More Banks Welcome Marijuana Business Accounts, New Federal Report Shows

Daily Dose/November 29, 2018/Tom Angell

As of the end of September, there were 375 banks and 111 credit unions maintaining financial services for cannabis businesses, according to a report published this month by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

It is the latest in a series of quarterly updates the agency has issued, which together have shown steady growth in the number of financial services providers that are willing to work with the cannabis industry despite its continued federal illegality.

The new data comes as marijuana reform continues its political ascendancy. During this month’s midterm elections, Michigan voters approved marijuana legalization and those in Missouri and Utah passed medical cannabis measures. Several new pro-legalization governors are set to take office in January. And Democrats took control of the U.S. House of Representatives, where cannabis legislation is expected to be more seriously considered in 2019 than it has been over the past several years. One of the most-sought reforms by marijuana businesses is greater clarity on their ability to access banks.

In 2014, under the Obama administration, FinCEN issued guidance to banks about how to serve the marijuana industry without running afoul of federal regulators. The memo, which requires financial services providers to regularly file reports on customers with cannabis accounts, was meant to provide assurances to banks. But many have remained reluctant to work with marijuana businesses because ongoing federal cannabis prohibition could trigger money laundering laws and other risks.

In October, the American Bankers Association began surveying its members about the issues they face in serving cannabis businesses.

“We believe the time has come for Congress and the regulatory agencies to provide greater legal clarity to banks operating in states where cannabis has been legalized for medical or adult use,” a spokesperson for the organization said at the time.

“The [marijuana banking] reporting structure laid out in the 2014 guidance remains in place,” the new FinCEN report, which was first spotted by Cannabis Wire, says. “FinCEN will continue to work closely with law enforcement and the financial sector to combat illicit finance, and we will notify the financial sector of any changes to FinCEN’s” cannabis reporting procedures.

When then-U.S. Attorney General Jeff Sessions moved in January to rescind separate Obama-era guidance that generally protected state marijuana laws from federal interference, industry participants feared that it would spook major businesses like banks from associating with cannabis operators.

The new FinCEN data showing steady growth in the number of financial institutions maintaining marijuana industry accounts indicates that those fears were largely unfounded.

Meanwhile, a number of key Trump administration officials have indicated they want to see a clarity on cannabis banking issues.

For example, Steven Mnuchin, the treasury secretary, has suggested in congressional testimony that he wants state-legal marijuana businesses to be able to store their profits in banks.

“I assure you that we don’t want bags of cash,” he told a House committee in February. “We do want to find a solution to make sure that businesses that have large access to cash have a way to get them into a depository institution for it to be safe.”

In a separate hearing he said that resolving marijuana banking issues is at the “top of the list” of his concerns.

Federal Reserve Chairman Jerome Powell said in June that the disparity between local and national marijuana laws “puts federally chartered banks in a very difficult situation.”

“It would great if that could be clarified,” he said.

That same month, Federal Deposit Insurance Corporation Chairwoman Jelena McWilliams said that while she directed her staff to consider ways to address the issue, the agency’s hands are “somewhat tied” until federal law changes.

Comptroller of the Currency Joseph Otting said last month that he is “hopeful there’s enough momentum in that direction” toward solving marijuana businesses’ banking access issues and that forcing them to operate in cash is “generally not healthy.”

Pressure is also coming from the states. In August, a coalition of the top financial regulators in 13 states sent a letter demanding Congress take action to protect banks that work with marijuana businesses.

Despite the growing call for clarity on the issue, key committees in the House and Senate rejected amendments this summer that would have prevented federal banking regulators from punishing financial institutions for serving the marijuana industry.

Standalone legislation to provide permanent protections to banks that work with cannabis businesses have garnered increasing numbers of cosponsors in both chambers, though they haven’t been scheduled for hearings or votes.

It remains to be seen whether a Democratic House will move cannabis banking legislation in

.

How Cannabis Could Become The Next Real Estate Disrupter

GFarma News/November 28, 2018

For a while it looked like the best thing to bring to a neighborhood was a new Whole Foods grocery store. One study showed that homes in these neighborhoods would appreciate at a much faster rate than if they were near a Trader Joe’s (and both were better than a Starbucks). Another sign a neighborhood is on the cusp of revitalization is when the yoga studios start vying for space with the arthouses. Usually, it is not long after that the expensive coffee shops and cupcake stores start showing up at street level. But now that so many states have passed laws favorable to the marijuana movement, the next big thing to bring a neighborhood back from the brink just might be the increasing number of organizations that work in the industry.

Downtown Los Angeles could be the first case study to see this phenomenon in action. Next month, a seven-story building in the heart of Los Angeles’ Jewelry District will open up, filled with tenants who all have cannabis somewhere in their job description. The 67,000-square-foot Green Street Building (the name is in reference to its anchor tenant, the Green St. Agency, which works solely with clients in the marijuana industry) will house everything from co-working spaces to an art gallery, dispensary, restaurant, law firm, luxury spa and lounge. Real estate investment company Bow West Capital purchased the property last year for a reported $14 million. Once open it will be the largest real estate space dedicated to cannabis in the U.S.

“The buildings in [the Jewelry District] have not received the proper upkeep, allowing for low sale prices of the buildings but also requiring full renovations,” said Matthew Rosenberg, CEO and Founder of M-Rad, Inc, the design team behind the project. “With the prosperity and funding in the cannabis industry on the rise, this is a perfect combination for this exciting new industry to make this area their home, with Green St. being the catalyst.”

While there are not many residential properties for sale within the Jewelry District itself, data from Realtor.com shows the few that are on the market have a median asking price of $525,000. Surrounding neighborhoods vary quite a bit with the neighborhood of Florence-Graham about five miles away to the southwest seeing median list prices of $440,000 compared to Greater Wilshire a few miles to the northeast seeing median list prices of $1.7 million.

M-Rad took the 1913 building and completely renovated the interiors to create mixed-use spaces that cater both to the requirements of offices and restaurants as well as the unique needs of cannabis users. They needed to create the right proportion of an open-plan design matched with a set of cloistered, secluded rooms for those who want privacy. Here are some images of the interior provided exclusively to Forbes.

For example one concept for behind the hidden door of the library bookshelf could be the Bud Bar, with a custom-designed table. (Interested? A Forbes contributor put together a Gift Guide which includes some of the most unique marijuana rolling papers, with some that are made from gold and others that look like money.)

The lounge, MOTA—which if, like me, you didn’t know is a Spanish slang term for marijuana (at least one dispensary out there has ascribed the words Medicine Of The Angels to the letters, but the term doesn’t have its origins as an acronym)—will complement the restaurant which will prepare cannabis-infused menu items and have a U-shaped bar designed specifically for cannabis tastings. It will also have fully transparent windows into the kitchen so guests can see the food being prepared. Sound-proof rooms are also available for private meetings and the Flower Room is a designated smoking area.

“The companies who are part of the building are some of the biggest players in the industry,” says Rosenberg. “Which will bring in high-level clientele and investors who may feel encouraged to invest in the development of the area. The building itself will host a number of cannabis-related programs such as cultural activities and gastronomic experiences which will attract new clientele.” Some of the big names affiliated with the project are prolific investor Gary Vaynerchuck, who is a 50% stakeholder in Green Street Agency, and Vicente Sederberg LLC, dubbed The Marijuana Law Firm, is one of the tenants.

Typically neighborhood revitalization follows the pattern of stores opening up on a neglected city block one retail space at a time. But this model is different. By bringing a critical mass of companies to the neighborhood all at once, the sudden influx could accelerate the resurgence all the more quickly. Los Angeles’ Jewelry District could become a major player in a matter of months, not years.

The Times They Are A Changin’: Canada’s Legal Cannabis Will Change Everything

Forbes/October 16, 2018/Nick Kovacevich

As cannabis sales become legal in Canada, the country will move ahead of the U.S. in reaping the benefits.

On October 17, everything changes. That’s the day the manufacture, distribution, possession and use of cannabis in Canada becomes legal nationwide. But the repercussions will be felt here in the United States from Portal, North Dakota, to Brownsville, Texas, and from sea to shining sea.

We’re already seeing the impact. Last week, a Canadian company listed on the New York Stock Exchange legally sent cannabis products across the US border to be used for medical research. Products, keep in mind, that are illegal in the US at the federal level. It is just another example of how backwards we are about cannabis. Not only are US companies losing market share to foreign competitors, the public companies we do have are barred from the bigger exchanges. Remarkably, however, we are allowing Canadian firms on the granddaddy of them all, the NYSE.

The first impact of Canada’s big move will be financial. Recreational sales are projected to be as high as $6.5 billion by 2020, with the government collecting an excise tax of 10% or $1 per gram, whichever is higher. Each Canadian province also will collect a sales tax.

But we should expect other, more subtle changes that ultimately will impact how cannabis is manufactured and used — and further isolate the U.S. as it continues to classify cannabis in the same category as heroin and methamphetamine. In the meantime, here’s what to expect.

Research

As an illegal substance, cannabis is hard to come by, which has long stymied anyone interested in finding out more about the plant. (Hence the hoopla around Canopy Growth sending cannabis to the US.) But once cannabis is legal, Canadian scientists – unlike their American counterparts – will find it easy to buy or produce cannabis for research purposes. They’ll also be able to conduct clinical trials on humans to determine cannabis’ biological, sensory, clinical and societal effects. New research will bring a better understanding of the chemical attributes of particular strains, explaining why some induce yawns and others are energizing. More and better research also will allow us to produce cannabis that better meets specific medical needs.

Meanwhile, the U.S. will continue to fall behind, since our federal drug laws hinder research. Although the Drug Enforcement Administration since 2016 has received dozens of applications from scientists wanting to produce cannabis for research purposes, it’s only approved one institution, the University of Mississippi. And the DEA doesn’t appear eager to approve any others, despite the fact that the Pew Research Center says 61% of Americans support nationwide cannabis legalization.

Employers

Each of Canada’s 10 provinces will set up its own system to regulate the sale of cannabis. But nationwide, employers will have to consider how to deal with the plant’s change in status. Although recreational cannabis will no longer be illegal, employers may or may not allow it in the workplace. Experts predict most employers will expand existing alcohol policies to include cannabis, and generally prohibit any sort of impairment. Of course, there’s no consensus about what “impairment” means in regard to cannabis use, so that may be tricky. Employers also will have to examine existing policies to determine if they need updating. For example, consuming edibles will no longer be prohibited under a rule against “illegal drugs” at work. They’ll also have to decide whether to — or even if they can — apply any restrictions to employees who work remotely or from their own homes. Whatever they do, employers must design policies and procedures to ensure a safe work environment where employees want to work.

Opioid Use

Several studies have shown states with legal medical marijuana dispensaries have fewer opioid addicts and overdose deaths. In fact, a February 2018 study found opioid prescriptions fell significantly in states with medical cannabis laws. Patients with chronic pain said their opioid use decreased by more than 60% in those states. In the U.S. alone, the economic cost of the opioid epidemic is expected to reach $500 billion from 2018 to 2020. That doesn’t even count the personal cost to families and communities of lives lost to opioid addiction and overdose. Canada can expect to reap the benefits of those reductions across the board.

Retail experience

The retail experience will differ across the country, because each province is making its own rules. The Canadian government gave provinces the right to determine how cannabis can be sold, where stores may be located and how they must be operated.

Most provinces will allow online sales, but in some places they will be run by the government. Some provinces will allow private, for-profit dispensaries. Nova Scotia, instead, will allow cannabis sales only at stores now run by the Nova Scotia Liquor Corp., the sole distributor of alcohol in the province. Ontario, the most populous province, set up a monopoly called the Ontario Cannabis Retail Corp., to act as the only wholesale distributor of cannabis in the province. Canada has just 10 provinces. Fifty different sets of rules and regulations in the U.S. would be confusing and could inhibit development of the industry as companies struggled to meet the various qualifications in each state. Of course, that’s where we’re headed now, unless and until the federal government legalizes cannabis.

Annual Northern California cannabis harvest underway as pot economy transitions

G Farma News/October 12, 2018/Venessa Alvarez

The pungent smell of cannabis planted on this west-facing hillside in the Sonoma Valley mixed with the odors of damp volcanic soil, aromatic pine and cattle musk from a herd watching over a calf crying for its mother.

A five-person farm crew cut down the plastic trellis holding up marijuana stalks laden with dense colas of Purple Punch, among the earliest flowers to ripen at this nearly 700-plant, one-acre biodynamic cannabis plot run by Terra Luna Farms in Glen Ellen.

They cut down the stalks, piled them onto carts and wheeled them to a small truck parked at the end of the row — a haul that will ultimately end up on the shelves as flowers or infused products at SPARC’s four dispensaries in Sonoma and San Francisco counties.

Growing cannabis lawfully under the sun on the North Coast is a risky gambit for farmers, who must bear the high costs of new regulations, compete with companies growing pot in urban warehouses or larger greenhouse farms in central and southern California and confront whatever Mother Nature brings. The nearly 60,000-acre Nuns fire destroyed most of SPARC’s harvest last year, forcing the company to fill its shelves with cannabis grown elsewhere.

“Harvest last year was disrupted by the catastrophic fires,” said Sonoma County Supervisor Lynda Hopkins, an organic farmer who sits on an ad hoc committee helping to shape the county’s cannabis policies. “Going forward, the harvest feels disrupted by regulatory uncertainty.”

Northern California’s world-renowned outdoor cannabis harvest has for generations run parallel to the wine grape harvest, drawing itinerant workers to the region and fueling a cash-based economy that has kept small towns and garden supply stores afloat.

Roughly 279 acres are licensed for outdoor cannabis cultivation across a five-county Northern California marijuana growing region — the Emerald Triangle counties of Mendocino, Humboldt and Trinity and lesser-known cannabis country in Sonoma and Lake counties, according to a Press Democrat analysis of state licensing and Sonoma County permitting data.

That translates to a legal outdoor harvest worth about $474 million a year, barring catastrophic crop loss and based on industry standards for yield and the current wholesale value of marijuana, about $500 a pound.

Still-ripening marijuana buds are secreting their most pungent essential oils of the season — odors noxious to some, appealing to others and a sign of harvest time. The earliest flowers were cut down in September and the slower- to-ripen varietals will head to the drying sheds in early November.

A fraction of the region’s cannabis growers, estimated in the tens of thousands, are making a run at growing cannabis openly and lawfully.

Erich Pearson, SPARC’s founder and executive director, said he could find a more affordable place to grow cannabis than this bucolic valley surrounded by regenerating forests and parcel after parcel of vineyards. Instead, he’s attempting to create a taste for high-end, biodynamic cannabis infused with the unique terroir of this Glen Ellen area hillside.

The Demeter biodynamic -certified acre is being grown across the property from another acre of organically grown cannabis. Both are being produced for SPARC, and Pearson said they are working with a consultant to amend the nutrient-poor soil so they can plant directly into the ground within three years.

“When I look at this, I think about the brand we’re building,” said Pearson who oversees one of the largest legally operating cannabis farms in Sonoma County.

In Sonoma County, just under 20 acres of cannabis worth about $34 million is being harvested lawfully through the agricultural department or with temporary county authorization for certain operators. In contrast, the 2017 wine grape harvest was worth $580 million across nearly 60,000 acres.

These acreages for cannabis don’t include cannabis being grown in warehouses or other indoor facilities.

Most experts agree the vast majority of California cannabis is grown outside, although a true measure is hard to come by for an industry that has not been tracked and still includes a robust black market.

New Frontier Data, a Washington, D.C.-based cannabis industry research firm, estimates roughly 90 percent of marijuana in the state is grown outside, a figure local industry experts suspect doesn’t account for the likelihood most illegal marijuana — the hardest to track — is grown indoors. And researchers believe more than 55 percent of the outdoor crop is produced for the black market.

But for legal operators, it is far more affordable — and environmentally sustainable — to grow outside rather than secure the real estate and infrastructure needed to cultivate indoors on top of the expensive fees required by counties like Sonoma, said Tawnie Logan, a Sonoma County industry consultant. Logan described this year’s harvest as “bare bones” with so few longtime cultivators allowed to grow.

Last year, a combination of major wildfires and the high costs of compliance disrupted what might have been an indicative year for the region’s sun-grown cannabis haul.

It was the first year when marijuana cultivators were required to follow new local regulations developed in advance of the state’s 2018 rollout of its rules.

Sonoma and Mendocino counties each fell short in cannabis tax revenues by about $500,000 for the 2017-18 tax year. Sonoma collected $3.4 million, while Mendocino brought in $1.3 million.

The new rules are changing the landscape of cannabis cultivation in Mendocino County, where officials have estimated at least 10,000 of the county’s 87,000 residents grew marijuana — a figure some local industry leaders think is an underestimate.

Its farmers created the well-known Emerald Cup, which started as a small, clandestine harvest festival and has grown into the country’s only cannabis contest celebrating pot grown outside, one that draws more visitors to the Sonoma County Fairgrounds than its more famous counterpart, High Times cup.

Many people who supplemented their income by growing a little pot are looking for other ways to make ends meet while others are shutting down their gardens and joining the cannabis labor workforce, said Genine Coleman, executive director of the Mendocino Appellations Project.

An unknown number of growers are “hunkering down” and sticking with the black market, she said.

The seasonal influx of workers appeared in far fewer numbers at the grocery stores and gas stations than previous years when so-called trimmigrants traveled from all over the globe to the Emerald Triangle to find work harvesting and trimming dried cannabis buds, Coleman said.

“It’s not as lucrative for trimmers as it was and people are more inclined to give jobs to locals — and locals need jobs,” said Coleman, who also serves on the boards of the California Growers Association, the Mendocino County Growers Alliance and the Mendocino County Industry Association.

It’s unclear how rural counties like Mendocino where residents have long depended on the medical marijuana and illicit markets will weather the transition from an underground industry to a corporatized and commercialized one.

“We’re in a hard place because we have been a very robust cultivation region that has been — confidentially and without any statistics — underwriting the entire county’s economy,” Coleman said. “Because of the scale of what’s going on in California, we’re not on great footing.”

The economic fallout could be catastrophic, said Hezekiah Allen, who grew up in a Humboldt County cannabis farming family and founded the California Growers Association, a statewide association and lobbying arm for cannabis cultivators.

Allen has stepped down as executive director and is launching a new enterprise called Emerald Grown, a company formed to provide resources for farming cooperatives, a type of collective enterprise allowed in the state.

The 2018 harvest “is one for the record books” for people who managed to acquire local permits and state licenses to grow, said Allen, who said farmers from all over the region are sending him photographs showing towering plants benefiting from a good weather year.

“I’m seeing big, colorful beautiful flowers with all the colors of fall and they’re sparkling and glistening with these magical cannabinoid flowers that will bring so much goodness,” Allen said. “It’s a magical time.”

Outside Glen Ellen at Terra Luna Farm, several feral cats were being cared for in a temporary cage while they adjust to the ranch off Highway 12, where farm owner Joey Ereñeta hoped they’d claim as their home and help keep rodents away.

Ereñeta, a Santa Rosa resident and lead horticulture instructor at Oaksterdam University in Oakland, helped SPARC shut down all its warehouses where the dispensary group used to grow all its cannabis, and begin its new mission to cultivate all of its product under the sun.

At the end of the rows, they’ve planted plant insectories with marigolds, nasturtiums and poppies.

Ereñeta and Pearson are in some ways outliers among cultivators trying to put stakes in the ground in Sonoma County because they are both longtime cultivators with strong financial backing through investors and the retail stores.

The margins for farming are low even for cannabis, and the fires set them back “millions” said SPARC’s Pearson, who wouldn’t put a precise number to the financial loss.

“We’re ultimately trying to create something different,” Pearson said. “We want to bring people in to see — look at how beautiful this plant is.”

Four ways marijuana businesses could benefit from banking law changes

G Farma News/September 21, 2018/Vanessa Alvarez

The old adage “money talks” could be revised to “money screams” when it comes to money and the legalized marijuana business.

There is just too much cash running through these pot businesses for something not to change. The status quo — not allowing banks to legally work with pot businesses — is not going to work for very much longer.

Although marijuana is still illegal under federal law, some state laws allow it, and that leaves distributors of legal marijuana in peril.

Wall Street interest in marijuana firms is at an all-time high. The North American cannabis market is expected to go from $9.2 billion in 2017 to $47.3 billion within 10 years, according to Arcview Market Research and BDS Analytics.

That kind of money attracts the movers and shakers in the upper echelon of the financial markets who know how to pull strings in Washington. U.S. Sen. Elizabeth Warren said recently that if the Democrats’ narrow chances of capturing the Senate in November succeed, Democrats would vote in favor of a bill to end federal oversight of marijuana and let states handle the issue.

The politics are tricky, but money is a great motivator in politics. Plus, as more states continue to jump on the bandwagon, there will be huge incentives for the banks to want to get involved with the business.

A few small credit unions offer marijuana businesses checking accounts, but most financial institutions are awaiting the federal government to act. And that means most marijuana businesses are dealing with large amounts of cash.

Changing banking law to allow financial institutions to work with legal marijuana businesses would ease these issues.

Financing

Marijuana growers are like any other business people. They occasionally need to borrow money for a variety of reasons. Being able to work with a bank will open up more opportunities.

Credit card access

Customers would be able to use credit cards to purchase marijuana, and marijuana businesses would have better ways to track spending and income.

Cash violence

It is not unusual for some marijuana businesses to handle $20,000 or more in cash. This is not only dangerous for the people carrying the money but also for innocent bystanders should a robbery occur.

IRS paper trail

Cash transactions are easier to hide from the Internal Revenue Service. Putting the money in a bank is an easier way for the IRS to track revenue from a business.

It is ridiculous for the federal government to put these shackles on businesses that are allowed to operate under their state laws. But it can’t last. Money talks.

Or screams.

Rural Nevada not embracing legalized recreational marijuana

G Farma News/September 21, 2018/Venessa Alvarez

Despite more marijuana licenses available from the state, parts of rural Nevada continue to shun the business.

But in other parts of rural Nevada, seeds of industry might be sprouting.

Las Vegas dispensary Acres Cannabis has a dispensary under development in Ely. Acres CEO John Mueller said he hopes once his and other dispensaries under development in rural Nevada become operational, other cities and counties might warm up to marijuana.

“All of us fight for city of Las Vegas tourists,” Mueller said. “The rural market is underserved, really, across the country.”

Representatives in Churchill, Douglas, Elko, Pershing, and Storey counties and in Elko told the Review-Journal they either have ordinances on their books that prohibit marijuana sales locally or have not seen any interest in local sales.

Mueller said that he expects to open his dispensary in Ely on Jan. 1 and that it will serve medical patients at least. But he should learn by Nov. 30 whether his business is licensed for both medical and recreational sales.

Silver State Relief has a medical marijuana dispensary under development in Fernley, and Deep Roots Medical has one under development in West Wendover.

Fernley city Manager Daphne Hooper said the city allows medical marijuana sales and dispensaries that sell both medical and recreational marijuana. The city doesn’t allow solely recreational dispensaries.

West Wendover City Manager Chris Melville said the city allows medical marijuana dispensaries but no cultivation or production businesses for marijuana used recreationally.

Elko City Manager Curtis Calder said the marijuana ordinance could come up for debate after a new city council is seated in January.

Two council members are termed out, and mayoral candidate Marcey Logsden has publicly supported medical marijuana.

Logsden is running against Councilman Reece Keener, who voted to ban medical marijuana dispensaries locally. The mayor’s race is nonpartisan.

A letter signed by Wells City Manager Jolene Supp said the city will allow one local dispensary.

And Winnemucca-based lawyer Rendal Miller is expected to ask Humboldt County commissioners in October to approve his marijuana business despite a 2017 ordinance prohibiting growth and sales.

“It is my sense that the board will not reverse their position, but you never know,” county Manager Dave Mendiola said. “The core issue is really the federal ban on marijuana.”

Miller did not return requests for comment.

MARIJUANA AND BROTHELS

A marijuana sales ban but allowing people to sell sex in parts of rural Nevada may have outsiders scratching their heads.

In the city of Elko, home to places like Desert Rose Gentleman’s Club and Legal Brothel, people’s attitudes may be the product of history.

“They are a cultural part of the community and are viewed in a positive light,” Elko City Manager Curtis Calder said.

Though Elko County has outlawed brothels in its unincorporated areas, county Commissioner John Karr said the brothels in the Elko area don’t impact locals as much as legalizing local marijuana sales would.

“I have heard of marriage lost at a brothel,” Karr said. “But not addictions.”

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.