Louisiana’s top banking regulator and 12 other states seek ‘safe harbor’ for banking marijuana industry

The Advocate/September 2, 2018/Sam Karlin

Louisiana’s top banking regulator and 12 others are asking Congress to clear the way for banks to do business with the marijuana industry, which for years has struggled to find financial institutions willing to handle their cash and already has seen one participant back out in Louisiana.

John Ducrest, commissioner of the Louisiana Office of Financial Institutions, was one of 13 state financial regulators signing on to a letter to congressional leaders in late August seeking “safe harbor” legislation for banks. The coalition was led by Pennsylvania’s top financial official. The group urged lawmakers to remove “unnecessary risk” for banks doing business with the marijuana industry, which is now legal in some form in 31 states, Washington D.C., and the territories of Guam and Puerto Rico.

Despite state actions, the drug remains illegal under federal law and is classified as a Schedule I narcotic. That fact has deterred most banks from doing business with the industry.

“I’m not taking a position on or for marijuana, but the banking system is where you want things to flow through,” Ducrest said. “Very few (banks) are willing to do it because of the fear on the federal level.”

Dispensaries, growers and other marijuana business owners have resorted in many cases in other states to “cash and carry,” which presents safety issues and hurts the ability to track and regulate companies’ activities. America’s largest banks have largely sidestepped the industry altogether to avoid costly compliance and regulatory headaches.

With eight state-approved pharmacies gearing up to dispense medical marijuana over the next few months, Louisiana’s nascent industry has found a limited number of willing banking partners locally, with one already bailing out.

GB Sciences, which LSU selected as its exclusive grower of medical marijuana, making it one of two state-sanctioned producers, got preliminary approval from Red River Bank based in Alexandria last summer, according to public records. But bank spokeswoman Amanda Barnett said although the bank investigated the possibility of banking the industry, it ultimately decided against it.

“We found that there were complex legal and regulatory issues involved,” she said. “We then chose not to bank such entities and have not done so.”

GB Sciences even hired a company, Fincann, whose sole purpose is to find banks for marijuana companies.

Earlier this year, Cottonport Bank, a small Avoyelles Parish institution, and ASI Federal Credit Union, out of New Orleans, quietly offered up their services to marijuana companies, according to pharmacy applications and sources in the industry. Cottonport declined to comment for this story and ASI did not return messages.

Farmers Merchants Bank and Trust, a small, Breaux Bridge-based institution run by state Sen. Fred Mills, also offered to do business with the state’s medical marijuana pharmacies. Mills was the author of the legislation that enacted the state’s medical marijuana program and has been a vocal advocate of the treatment. Mills later said none of the pharmacies he initially offered services to were awarded licenses.

The letter from the 13 state banking regulators was sent to House Speaker Paul Ryan, House Minority Leader Nancy Pelosi, Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer.

In it, the financial regulators said a “lack of clarity” by the federal government for how banks should serve the industry results in many transactions occurring in cash, outside the banking system.

“This raises concerns with respect to public safety, increases difficulty tracking the flow of funds, and contributes to a loss of economic activity, workforce development and community development opportunities,” the letter said.

The few banks that serve the marijuana industry had previously relied on the so-called “Cole memo,” a Department of Justice report that protected legalized marijuana by giving other types of drug crimes a higher priority. The Financial Crimes Enforcement Network also had guidelines for banking the industry, involving suspicious activity reports.

Lawmakers also in recent years have tacked on to spending bills the “Rohrabacher amendment,” which essentially protects medical marijuana programs from prosecution by federal authorities.

Under U.S. Attorney General Jeff Sessions, a staunch marijuana opponent, the Justice Department rescinded the Cole memo, throwing many legal marijuana programs into uncertainty. Louisiana’s federal law enforcement officials have indicated the state’s medical marijuana program is not a priority.

Still, Ducrest said, banks face risk if they decide to do business with the industry, and the Rohrabacher amendment is a short-term fix.

“A majority of states now have medical marijuana programs and it has become increasingly necessary to craft policy to respond to emerging challenges in this rapidly growing industry,” the letter from financial regulators said. “We must work together to look for solutions rather than avoiding this challenge and ignoring the new policy landscape.”

What You Need to Know About Medical Marijuana and the Workplace

Cannabis Business Times/August 31, 2018/Eric Sandy

Daniel Cotto worked as a forklift operator for Ardagh Glass Inc. in Bridgeton, New Jersey, until his medical marijuana use left him on the wrong end of a human resources issue.

According to a lawsuit filed in New Jersey’s federal court district, Cotto notified his employer of his medical marijuana use when he was hired. On Nov. 1, 2016, Cotto hit his head on the roof of a forklift. As part of his return to “light-duty” work, Cotto was required to pass a drug test. He again informed his employers of his medical marijuana use and the simple fact that he would not pass the test. Amid ongoing back-and-forth conversations with Ardagh’s corporate office, Cotto was suspended. He remains out of work at the company nearly two years later.

Cotto asserted that the company had discriminated against him in his role as a medical marijuana patient, joining scores of plaintiffs who have unsuccessfully sued their employers when their status as registered medical marijuana patients drove a wedge between their workplace and the burgeoning cannabis industry.

Judge Robert Kugler did not agree with Cotto on the matter of discrimination, issuing an order Aug. 10 that sides with Ardagh Glass. (Read the full judicial order below.)

“[W]e find that neither the New Jersey Law Against Discrimination nor the New Jersey Compassionate Use Medical Marijuana Act require an employer to waive a drug test as a condition of employment for federally-prohibited substance,” he wrote.

This latest case echoes similar rulings in New Mexico (an employee sued Tractor Supply Co. and lost), Michigan (a lawsuit against Walmart) and other states.

The Michigan lawsuit was filed nearly 10 years ago and is still cited in judicial orders to this day: “The fundamental problem with Plaintiff’s case is that the [Michigan Medical Marijuana Act] does not regulate private employment,” the judge wrote in that case. “Rather, the Act provides a potential defense to criminal prosecution or other adverse action by the state.”

Time and time again, judges have separated the rights of the private sector from the nascent legality of medical cannabis in certain states. Bills have been introduced in several state legislatures to protect employees who use medical marijuana and to demand that private employers “tolerate” legal medical marijuana use.

(Kugler, in New Jersey, also leaned on the federally illegal status of marijuana as a “departure point” in his argument, which is an impossible burden for plaintiffs to surmount for now. Cannabis indeed is considered illegal at the federal level—where employment discrimination lawsuits are often filed—and its status is something that plaintiffs simply cannot withstand that sort of judicial contention.)

And yet, some states have proactively written employee protections into their medical marijuana law.

In Arizona, for instance, “Unless a failure to do so would cause an employer to lose a monetary or licensing related benefit under federal law or regulations, an employer may not discriminate against a person in hiring, termination or imposing any term or condition of employment or otherwise penalize a person based upon … [a] registered qualifying patient’s positive drug test for marijuana components or metabolites, unless the patient used, possessed or was impaired by marijuana on the premises of the place of employment or during the hours of employment.”

However a state regulates this new area of employment law, cannabis companies themselves are certainly not immune.

Taking Pennsylvania’s medical marijuana regulations as an example, a white paper published by Henderson Brothers may as well be addressing a cannabis cultivation facility owner when it states: One risk management item an employer must also recognize is that the [medical marijuana law] does not protect a person or entity from criminal or civil liability resulting from “[u]ndertaking any task under the influence of medical marijuana when doing so would constitute negligence, professional malpractice or professional misconduct.”

Risk is inherent in all lines of work that involve heavy machinery and physical labor. Employers of all stripes know to safeguard against any liabilities that may arise from that type of work, whether in an indoor grow or a greenhouse environment.

Henderson, a Pittsburgh-based insurance firm, does a fine job in outlining steps that cannabis employers can take to ensure that they’re complying with labor laws and medical marijuana laws in their state.

  1. Educate managers regarding [your state’s medical marijuana law];

 

  1. Review your handbook and modify certain policies, such as your anti-discrimination policy to account for medical marijuana status, your substance abuse policy to address medical marijuana use in and outside the workplace, and your drug-testing policy to eliminate blanket, zero-tolerance thresholds. Consider similar protocols for new hires and onboarding;

 

  1. Keep documentation of signs of an employee under the influence, his or her conduct that falls below the normal standards for the position, and the nexus between the two’

 

  1. Explore whether an accommodation may be appropriate for an employee who presents a valid medical marijuana card;

 

  1. Keep an employee’s medical information confidential.

Cannabis Goes High-Tech

MG/August 21, 2018/Christopher Jones

Educators and employers are putting increased emphasis on STEM—science, technology, engineering, and mathematics. The cannabis industry, too, is embracing the disciplines, not only in areas like genetics, laboratory testing, and greenhouse design, but also in consumer product development. As more doctors, scientists, academics, and other professionals migrate to cannabis from the mainstream, they’re changing the way the plant is perceived and used.

It remains to be seen whether the cannabis industry learned anything from the tech industry’s boom-bust cycles and other growing pains, but as this historically black-market business continues to transform into a legal, multi-billion-dollar economic engine, one thing is clear: Entrepreneurs are investing significant time and money in new technologies and scientific methods to help establish cannabis as an integral part of healthcare and lifestyle.

One prominent trend in the industry focuses on building more personalized and consistent experiences for consumers, whether they’re using cannabis to treat chronic illness or for recreational purposes. As people better understand weed’s potential, the trend is sure to become more widespread.

GoFire: an app-ealing alternative

Not long ago, bowls carved into apples and gravity bongs built from plastic two-liter bottles were considered innovative smoking apparatuses. Times have changed, and the medicinal properties of cannabis prompted scientists and technology entrepreneurs to give hippy lettuce more sophisticated, dignified delivery platforms.

For a variety of reasons, vaping has become the de rigueur method of cannabis consumption across the United States, so it was only a matter of time before someone tried to build the killer app that would let vape enthusiasts take precise, remote control of their equipment. The GoFire (GoFire.co) may be the first real stab at such a product. A convection vaporizer built with pharmaceutical-grade components, the GoFire includes a proprietary SMART cartridge system that meters precision doses of flower, oil, or extracts. Instead of heating the entire contents of an oil cartridge as most other vaporizers do, the GoFire allows users to extrude oil into a separate chamber in 2.5mg doses. One of the unique benefits of the design is that only the oil sent into the chamber is exposed to heat, thus preserving the delicate terpenes and the overall integrity of the custom oil blends. A Bluetooth-linked application on a smartphone displays the cannabinoid and terpene profiles and how much oil is left in the chamber, so users can see exactly how much they smoke in a given session.

“I don’t like vaporizers. They don’t taste good, and they give you an inconsistent, unreliable experience,” said GoFire Chief Executive Officer Peter Calfee. “We solved that problem by creating a consistently delightful experience. Once people try it, they’re smitten.”

After completing a vaping session, users are encouraged to make notes and upload them to a cloud-based GoFire community. Machine-learning algorithms track the user information, which is displayed in a community science section where other users may review it. GoFire and its partners believe the post-purchase quantitative data will be a valuable source of product development information that can be used to refine current blends and develop new ones.

With a steering committee that includes twelve physicians, from the beginning GoFire was intent on building a product that would fit into the modern medical paradigm and give doctors and patients a platform suited for prescribing and accurately dosing cannabis products. “This is a true medical delivery mechanism designed to live up to the promise we’ve made to patients, and we went above and beyond in our design and materials to set this up for FDA approval,” explained Calfee.

The GoFire also has crossover appeal for recreational users and can be put to use as a portable dab rig. The device allows for precise temperature settings, which is an important consideration when smoking rosin and resin extracts.

Above all, GoFire’s engineers designed and built the device to demystify the science of oil blends, terpenes, and cannabinoids—the effects of which the scientific community is only beginning to understand—and offer a product that gives patients the same results each and every time.

“CBC and CBG, CBN… Why do you need to know all that?” Calfee asked. “The chemical structure is too much information. People are just looking for something to help them relax or sleep.”

Cannabis vs. opioids

The opioid epidemic in the U.S. results in more than 100 deaths each day from legal painkillers like morphine, oxycodone, and fentanyl as well as illegal drugs including heroin. Legal opioid drugs primarily are designed to replicate the pain-reducing properties of opium, which binds to receptors in the brain to disrupt pain signals and releases dopamine to give patients a sense of euphoria. Cannabis has been suggested as a potential adjunct for opioid addiction treatment, and James Henry SF (JamesHenrySF.com) has taken this cause to another level by working with a team of physicians to develop customized oil blends that specifically target chronic pain and other common medical conditions.

“We want to educate patients on how to use cannabis in the best ways and how to deal with common conditions such as insomnia, depression, and anxiety without getting baked along the way.”

—James Victor, co-founder, James Henry SF

With its formulations, the Bay-Area-based cannabis company hopes to convince patients who use pharmaceutical drugs to give cannabis a try. Working with BAS Research, a highly regarded manufacturer based in Berkeley, California, James Henry SF has developed three oil blends designed to create different moods and levels of relief. Daytime Focus is a high-CBD formulation designed to alleviate anxiety and help people focus. THC-dominant formulation Evening Social is meant to deliver an uplifting, communal feeling. Weekend Retreat, a full THC formulation, was created for patients seeking pain relief and deep relaxation or experienced cannabis users looking for a more intense experience.

While developing its oil blends, James Henry SF principals realized no existing vaporizer would perform in a way that allowed patients to derive optimal benefits from the company’s medications. Co-founder John Adams explained vaporizers go through dozens of heating and cooling cycles, and each cycle slightly degrades the taste of the oil and terpenes. By reducing the oil’s volume to 300mg per pen instead of the standard 500mg to 1,000mg, the company’s formulations taste the same on the first drag and the last, he said.

Creating cannabis medicines that mimic the effects of pharmaceutical drugs like OxyContin, Adderall, and Prozac is one of the primary goals of James Henry SF’s development efforts. Co-founder James Victor believes vaporization is the safest and most effective choice for delivering cannabis medication because it delivers immediate relief and patients won’t overconsume.

“Patients in pain don’t want to wait around for an edible or sublingual to kick in,” Victor said. “We want to educate patients on how to use cannabis in the best ways and how to deal with common conditions such as insomnia, depression, and anxiety without getting baked along the way.”

In order to target specific ailments, James Henry SF has been working with physicians who specialize in cannabis-derived treatments. Dr. Janice Knox is a co-founder of American Cannabinoid Clinics; her husband David and daughters Jessica and Rachel all are involved in teaching patients how to use cannabis responsibly for illness, therapy, and healing. The family has consulted with thousands of patients over the past six years. Although they aren’t legally allowed to prescribe medicinal cannabis, they can advise patients about how various cannabis products can help balance, regulate, and repair the body’s endocannabinoid system. As a result of the ongoing collaboration, James Henry SF has been able to develop and refine its blends based on feedback from real patients and their physicians.

For instance, when the company created its Daytime Focus blend, scientists looked at the systemic feelings people experience when using drugs including Adderall, and then tested terpene blends with CBD and THC to mimic the same effects, said Victor. “We are also looking at CBG and CBN and utilizing that information in product development for more advanced formulations,” he explained.

James Henry SF also is working with Dr. Ogadinma (Olga) Obie, an emergency room doctor who specializes in naturopathic healing. She recently moved from Houston to Oakland, California, in order to be closer to a community of doctors and patients who are researching the healing powers of cannabis.

“We need to better understand how the molecules of cannabis are working with our body, and James Henry SF sees that terpenes are probably the easiest to manipulate to develop medications,” she explained. “I think their formulations are the direction we should be going. Patients don’t want side effects. They want relief.”

Because James Henry SF is focused on delivering very precise blends and dosages, the company has entered agreements with like-minded entities including BAS Research (which manufactures James Henry SF formulations), and GoFire.

“In the future, doctors will be able TO prescribe a certain dosage and lock the device when the patient has used up the formulation.”

—John Adams, co-founder, James Henry SF

“The GoFire is a very attractive device because it can administer precise dosages,” said Adams. “In the future, doctors will be able to prescribe a certain dosage and lock the device when the patient has used up the formulation. We will be able to get into the nuts and bolts of the medical industry and move cannabis into the pharmaceutical realm.”

Infusing cocktails with cannabis

Increased legalization over the past five years has precipitated a new perception of cannabis nationwide. Yet, firing up a joint or bowl in public remains likely to raise eyebrows. By contrast, imbibing alcoholic beverages is common practice in social settings. Kalvara (Kalvara.com), a new beverage infusion system, was designed to appeal to consumers who want a THC buzz without drawing attention to their cannabis consumption.

Using a patented technology called Vessl, Kalvara is packaged in small, nitrogen-pressurized “caps” that, with a simple twist, release a THC nanoemulsion into a proprietary bottle filled with two ounces of liquid. Once a cap’s contents are dispensed, the bottle contains a 10mg serving of a neutral-tasting THC beverage that can be mixed with whatever the user wants to drink. Each Kalvara package contains four caps, and the bottle is reusable. Simply refill the container with water, attach a new cap, and it’s ready to go again.

“This has one flavor, one function, and one dose,” said Walter Apodaca, a twenty-five-year veteran of the beverage industry who now serves as chief executive officer for Vessl (VesslInc.com) and Gizmo Beverages in Tempe, Arizona. “Kalvara can be a replacement for alcohol in social settings, but without the stigma of smoking or vaping.”

One of the benefits of the Vessl technology is each dose in the caps is precisely measured, so the consumer can expect the same experience every time. The buzz sets in within ten to fifteen minutes, Apodaca said, so gratification is relatively quick compared to edibles.

The Vessl technology was developed by Scottish inventor Bernard Frutin, who created a pressurized delivery module that automatically expels its contents into a container of liquid when the user opens the container. Apodaca agreed to commercialize Vessl, and now he licenses the technology to partners in the U.S. and internationally.

Manufacturers of cannabis products face numerous logistical challenges getting their products to market, not the least of which is preserving freshness and potency as they make their way to retail shelves. The Vessl’s oxygen-depleted, nitrogen-pressurized environment keeps active ingredients fresh without preservatives and prevents oxidation caused by ultraviolet light. It’s designed to optimize the freshness and potency of ingredients until the moment a consumer wants to partake.

Apodaca sees Vessl as a game-changer because it has the potential to reduce, dramatically, the amount of packaging material typically required for beverages and doesn’t require refrigeration to keep the product fresh. He estimates about 700,000 Vessl units can be shipped per truckload, whereas only about 50,000 half-liter bottles—a more traditional size for beverages—would fit in the same space.

For the rollout, Apodaca said the company will stick to one flavor, but plans already are in the works to expand the product range.

“I see personalization, customization, and portability being really important, so people [will be able to] choose specific strains and their desired effects,” said Apodaca. “Technology is the best way to deal with that, and so we expect to have five to ten different flavors and functions to help people relax, energize, and enhance libido or creativity.”

In June, Apodaca and his Vessl technology won the Food and Beverage Innovation Forum’s Marketing Award for the packaging product that disrupts the market via groundbreaking new technology.

Tagging plants with DNA

Ever wonder whence came that danky, frosty nug that landed on your doorstep when your canna delivery service made its weekly drop? If New York-based Applied DNA Sciences has its way, you’ll be able find out exactly which farm it came from with the help of a simple lab test.

Applied DNA Sciences has developed a type of controversial plant-tracking program that has law enforcement groups and regulators licking their chops while growers and other cannabis industry operators watch with caution. As the industry moves forward into more widespread markets, the company argues, its CertainT technology could be a boon for both the industry and the organizations tasked with overseeing it.

“With rigorous tracking on top of everything else, [CertainT] will give dispensaries reassurance that the product went through extra testing and what they’re purchasing is aboveboard,” said John Shearman, executive director of marketing at Applied DNA Sciences. “We can see [CertainT] being a badge on the packaging of things, like a Good Housekeeping seal.”

In order for the tracking technology to be effective, every cultivator in a market would be assigned a unique tag, which would be sprayed on plants right after they are harvested but before they are dried and cured. This “CertainT” molecular certificate can be confirmed with a simple lab test that verifies the product’s authenticity and origin anywhere it travels.

The company’s formulation is based on water and a molecular tag that measures in the parts per billion. Tests have confirmed the tag adheres to plants throughout the processing and manufacturing cycle, so whether plants ultimately become oils, shatter, edibles, or other products, tests will detect the tag. Gordon Hope Jr., director of cannabis markets at Applied DNA Sciences, said the tag is “innocuous” and does not integrate with the DNA of the plant; instead, it’s an additional molecule.

Hope estimates the cost of implementing the system would be “less than 1 percent” of a product’s retail price, and state inspectors could test at cultivators, processors, and dispensaries.

The tagging-and-testing technique already has been deployed in the cotton industry, where CertainT tracks more than 200 million pounds of Pima cotton. The technology also has been used to tag everything from microchips to pharmaceutical drugs.

 “In Colorado, they are running a $1.4 billion business. They want to make sure money coming in stays in-state, and that means keeping all the license-holders legitimate.”

—Gordon Hope Jr., director of cannabis markets, Applied DNA Sciences

Dispensaries, regulators, and law enforcement officials potentially could use the tags to determine the origin of any cannabis or cannabis products, down to the farm where the plant was grown. If a cultivator owns a patent or other intellectual property related to a strain, the tag could help retail operators validate a product down the supply chain.

“When we look at it from a state and national level, the value proposition rises dramatically,” Hope said. “In Colorado, they are running a $1.4 billion business and trying to protect it. They want to make sure money coming in stays in-state, and that means keeping all the license-holders legitimate.”

While every state that has legalized cannabis imposes some form of tracking program, most use software platforms to account for inventory as it works its way through the market. Employing a technology such as CertainT likely would require new legislation similar to that proposed in Colorado early this year. Though both SB029 and SB279 died on arrival in the state senate, the bills’ author, Senator Kent Lambert [R-Colorado Springs], has vowed to try again.

Applied DNA Sciences believes the technology could give doctors and patients more peace of mind when they are buying products at a dispensary. “Doctors are concerned about getting the right formulation for patients,” Hope explained. “If I buy this brand, do I have the same experience? Clearly the answer is no. With the CertainT emblem on the package, it could become a recognized seal of approval.”

The tags also might be used to help demystify the true identity of strains, given the complex web of genetics and creative strain names that have evolved over the past few decades. In a recent study at the University of British Columbia, researchers found only a moderate correlation between cultivators’ ancestry claims and actual plant genetics.

A question is bound to come up with any tagging discussion: Is it safe to ingest DNA tags?

According to Hope, the short molecular tags used for traceability are chemically indistinguishable from the DNA in any of nature’s living things: humans, plants, animals, and bacteria. In other words, molecular tags are a new use for an ancient substance that is quickly metabolized and disappears once consumed.

Cannabis Supply Chains Coming Out of the Shadows

Wall Street Journal/August 23, 2018/Erica E. Phillips

COACHELLA, Calif.—Low-slung industrial developments are rising along Avenue 48 here, a dusty stretch at the edge of relentless desert 140 miles from the Pacific Coast that’s becoming a hub for cannabis producers.

Around the state, a nascent network of specialized distribution companies is springing up to connect these centers of licensed marijuana growers and processors to hundreds of retail outlets, providing something entirely new in the marijuana industry: A legitimate supply chain.

The widening state-by-state legalization of recreational marijuana across the U.S. is bringing growers, distributors and sellers of the drug out of the shadows to stitch together businesses under a unified supply chain as the industry scales up.

California’s market is by far the largest in the U.S. in both geography and in the number of users, experts say, even though recreational pot use became legal only this year. Lawmakers designed a regime in which state-licensed distributors, the middle link in the supply chain, take possession of the goods before selling them to retailers. That’s injected new capital into the business, from finance to cultivation and transportation, that operators say will help it to grow faster.

California distributors say that by developing reliable logistics to support this state’s cannabis market they’re creating a model that could work for distribution in other regions. If pot is legalized at the federal level, mass distribution could then be in position to overtake the illicit trade.

“There’s been this huge focus on a number of things other than, once it’s grown and or manufactured, how do you get it from point A to point B?” said Sturges Karban, chief executive of MJIC Inc., a state-licensed distributor that provides logistics services to cannabis producers and retailers. “It’s almost like this forgotten aspect of the industry.”

MJIC, which has distribution hubs in Coachella, Oakland and Long Beach, is one of several companies developing logistics networks for the market.

Interest in cannabis as an ingredient in food and drinks is on an upswing: Beer brewing giant Constellation Brands Inc. took a $4 billion stake this month in Canadian marijuana grower Canopy Growth Corp. , which makes cannabis-infused drinks and other products. Recreational use in Canada will be legal in mid-October, and edible and drinkable cannabis products are expected to be legalized nationwide there by 2019.

Companies such as MJIC are betting on healthy growth in the U.S., where nine states and Washington, D.C., have legalized recreational use. Euromonitor International estimates the U.S. market for legal marijuana sales will total $10.2 billion this year. BDS Analytics and Arcview Market Research, cannabis industry research groups, projected in a study that illegal sales of marijuana in the U.S. will top $53 billion this year.

‘We model our business almost directly after the beer distributor.’

Logistics operations focused on the above-ground market still face big hurdles, including federal laws restricting transport of cannabis and financial transactions, as well as a persistent stigma against the trade. Pot businesses still operate almost entirely in cash.

They also must overcome a fierce independence within the cannabis community. For more than 20 years, since California legalized cannabis for medicinal use in 1996, growers or cooperatives handled the delivery of their products to end users themselves.

California’s adult-use legislation sets a framework for a wholesale supply chain by licensing distribution businesses, separate from the licenses granted to producers and retailers. That means distributors can handle transportation and logistics for multiple manufacturers and represent multiple brands when selling the goods to stores—similar to distribution in the alcohol industry. Cannabis distributors in California also must test products for safety and pay state taxes on the goods.

“We model our business almost directly after the beer distributor,” said Eric Spitz, co-founder of distributor C4 Distro. Manufacturers deliver their products to C4’s facilities, where the company handles testing and taxes. “Then we deploy it to stores with our field force of sales people and our field force of delivery teams and trucks,” Mr. Spitz said. “

Still, alcohol is a legal product while cannabis, on a federal level, is not. That means marijuana can’t cross state lines, even when two neighboring states have legalized it.

A cannabis store in San Francisco shown in January, before new California rules set strict packaging and labeling rules for cannabis products. Photo: Noah Berger/Associated Press

For generations, most of California’s marijuana crop has been shipped out of state, handled by “well-oiled” illicit distributors, said Tom Adams, an analyst with BDS Analytics. He estimates up to 80% of all marijuana consumed in the U.S. is grown in California.

Distributors aren’t expecting much competition, or help, from existing logistics and transportation companies. Operators that serve other industries must be licensed specifically to handle cannabis, and they would have to build or lease new facilities that comply with state regulations and operate only in cash.

Local rules add more complications. Many municipalities in California still ban cannabis operations outright, and others have devised tough zoning rules for producer, distributor and retailer sites. That drives up the costs for the limited real estate available.

Study: With CBD, 80% of Children With Autism Saw Improvement

Leafly/August 8, 2018/Jacqueline Havelka

Israeli researchers have found more compelling evidence that medical cannabis is an effective therapy for children on the autism spectrum. In this soon-to-be-published study in the journal Neurology, researchers treated autistic children with high concentrations of CBD, a non-intoxicating cannabinoid found in the cannabis plant.

Conditions in 80% of the children improved. Alternatively, the children had not shown improvement with conventional drug therapies.

Conditions in 80% of the children improved. Alternatively, the children had not shown improvement with conventional drug therapies.

The Study Up-Close

The study was led by the director of pediatric neurology at Jerusalem’s Shaare Zedek Hospital, Dr. Adi Aran, who treated the 60 children with a high-CBD cannabis oil (20% CBD and 1% THC). The children were treated for at least seven months with the oil.

After the treatment period, parents answered assessment questionnaires to characterize their child’s condition. Questions were asked about behavioral changes, anxiety levels and ability to communicate.

Here’s what they reported:

  • 80% of parents noted a decrease in problematic behaviors, with 62% reporting significant improvements.
  • Half of the children had improved communication.
  • 40% reported significant decreases in anxiety. (Note: one-third of the study participants began the study with no anxiety.)

The Pioneer

Just as Israel is a pioneer in medical cannabis research, Aran is a pioneer in cannabinoid therapy for autism. Aran originally began a 2017 project to test 120 autistic children. It was the first study of its kind worldwide, and was made possible by the Israeli government’s funding and progressive approach to cannabis research.

Aran said that when word of the study got out, his waiting lists were soon full with many families from all over Israel who wanted to participate.

Aran said that when word of the study got out, his waiting lists were soon full with many families from all over Israel who wanted to participate.

Autism spectrum disorders are neurodevelopmental in nature, usually appearing in infancy or early childhood and lasting a lifetime. More severe cases have debilitating symptoms including compulsive, repetitive behaviors and impaired social skills and communication. Some children cannot speak at all. Autism affects around 1% of people worldwide.

The causes of autism are not understood and there is no cure—and the prevalence is climbing. In April 2018, the CDC updated its autism prevalence estimates to 1 in 59 children, up from 1 in 166 children in 2004. Doctors traditionally treat symptoms with antipsychotic medications, which have harmful side effects. Some children do not respond to these medications.

Aran began small autism research studies after similar cannabis studies on epilepsy, a disease that affects about 20% of autistic children. While studying epilepsy, researchers discovered that certain cannabis compounds would likely also help some autism symptoms. Less than 2% of the general population has epilepsy, but up to 33% of people with autism also suffer from epilepsy.

Neuroscientist Dr. Thomas Deuel of the Swedish Hospital in Seattle says there is definitely a connection. While scientists do not clearly understand the reasons behind the relationship, they suspect that the different brain development that occurs in autistic children is more likely to create circuits that cause epileptic seizures.

That link has caused many parents to seek out cannabis treatments for their autistic children. Parents certainly have anecdotal evidence of the effectiveness of CBD oils on their autistic children, but mainstream medicine has remained skeptical due to the lack of data. With most conditions treated with cannabis, anecdotal evidence and personal experience far outweigh actual peer-reviewed scientific research.

What’s Next for CBD Research?

In 2015, Harvard University and Boston Children’s Hospital published a baseline review of cannabis and autism studies to date, showing that the research did show promise, but nothing definitive could be said about cannabis’ ability to improve pediatric patients. The Harvard review stated that most research was animal-based and did not yet show translational impacts to human subjects. In fact, the review concluded with the cautionary statement that cannabis treatments should be used as a last resort after all conventional therapies have failed. Indeed, a widespread reluctance exists within the pediatric community to study the effects of cannabis in children, due to the potential of harmful side effects.

Since 2015, only a few small studies have been conducted, with promising results. One of the biggest impacts to spur on future research has been the U.S. Food and Administration (FDA) approval of Epidiolex, a CBD oil-based elixir manufactured by British drug developer GW Pharmaceuticals as a treatment for two rare types of childhood epilepsy. Scientists took notice at the amazing body of evidence that GW Pharmaceuticals presented regarding the effects of the drug.

Now, New York University (NYU) neurologist Dr. Orrin Devinsky, the same scientist who did research on Epidiolex, is now conducting two studies on CBD effects on children aged 5 to 18 with moderate to severe autism. The only other doctor who is currently doing studies like this is Aran.

Since autism and epilepsy go hand in hand, CBD is showing promise for treating both conditions.

Perhaps as doctors begin to see the effects of Epidiolex, and review research like that of Aran’s and Devinsky’s autism studies, many more will begin to delve further into use of medical cannabis.

Trump Tariffs Expected to Increase Cannabis Industry Prices

Ganjapreneur/August 13, 2018/Pat Beggan

The prices of cannabis retail items like vapes, batteries, filters, cartridges, and packaging may soon increase thanks to President Trump’s proposed tariffs, Forbes reports.

The tariffs will force vape manufacturers to locate new American suppliers or be quickly out-competed by the companies that do. American-made equipment in this category is far more expensive.

The increase in prices is expected to decrease sales and tax revenues, hurting not only the private companies’ bottom lines but also the budgets of states with legal sales. Colorado logged more than $247 million in tax revenue from cannabis sales in 2017; 25 percent of those sales were in the category of cannabis vaporizers.

Other components beyond vapes — such as construction and grow equipment and even cell phones — will also increase in price.

Companies in the cannabis space are especially vulnerable to product cost increases as they are unable to deduct the usual business expenses before paying taxes due to the federal status of cannabis; those business deductions are fundamental to how the vast majority of business works in the United States.

Growers are expected to suffer the most with the tariffs because, of all operators in the cannabis space, their margins are typically the slimmest and many already struggle to make ends meet.

 

 

Can Wildfires Impact Cannabis Quality and Test Results?

Cannabis Business Times/August 3, 2018/Melissa Schiller

As more than a dozen wildfires continue to burn across California, cannabis cultivators affected by the blaze face challenges ranging from the health and safety of their employees to the potential destruction of their facilities and crops. Consumer safety and lab testing will also become significant concerns as cannabis grown in affected areas hits the market.

“When you start getting into how [it’s] going to affect product and manufacturing and production, this is the big variable,” Jon Vaught, CEO of Front Range Biosciences, a Colorado-based agricultural biotech company, told Cannabis Business Times. “It depends on where the wind’s blowing, what your situation is, where you’re located. You could be right next to a fire and have no issues at all, or you could be ten miles from it and have your building filled with smoke. It really just depends on the weather.”

Smoke can stress or even kill the plants—especially those in outdoor or greenhouse operations—and the residue left behind can pose problems for lab testing and consumer health.

“Smoke taint is the most obvious and the most apparent threat to cannabis as [it’s] exposed to these forest fires, and that’s something you’re going to be able to readily tell from just qualitatively examining the cannabis,” said Josh Wurzer, president of SC Labs, which has operations in both California and Oregon. “So, that’s certainly a concern—just ruining the flavor of the cannabis.”

Smoke from municipal fires that burn buildings and other man-made structures can be more harmful than forest fires that burn trees and foliage, Wurzer added. “[When] cannabis [is] growing indoors in city limits or near other buildings and the fire comes into the city like it is in Redding or like it did last year in Santa Rosa, you have concern that when you have buildings on fire, the smoke … has a lot more potential to contaminate the cannabis with toxic chemicals.”

Pressure-treated wood, for example, contains chemicals like chromium and arsenic, which can settle on cannabis crops in the soot and ash from fires.

Fire retardant can also pose threats to cannabis crops and their water sources, said Lydia Abernethy, director of cultivation science for Steep Hill Labs, which has a California office in Berkeley. “If your product has been exposed to [a fire retardant], you should not consume it or release it into the cannabis market. If Phos-Chek or other fire retardants were dropped on or near your property, it’s important to monitor your waterways to make sure there’s no persistent problem with chemicals in your water.”

Each lab uses its own validated testing methods, Vaught said, so it is difficult to predict if these chemicals would be detected during testing and how fire damage could impact state-mandated product testing overall. “It depends on how well-aware they are of it,” he said. “Are they testing for potential contaminants that might come in through the smoke, or do they recognize that they need to test for other contaminants, and that’s an additional contaminant that they wouldn’t normally test for? There are so many questions around the specifics of that that it’s hard to give a super clear answer on how it might affect it, but it certainly could, and it’ll have to be taken on a case-by-case basis.”

Testing labs are required by their particular state regulatory agencies to test for a specific list of contaminants. Anything outside of that list—which in California, for example, contains a very specific roster of cannabinoids, mycotoxins, pesticides and more—will not likely show up in laboratory test results.

Beginning on Jan. 1, 2019, California labs will be required to test for heavy metals in cannabis, including arsenic, Wurzer said, and the state labs currently test for other chemicals that could potentially be produced during municipal fires, such as benzine, but only in concentrates. California labs are also currently conducting required foreign material inspections, which would detect soot or ash from fire damage, Wurzer added.

“As far as I know, none of the labs have developed a test that is specialized for indicators of fire,” Wurzer said. “To test for other things, you have to develop and then validate a method for that testing, so … unless there’s a need for … the tests, chances that someone can do the test are pretty unlikely. So, all we have really at our disposal is looking at the test results [and being] on the lookout for those certain indicators—is there an elevated level of arsenic? Is there an elevated level of benzine?”

It also remains unclear whether contaminants from wildfires could cause false positives or false negatives in pesticide testing, Vaught said. “The likelihood that specific pesticide residues could show up and trigger a false positive [is] definitely a realistic possibility. … I think the likelihood of it would depend on what was actually burning.”

For example, if a forest of pine trees that has never been sprayed with pesticides burns, it is unlikely that smoke or soot from that blaze would cause false positives in cannabis pesticide testing, Vaught said. On the other hand, if a field of corn that has been heavily sprayed is burning, by-products and combustions of those pesticides could show up in the test results of nearby cannabis products.

The bigger issue, however, is contamination from these potentially toxic substances and how it might affect consumer safety, Vaught said. “Some of them can be extremely toxic, so getting large amounts of soot and combustion by-products on your plants or on your product would definitely be something you would want to avoid, whether it triggers a regulatory test failure or not. That would just be good manufacturing practice and putting out safe products for your consumers and minimizing your risk and potential liability should something go wrong.”

And even if cannabis affected by the fires is safe for sale into the market, it may not be desirable for consumption or even extraction, Wurzer added.

“Typically, heavy smoke or particulate exposure degrades the product quality to such a degree that most people won’t knowingly purchase it,” Abernethy agreed. “As fires continue to affect cultivators across the state, I’m sure we’ll see products (especially flower) fail regulatory testing—like filth and foreign materials testing due to the presence of ash, cinders, dirt and mold. If people are interested to determine if their product might fail regulatory testing, we encourage them to contact Steep Hill for pre-regulatory analysis. Don’t lose hope entirely—if your crop has been affected by fire exposure, there are a few remediation routes to making successful, market-appropriate products.”

If a product does fail testing, California has a remediation policy that allows cultivators two remediation attempts and additional re-tests, she said. Steep Hill warns growers against using chemical products to strip away smoke and ash particulates, however, as these can cause additional product quality and safety issues. “We strongly caution anyone from further contaminating product by stripping it with chemicals to try to wash off the smoke,” she said. “That’s not a sound way to go about remedying this problem.”

To avoid the possibility of ongoing testing failures and consumer safety issues, a cultivation facility needs to be cleaned on some level after being exposed to a wildfire, Vaught said, depending on the amount of damage—how much smoke and soot has been deposited. “It could be everything from a low-level of contamination and cleaning required, where you have to go in and just wipe down your walls and get rid of all your plants and clean out your hydroponic systems … or whatever … different components that could absorb soot and smoke, all the way to heavy contamination which requires pressure washing, replacing dry wall, replacing ceiling tiles—replacing anything that absorbs large amounts of contaminants.”

There are professional fire remediation companies that can be consulted, he added, and operators should not take this responsibility lightly. “As soon as you have something like this happen, … talk with your insurance adjuster, … talk with a local fire remediation company, … [and] get some experts on the scene so that they can help you quickly address the problem, as opposed to trying to say, ‘Well, maybe we don’t need to worry about it.’ It’s always better to err on the side of caution for something like this, and yes, it can cost a little more money, but in the long run, it protects you from creating a liability for your company with your consumers, which is never a good thing.”

Furthermore, there are the consumer-facing issues to consider. A cultivator’s testing lab should be able to have an open and transparent conversation about what it is doing in its business practice to account for the wildfires, Vaught said. “That’s what I would recommend, across the industry—more open dialogue about these important issues for not only for the industry, but for the consumers and the safety of consumers,” he said. “It’s so very critical, whether we’re talking about pesticides or combustion by-products that are toxic from forest fires, or potential food additives that may or may not be approved for human consumption—all of these different issues affect the whole industry.”

New York Takes Another Step Toward Legalization, Pennsylvania Starts Selling Flower: Week in Review for Different States

Cannabis Business Times/August 3, 2018

This week, New York took a big step toward legalizing adult-use in the state with Gov. Andrew Cuomo announcing that he has set up a working group to write a bill to legalize and regulate cannabis, implementing recommendations from the state Department of Health. Elsewhere, in Pennsylvania, patients were able to buy medical marijuana in flower form for the first time.

Here, we’ve rounded up the 10 headlines you need to know before this week is over.

  • Federal: State legislators from Oregon and across the nation are calling on Congress to lift the federal prohibition on cannabis and remove it from the Controlled Substances Act so legal businesses in this industry can begin accessing banking services. The National Conference of State Legislators passed a directive Aug. 1 at the group’s annual conference in Los Angeles, urging Congress to help legal cannabis businesses access banking services and let states determine their own path forward on cannabis regulation. Read more
  • A bipartisan house bill introduced July 26 would prevent federal agencies from firing employees for using marijuana when they reside in a state where doing so is legal. The Fairness in Federal Drug Testing Under State Laws Act, introduced by Reps. Charlie Crist (D-FL) and Drew Ferguson (R-GA), would ensure that federal employees who live in states where recreational or medical marijuana use is legal cannot face adverse action if tested positive for past marijuana use. Read more
  • Oklahoma: The group Green the Vote announced July 29 that it reached the required amount of petition signatures to put recreational marijuana on Oklahoma’s ballot in November. Once all of the petitions and signatures are submitted to the state, officials with the Oklahoma Secretary of State’s office will count the petitions and determine if enough legal signatures have been gathered. Read more
  • The Oklahoma State Board of Health voted unanimously to adopt a new set of medical marijuana rules after the passage of State Question 788. The new set of regulations excludes the controversial ban on selling smokable products and the requirement of pharmacists at dispensaries. Read more
  • Florida: Christian Bax, the embattled director of the Florida’s Office of Medical Marijuana Use, is resigning after a three-year stint marked by rule-making delays, rocky litigation and continued criticism over patients’ problems accessing the drug since medical cannabis was broadly legalized more than a year ago. In his resignation letter, Bax wrote that he intends to step down no later than Aug. 10, though he did not provide a reason for his departure or its timing. Read more
  • Pennsylvania: Medical marijuana in dry leaf and flower form became available to registered patients in Pennsylvania for the first time this week. Gov. Tom Wolf’s office said dry leaf cannabis would be available at about a dozen dispensaries starting Aug. 1. Read more
  • Pennsylvania has awarded 13 additional permits to grow and process medical marijuana. The Health Department on July 31 named the chosen entities that will bring the total number of growers and processors in the state to 25, the most currently allowed under Pennsylvania’s medical marijuana law. Read more
  • Mississippi: The woman whose daughter’s name is on Mississippi’s marijuana oil law has begun a drive for a state constitutional amendment allowing medical marijuana use. Her group, called Mississippians for Compassionate Care, must collect at least 86,185 certified signatures over the next year from across the state to get Medical Marijuana 2020 on the statewide ballot in 2020. Read more
  • New York: New York Gov. Andrew Cuomo took a big step toward legalizing marijuana for recreational use in the state Aug. 2, announcing that he has set up a working group to write a bill implementing recommendations from the state Department of Health to legalize and regulate cannabis. Once the group comes up with a proposal, it will be up to the legislature to pass it before Cuomo can sign it into law. Read more
  • Canada: Molson Coors Brewing Co. is starting a joint venture with Hydropothecary Corp. to develop non-alcoholic, cannabis-infused beverages for the Canadian market. The partnership will be structured as a standalone company with its own board and management team, and a chief executive officer will be named in the coming weeks. Read more

Red States Are Embracing Cannabis Legalization, Expanding Access

Leafly/July 10, 2018/Bruce Barcott

Last month’s vote in Oklahoma to legalize medical marijuana caught a lot of people by surprise. Who knew such a deeply red state would embrace cannabis in a 57% landslide?

Legalization has passed an ideological tipping point in law-and-order states.

But it was no fluke. Yesterday we got two more indications that legalization has passed some sort of ideological tipping point in historically law-and-order states.

In North Dakota, leaders of the North Dakota Marijuana Legalization Initiative delivered more than 18,000 signatures to the secretary of state’s office in Bismarck. If state officials verify at least 13,482 of those autographs (and barring a legal challenge), voters will decide in November whether to legalize cannabis for adults 21 and older.

Surprised? Don’t be. Less than two years ago, North Dakota voters caught national legalization advocates off-guard when they passed a medical legalization measure.

An even bigger win came last night in Maine, where state legislators vigorously overrode Gov. Paul LePage’s veto of a medical marijuana bill. With a nearly unanimous vote, the Maine Legislature eliminated qualifying conditions altogether (leaving it entirely up to the physician’s discretion), allowed dispensaries to operate as for-profit enterprises (like drug stores and pharmacies), and increased the allowed possession limit for patients from 2.5 ounces of cannabis to 8 pounds.

With a nod to local control, the new law allows new medical cannabis dispensaries only in municipalities that vote to allow such stores. The law will become effective 90 days after the legislature’s current special session ends.

Maine has voted Democratic in presidential elections since the 1990s, but the state’s famously independent-minded residents installed LePage, an erratic Tea Party Republican, in the governor’s mansion in 2010—and re-elected him in 2014. LePage is a die-hard cannabis prohibitionist, but the same voters who put him in office just keep on legalizing despite the governor’s best efforts to hold back the tide of change.

Utah, Missouri Are on the Way

Meanwhile, Utah’s campaign to legalize medical marijuana hums quietly along, surviving every legal challenge the state’s prohibitionists lob at it. Barring anything unexpected, voters will have their say come November. And in Missouri, there are at least three (and maybe four) active medical marijuana initiatives aiming to make November’s ballot.

Those fighting the losing battle are increasingly tossing up Hail Mary attempts to discredit the growing evidence on medical cannabis. “Medical marijuana activists, just drop the charade of pretending there is a shred of science backing this medicine-via-pot-shops model,” Maine prohibitionist Scott Gagnon recently tweeted.

The science backing the cannabis-as-medicine model, in fact, can be found in a number of reputable journals. They include The New England Journal of Medicine, The Lancet, reports by the World Health Organization, the Proceedings of the National Academy of Sciences, and papers published by the London School of Economics.

The steady march toward legalization by red states—and in particular, by citizen voters—is yet another sign that the partisan divide on cannabis is disappearing. While Republican voters might side with legalization for slightly different reasons than their Democratic neighbors, the gap between them is closing. Rather than cling to Drug War era propaganda, elected officials would do well to respond to their constituents’ evolving views.

Northern California Cultivators Plant Seeds for Recovery After Wildfires

Culture Share/July 17, 2018/Keiko Beatie1

The blazing heat of summer is here, and while we’re feeling the climate change, barely a year has passed since the Northern California fires torched Napa, Sonoma, Lake, and Mendocino counties. These areas are well-known for cannabis cultivation farms, and many were destroyed or impaired in these wildfires.

Families are still attempting to put the fragile pieces back together and bring normality back to their lives. The effects of the California wildfires on cannabis producers has gone beyond the damage to crops and loss of revenue — for some, it’s resulted in the loss of life, too.

Between Oct. 8 and Oct. 31, 2017, 250 wildfires burned across California. During the fires, more than 245,000 acres of land were burned and 8,900 buildings destroyed. The damage toll of these fires is estimated at $9.4 billion.

Once the smoke and ashes settled, communities came together to support those were affected by the devastation of the raging fires. The Redwood Credit Union set up a fire relief fund for the four Northern California counties and, to date, $32 million was raised from people all over the world. The funds were distributed to two dozen nonprofit groups. The outreach focused on assistance and recovery for the affected individuals, which included housing support, consulting and health services. A few of the nonprofits supported by the North Bay’s Fire Relief funds are St. Vincent De Paul Santa Rosa, Redwood Empire Food Bank, Community Action Partnership of Sonoma County, Jewish Community Free Clinic, and Santa Rosa Community Health Center.

Anticipating the Jan. 1, 2018, legalization of cannabis after the passage of Proposition 64, many longtime cultivators abandoned their longtime cannabis businesses as they waited for licensing, permits, and regulations to be ironed out. New cultivators are making a change to the once-artisanal landscape, with automated large-scale farms.

The community in these burn areas continues the healing process, but it has a long way to go before returning to normal. With counseling and business support, the Northern California cultivation communities hope to recover and participate in future harvests.

While the North Bay Fire Relief Fund is closed, those interested in providing aid can still help  by supporting the American Red Cross California Wildfire Relief Program. During the October wildfires, the Red Cross provided mental health services to more than 5,500 people.