Everything gets more complicated with growth—from managing cash flow, meeting compliance demands, and navigating growth while planning for the future. To get through the ups and downs, cannabis companies should have access to the right mix of expertise, specialized skills, strategic insights, and wisdom of what fast-moving companies like theirs need in a dynamic marketplace.
I recently covered this topic on our firm’s blog, to help rising cannabis companies think through the essentials for developing a solid finance function. These include evaluating the expertise you have in-house, setting up the company for a potential acquisition (even it doesn’t seem likely right now, anything is possible!), and creating an ecosystem of trusted partners.
When things are moving fast, there’s a pressing need to prepare for opportunities and to be ready to switch gears if necessary. A fine-tuned finance function makes it all possible.
Maureen Ryan, vice president, heads up business development at finance and accounting consulting firmRoseRyanand was just featured in this month’s NCIA member spotlight. An NCIA member since 2016, RoseRyan is celebrating its 25th anniversary of great finance for companies of all sizes and kinds. Maureen can be reached at mryan@roseryan.com.
Committee Blog: Protecting Stash-Assets
By NCIA’s Infused Products Committee
Contributors include Radojka Barycki, Noval Compliance; Karin Clarke, KC Business Solutions; Lee Hilpert, Organnx; Danielle Maybach, Eva Gardens; Trevor Morones, Control Point; and Todd Winter, Winter LLP
You have spent months fighting sleep deprivation to build a strong pitch deck as the next most desired infused cannabis company. Educating staff, family, and friends, through role-plays and recent published journal entries. Blog after blog, inspirational book after book, and you start to believe that the deck is complete. Dress to impress then review the multi-colored sticky notes that list the risks of your operation. Some are likely, others are less, but what about the ones that are high? Is ALL of your due-diligence completed to pitch to the venture capital groups in the cannabis world?
The Issue
While legalization has quickly brought cannabis and cannabis-related products into international markets, relevant food safety regulations need to be implemented and adopted to protect patients and consumers. The infused product manufacturing sector, in particular, requires more uniform safety requirements to guide operating professionals, many of whom lack knowledge, resources, and incentive to standardize safety.
As target consumers range from large groups of adult consumers to medical users, safety is a paramount concern for all. This is especially true for medical users, as they are predominately high-risk consumers regardless of their specific medical condition.
The cannabis industry, especially the infused edible products sector, has a prime opportunity to incorporate and implement existing food safety regulations into their manufacturing processes. This will demonstrate alliance with the general food manufacturing industry and help to ensure that cannabis-infused product manufacturers are regulated no more stringently than any other food manufacturer.
The Risk
In addition to the already controversial nature of our industry, safety issues will undoubtedly garner public and press attention when as few one people become ill as a result of an unsafe product. Contamination inevitably comes from a variety sources, such as chemical, physical, or biological hazards in the growing and extraction process (and lack of testing), employee contamination (failure to use gloves, wash hands, dirty garments and tools, etc.), failure to adhere to basic food safety processing standards and practices (clean food contact surfaces, improper chemical concentrations, introducing biological contaminants).
Without clear and industry applicable guidelines and processes, product safety issues will emerge and take over headlines. Issues of product safety damage consumer and industry trust, resulting in lost revenue, loss of market share, decreased share value and loss of talent. One most recent example of the exorbitant cost related to product safety was made ominously clear in the multi-state Chipotle case. This incident caused a tragic decline in customer confidence and many days of double-digit stock value plunges.
The Solution
Site-specific training for all team members is the preventative action to reduce risks and generate positive audit results. Rigorous training programs expand food/product safety knowledge, generate a stronger culture, reduce risk, and prevent contamination. By focusing on how each employee can positively impact safety through their daily actions and contribute to the market value and customer satisfaction, employees take on a stronger safety and excellence culture, resulting in higher Net Promoter Scores (NPS).
Measurement is critical to quality control and ongoing excellence. Food Safety Management Systems (FSMS) provide operating structure and validate the process to prove the system is operating as intended. These proven systems operate on a foundation of integrity that mitigates risk throughout the process of a product. No doubt the learnings there transfer to the cannabis products, especially infused products.
What’s Next?
The IPC’s goals are to raise awareness, effectuate positive change, and help establish protocols and standards for food safety, dosing, and testing within the cannabis industry. This will establish baselines from which cannabis business operators can rely upon, prevent inapplicable regulatory requirements that are not relevant to our industry, and most of all provide for the safety of consumers.
Now, when did food safety leave a bitter taste in your mouth? Precisely! Never would we need an Upton Sinclair to transform the industry from a negative outlook on the truths. Collectively we will unite and hold our operations to a standard of excellence that will be called upon during the end of cannabis probation on a national level.
Committee Blog: “Cannabis Reform” Stops Short
by Lisa Jordan, VP of Marketing, Canna Advisors NCIA’s Marketing and Advertising Committee, Social Justice Subcommittee
As support for legalization continues to climb and speculation of “cannabis reform” at the federal level continues to swirl, one critical opportunity stands to be lost in the fray of voices and messages: Social Justice.
Cannabis reform, alone, stops short. The deeper work is addressing convictions, providing opportunities, and reinvesting in poor and minority communities that have been battered for decades by the “war on drugs.”
With focused attention, we can shape policies and legislation that expunge records, provide employment opportunities, and further offset the disproportionate effects on people and communities of color. Expungement of misdemeanor charges, alone, can mean the difference in getting a job or housing for residents of poor and minority communities across the country.
The objective of the Social Justice Subcommittee of NCIA’s Marketing and Advertising Committee is to make sure this opportunity maintains visibility and action and that cannabis reform doesn’t stop short.
#StartsAtThePolls
This level of policy change starts at the polls.
The November 6 elections are pivotal to voting in candidates who are not only in favor of cannabis reform, overall, but will also push forward with social justice initiatives.
3 Actions for Everyone
In these final days before the election, each person can take a few, mindful actions to make sure that social justice doesn’t get lost:
1. Register to Vote:
Some states allow voter registration until election day. Check your state’s deadlines here: https://www.headcount.org/deadlines-dates/
If you missed your state’s deadline for this year, go ahead and register now so you’ll be ready next time.
2. Know Your Candidates
Do your research to know where your state and federal level candidates stand on cannabis reform, overall, and on social justice issues.
It’s up to us to make sure this opportunity maintains visibility and action and that cannabis reform doesn’t stop short.
#StartsAtThePolls
Lisa Jordan leads the brand development and marketing strategy for Canna Advisors and provides expert guidance in these areas to clients. With proven success in emerging industries, Lisa’s work has won numerous awards including a Bronze Lion at the Cannes Lions International Festival of Creativity, national awards for predictive analytics, and local ADDYs. Lisa has spoken at cannabis industry conferences and was selected to serve on the NCIA’s Marketing and Advertising Committee and serves as Chair of the Social Justice Subcommittee.
Over time, Lisa hopes to make cannabis brands as mainstream and iconic as familiar, big brands. In her downtime, you will find Lisa on a hiking trail with her husband and four big mutts or finding any excuse to spend time at Red Rocks.
Member Blog: Common Cannabis Capital Cadence
by Sumit Mehta, CEO of MAZAKALI
NCIA’s Finance and Insurance Committee
Companies often benefit from capital infusions that can help them grow their businesses. When and how much capital to raise is a common question, once that is best addressed by balancing need for cash with dilution of equity. This article outlines typical stages for corporate growth along with potential sources of capital and required documentation along the way.
Common Cannabis Capital Cadence
Introduction
While a business does not need to raise money to be successful, one of the primary reasons businesses fail is that they run out of money. Businesses that do need money to survive or to accelerate growth can benefit from outside capital balanced by the related loss of ownership. Effective capital management is thus crucial to business growth and success.
Access to necessary capital can be a significant challenge, as money is cheapest to borrow when you least need it. Access to liquidity, while difficult in any industry, is even more challenging in the cannabis industry for a myriad of reasons. Despite these challenges, cannabis capital infusions are at an all-time high. Companies are well-served to be focused on ‘capital readiness’ well in advance of their desired capital needs.
The true entrepreneur does more and dreams less
Fail to prepare and you may be preparing to fail. Maintaining focus on cash needs and related documentation at every stage of your business growth is crucial to its ultimate success.
Idea Stage – Founders
A founder collaboration agreement can help lay out a working agreement along with conflict-resolution steps for future disputes. A common stock purchase agreement is a binding contract which highlights basic terms for the sale of shares to founders. This agreement will define the parties, the shares to be sold, the purchase price, the timing and method of payment, and the closing date. A shareholder agreement typically accompanies the stock purchase agreement and highlights shareholder rights, pricing mechanisms, voting arrangements and shareholder privileges and protections.
Documentation: Founder collaboration agreement, common stock purchase agreement, shareholder agreement.
Early Stage – Friends & Family
Friends and family can be some of the easiest sources of capital. They are typically more forgiving about business ups and downs, and having a resourceful network of trusted early investors is a good step towards securing money from future investors. It is common to use convertible notes at this stage, and relevant here are a convertible note purchase agreement along with a board of director consent. The intention of this note is that it converts to equity when the company conducts an equity financing.
Documentation: Convertible note purchase agreement, board of director consent.
Seed Stage – Angel Investors
An angel or seed investor is an affluent individual who provides capital for a business start-up, usually also in exchange for convertible debt. An advantage of this type of financing is that it is less risky than debt financing. In the event of business failure, invested capital does not have to be paid back. In addition to the documentation above, most angels will want to see a business plan and a pitch deck.
While the term ‘Venture Capital’ broadly applies to any capital provided to a venture, it typically describes a structured institutional scenario. Advantages of venture capital include amounts typically larger than angel funding rounds along with valuable information and resources that can contribute to business success. Challenges here include the length and complexity of the diligence process along with the documentation burden as highlighted below.
Documentation: A robust data room that includes the above documents along with a 5-year pro-forma model, cap table, valuation, subscription agreements, stock purchase agreements, incorporation documents & bylaws; and vendor, contractor & employee agreements.
Growth Stage – Private Equity
Private equity investments typically result in either a majority or a substantial minority ownership stake in a company. These generally come with strings attached, which can be wound tightly at times. While private equity offers the opportunity to raise large amounts of capital, it is also often accompanied by a loss of control. In order to amplify returns, private equity firms typically raise a significant amount of debt to introduce leverage into the transaction. This has helped coin the term ‘Leveraged Buyout’.
Documentation: A robust data room as above with PE specific documents that may include supply chain verification, tax and audit, legal reviews, intellectual property opinions and management team background checks.
Final Stage – Public Equity
A substantial increase in liquidity is one of the main advantages of this final stage of liquidity. Other advantages include increasing brand and prestige, attracting employees with a stock option plan, and making acquisitions with company stock. Going public is no easy task and requires a large absorption of new obligations, including filing SEC reports, getting shareholder approval for corporate actions, additional legal liabilities and other regulations as introduced by the Securities Act of 1933 and its many subsequent amendments.
Documentation: In addition to compliance with Regulation FD and Sarbanes-Oxley, filing and reporting requirements include annual reports, quarterly reports, proxy statements and insider holding filings.
Conclusion: A sustained and successful capital cadence raises investor confidence and subsequent recommendations to others. Determining a timeline for liquidity is the cornerstone of capital raise decision-making, and a plan created with financial rigor is useful for management and investors alike. While the preservation of liquidity is of primary importance, this is best balanced by the desire to retain ownership and control. When and how to raise money are amongst the biggest challenges for any business, and preparation is paramount to the capitalization of the arrival of opportunity.
Chance often favors the prepared.
In addition to his role as Founder and CEO at MAZAKALI, Sumit is a consultant to The Arcview Group and the Managing Partner of Emerald Ventures. A frequent speaker at investment seminars, Sumit acts as a mentor to Arcview and Canopy companies and serves on the Canopy Investment committee as well as the NCIA Finance & Insurance committee. Sumit and MAZAKALI support NCIA, the Marijuana Policy Project and Students for Sensible Drug Policy.
Sumit has earned an MBA from the University of Michigan, a BA in Economics with Honors from the University of Texas and currently holds Series 7, 63, 65 and 79 licenses. He resides in San Francisco where he enjoys riding his motorcycle, yoga, and craft beer.
Member Blog: WARNING – Is Your Sales Team Also Acting as Your Collectors?
by Cody Ziering and Brett Gelfand, Managing Partners, CannaBIZ Collects
As a canna-business operator, hiring a 5-star sales team is one of the greatest keys to success. You spend time and effort recruiting to ensure the candidates are capable of professionally representing your business. Your sales team is the face and brand of your organization. They work long hours, making introductions, persistent follow-ups and cultivating true relationships that yield cash and long-term growth for your business.
However, what happens when one of your clients doesn’t seem to be paying within the terms of your agreement. This customer has fallen behind on payments and is now a past-due account. “We are owed $50,000 by one of the largest dispensaries in the state, but we don’t want to ruin our relationship with them,” has become a common statement heard throughout the cannabis industry. Even more worrisome, these fears are justified.
Ruining a profitable relationship like this has the potential to disrupt sales, cash flow, bottom line performance, and carries the potential to sink the business all together. Most growing businesses in the cannabis industry do not have the size, resources or infrastructure to hire full-time accounts receivable personnel. One of the worst decisions a canna-business can make is to pay salespeople to spend their time selling a client on writing a check for past orders, when they should be focused on acquiring new business. Making the sales team collect on unpaid invoices forces them into a precarious situation. After building a sensitive business relationship, they must now approach their clients, and become the “bad guy bill-collector.” This label will then forever be applied in your client’s mind about your sales staff and from then on, will create a tenuous business relationship.
A canna-business has the option to assign a support staff member or “inside sales” to collect in-house. But that, in turn, will result in the same problem. It takes them away from productive work and puts your company in an awkward position that can damage the relationship your salesperson worked so hard to cultivate.
Similar to hiring a painter, canna-companies are starting to seek help to recover on their past-dues. If you want the outside of your house painted, you have two options. Do it yourself and spend hours and hours painting, or hire a painter and have the job professionally completed. A professional painter can paint your house more effectively (does a better job) and efficiently (can do it faster than you could yourself). The same can be said about professional A/R management or collection firms. These firms specialize in recovering accounts receivable and are more adapt and capable of collecting those debts for you.
When you have a difficult collection, especially a collection where the working relationship between you and the client is important, outsource the work. Find an agency that professionally manages accounts receivables and collectables. This way, you, your sales people, and your company are never the bad guy. By outsourcing your canna-business’s past due receivables, the agency will professionally communicate with debtors to recoup lost revenue quickly, and more importantly relieve the stress and potential conflict of chasing down these accounts internally. If debtors do not comply, agencies do their best to advise their clients if the money owed is more valuable than a soured relationship, which may result in legal action.
Many collection agencies offer their services on a contingency basis. When most attorneys require a retainer fee and charge steep hourly rates (sometimes exceeding $600/hour), contingent collection agencies charge nothing unless successful. They instead make a percentage of what they collect for you, only after your business gets paid. While it is possible that you might save by using an hourly attorney, it is highly unlikely. Collection agencies are businesses designed for one purpose: to recover their client’s past due A/R. They do so effectively and efficiently.
Reputable collection agencies offer their clients different collection strategies with different levels of aggressiveness. This should be based on what their client deems more valuable; the cash or the relationship. The agency that you hire should be able to pursue the debtor from YOUR direction. The agency you hire should be able to provide you a frictionless collection. A collection where all parties remain satisfied. All parties stay happy and calm, while the sales relationship remains intact. Best of all, your business recoups cash quickly, while still allowing your sales team to continue growing your business.
So do the smart thing, and don’t throw a wrench in the gears. Let your sales team hum and outsource your collections.
Brett Gelfand and Cody Ziering, Managing Partners of CannaBIZ Collects, were formerly executives at a vertically integrated Colorado cannabis company.
Recognizing the challenges with credit and collections in the cannabis industry, Brett and Cody resigned in order to lead the efforts to better the credit and collection practices for canna-companies nationwide.
Partnering with a seasoned commercial collection attorney, Brett and Cody have now helped to serve over 200 clients in the cannabis space recover lost receivables and reduce their client’s credit risk.
Committee Blog: Progression in Packaging – Challenges & Opportunities for Cannabis Brands
Any visit to a licensed dispensary is proof of how far we’ve come with the packaging of legal cannabis. Sure, we still have plenty of standard glass jars, CR pouches, pop-tops and cans; but we also now see proprietary package structures, full branded lines commanding shelf space and packaging so beautiful it doubles as a merchandising tool. Just in the past several months, cannabis packaging design trends have been covered by mainstream media including The Dieline and Packaging Digest.
These are exciting times to say the least, but packaging and labeling remains at the crux of the serious challenges and opportunities that cannabis brands face today.
Keeping Up With Compliance
Here in California, the challenge of keeping up with compliance is beyond real. The race to meet state regs by July 1st were only met with a new set of checklists (literally) the following day. Added labels is the name of the game for any California supplier. This is a real problem for those brands who are trying to stand out with their packaging. Understandably, companies are hesitant to invest in their packaging when the regulations are still in flux. Those who are in this for the long haul need to be agile and forward thinking when it comes to packaging and labeling.
Branding… Because it Really Does Matter With limitations on how a brand can reach today’s cannasumer, packaging is a critical marketing tool. It’s the one guaranteed touchpoint we have, and just like in traditional retail environments, every second counts when trying to capture a shopper’s attention. While it’s tempting to go with the standard compliant packages, a lack of brand value will commoditize your product (and thus, the price point). Brands should ensure that their package is reflective of their unique position in the market. Whether it’s a regional play, a potency position or targeting the growing number of boomer consumers—your packaging should speak directly to who your target market is. Now is the time to create brand loyalists!
Taking a Note from Natural Products
All across retail industries, we are seeing a market demand for products that have a more “natural” approach. From clean ingredients to plant-based everything, it’s impossible to avoid this trend. As the OG natural product, cannabis brands have a real opportunity to take advantage of today’s more discerning shoppers. Tell your story, explain your growing practices, show us your social responsibility… It’s all part of the package, literally and figuratively.
A Need for Sustainable Solutions
To really take our natural story to the next level, we can all agree on the need for more sustainable options for packaging and labeling. It’s great to see some brands, companies, and organizations like W Vapes initiating recycling programs. But as an industry, we need to rally together to work on this issue. It’s definitely a challenge that NCIA’s Packaging and Labeling Committee discuss regularly.
An Optimistic Future for the Realists
For those cannabis brands who can be agile, patient and focused—there is a bright future ahead. Despite the challenges of cost and compliance, an effective package can pay for itself. And if other industries like food and beverage are integrating technologies beyond the QR code (think AR and VR), we’re just getting warmed up. As both in-store and retail experiences evolve, so will the opportunities for cannabis packaging. Form, function, technology and product development are bound to take packaging and labeling to exciting new heights.
Member Blog: How Much Does it Actually Cost to Open a Dispensary?
Reading headlines about the cannabis industry, one might get the impression that cannabis business owners are all cashing out big. And while there are many success stories, high startup costs, ranging between $250,000 to $750,000, make the financial reality of opening a dispensary difficult for a lot of budding entrepreneurs.
But the growing demand for cannabis allows for great opportunity, even in the most saturated markets. Retailers who want to compete with big-box stores should work smart, focus on creating a great store experience, and invest in cannabis tech that streamlines operations to reduce cost.
Step 1: Licensing
The first step in opening a dispensary is getting a license. The licensing process, which varies based on location, is extensive and expensive. Expect to undergo thorough background checks and spend at least $5,000 on licensing fees.
In places like Washington, the number of licenses granted by the state are capped and only available by purchasing one off of a current licensee. This can run upwards of $25,000 plus legal fees.
Capital Requirements Preclude Many
Besides the licensing and possible legal fees, there’s another thing that precludes many from the industry: capital requirements. Before licensing, some states require proof that you can financially weather the true cost of operating a cannabis business. Depending on where you apply for a license, a local government may require proof that you have enough liquid assets to keep your business afloat in rough times.
Location, Location, Location
Finding a location for a cannabis dispensary isn’t impossible, but can be expensive. City and state regulations define the legal proximity dispensaries can be to a school, church, park, arcade, and/or anywhere else children might be likely to gather.
Finding a permissible location with foot traffic and parking might cost up to $100,000 per year. To keep customers coming back, it’s important to invest additional money to make the store friendly, welcoming, and modern.
The Cost of Cannabis-Friendly Banking
The legal ambiguity of cannabis creates a tenuous relationship with state-legal businesses. When banks work with U.S. cannabis businesses, they take on the risk, however unlikely, that federal enforcement priorities could change and cannabis-friendly banks could be targeted.
Most banks refuse to take on the risk. Others, like local credit unions, upcharge for their services and the risk incurred. Some banks charge up to $2,000 in holding fees every month for cannabis businesses!
Day-to-Day Costs & Smart Investments
You can’t run a dispensary without product, customers, and staff. In a state that allows for vertical integration, it can cost more than $500 per pound to grow your own cannabis; plus the inventory costs for edibles, topicals, and other products. To attract customers, you’ll need to invest $10,000 to $25,000 on marketing. The payroll costs for a staff of budtenders, store manager, and a master grower can total more than $250,000 annually. Finally, consider costly insurance policies, license renewal fees, taxes, legal retainers, and trademark protections.
Those day-to-day costs really rack up fast. A smart cannabis retail owner can save time and money elsewhere by investing early in technology that will optimize their operation. Investing $25,000 on hardware and software, including computers, an integrated point of sale system, and a full security system, can be a large upfront cost but could save your business in the end.
There are countless cannabis retail success stories. It’s challenging and expensive, but for a smart and informed entrepreneur, the upside is enormous. If you’re ready, download this free e-book to learn about how to open a dispensary.
Gary Cohen, CEO, leads Cova’s charge into the legal cannabis space by guiding the vision, strategic development, ‘go to market’ plans and culture.
Before joining Cova, Gary was a principal in over a dozen tech start-ups in the mobile communications industry ranging from small VC funded companies to Fortune 100 firms, including Onavo, which was later acquired by Facebook. In those companies he led sales, marketing, business analytics and market expansions. He has also held a multitude of leadership roles with Verizon and AT&T.
Gary holds a degree in finance with a master’s in marketing from the University of Colorado.
Committee Blog: How can we help your cannabis business?
What can we provide that can help you in your cannabis business?
NCIA’s member-driven Marketing & Advertising Committee is focused on developing best practices in cannabis industry marketing; opening dialogues with major media outlets that ban most or all cannabis-related advertising; holding in-person or virtual educational events for NCIA members; and developing educational content that supports the industry.
This year, the NCIA Marketing & Advertising Committee is creating a Resource Kit for cannabis business owners. Which tools would be most valuable to you? Please take a moment to share your opinion on what topics you are most interested in.
Member Blog: Know Your Regulations, Know Your Labels
Agility, timely data and printing performance drive cannabis label compliance
Ability to move quickly, accurately, and competitively is the lifeblood of cannabis purveyors. Timely compliance in such areas as labels and packaging is critical to staying in business; agility in grabbing a competitive edge is crucial to profitability.
To help make that happen, cannabis-savvy label experts must be able to provide near real-time information and clear, straightforward guidance to ensure full and timely compliance. With labeling and packaging regulations constantly changing across the land, getting and staying current is much easier said than done.
Sweeping changes include revising labels to make cannabis products less appealing to children, listing THC and CBD amounts, designating “hemp” versus “marijuana” products, and establishment of label regulations in states with new marijuana legalization laws. Then, there’s the entire country of Canada, which will legalize recreational marijuana effective October 2018.
California purveyors in particular are feeling the heat. New packaging and label regulations went into effect July 1, and Proposition 65 rules impacting all product labeling and packaging are now in force (full compliance deadline was Aug. 30).
Critical consequences of non-compliance
California’s July 1 requirements alone proved difficult for a variety of cannabis companies. A report on KPIX, the San Francisco Bay Area CBS affiliate, pointed out: “Empty Shelves At Some Bay Area Pot Dispensaries After New July 1 Label Law… Many California marijuana dispensaries seeing their profits are going up in smoke. Their shelves are sitting empty ever since a new labeling law took effect Sunday… the Associated Press estimated the entire industry would lose nearly $400 million because of unsold product.”
Obviously, lack of knowledge and compliance can carry severe penalties, crippling operations and hobbling profits. Here are a few tips to help cannabis companies stay on top of evolving labeling and packaging regulations and avoid regulatory repercussions:
Partner with companies providing accurate and complete label and packaging guidance, both on the information and hands-on production and printing fronts. There are companies dedicated to maintaining current and complete databases about rules and regs in municipalities and states where both medical and recreational marijuana laws are in effect. And there are label production and printing companies with extensive track records in creating cannabis labels. Make sure you get up to speed in both areas.
Confirm “agility ability” of these entities. All the information and capabilities in the world can be for naught if the capacity for executing quickly and competently doesn’t exist. As the cannabis industry continues to twist and turn all over the place, including labeling and packaging requirements, it’s absolutely critical to be able to move with—or optimally ahead of—developments. Having consistent, reliable resources in place can make the difference between plentiful shelves and profits and the emptiness associated with non-compliance—as many California purveyors discovered the hard way.
Use these established resources for predictive modeling. While predicting the future of cannabis rules and regulations may be difficult, cannabis companies with access to ample intel, experience and expertise may be able to better prepare for the future. Information showing trends, innovative ways to address what’s ahead with labels and packaging that “think ahead of the curve,” and overall insights into a variety of marketplaces can help make this happen.
To address both branding/printing and business/legal intelligence requirements at state and local levels, Denver-based strategic partners Lightning Labels and Highmark Data are giving cannabis purveyors fast and agile one-stop access to much-needed resources pertaining to labels and packaging. Lightning Labels is a Denver-based label printer that has been offering state-of-the-art affordable, full-color custom labels and custom stickers of all shapes and sizes to cannabis purveyors for more than a decade. Highmark Data provides comprehensive business and legal intelligence needed to make the smartest and most compliant decisions in municipalities and states nationwide.
Gary Paulin is Lightning Labels’ Director of Sales and Client Services.
Member Blog: Raising The Bar – Setting New Standards and Building Public Trust
In 1991, professors Harry G. Levine and Craig Reinarman published an article in the healthcare journal The Milbank Quarterly titled, “From Prohibition to Regulation: Lessons from Alcohol Policy for Drug Policy.”
In their study, they note the quiet effectiveness of an industry that has regulated itself without issue since 1934.
“The leaders of the major alcohol industries, just like other members of the economic establishment, have a strong investment in maintaining order and obedience to law. Now, many decades after national alcohol prohibition ended, it is easy to forget that all this was the outcome of self-conscious public policy and not the ‘natural’ result of market forces or national zeitgeist.”
As recreational cannabis laws continue to evolve, our industry—everyone from cultivators to regulators to entrepreneurs—continues to navigate uncharted territory. As we do, we would be wise to lean on the lessons of history and those responsible for managing and maintaining the alcohol industry in guiding our future. Here’s what my study of history leads me to believe:
Regulation Standards Must Do More to Protect the Consumer
I once had an English teacher who doled out chapter quizzes rather than assigning a culminating test or paper after we’d finished the book. Cram for the quiz by reading a CliffsNotes synopsis, or interrogate your more well-read friends on chapter highlights and chances were you’d pass the quiz.
It’s not unlike today’s state testing policies in which cultivators can breathe a sigh of relief knowing that if they simply do what’s needed to ensure the sample they have submitted for testing passes, their entire strain is in the clear.
The result of these kinds of regulations is a frenzy of activity focused on what’s needed to pass, rather than a shift in behavior focused on producing an altogether better product that is cleaner and safer for the consumer. A similar story goes for process validation. Submit batches for testing over a series of weeks and a passing grade ensures that your cultivation process can be considered “contaminant free.”
If our ultimate concern is public health, regulators should consider avenues that result in testing more product, more often. While there are certainly roadblocks that make this far from easy—namely the cost to cultivators and availability of labs for testing—steps in this direction would signal to consumers that shortcuts and workarounds won’t be tolerated.
An FDA-like approach to health and safety are needed to reshape our industry
Levine and Reinarman note that at the time of the prohibition repeal, producers of alcohol, “had to be regulated to ensure that products were safe and of a uniform alcohol content.” These regulatory efforts, “directly reshape[d] both an entire industry and the conditions under which its product are consumed.”
Sounds familiar. While state laws are slowly shifting to allow for greater medical and recreational use, the laws that shape the conditions under which cannabis can be cultivated, sold and consumed are still in flux. Not only do we have to add our voice to the conversation as those laws are being shaped, in doing so we have to advocate for both the industry and the consumer—with lawmakers and in public forums—showing our commitment to safety and uniformity.
That means instituting strict yet sensible FDA-like requirements that center on production, procurement and handling, as well as manufacturing, distribution and consumption of the finished product. It also means implementing common-sense standards like wearing protective gear in our grows, conducting regular analysis of critical control points like storage, packaging and distribution areas, and instituting a contamination kill-step before cannabis extraction is complete.
Reshaping the conditions in which we operate and aligning them with standards already in place for like-minded industries will do for us what it once did for alcohol: move us from an industry continuing its uphill battle for legitimacy to, “something routine and manageable, a little-noticed thread in the fabric of American life.”
We must recognize our responsibility and be conscious of the impact of our choices
Our industry is overflowing with individuals who treat cannabis not as a career, but a lifestyle. It isn’t just about the plant itself. We embrace it for what it represents and how it reflects our core attitudes towards humanity and our planet. Now it is also affording us the opportunity to make a profit in a legal and legitimate way.
As tempting as it is to be swayed by potential profitability, we can’t afford to lose ourselves in the process. Like the leaders of the alcohol industry, we have to be self-conscious about the precedent we are setting. If we can balance passion with profit, we can take pride in being pioneers who reshaped our country’s attitudes on cannabis.
If we take this moment for granted, if we fail to responsibly grow and sell our product, we do more than just damage our businesses; we lose the ability to influence lawmakers and further sway public opinion. Rather than driving cultural change, we will be at fault for failing to take advantage of a moment ripe for change. Now is our time to create our legacy and set the standard for years to come; to evolve our industry from legal to legitimate by being its leaders.
If we play our cards right today, our country may look back at this moment, as Levine and Reinarman suggest, and judge our previous attitudes towards cannabis prohibition much like alcohol prohibition, “repressive, unjust, expensive and ineffective.” With history as our guide, we have a chance to shape our future. Let’s take advantage of it.
Jill Ellsworth is CEO and founder of Willow Industries, which uses ozone-based technology to clean and purify flower and trim while maintaining a plant’s medicinal properties.
Jill is a Registered Dietitian Nutritionist (RDN) with a Master of Science in nutrition, dietetics, and food science.
Member Blog: 5 Things You Can Do While Waiting for License Approval
Your state passed a cannabis legalization bill and licensing applications are underway! Hooray! Now, you’re gearing up to start your canna-business. With your business plans in-hand and your application sent in, the fee paid, there is nothing to do now but wait… or you can prepare. These 5 steps can help ensure your business is ready for a successful, stress-free opening day, and beyond.
Find Solid Employees
It’s important to look for candidates, if not expressly experienced in the cannabis industry already, to at least have transferable skills; anything from customer service to professional horticulture. It’s also helpful to look into the less-obvious employee options, as in, not just growers and budtenders.
Considering the amount of technology licensed cannabis operations requires, whether it’s maintaining your dispensary point of sale hardware, or ensuring your lights are properly wired to your timing system, IT and technology professionals are vital to any well-run business.
Hiring a cannabis compliance officer can be another vital employee to consider while defining the ideal operational structure. Finding a solid compliance officer isn’t an easy task – it takes an individual who has in-depth knowledge of cannabis compliance and regulations. Not only that, but finding someone who is a problem-solver and understands how to navigate even the murkiest of regulatory waters will be essential in growing across U.S. and international borders.
Develop Your SOPs
Standard Operating Procedures (SOPs) serve as the backbone of your day-to-day operations and define how employees can stay compliant while performing tasks, outline safety and regulatory requirements, and construct standardized steps to comply with cannabis business regulations. Implementing those steps and enforcing them creates consistency from employee to employee, even in the event of turnover and new hires.
Find a Software System that works FOR You
Whether you’re a grower, manufacturer or dispensary, you’re going to have to rely on a track and trace software to keep you compliant and keep your operation running smoothly. It’s important to find a software system that works FOR you, not the other way around. Many cannabis software solutions have rigid workflows and limited functionality, which leaves you with no other choice than to operate in a way that syncs up with the software. Others offer flexibility and can be customized to match your process.
Establish Your Brand
From logos and overall design to messaging and developing a social media presence… as Jeff Bezos says, “Branding is what people say about you when you’re not in the room.” With hundreds of other canna-business out there trying to make a name for themselves, developing a strong brand has become vital in the cannabis industry. Outstanding products have come and gone, so differentiating your business in the market can be the difference maker. As the embodiment of essentially everything your business does and represents, developing a solid and unique brand identity will take plenty of thought, and plenty of time.
Keep Track of Compliance in Your State
Do you know the ins and outs of cannabis compliance in your state? If you’ve already sent in your license application, odds are you’ve mostly wrapped your head around it. But understanding it and maintaining it in your day-to-day operations are two different things.
Each state has unique cannabis laws, which as we’ve seen many times are subject to amendments. It’s up to businesses to stay up-to-date on your state’s regulations and any potential changes to them, as well as keeping your operational workflows up to speed. Keeping smart on the proposed, and sometimes implemented regulations, will enable you to stay ahead of compliance changes and implement swift changes to address them.
It can be frustrating the pace at which the cannabis industry progresses, but as one of the fastest growing and emerging industries in the world, the one thing you can’t afford to do is tread water. There’s always something you can do to prepare so when you do open your doors, you’re already 10 steps ahead of your competition.
Leading the sales team at BioTrackTHC, Steve Flaks has helped to establish the company as a leading cannabis software provider operating in over 2,000 business locations. Mr. Flaks has been featured in a variety of industry panels and publications as a subject matter expert surrounding licensed cannabis operations discussing topics including SOP’s, operational workflows, cannabis software, and seed-to-sale compliance.
Committee Blog: California Regulations Public Comment Period Nears Close – Act Now!
Do you have views on the regulations that will govern California’s cannabis industry? If so, California’s window for the public to make comments on the proposed permanent industry regulations is about to draw to a close. But you don’t need to be an expert on arcane administrative procedure or even a lawyer to participate in the comment period. Keep reading to learn more about what is at stake and how to make sure your voice is heard.
Overview and Introduction to the Regulatory Process
On Friday, July 13, 2018, California’s three cannabis licensing agencies (the Bureau of Cannabis Control, or “BCC”; the Department of Food and Agriculture, or “CDFA”; and the Department of Public Health, or “CDPH”) released their much-anticipated proposed permanent regulations for cannabis businesses pursuant to the Medicinal and Adult Use Cannabis Regulation and Safety Act. This began the 45-day public comment period of the regular rule-making process. During this time, the public has a chance to review and comment on the proposed regulations, and the agencies must consider these comments and may make changes based on this feedback.
Below are links to the proposed regulations and the summary sheets released by the agencies:
Currently, cannabis businesses in California are operating under emergency regulations that were originally adopted in December 2017 and re-adopted (with a few changes) in June 2018. The emergency regulations will stay in effect until the regular rule-making process is complete and the final regulations have been formally adopted at the end of this year.
In addition to publishing the proposed regulations, the agencies also each published a Notice of Proposed Rulemaking Action (NPRM), which contains various information about the proposed rules such as a summary of existing law and who to contact with questions and comments. The agencies were also each required to publish an Initial Statement of Reasons (ISOR), which contains the agencies’ reasoning and basis behind why they crafted a rule the way they did.
These regulations will have a number of impacts on how the cannabis industry operates in California. For example, new advertising regulations would go into effect; packaging and labeling requirements would change; certain edible products could contain up to 500mg THC per package (versus the current limit of 100mg THC per package); and outdoor licensees would be prohibited from using light deprivation.
Those are just a few of the key proposed changes. Please refer to the summary sheets published by the agencies, listed above, for a more comprehensive list.
What Makes an Effective Public Comment?
There are six standards in the Administrative Procedures Act (APA) that agencies including the BCC, CDPH and CDFA must follow when conducting rulemaking actions. They are:
Authority – The agency must be permitted or obligated by law to craft a particular regulation. (Gov. Code § 11349(b))
Reference – The agency must refer to the provision of law that the agency is implementing or interpreting via the regulation. (Gov. Code § 11349(e))
Consistency – The regulation cannot be inconsistent with other laws and/or regulations, and needs to be harmonious with existing provisions of law. (Gov. Code § 11349(d))
Clarity – The regulation must be easily displayed or written so that it will be easily understood by the people affected. (Gov. Code § 11349(c))
Nonduplication – The regulation cannot serve the same purpose as another existing state or federal law or regulation. (Gov. Code § 11349(f))
Necessity – There must be substantial evidence in the record for needing the regulation in order to fulfil the purpose of the statute or other provision of law that the regulation implements or interprets. (Gov. Code § 11349(a))
Since the BCC, CDFA and CDPH have to comply with the standards above, it’s a good idea to focus your comments around one or more of those specific areas, as opposed to just making a comment that you dislike a particular proposed regulation without giving any reason why. That way, it is more likely that the agency will respond to your comment by making an adjustment to the proposed regulation(s) in question.
How to Submit Your Comments
Comments on the proposed regulations can be submitted to the agencies by mail or email, or offered in-person at one of the agencies’ scheduled public hearings. Your comment must include the following: (1) the subject title of the proposed regulation; and (2) specific concerns regarding the proposed regulation, which the agencies deem most helpful if they identify the section number in question, discuss the issue, suggest changes to the text, and explain why any desired modifications address the issue.
Please note that all comments received during the public comment process become part of the official record which is public information. Thus, you may not want to include any confidential or identifying information in your comments.
All comments must be submitted to the respective agencies by 5:00pm on August 27, 2018 or provided at one of the scheduled public hearings. Below are the locations of the public hearings, which will take place throughout the state during the months of July and August. (This information is subject to change; please check for updates on the California Cannabis Portal.)
Bureau of Cannabis Control Hearing Dates and Locations
The first two BCC public hearings have passed. There will be a final public hearing on August 27, 2018 from 10:00 a.m. to 12:00 p.m. at the Tsakopoulos Library Galleria, 828 I Street, Sacramento, CA, 95814.
California Department of Public Health Hearing Dates and Locations
The first two CDPH public hearings have passed. There will be a final public hearing on August 27, 2018 at 10:00 a.m. at 8400 Edes Avenue, Oakland, CA, 94621.
California Department of Food & Agriculture Hearing Dates and Locations
The first three CDFA public hearings have passed. There will be a final public hearing on August 28, 2018 from 1:00 p.m. to 3:00 p.m. at the California Department of Food & Agriculture Auditorium, 1220 N Street, Sacramento, CA, 95814.
Some Final Words
Collaborate. Join with other groups, trade associations, brain trusts, friends. Have reading groups. Get together and consider problems and solutions from multiple points along the supply chain, so that the solutions you offer can be relevant, functional, and comprehensive. There are many smart people working on this right now, so if you don’t have the time to this by yourself, link up with a trusted group that is commenting in accordance with your interest. Comment letters signed on by many stakeholders are very powerful.
Most importantly, “Keep Calm and Carry On!” Even though operators may see major changes being contemplated in these regulations, these are NOT YET IN EFFECT. Operators still need to remain compliant with the EMERGENCY regulations that are currently in effect, until the final regulations – post comment period – are officially adopted. This draft can and will change, so folks shouldn’t be making major business decisions based on the draft, as elements may either fall away, shift, or be added. (Think about the 24-hour security guard requirement in the Readopted Emergency Regs – it came and went within a 5-day comment period.) There are items in this draft that are sure to receive a LOT of comments and suggestions, so keep calm and carry on following the emergency regulations during this comment period.
Finally, even for operators outside of California, this process is nevertheless important to watch as the path that California takes will impact how the rest of the country chooses to regulate the cannabis industry, and it is also important to participate in if you plan to expand into the Golden State.
NCIA’s member-led State Regulations Committee (SRC) examines and reviews the varying cannabis industry-specific statewide regulations and works to establish best practices or guidelines for states and municipalities to facilitate the development of regulations and compliance procedures.
Member Blog: Increasing Employee Retention in the Cannabis Industry
A recent report from Headset Cannabis Intelligence utilized Point of Sales systems to gather data from Washington and Colorado state cannabis dispensaries.
The general overview of dispensary budtenders is that they don’t tend to stay around long as the job role has a high turnover rate. In fact, nearly 60% of employees don’t last past two months – and only 40% make it past the first. To make new hires worth the time and cost retention is essential, otherwise any hiring dispensary will be hemorrhaging time and money that could otherwise be directed into the growth of the business.
With only 14% of employees lasting beyond three months, it’s obvious that the quality of onboarding and training is a crucial, determining factor of retention.
The type of welcoming into the workplace, type of training and management they receive in conjunction with the tools they receive for work all contribute to whether that stay past the two-month mark.
While the roles in cannabis dispensaries may come with their own challenges, there’s no clear reason why turnover is so high.
With the industry expected to grow from $9.2 billion to $47.3 billion over the next decade within the U.S alone, it could be that the growing opportunities available allow budtenders to choose and hop between employers within the industry, meaning that dispensaries need to compete against one another to retain employees. Alternatively, it could be the management, burnout, being overexerted or under challenged.
Either way, there are a number of employee management methods that help reduce the employee turnover rates by creating an engaging and hospitable working environment, which will in turn lead to the reduction of hiring and training costs, the boosting of team morale and consistency in the customer experience.
Promoting Workplace Harmony
The running of a dispensary requires management to constantly assess staffing costs and needs for the changing demands of the business. However, too much attention to the needs of the business and too little on employees can lead to the overworking of staff, burnout and an unpleasant working environment.
It’s worth noting that Headset Cannabis Intelligence identified that high growth dispensaries (40% growth) have fairly high turnover rates, while dispensaries with 20% – 40% growth tend to have more stable turnover rates.
With dispensaries that are growing slower and steadier, they do benefit from lower turnover. However, with rapidly expanding dispensaries, it appears it may not matter what the employee churn rate is. Although, regardless of the rate of expansions, employee churn harms the business’s bottom line in the form of hiring and training costs, inconsistent performance and customer experiences.
Effective employee management will maximize productivity as well as engagement. To do that it must involve adequate time off for employees to attend to their personal obligations, like education or family, and time for recuperation.
With a variety of employee management solutions available, it can be hard to know which tools will actually help. With employee organization being at the heart of engagement and productivity, a solid employee scheduling solution should be at the top of the list. Decent solutions will be able to assist in keeping employees’ needs in consideration during the scheduling process by setting working parameters like their availability, maximum working hours and shift lengths, resulting in easier organization with greater visibility of your available resources.
Alternatively, many solutions allow varying degrees of employee self-management. The amount is up to management, but it can range from complete self-management, where employees opt for the shifts that suit them, to allocated shifts where employees can arrange their own shift-swaps, drops and pick-ups with managerial approval.
However employees are managed, the truth is that a workplace that considers and accommodates the workers’ needs is appreciated and makes for a desirable working environment.
Communication/Involvement
The value of effective communication cannot be understated for operation efficiency and performance. Although widely understood, its importance is often overlooked with regards to employee retention.
A staggering $2,100 to $4,100 is lost by businesses each year with poor communication being the sole cause. The Bureau of Labor Statistics (BLS) identified in 2014 that the staff turnover rate was at 66% with that percentage increasing ever since.
People like to feel their role has a purpose and their input makes a difference if they are to remain performing optimally and satisfied in their role. The problem is that communication in businesses is in a usually top down manner.
The promotion of the bi-directional flow of information can be used to elicit feedback from employees on a regular basis. It encourages staff to alert management of any issues they’ve noticed, be it operational or otherwise. Utilizing the snippets of information gathered from employees can be used to drive positive change in both operations and the working environment.
By opening up dialogues with employees, be it weekly, monthly, or via an instant messaging app it shows their opinions and input matters, when acted upon. It makes employees feel like a valued team member and keeps them actively engaged in their role. As such, the working space becomes a much more positive and proactive place that employees enjoy working in.
Recognition and Reward
A cannabis dispensary’s employee schedule may not necessarily be constant from week to week, which can cause missed opportunities and events in their personal lives. If employees aren’t given recognition for their contribution and sacrifices towards the dispensary’s success, they can feel alienated and undervalued, causing them to look for somewhere where they will be appreciated.
That is why recognition and rewards of employee performance is so important. With over 70% of employees feeling disengaged in the company they work for it’s important that we treat employees as more than a cash machine. In doing so, they will see their work is appreciated and continue to remain engaged and productive. The reward itself doesn’t need to be large or over the top, even a few words of praise can be enough or an annual bonus.
It can be difficult to gauge performance solely by watching employees. That’s why a good workforce management solution can help, as it is possible for employees to log completed activities and add shift notes. This delivers and insight into workforce performance of each individual employee and makes it possible to identify those who deserve recognition or are ready for advancement.
Recognition encourages engagement from team members and employees tend to stick around for longer when they feel they are valued in the workplace.
Every dispensary is different and every team is a collaboration of different personalities that require different approach to management. There is no “one fits all” solution, but increasing the standard of employee management with an emphasis of improving the employees experience and sense of value will help to boost employees’ job satisfaction. Upon doing so staff turnover may not disappear, but will drop as job roles to employees today are more than a paycheck; they must carry meaning and value which needs to be communicated from management down.
Matthew Hughes is a British-born content writer with the mindset of a cat, he has a curiosity for the unknown, can be impulsive and can be won over with food. The best place to catch him will be in the offices of Ximble, a dynamic cloud-based workforce management system that simplifies employee scheduling, time tracking, and management. He also hates Sudoku.
Member Blog: The Benefits of Different Types of Building Materials in a Cultivation Facility
When building a cultivation facility, different building material has its own benefits in regards to installation, maintenance, and physical attributes. Cultivators have routine operating procedures and need to minimize as many variables as possible. Using a building material that is low maintenance and long-lasting is a priority. Light consistency is another big role. Walling material should be light reflective so the lighting system is as efficient as possible thus producing less heat discrepancies. And lastly, due to water use, humidity can play an important part of cultivation; water resistant walls can attribute to a well-controlled environment.
Here we will look at three popular materials for commercial cannabis warehouses: Mylar sheeting, FRP, and PVC.
Maintenance and Hygiene
From the daily cleaning operations to the cycle of harvesting, building material can be the difference between easy and difficult. Smooth surfaces are favored over rough or textured due to an easier cleaning process and less opportunity for bacteria and dirt to hide in crevices.
-Mylar Sheeting is commonly used as a greenhouse tarp, it is reflective sheeting that is propped on an existing wall. It must be kept wrinkle-free or light reflective hotspots may disrupt plants. One of the best options for custom indoor grow houses.
-FRP (Fiber Reinforced Plastic) sheets are commonly used as an inexpensive option that is applied to walls with adhesive. It usually has textured surfaces and rivets which may be troublesome to clean. Sheets may also peel off walls after time.
-Duramax PVC (Polyvinyl Chloride) are vinyl panels that interlock with each other to become the wall itself. They are bright white and light reflective. They also have a smooth flush surface.
Installation
Installation and labor time can make a huge difference in overhead cost. The amount of work required depends on what material is used and if any time is needed for drying/layering. Each material has a different process that may require additional time or material.
-Mylar Sheeting is the easiest to install. The reflective sheets can be easily propped to any type surface by one laborer. (Keep in mind that sheets are not allowed to be dividing walls).
-FRP (Fiber Reinforced Plastic) sheets require the most time and skill. Due to requiring adhesive, rivets, and trim between each panel, FRP needs two laborers to install.
-Duramax PVC (Polyvinyl Chloride) panels can be placed on a wall or directly onto the studs before being screwed in. Each panel interlocks with another and may require silicone to be airtight. Duramax PVC requires one laborer to install.
Water Resistance
Since maximizing plant growth is the goal, warm and humid environments are optimal. Walls that are not water resistant have the risk of creating pathogens that can spread into the room and on the plants.
-Mylar Sheeting is waterproof, and as long as the wall that the sheet is covering isn’t wood, there is no risk of mold.
-FRP (Fiber Reinforced Plastic) sheets themselves are waterproof, but usually the backer that it is glued on is wood and is susceptible to mold.
-Duramax PVC (Polyvinyl Chloride) panels are waterproof, but they may need a silicone sealant between each panel to prevent vapor from entering.
Overall, there are many options for building materials used in a commercial cannabis warehouse. Depending on the building size, shape, and environment each material can be the right or wrong choice. For start-ups, pricing may be a big factor, but don’t forget about practicality and maintenance in the long-term. Daily cleaning, harvesting, replacements, fire codes, safety codes, and hygiene codes govern the future of cannabis facilities.
Jonathan Tsai is the head of Duramax Building Products Online Marketing division. He has been a lead proponent in educating the market about the latest technology in building materials.
Through his time with Duramax Building Products, he has gained extensive knowledge on the extrusion of aluminum, plastic, vinyls, and other building materials. His mission is to provide value to readers through educational content and media.
Between October 2017 and May 2018, 180 employees in the cannabis industry completed an Employee Engagement & Satisfaction survey, created by Needle Consultants, LLC. The survey was promoted and sponsored by the National Cannabis Industry Association. The intent of the survey was to obtain national baseline data regarding cannabis companies’ engagement of their employees and, potentially related, workers’ overall satisfaction with their employers. The narrowly designed survey collected data on employee satisfaction, employee desires around benefits (traditional and nontraditional), and employee opportunities to engage in communities, as well as gathering general, anonymous demographic data. What follows is a summary of the data and some conclusions.
Needle Consultants, LLC is a Denver-based Corporate Social Responsibility consulting firm. Marc Ross, Needle’s Chief Instigator, is a 25-year attorney, with experience in the public, private, and nonprofit sectors. Mr. Ross helps to build purpose-driven businesses, specializing in community and employee engagement, strategic philanthropy, and sustainability. He is the former founder and Executive Director of Rock the Earth, a national environmental advocacy organization that works with the music industry, as well as former in-house environmental counsel to Alcoa Inc. He holds certificates in Corporate Social Responsibility from the University of Colorado, Leeds School of Business and Sustainability Leadership and Implementation from the University of Denver, Daniels College of Business, a Juris Doctorate from the Penn State Dickinson School of Law, and a Bachelors degree from the Pennsylvania State University.
A year ago, NCIA’s Infused Products Committee (IPC) made the decision to tackle the issue of cannabis testing. It is an issue we feel is at the heart of cannabis legalization and is negatively impacting cannabis businesses across the nation. Although it has been a struggle to get comparable lab results across different labs, IPC believes there is a future where cannabis testing will reach consistency.
We began our process by asking several questions and with the assistance of the NCIA, we crafted a survey that was sent to experts in the field. During our preliminary research, we discovered that most cannabis testing labs view their protocols and procedures as proprietary information.
To gain better insight about the testing sector, we asked Alena Rodriguez, a member of NCIA’s Scientific Advisory Committee (SAC) to participate in an interview. Alena represents Rm3 Labs, a cannabis testing laboratory in Colorado.
IPC: Are you concerned about the inconsistent and varying test results and the impact it has on consumer safety?
Alena: Yes, I’m concerned. I do not take my job lightly; I know that contaminated cannabis can be harmful and sometimes life threatening. That is why I am involved with state regulators and groups like NCIA’s SAC and Testing Policy Working Group. We aim to educate regulators and stakeholders on the importance of practices such as independent audits, proficiency testing and ISO/IEC 17025 accreditation for cannabis testing labs.
IPC: Do you think we are close to having consistent cannabis test results from different laboratories?
Alena: We are well on our way. In Colorado, licensed labs must undergo Proficiency Testing (PT) twice per year. PT is done through an inter-laboratory comparison where participating labs receive the same sample and analyze it using their methodology. Even though our procedures are not standardized to one method, most of the labs arrive at the same result. Unfortunately, not all states require PT yet, but I feel more and more states will adopt these programs.
Along with PT, consistent testing across labs requires the use of high-quality reference materials that are used to validate analytical methods and calibrate instruments. Cannabis testing labs in the United States have limited access to reference standards. Like cannabis, most industries started with limited resources, but over time the science will progress as federal barriers are lifted to make more research and better standards possible. It took decades to develop standardized, consistent methods in other industries, such as in pharmaceuticals and food testing. I don’t see the cannabis industry being any different.
IPC: Should there by penalties if a testing lab consistently provides drastically different results from prior tests of the same product?
Alena: It depends on the situation. If the lab is knowingly breaking the rules or trying to cheat the system, then absolutely. But, most of the time inconsistent results have causes other than fraud or negligence. This industry produces new products every day and some manufacturers and laboratories don’t “get it right” on the first try. There is a lot of research and development that is involved. Three of the biggest hurdles for consistent testing of cannabis products are 1) the variety of sample types 2) the lack of certified reference materials for uncommon cannabinoids and terpenoids and difficulties in obtaining concentrated standards and 3) inhomogeneity in some infused products or concentrates. Product uniformity is critical and should be confirmed by analytical testing for consumer safety. Variable results across multiple labs may suggest a product lacks uniformity.
IPC: Do you believe testing procedures and protocols areproprietary?
Alena: Yes, third-party cannabis laboratory protocols are just as proprietary as the protocols developed by cultivators, concentrate extractors and infused product makers. Testing labs having proprietary methods is not novel to this industry. If a lab in any other industry (e.g. food, medical, agriculture, environment) develops an alternative method to the standard method, they can use it if they can validate against the reference method.
IPC: Should labs be required to prove their analytical methods are accurate by submitting their practices confidentially to a regulatory body?
Alena: Absolutely! Colorado labs are currently required to send all new Standard Operating Procedures (SOPs) and method validations to the CDPHE prior to implementation. I hope more states adopt this practice, if they aren’t doing so already. As of January 1, 2019, all cannabis testing labs in Colorado will be required to be ISO/IEC 17025 accredited. ISO/IEC 17025 accreditation is the international gold standard for assessing the competence and quality management systems of testing labs across all industries to ensure consistent, accurate test results. More than a dozen cannabis labs have achieved this accreditation across the country.
IPC:Are you aware that the ASTM Committee D37 reportedly drafted testing procedures? If published, will cannabis testing labs follow published procedures that are not their own?
Alena: Yes, I’m excited! This is a great step for our industry. I imagine the committee will develop similar protocols to those being used by third-party labs. But as I mentioned before, labs will have the choice to use the published standard methods or their own alternative method, granted it is validated against the reference method. I expect some labs will attempt to validate their methods against the standard methods and some will adopt ASTM’s methods.
IPC: Are you aware of testing labs that allow for “tipping” on their order forms? Does this concern you, and why?
Alena:It concerns me that there are bad actors in the testing sector of the cannabis industry but I’m afraid there are bad actors in every segment of every industry. At Rm3 Labs, we do not participate in or condone unethical behavior such as paying for the results you want. We would never risk falsifying test results because we are aware immunocompromised individuals and children are possibly taking the products we are testing. I would not risk my entire scientific career to give you 5% higher THC potency results or lie about your contaminant testing results. I advise all cannabis testing labs to always act ethically because you are in the business of public safety and your lab is subject to investigation by regulatory agencies at any time.
IPC conducted the above enlightened interview with SAC. While we were inspired by some of the answers, much like our survey attempt this past year, many of our questions remain unanswered. For example, we don’t agree that cannabis cultivators or manufacturers are to blame for receiving inaccurate “clean/approved” test results from labs due to products being inhomogeneous.
That said, it is clear by a couple of the responses that some states, like Colorado, are making substantial progress in oversite and legal requirements for testing laboratories, while other states, like California, are still leaving significant and dangerous gaps.
In our opinion, the industry’s need for consistent and accurate testing results remains at the forefront of the issues facing commercial cannabis today. The ability to send the same sample, from the same batch, under the same conditions, and have it tested by multiple labs, achieving the same results, is paramount to our industry’s future and success. State laws should require it. The industry should demand it. And the consumers most certainly deserve it.
As such, the IPC will continue its mission to drive this conversation forward with both testing labs and operators alike. Only together, can we really solve this crucial issue facing our amazing industry.
Member Blog: Risk Factors in Private Placement Memoranda for Cannabis Businesses
Conflict between state and federal law gives rise to unique risk factors in private placement memoranda for cannabis businesses. Equity interests in private businesses are frequently offered to investors by means of private placements. The standard disclosure document for private placements is the private placement memorandum, or PPM. One section of the PPM is “Risk Factors,” which discusses various possible sources and areas of risk in the private placement. This paper examines whether risk factors that are conventionally included in a PPM for a cannabis business that touches product are sufficient to address this tension between federal and state law.
Disclosure to Investors
Federal securities laws and regulations, as well as the securities laws of many states, are based on the “blue sky” concept of disclosure, rather than value. For publicly traded securities, this disclosure takes the form of initial and ongoing public filings with the Securities and Exchange Commission (SEC); private companies often employ a less rigorous form of disclosure – the PPM.
The exemption from filing for a private placement is set forth in section 4(a)(2) of the Securities Act. Most private placements are made pursuant to Rule 506 of Regulation D to this section, which is the safe harbor rule for private offerings. Rule 506 permits an unlimited amount of money to be raised from an unlimited number of accredited investors in addition to up to 35 unaccredited investors.
Use of a PPM is optional if all investors are accredited and sophisticated, and given an opportunity to make inquiries about the offering. However, use of a PPM is highly advisable, if only to estop the investor from claiming reliance on information outside of its four corners.
The structure of a PPM is set forth in Regulation S-K, 17 C.F.R. Part 229. For our purposes, the most significant part of the document is the discussion of “Risk Factors,” which is required under a concept with the ungainly name of the “Bespeaks Caution Doctrine.” Risk factors are described as follows in 17 C.F.R. §229.503(c):
Risk factors. Where appropriate, provide under the caption “Risk Factors” a discussion of the most significant factors that make the offering speculative or risky. This discussion must be concise and organized logically. Do not present risks that could apply to any issuer or any offering. Explain how the risk affects the issuer or the securities being offered. Set forth each risk factor under a subcaption that adequately describes the risk. The risk factor discussion must immediately follow the summary section. If you do not include a summary section, the risk factor section must immediately follow the cover page of the prospectus or the pricing information section that immediately follows the cover page. Pricing information means price and price-related information that you may omit from the prospectus in an effective registration statement based on §230.430A(a) of this chapter. The risk factors may include, among other things:
Your lack of an operating history
Your lack of profitable operations in recent periods
Your financial position
Your business or proposed business
The lack of a market for your common equity securities or securities convertible into or exercisable for common equity securities.” 17 C.F.R. §229.503(c)
By way of example, a risk factor addressing a lack of an operating history might read as follows:
The Company Has No Operating History
The Company was established on [DATE]. It remains a development stage business with limited operating history. There can be no assurance that the Company will be successful in building its business or that its business model will prove to be successful.
This, in fact, would be an appropriate risk factor for many of the California cannabis startups that focus on recreational use. By contrast, many of the entities that were set up to serve the medicinal use market have been structured as mutual benefit associations. As such, they would not in general be engaged in securities offerings.
How should cannabis business PPM risk factors address the federal-state tension?
The cannabis industry is broad, and “cannabis businesses” can include the following:
Cannabis grow facilities
Grow facility support businesses, such as potting soil and soil amendments, fertilizers, grow lights, irrigation and hydroponic systems
Extraction services and extraction equipment
Laboratory testing services and testing equipment
Transportation of cannabis products
Sale of cannabis products to consumers
Leasing of real estate to any of these business lines.
All of these businesses are subject to some level of economic risk if the sale of cannabis products is interrupted by enforcement of federal law; however, this article will focus on those businesses that “touch product” and on private placements by those businesses. The discussion of this issue will be organized according to suggested risk factor headings.
An example of a risk factor recently used in a PPM for a debt offering by a medicinal cannabis dispensary reads as follows:
Cannabis is a DEA Schedule 1 Substance and risk exists related to its status as an illegal drug under federal law.
The current regulatory climate for the marijuana industry is inherently risky. The substance is illegal under the Controlled Substances Act and its current DEA Scheduling. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana preempts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with our business plan. Noteholders may be exposed to legal prosecution under federal law and assume any and all risk associated with prosecution including incarceration and asset seizure.
On the face of it, this risk factor appears to be ample: It states that marijuana is illegal under federal law, that there are inherent risks even in states where it is legal under state law, and that strict enforcement of federal law could be fatal to the business plan. In terms of sanctions, it lays out the worst-case scenario: incarceration and asset seizure.
Clearly, this is sufficient to apprise the prospective investor that the investment is risky. But does it adequately warn of the full range of potential hazards?
A careful reading of Regulation S-K would suggest that it does not. It is true that the words “most significant factors” in the phrase “the most significant factors that make the offering speculative or risky” could be taken to mean the maximum penalty that might be incurred. However, it also could be read to refer to the likelihood that an event will occur, rather than the severity of its consequences. And in the cannabis business, lots of things can happen.
What risk factors are more likely to affect cannabis companies?
Securities
The company could be precluded from debt or equity fundraising, whether by means of a public offering or a private placement. Securities are regulated at both the federal and state levels. Engaging in criminal activity at the corporate level can result in sanctions, including suspension of trading. At the federal level, the SEC has given no clear indication whether it intends to pursue sanctions against cannabis companies that touch product.
Banking
The company is not permitted to open a bank account or to engage in banking transactions. Banks are regulated by federal statutes and regulations, and do not currently permit cannabis businesses that touch product to open accounts or engage in banking transactions. This creates a number of risks for the company, including lack of verifiable financial records and accumulation of cash.
Real Estate
The company’s access to real estate could be limited, its rights to such real estate could be voidable, and it could be forced to incur substantial extraordinary costs. In the view of many landlords and neighboring tenants, cannabis businesses contribute to an undesirable environment for a variety of alleged reasons: cash accumulations and the presence of cannabis create a target for theft; some customers are loud and unruly; and some processes, such as extraction, can create unpleasant odors. Therefore, many landlords will refuse to rent to cannabis businesses, or will do so only on condition that the tenant installs substantial and costly security devices.
Under the terms of many standard commercial leases, a cannabis business could be subject to cancellation on the grounds that illegal activity was being conducted on the premises. If a landlord’s real property were to be seized in the course of a raid by federal drug enforcement authorities, the company could become liable to the landlord for the value of that property.
Management
The company could experience difficulty in attracting qualified senior management and directors. Negotiated settlements in SEC actions often involve an agreement by a sanctioned executive not to act as an officer or director of a publicly traded company for some period of years. This prospect, should the SEC adopt a negative posture toward the cannabis industry, could discourage experienced executives from serving in such capacities in cannabis businesses.
Transportation
The company’s ability to transport its products is limited. Interstate commerce in cannabis products is a felony. Transportation of cannabis products from one state to another, even if cannabis is legal in both states, is prohibited. Within a state, transportation via air or sea is subject to federal regulation, and therefore illegal. Whether transportation intrastate on federal highways also is felonious is an open question.
Intellectual Property
The company’s proprietary intellectual property may not be protectable under patent, copyright or federal trademark law. Inventions, logos or other intellectual property that the company develops or acquires may not be afforded protection under federal law. Trade secret or state level trademark protections may be available.
Bankruptcy
The company may not be accorded the protection of federal bankruptcy laws. Most bankruptcy law is federal law. A cannabis company that wishes to obtain temporary protection from creditors may seek protection under common law or state laws relating to creditors’ rights, but may not be able to use the protections afforded under Chapter 11 or other provisions of the Bankruptcy Code.
Immigration
Involvement in the company’s business could jeopardize the visa status of non-citizens.
Visas may be denied or cancelled upon conviction of a crime. Investment in, or management of a cannabis company could result in deportation or cancellation of an existing visa.
Insurance
The company may not be able to obtain insurance of any kind. Insurance companies generally do not insure illegal activity. While a small number of companies are venturing into the cannabis space, companies in this industry may have difficulty obtaining insurance for loss, liability, business interruption, director and officer liability, errors and omissions, and other matters.
Firearms
Involvement in the company’s business could prevent a person from legally acquiring a firearm. All firearms transfers in the United States must include the filing of ATF Form 4473, the “Firearms Transaction Record.” This form is filled out by the buyer and seller of the firearm and forms the basis for the buyer’s background check. Statements are made under penalty of perjury, and false statements are grounds for disqualification. Sections 11 and 12 of the form consist of a series of yes or no questions.
For example, Question 11e. asks: “Are you an unlawful user of, or addicted to, marijuana or any depressant, stimulant, narcotic drug, or any other controlled substance?” And lest there be any confusion as to the meaning of the word “unlawful,” the following appears in boldface:
Warning: The use or possession of marijuana remains unlawful under federal law regardless of whether it has been legalized or decriminalized for medicinal or recreational purposes in the state where you reside.
While this question would appear to indicate that the Bureau of Alcohol, Tobacco, Firearms and Explosives comes down squarely on the side of the prohibitionists, it is noteworthy that the warning contains the words “use or possession,” but the question only asks about use. This is one of only two questions in Sections 11 and 12 (the other refers to straw-man purchases) that contain a warning.
Conclusion
This should not be treated as an exhaustive catalog of industry-specific risk factors, nor should it be imported wholesale into every PPM for a cannabis offering. The PPM should be tailored carefully to the specific business, and an important part of the job of a securities lawyer is to select those risks that are most noteworthy without so heavily padding the Risk Factors section as to render it unreadable and therefore ineffective.
William Tolin Gay is an attorney in the Business Services Group in the Los Angeles office of Wilson Elser Moskowitz Edelman & Dicker. He graduated from the University of Washington, where he also received his J.D. in 1982, his MBA in 1983 and his LL.M. in Japanese law in 1984.
From 1984 to 1988, he practiced law in Tokyo, where he represented U.S. companies in their Japanese operations, and Japanese issuers and underwriters in Eurobond securities issues. He speaks and reads Japanese.
Since 1988, he has worked in Southern California, where his practice focuses on corporate finance, mergers and acquisitions, real estate and technology transfers. He is a certified mediator. In 2001, he was named one of “The Hot 25 People of Orange County” by OC Metro magazine.
He is currently a member and Chief Financial Officer of the Executive Committee of the International Law Section of the California Lawyers Association, and is the former Chief Financial Officer of the Business Law Section of the State Bar of California, and former Chair of its Committee on Cyberspace Law, and past President and Board Member of the Corporate and Business Law Section of the Orange County Bar Association.
Member Blog: The Cannabis Industry Requires New Security Thinking
The legal medical and adult-use cannabis market has grown to an estimated size of 7.1 billion dollars. With this growth comes an array of new opportunities and challenges for cultivation centers and dispensaries. These entities are looking for solutions to ensure they meet regulatory requirements, secure their facilities and produce products of the highest quality.
Click to read the case study
Some of the security and operational concerns for cultivation centers may include:
Compliance with state-mandated requirements for facility and security system design
Tightly controlled access
Secured storage vaults
Complete security camera coverage, with the exception of bathrooms and locker rooms
Ability for state officials to log in to the security system remotely
Monitoring of the environment in cultivation rooms
Revolution Cannabis, a cultivation center located in central Illinois, addressed these challenges with a new access control system. The company not only met state regulatory requirements but also prevented any incidents from occurring.
To learn more about how Revolution Cannabis was able to solve their security and operational challenges, read the full case study.
Tom Dillon is a marketing associate at S2 Security, the leading developer of complete enterprise security solutions. As marketing associate he helps manage S2 Security’s marketing initiatives including content development, public relations product marketing.
The following topics are areas to be aware of while creating and designing packaging. Using these tips can save you time and money in the process of creating or selling cannabis products.
Originality of content – Imitating consumer packaged goods for your packaging design through parody of a popular brand logo or using parody in packaging design can lead to serious issues. Use packaging is an opportunity to define your brand.
Lead times – Timing and shipping are usually underrated factors that can cause headache and unnecessary costs. Depending on the complexity of the packaging, if tooling is be required, this can easily add six weeks to your delivery time. Is your packaging being produced domestically or internationally? How much space will packaging use and where will it be stored?
Issues compliance labeling on design – If you are creating a product to be sold at a dispensary, make sure to consider additional labeling that will appear on the final product delivered to customers at retail. There needs to be enough surface area or clever design to make sure your packaging identity isn’t lost amongst compliance stickers. If you are a retailer, it is important to educate salespeople about where to place required labels to not obscure important information that may be on the packaging.
Adaptable – Rules change constantly. Your company’s strategies to deal with changing regulations should include packaging and labeling. You could predict and order units based on when regulations go into effect, or start with packaging that goes beyond current standards. As a retailer, can you find a way to insist the brands you carry comply with child resistant standards or order more exit bags? Going above and beyond current regulations can save you money and elevate your product.
It is important to have packaging graphics that get noticed at retail. Consumers often skim shelves quickly looking for brands that are known to them or graphics that catch their eye. With limited space in dispensaries it is important to have branding that is well presented in the packaging. Creating packaging that represents your brand is best done early in the process so that it is not rushed and attainable lead times for desired packaging can be met. In our industry, states can update packaging guidelines at any time, make sure your final packaging adheres to all regulations structurally and graphically.
Member Blog: Three Security Must-Haves for Marijuana Dispensaries
The proliferation of both legalized medical and recreational marijuana has, not surprisingly, led to a massive boom in dispensaries — and, with that boom, increased focus on these burgeoning businesses and their increasing security needs. “Inventory will increase, cash holdings will increase, and the number of people accessing legal cannabis for the first time will naturally evolve to a larger customer base,” writes Marijuana Retail Report. To many industry and security experts, this presents a perfect storm — high value products, cash on hand and less scrutiny over who’s coming through the door.
If you’re launching or scaling a marijuana business, it’s essential to unpack several basic security challenges and overarching needs. By safeguarding your business from day one, you’ll be better positioned to protect your inventory, your customers and your business, while maintaining a well-designed, welcoming environment for workers and buyers.
1. Security Guards
Many dispensaries want to avoid a visible security presence — which makes sense. Because of marijuana’s history and, still, the stigma that exists in many communities, seeing a security guard can make customers feel skittish or even avoid coming in entirely.
The solution? Have point-of-entry security that facilitates a positive customer experience. Many businesses, for example, opt for plain-clothes guards or guards with uniforms that mimic the rest of the in-store team. “Since they are the first point of contact,” explains MMR, “ensure that they are helping consumers feel welcome and invited, yet are able to maintain a zero-tolerance stance on any customer activities that could present a perceived threat to your dispensary, staff and other customers.”
2. Secure Transportation
Getting marijuana from growers to dispensaries and shops presents another layer of security concerns. Because the product is so in-demand and so valuable, it’s an appealing target for retail crime, from the minute it’s harvested. If you’re handling transportation yourself, be sure your fleet is equipped with the basics — bullet-resistant finishes, GPS tracking and streaming videos that feeds to your security “home base,” for starters.
For many businesses, though, managing this level of high-stakes transportation is too much to take on, especially in the beginning. For them, there are a variety of transportation-focused companies who specialize in cannabis and medical transport, and can ensure your product arrives safely and securely every time.
3. Internal and In-Store Theft Prevention
The majority of dispensary losses come from employee theft. While there are several steps businesses must take early on — thorough employee screening, background checks and a solid inventory management and POS system — it’s essential to maintain in-store security measures that discourage “heavy-handedness” and full-on theft.
During the onboarding process, supervisors and dispensary owners should be clear that employees cannot sell to themselves. Beyond that, ensure you have a clear-cut “friends and family” discount policy in place and that it’s communicated and adhered to. No discounting allowed? Make sure that’s made crystal clear, too.
Taking things a step further, be sure to integrate physical protections for your product. Senseon Secure Access recently topped IndicaOnline’s list of the top five security services for marijuana dispensaries, with a specific eye on the company’s smart cabinetry systems. With automatic relocking and customizable permissions for staff, it’s easy to safeguard cannabis while, at the same time, maintaining a close eye on who’s accessing what when — if there’s a problem with products, tracking down the culprit is easier than ever. And, with a keyless entry, there’s no risk keys will end up in the wrong hands ever.
As the cannabis landscape grows and expands, security needs will, too. But, for now, focus on these three must-haves to protect your dispensary today and tomorrow.
Evan Hicks is Marketing Coordinator for Senseon Secure Access, a product of Accuride International. As coordinator, he helps manage Senseon’s marketing initiatives covering communications, events, and research & development. With an unquenchable thirst for learning, Evan frequently finds himself deep in the rabbit hole conducting research for Senseon’s multiple markets.
A graduate of California Polytechnic University, Evan has nearly a decade of experience in security and public relations in both the public and private sector.
Member Blog: Pitch Perfect – Some Dos and Don’ts of Media Relations
The current media landscape is rapidly changing. It was much different a decade ago, five years ago, even a few months ago. Many magazines and newspapers—both print and digital—have sadly shuttered, some have cut back on publishing, while others have slashed budgets and staffs. Many times, these cuts mean reporters have to pick up more beats (it’s not uncommon for someone to cover, say, cannabis and local sports) meaning they are buried in work and deadlines and don’t have a lot of time to mull over your pitch or idea for a story.
Your goal is to make it easy for reporters to run your news. Here are some tips on what to do and what not to do when working with reporters.
DO: Throw a good pitch
A good pitch, just like the cliché sports analogy it refers to, should be thrown down the middle. It should be clean, hittable, and offer newsworthy information. (OK, that last line isn’t about baseball, but you get the picture.) Remember how busy reporters are and rehearse your pitch before getting on the phone until you know how to sell it in less than 60 seconds. While being upfront is important, it’s also okay to be creative. Help set the stage to pique a reporter’s interest, engage his/her imagination, and find the story quickly.
Tying your pitch into a larger story, trend, or current issue is a good way to get a reporter’s attention. There are big stories both on a regional and national level going on within the cannabis industry that you can tap into. For instance, Berkeley Patients Group, a well-known dispensary in Berkeley, CA recently did press outreach around the detriment of high taxes on the legal cannabis market. Because the dispensary’s leadership team has a close working relationship with the city and deeply understands the issues surrounding high taxes on cannabis, they were able to act as spokespeople and get coverage about the lowering of the city’s cannabis tax from 10% to 5%. The coverage helped get their name out to local cannabis consumers, but also contributed their reputation as a group of leading cannabis advocates, which is one of their main goals.
Another tactic in getting coverage is providing supporting and timely data and, if possible, information about the cannabis industry a reporter may not know. And, providing high resolution images, such as product photos, spokesperson headshots, and infographics will exponentially increase your chances of getting coverage. If you can offer all this, you’ll have wrapped your story in a nice package and made it easy for a reporter to tell that story.
DO: Build a relationship with reporters
Research is absolutely necessary to your success. Know who you are pitching, what they write about, and their writing style. There’s nothing that annoys reporters more than a pitch that has nothing to do with their publication or beat. Even at one media outlet, there may be multiple reporters on the cannabis beat, such as at the Associated Press and it’s important to know what each one of them covers, whether policy, products, health, etc., so that you know the right reporter to pitch.
If you have the opportunity, take the time to actually get to know reporters before pitching them. Take advantage of media in your geographic area, go to their offices or try to meet them for a coffee. You’ll also find the press attends cannabis industry conferences, which presents a great chance to meet reporters from across the country that you may otherwise never have the chance to meet in person. Face-to-face interactions, even for a brief moment, can go a long way when the time comes for pitching them. It helps build a foundation of trust for what you hope will be a long and fruitful professional relationship.
DON’T: Be a pest
Of course, even doing all your research and building that relationship the best you can, can’t guarantee a reporter will respond or write an article. You may have to tie your hands behind your back if you are tempted to follow up too many times. While it is important to follow up and maybe offer a different angle, stalking a reporter is one of the biggest mistakes you can make. Here’s the scenario: You send a pitch. You hear nothing. Re-send it. Nothing. Maybe a third time, and this time, with a phone call. Nothing. Chances are your email has been deleted. (And if this happens a lot, please re-read DO: Throw a good pitch.) If you do get in touch with a reporter and he/she says no, it’s time to cut your losses. It’s tough, but it happens to the best of us.
DON’T: Shotgun pitch
What’s a shotgun pitch? It’s pretty much spam. You send your pitch to a long list of reporters all at once (cringe) using BCC: (cringe). This is also one of the biggest blunders you can make in media relations and reporters can spot it a mile away. It’s better to stay targeted and contact seven key reporters with a well-researched and tailored story versus throwing a general pitch at 50 media targets and hoping something sticks.
DON’T stress and DO keep it on the level
Pitching the press can be intimidating and stressful, but reporters are always looking for newsworthy stories and will welcome your pitch if it is delivered in the right way. Be transparent. Be informative. Be helpful. Be patient.
Carol Ruiz is co-founder and Partner of Higher Ground PR and Marketing. Janitor, construction crew clean up, waitress, documentary filmmaker, adjunct professor… just a few of the paths Carol Ruiz walked before finally finding what she would do for the rest of her life.
At these former gigs, as founder of NewGround PR & Marketing (a highly regarded agency in the real estate space), at Higher Ground, and at dinner tables the world over, Carol is a storyteller. Storytelling being the heart and soul of public relations, it’s no surprise that Carol was drawn to the world of PR.
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Even in recreationally legal states, cannabis-related products and businesses still constantly face roadblocks in every operational endeavor. Dime Bags creates protective bags for glass transportation and uses hemp to make the fabric of our products. The bags arrive at our warehouse in Colorado Springs already constructed. There is no raw hemp at our building and certainly no cannabis on the premises, yet we’ve faced backlash and pushback from many companies. We’ve been turned down by insurance companies, faced difficulties finding a bank, and even experienced direct pushback from the surrounded storefronts for the product we make and market. Even if you’re starting a business in a recreationally legal state, do not expect others to always welcome you with open arms. 
Ellie Herring is the Marketing Director for Dime Bags, a Colorado Springs-based but globally recognized glass protection brand that specializes in hemp fabric, smell-proof carbon filtered technology, and everyday accessories for hemp and cannabis enthusiasts alike. Dime Bags is a subsidiary company of Head Choice Inc. For more information about Dime Bags, please visit DimeBags.com. 
James Schwartz RN, BSN, LNC, is an experienced medical legal consultant and CEO of 
James B. Mann is a partner with the Tax practice group of Greenspoon Marder LLP. Mr. Mann has over 25 years of experience serving as a trusted advisor to a broad range of stakeholders in the energy and financial services industries. He counsels clients on the new changes in the tax law, as well as cannabis tax issues and cannabis tax controversy proceedings. Mr. Mann has a law degree from Harvard Law School and an MBA from Columbia University.
Ms. Gillette regularly represents clients before the IRS’s Examinations, Appeals, and Collections Divisions, including marijuana businesses facing the challenges of IRS adjustments under 280E. She has successfully protested local, state and federal tax deficiencies on behalf of her clients, having prevented hundreds of thousands of dollars in incorrectly assessed taxes, interest, and penalties. She can assist individual and business taxpayers in 280E proposed assessments, offers in compromise, audit examinations, innocent spouse claims, sales, use, and employment tax matters, trust fund tax penalty assessments, penalty abatement’s, and levy releases. 
Lisa Jordan leads the brand development and marketing strategy for 
Ruining a profitable relationship like this has the potential to disrupt sales, cash flow, bottom line performance, and carries the potential to sink the business all together. Most growing businesses in the cannabis industry do not have the size, resources or infrastructure to hire full-time accounts receivable personnel. One of the worst decisions a canna-business can make is to pay salespeople to spend their time selling a client on writing a check for past orders, when they should be focused on acquiring new business. Making the sales team collect on unpaid invoices forces them into a precarious situation. After building a sensitive business relationship, they must now approach their clients, and become the “bad guy bill-collector.” This label will then forever be applied in your client’s mind about your sales staff and from then on, will create a tenuous business relationship.
Brett Gelfand and Cody Ziering, Managing Partners of 
Branding… Because it Really Does Matter
A Need for Sustainable Solutions
Gary Cohen, CEO, leads Cova’s charge into the legal cannabis space by guiding the vision, strategic development, ‘go to market’ plans and culture.
To address both branding/printing and business/legal intelligence requirements at state and local levels, Denver-based strategic partners 
Jill Ellsworth is CEO and founder of 
Leading the sales team at 
The running of a dispensary requires management to constantly assess staffing costs and needs for the changing demands of the business. However, too much attention to the needs of the business and too little on employees can lead to the overworking of staff, burnout and an unpleasant working environment. 
Matthew Hughes is a British-born content writer with the mindset of a cat, he has a curiosity for the unknown, can be impulsive and can be won over with food. The best place to catch him will be in the offices of 
Jonathan Tsai is the head of 
Tom Dillon is a marketing associate at 
Many dispensaries want to avoid a visible security presence — which makes sense. Because of marijuana’s history and, still, the stigma that exists in many communities, seeing a security guard can make customers feel skittish or even avoid coming in entirely. 
Evan Hicks is Marketing Coordinator for 
Carol Ruiz is co-founder and Partner of Higher Ground PR and Marketing. Janitor, construction crew clean up, waitress, documentary filmmaker, adjunct professor… just a few of the paths Carol Ruiz walked before finally finding what she would do for the rest of her life.