Marijuana Business Magazine August 2020 by MJBiz Daily

VOL 7 • ISSUE 7 • August 2020Insights for cannabis executives, investors & entrepreneurs $12.95 IllicitLegalcannabisfirmshaveplentyofwaystooffercustomersvaluebeyondpricingMarketHowtoCompete Taking Advantage of Real Estate Deals Layering Security at Cultivation Sites Staying on Top of Shelf TakingOutdoorPreparingStabilityforHarvestAdvantage OutdoorPreparingStabilityforHarvest With the

Media OrganizationsIndustry& POWERING OVER 1,000 CLIENTS OF ALL VARIETIES cannabizmedia.com 203-653-7975 Connect with more than 100,000 licensed cannabis and hemp operations across 48 states and 18 international markets, including Canada Connect with more than 100,000 licensed cannabis and hemp operations across 48 states and 18 international markets, including Canada Your verified source.Your verified source. Cannabis & Hemp Leads CRM Email Campaigns Domestic & International

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2 Marijuana Business Magazine | August 2020 FEATURES 36 HOW TO COMPETE WITH THE ILLICIT MARKET Legal cannabis firms have plenty of ways to offer customers value beyond pricing TABLE OF CONTENTS 68 REAL DEALS A struggling economy paves the way for marijuana companies to secure better values on real estate. 76 GREEN LOCKDOWN Indoor cannabis growers should take a layered approach to security, from reinforced structures to access control and high-tech cameras. 86 BEST BY: AUG. 31, 2020 Shelf-stability experts reveal how cannabis-infused product makers should use best-by, sell-by and expiration dates. Learn how to extractors can create more reliable end products on page 94. Photo Courtesy of The Clear Marijuana Business Magazine August 2020 • Volume 7 • Issue7August

3August 2020 | mjbizdaily.com DEPARTMENTS On Our Cover Undercover Los Angeles County sheriffʼs deputies dump marijuana into an evidence bag during a raid at an illegal dispensary in Compton, California. Outlaw dispensaries in Los Angeles County greatly outnumber licensed storefront retailers. AP Photo/Jae C. Hong 8 FIVE WITHQUESTIONSANGELADAWSON Reviving Black-owned farms in the United States. 12 HEMP NOTEBOOK CBD manufacturers have no choice but to self-regulate. 14 TRENDS & HOT TOPICS California’s illicit market is as strong as ever. 16 IN FOCUS CBD firm unveils massive farm art installation. 104 OFQUESTIONTHEMONTH How do you prepare for fall harvest? 106 MARKET AT A GLANCE Missouri’s MMJ program has been delayed by a number of factors, including the coronavirus pandemic. VOL 7 ISSUE 7 August 2020Insights for cannabis executives, investors & entrepreneurs $12.95 IllicitLegalcannabisfirmshaveplentyofwaystooffercustomersvaluebeyondpricingMarketHowtoCompete Taking Advantage of Real Estate Deals Layering Security at Cultivation Sites Staying on Top of Shelf TakingOutdoorPreparingStabilityforHarvestAdvantage OutdoorPreparingStabilityforHarvest with the 6 From the Editor 8 Q&A With Angela Dawson 12 Hemp Notebook 14 Trends & Hot Topics 16 In Focus 18 Company News 22 DevelopmentsIndustry 94 Best Practices in Extraction 100 Industry Players 104 Question of the Month 106 Market at a Glance 110 Our Advertisers 112 Notable Quotes NEW!

Marijuana Business Magazine | August 20204 Contact Us | Whoʼs Behind This Magazine? Magazine feedback We are here to help the multibillion-dollar cannabis industry prosper. Let us know how we can serve you. Email us at magazine@mjbizdaily.com with your thoughts, suggestions and any other feedback about the magazine and the stories we cover. Chief Executive Officer Chris Walsh VP of Publishing P amela Moore PamM@MJBizDaily.com Editorial Director Roger Fillion RogerF@MJBizDaily.com Magazine Editor K ate Lavin KateL@MJBizDaily.com Senior Editor Kevin Huhn KevinH@MJBizDaily.com St aff Writers Laura Drotleff LauraD@MJBizDaily.com Matt Lamers MattL@MJBizDaily.com Ivan Moreno MattL@MJBizDaily.com Kristen Nichols KristenN@MJBizDaily.com Alfredo Pascual AlfredoP@MJBizDaily.com Omar Sacirbey OmarS@MJBizDaily.com Bar t Schaneman BartS@MJBizDaily.com John Schroyer JohnS@MJBizDaily.com Jeff Smith JeffS@MJBizDaily.com Data and Charts Jenel Stelton-Holtmeier Ar t Christa Madrid Contributors Susanna Donato, Adrian D. Garcia and Margaret Jackson VP of Sales Mary Pemberton MaryP@MJBizDaily.com Sales Team David Braswell DavidB@MJBizDaily.com S avannah Brown SavannahB@MJBizDaily.com Rachel Grundner RachelG@MJBizDaily.com Molly McElwain MollyM@MJBizDaily.com Brooke Moore BrookeM@MJBizDaily.com A lex Sutliff AlexS@MJBizDaily.com A ngela Toney AngelaT@MJBizDaily.com Customer Service (CustomerService@MJBizDaily.com720)213-5992,ext.1 Co-founders C assandra Farrington and Anne Holland To start/change/cancel your subscription, visit MJBizMagazine.com, call us at (720) 213-5992, ext. 1 or email us at CustomerService@MJBizDaily.com. Marijuana Business Magazine subscriptions are currently free to qualified U.S. cannabusiness professionals and investors age 21 and over only. To advertise with us, email Sales@MJBizDaily.com or call us at (720) 213-5992, ext. 2. Marijuana Business Magazine, Volume 7, lssue 7, August 2020 lSSN 2376-7375 (print); lSSN 2376-7391 (online) Marijuana Business Magazine is currently published 10 times per year by Marijuana Business Daily ™, a division of Anne Holland Ventures Inc. POSTMASTER: Please send address changes to: Marijuana Business Daily, 3900 S. Wadsworth Blvd., Suite 100, Denver, CO 80235. Copyright 2011-2020 by Marijuana Business Daily, a division of Anne Holland Ventures lnc. All rights reserved. Materials may not be reproduced in whole or in part without written permission. For reprints of any article, please contact Customer Service. MJBizMagazine.com On the site To get the cannabis industry′s latest news and analysis, visit us at mjbizdaily.com and hempindustrydaily.com. Save the Dates Find us on social media @mjbizdaily@MMJBusinessDaily  Marijuana@MJBizDailyBusiness Daily DECEMBER 2-4, 2020 LAS VEGAS Michael Knight, The Hemp Accountant, reads the July issue of Marijuana Business Magazine at the beach. Are you reading this magazine during the pandemic? Post a photo on Instagram with the hashtag #quarantineandmjbizmagazine to be featured in a future issue.

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Kate EditorMagazineBusinessMarijuanaLavin

Room at the Regulated Table

From Gold to Green Wall Street has dubbed the massive investor interest in marijuana a “Green Rush” because of its similarities to the 1849 Gold Rush that made some intrepid Americans rich while also developing the western United States. But like that stampede for gold, which left as many prospectors heartbroken as it made others rich, the sudden success of the marijuana industry has left casualties in its path.

“When cannabis decriminalization started to be taken seriously,” Roberts said, “I remember thinking, ‘Here we go again. Are we going to be kept out of this industry (as happened during the tech boom) because of an inability to findPrivateinvestors?’”investors and cannabis investment firms can help fix this inequity by funding Black-owned enterprises.

Another important change already taking place is renewed interest in social equity programs that lower the barrier to entry for people of color looking to obtain cannabis business licenses. Illinois has gotten a lot of attention in the past year for its social equity program, and hopefully other states will look to its success as a model.

Embracing the consumers you have and finding new ways to engage new ones is a legal business’ best chance for Sincerely,success.

T o call this a summer unlike any other would be an understatement. From anxiety surrounding the coronavirus to protests supporting the Black Lives Matter movement, the past few months have felt charged in a way few of us have experienced before.

It’s certainly an intriguing time to dive into this month’s cover topic: how licensed cannabis companies can compete against the illicit market.

It is no secret that the war on drugs has had a devastating effect on the Black community. Nearly 47% of those arrested for drug-related offenses are Black or Latino, according to the Drug Policy Alliance, even though these groups comprise less than 32% of the U.S. population.

To achieve real equity, members of the illicit market who want to own regulated cannabis companies need a path to achieve their goals. Currently, business licenses are prohibitively expensive. They are also scarce, largely because of the federally illegal status of marijuana, which gives state agencies the opportunity to act as gatekeepers in a way that doesn’t exist for other businesses. Unfortunately, this division of haves and have-nots often comes at the expense of entrepreneurs from socially disadvantaged communities.

Kate Lavin

Examples include leveraging the ability to advertise (page 46), manufacturing products the illicit market doesn’t offer (page 59) and defending state-regulated marijuana brands using unique, traceable packaging (page 62).

Marijuana Business Magazine | August 20206 From the Editor |

Making the Most of a License Growing your regulated marijuana business does not need to mean squashing the illicit cannabis market, which many experts believe will continue to exist until federal legalization occurs (see page 54). Rather, business owners can devote their attention to capitalizing on their legal status and what sets them apart.

Investing in Diversity Michele Roberts, executive director of the National Basketball Players Association and a member of the board of directors at Chicago-based Cresco Labs, told Marijuana Business Magazine this month that part of her interest in the cannabis industry is making sure that it offers opportunities to communities of color. (See “NBA Union Leader Joins Cresco Board” on page 100.)

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There’s a pretty complicated history—especially between Black farm ers and socially disadvantaged farm ers—with the USDA when it comes to the distribution of agricultural resources. This is the first Black-owned farming co-op in this country since the Reconstruction. Why did they go away?

I’m really excited about the 2018 Farm Bill. It has really made a lot of changes that I wasn’t even expecting in this

Reviving Black-Owned Farms

It’s been 150 years since people have thought about addressing some very urgent needs, especially as it relates to the food system and as it relates to the environment. It’s a big deal because back at the turn of the 19th century, (coop farming) was actually a model that was used to facilitate a lot of economic development in the United States, especially in the South. But entering the 1900s, there was a lot of pressure on the co-ops—especially any that were organizing for Black farmers. Oppressive outsiders just didn’t like the co-ops being used in that way. There was systemic exclusion of Black farmers from USDA programs and in some cases oppression of Black farmers, which made it financially unviable for Black farmers to operate in agriculture. So that was one significant driver. And you had a lot of people leaving rural areas and leaving farms for urban jobs. That combination of the intentional exclusion and the withholding of financial and technical resources for Black farmers just made it a really painful career choice. You really had to have either some outside resources or an extra set of energy to operate as a Black farmer without any resources.

By Kristen Nichols S ystemic racism in the United States has long held back entrepreneurs from socially disadvantaged groups. And for farmers of color, prospects in the agriculture sector got worse—not better—through the 20th century, even as the civil-rights movement opened opportunities in other sectors.

Marijuana Business Magazine | August 20208

That’s why Angela Dawson of Minnesota left a career in food writing and marketing to start a farming cooperative.Farmingco-ops were once common across the United States as farmers pooled resources to acquire land and equipment. In the Black community, co-ops were a way out of sharecropping and tenant-farming agreements that left them mired in poverty. But throughout the 20th century, racist policies at the U.S. Department of Agriculture shut out minority-run cooperatives from accessing government assistance. Recent changes to USDA policies aim to address historic disadvantages for farmers left behind, but farmers of color haven’t caught up. Black farmers now comprise less of the population than ever before in American history.

Marijuana Business Magazine asked Dawson why she believes hemp could help reverse the decline in Black farmers. What’s a farming co-op, and why did you start one for hemp? The co-op model is a way to distribute responsibility and ownership to people who are most impacted by whatever the cooperative is producing. The co-op model in general has so many flexible applications to so many different business types. A mobilehome park can be a co-op. An apartment building can be a co-op. A grocery store can be a co-op. It works really well for our business model to achieve economies of scale within our membership base. Our members have some ownership and some responsibility and some financial participation within the cooperative structure. We chose that model because of the issues with distributing economic resources, especially for socially disadvantaged farmers in agriculture.

FiveQuestions | Angela Dawson Angela Dawson Courtesy Photo

The USDA now sets aside money and assistance for socially disadvantaged farmers, and the 2018 Farm Bill boosted those programs quite a bit. What’s the role of the private sector here?

As minority proprietorship hits historic lows, the CEO of 40 Acre Co-Op says hemp could be part of the solution

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We are way too early to say that CBD is a bust. Because one of the fastest-growing consumer market groups for CBD products are women of color over the age of 40. I feel like the general hemp market is missing it. Marketers are going to find out as an afterthought that there are a lot of baby boomer Black women and other women of color who are just getting into CBD and understanding the wellness benefits that are involved.

Marijuana Business Magazine | August 202010 round—both in terms of the hemp regulations and also in terms of socially disadvantaged farmers. What we’re waiting is for some of that to trickle down to us everyday farmers. It hasn’t quite made it. One of the challenges in the USDA structure is that you have this federal policy, which is really progressive and smart, and we’re so happy that the senators were able to figure that out up in DC. But they have to be implemented here in these small towns. What we find sometimes in these rural areas, where programs are managed on the county level, some folks don’t really care about federal policy too much. Your co-op started something called the Rebellion Relief Fund. What is that? Our farm is located in Minnesota, pretty much at ground zero of civil unrest around community violence and public safety for Black and brown people. We started this Rebellion Relief Fund, and in eight days it raised $20,000. And so far, 125 families have been supported by the Rebellion Relief Fund. This was just an immediate community response; we decided to help out when we saw that neighborhood stores were shut down. I like that as a mom and as a businesswoman in this industry, I can jump in, pivot and respond to needs as they come up. What market trends are you seeing?

Kristen Nichols is editor of Hemp Industry Daily. She can be reached at kristen.nichols@hempindustrydaily.com.

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While mainstream retailers already are carrying topical CBD products with no interference from federal health regulators, even the most expensive and highly vetted skin cream isn’t without legal risk. In other words, any CBD product sold without a doctor’s prescription flouts FDA direction—even if the agency shows little appetite for taking those products off shelves, provided they don’t make wild health claims.

Fighting Fakes The CBD situation makes everyone in the supply chain vulnerable to bad actors.When all over-the-counter CBD products are illegal, who’s to decide the correct way to make a CBD product? Which production standards should a scrupulous operator follow, and how are consumers supposed to know the CBD they’re taking was made in a sterile environment and not extracted in a basement or garage—assuming, that is, the product really contains CBD at all? This is why CBD makers and retailers try to self-regulate. Every week seems to bring new word of various certifications and requirements CBD manufacturers and retailers are giving themselves—all expensive endeavors designed to assure consumers and avoid the worst-case scenario of a public-health threat caused by poorly made CBD. This is the cost of FDA inaction.

C hicken on a plate can be delicious. But chickens in a coop are filthy and mean. So when a CBD manufacturer I cover got a phone call from a competitor saying he planned to make CBD in an old chicken coop to undercut my source’s prices, my stomach lurched.

Hemp Notebook | Kristen Nichols

Marijuana Business Magazine | August 202012

Fighting Fakes

I only hope that ethical players have enough capital to outlast cut-rate CBD makers while the feds take their sweet time helping the American consumer know which CBD products are safe and which might be coming from an old chicken coop.

Kristen Nichols is editor of Hemp Industry Daily. She can be reached kristen.nichols@hempindustrydaily.com.at

Legal But Not Always It might seem that because the U.S. Congress legalized low-THC cannabis varieties known as hemp, there’s no illicit market for hemp-based products. But the truth is more nuanced. Hemp is legal, but you can’t grow it without a license—even for personal use. And, as the U.S. Food and Drug Administration keeps reminding us, that agency still has final say on products that we eat, drink, smoke, rub on our skin and even give to pets. As long as the FDA considers cannabis extracts such as CBD to be drugs that are legal only with a doctor’s prescription—regardless of whether the extract came from marijuana or hemp—everyone making any CBD product for over-the-counter use is operating outside the law.

The worst of it was, there was no one for the ethical CBD maker—who’d invested many thousands in a clean and sanitary manufacturing plant—to call to report his dirty neighbor. The health department in his state doesn’t regulate CBD manufacturing, and production guidelines from the U.S. Food and Drug Administration appear to be years away. In this issue examining how the illicit cannabis market affects the marijuana industry, I’m reminded that it isn’t just the guys and gals making high-THC products who confront illicit competition. Hemp entrepreneurs see it, too.

The CBD industry simply has no choice but to spend big bucks following rules no one is enforcing, hoping that one day federal oversight will knock out bad actors. In the meantime, business threats from unscrupulous CBD makers aren’t going away. Some consumers will always choose the cheapest CBD they can find, and no-name competitors shilling cheap CBD in convenience stores are ready to meet that demand.

CBD manufacturers have no choice but to self-regulate and ride out unscrupulous competitors

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State agencies including the Bureau of Cannabis Control (BCC) and the Department of Fish and Wildlife have teamed up with law enforcement agencies to serve warrants, seize illegal products and prosecute bad actors. Federal agencies such as the FBI and Drug Enforcement Administration also have been involved. And yet, the illicit market continues to Thethrive.BCC has a backlog of “thousands” of complaints related to alleged illegal marijuana operations, spokesman Alex Traverso said in midJuly. The agency is even swearing in 87 new peace officers this year to target illegal marijuana companies—but still, Traverso acknowledged that the sheer size and scope of California’s problem makes his agency’s efforts look like baby“It’ssteps.acomplicated puzzle, and every day we try to fit another piece in,” he said. ‘A David and Goliath Situation’

Hundreds of illicit storefronts in Los Angeles have pivoted and now advertise themselves as CBD stores, but they also sell marijuana products without a permit, said Jerred Kiloh, president of the United Cannabis Business

That’s because the illicit market is a vast web of home growers, unlicensed stores and delivery services, street dealers, informal medical caregivers and nebulous networks that are—above all else—adaptable. That ability to pivot stands in stark contrast to the rigid regulatory system with which legal companies must conform.

Marijuana Business Magazine | August 202014 I n the span of three days in July, Southern California officials announced that 91,000 illegal marijuana plants with a street value of $45 million had been found and destroyed, and state regulators served tax warrants on a dozen illegal cannabis retailers in the same region. There are scores of such instances from the 2½ years since the launch of California’s regulated cannabis market. Barely a week goes by in the state without at least one bust of an illegal marijuana company.

California’s Illicit Market Proving As Strong As Ever Trends Hot Topics

| John Schroyer

Enforcement alone isn’t the solution. Nobody in the industry wants to restart the war on drugs and begin throwing people into jail for dealing cannabis without a license.”

“We’ve barely scratched the surface” of the illicit market since January 2018, said Pamela Epstein, general counsel for Eden Enterprises, a cannabis company in Oakland, California. She characterized the conflict between legal and illegal operators as “a David and Goliath situation.”

“If a deal happens in a private residence, it’s never going to be anything that anyone’s going to be able to stop,” said Johnny Delaplane, co-owner of Project Cannabis, one of San Francisco’s licensed retail shops. He reiterated a common industry statistic that roughly 70% of cannabis sales take place in the underground market, a figure that most in the industry believe has not budged much sinceSome2018.inthe legal market say they’ve heard that prices in the illicit sector have been dropping, making it even more difficult for legal retailers to compete with them.

“They’reAssociation.becoming so nimble that their pricing has become even lower, so now we have an even bigger problem.

According to some industry insiders, the illicit market is stronger than ever.

The issue is a systemic one, many in the industry say, and even officials such as Traverso recognize that there’s no silver bullet to end the illegal

John Schroyer is senior reporter for Marijuana Business Magazine. You can reach him at johns@mjbizdaily.com.

“The only way to stop things like that happening is to increase the number of retail outlets, decrease the amount of taxes and make access and price competitive. That’s really the only way,” Delaplane said. And all those goals will take a lot of time to accomplish. Moving to a Legal Market

August 2020 | mjbizdaily.com 15

The price competition is becoming harder and harder,” Kiloh said. He added that there’s a general lack of follow-through by law enforcement and said most of the penalties for doing business without the required state permits are essentially toothless, and there’s no meaningful deterrent for anyone operating illegally.

The number of retail outlets is certain to increase—there were only 677 state-licensed storefronts and 296 delivery operations in California as of July 2020. Hundreds more business licenses are in the pipeline in Los Angeles alone, but when they’ll be operational is an open question. Tax reduction will almost certainly prove a more difficult goal, since bills seeking to reduce cannabis taxes have been introduced (and defeated) in the state Legislature every year since 2018. But there has been progress at the city and county levels, where some local officials have been persuaded that making legal cannabis cheaper will actually increase sales and, therefore, tax revenues.

But enforcement alone isn’t the solution, Kiloh and others agree, because nobody in the industry wants to restart the war on drugs and begin throwing people into jail for dealing cannabis without a license.

There’s also the possibility that marijuana could become an economic savior of sorts for a lot of California cit ies and counties plunged into recession by the coronavirus. If that happens, it could result in a surge of business opportunities, jobs and tax revenues. Perhaps then, the legal industry will be able to supplant the illicit market.

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Rather,competition.theprocess will likely take years and a multipronged approach to eventually replace the illicit market with a legal one.

In Focus | Images From the Cannabis Industry

Hemp farming was made legal by the 2018 Farm Bill, but the U.S. Food and Drug Administration has stipulated that CBD and other hemp derivatives are not “generally recognized as safe” and cannot be sold in food and dietary supplements.Officialssubmitted cannabidiol enforcement policy draft guidance to the White House Office of Management and Budget in July, meaning that longawaited industry guidance on CBD is nearing. (See “FDA Makes Moves on Cannabis Research and CBD Enforcement” on page 22 for details.)

Marijuana Business Magazine | August 202016 B oulder, Colorado-based hemp producer and CBD maker Charlotte’s Web unveiled part three of its “Trust The Earth” campaign, a 76-acre farm art installation in McPherson, Kansas, as part of an effort launched in October 2019 to promote “the power of hemp forThehealth.”original public art display, produced in collaboration with Los Angeles creative agency Studio Number One, was “grown and mown” on more than 3 million square feet of farmland. The behemoth art installation required a farmer to mow for one week using global positioning technology to guide the process.

CBD Firm Unveils Farm Art

The final field art was installed by Precision Mazes of Lee's Summit, Missouri. A local farmer’s plane was used to photograph the field art installation.According to Charlotte’s Web, the campaign’s purpose is to raise awareness of the need for improved and equal access to hemp-derived CBD products.CBDand other hemp derivatives are available for sale in most states; however, a handful still permit the sale of CBD only at marijuana dispensaries. Some states have legalized the sale of CBD as an ingredient in food, beverages and dietary supplements, while others have banned inhalable and edible CBD products until they are deemed safe by federal officials.

Charlotte’s Web commissions 76-acre farm installation encouraging CBD health benefits Photos Courtesy of Charlotte's Web

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IIP, a real estate investment trust, has been on a marijuana real estate buying spree for years and closed similar deals with other multistate cannabis operators, including Green Thumb Industries and Vireo Health California Genetics Firm Raises $15 Million Conception Nurseries, a Sacramento, California-based cannabis genetics firm, raised $15 million with the addition of approximately $12 million in a Series A funding round to help add scale and automation to its operation. Raises of this amount are particularly noteworthy during the global coronavirus pandemic. Conception CEO Kevin Brooks said the company’s goal is to help cultivators by bringing tissue-culture technology, also known as micropropagation, to the cannabis industry. According to Brooks, the company’s technology will reduce growers’ operational risks and costs while increasing yields.

Akerna Raises $17 Million

Cresco’s $29 Million Leaseback Deal

Cresco Labs, a multistate cannabis operator headquartered in Chicago, entered a fifth sale-leaseback deal with San Diego-based Innovative Industrial Properties (IIP), this time for a vertically integrated marijuana facility in Massachusetts. According to a news release, the deal is worth $29 million and includes $21 million for tenant improvements.

Jushi Holdings Makes Pennsylvania Acquisitions

Marijuana Business Magazine | August 202018

Nasdaq-listed cannabis software company Akerna closed a $17 million debt financing with two institutional investors. Proceeds from the financing will be used to support Denver-based Akerna’s ongoing growth initiatives, deals, acquisitions and other announcements from cannabis companies

Multistate operator and vertically integrated marijuana company Harvest Health & Recreation finalized a deal to sell eight California retail stores to Los Angeles-based High Times Holding Corp. Under terms of the recently updated agreement, Arizonabased Harvest sold a portfolio of equity and assets of eight operational and planned dispensaries in California for a total of $61.5 million, including up to $1.5 million in cash and $60 million in stock. High Times could acquire two more planned dispensaries in California from Harvest for $6 million in additional shares of High Times. The deal means the majority of the entities changed hands from Seattle-based Have a Heart founder Ryan Kunkel to Harvest and then to High Times in a matter of months. Harvest announced a deal in March to acquire Have a Heart for $85.8 million.

Jushi Holdings, a multistate marijuana and hemp operator based in Florida, acquired 80% of Agape Total Health Care, a Pennsylvania dispensary permit holder. The company will open three retail locations: one in the Philadelphia region, one in Reading and one in Pottsville.

DEVELOPMENTSU.S. Company News | U.S., Canada & International Recent

The sale-leaseback agreement follows similar deals struck between Cresco and IIP in Illinois, Michigan and Ohio, including at least two such deals in June worth $17 million. In all, Cresco has made at least $92 million from sale-leaseback deals to date. Much of that money has been reinvested in company operations.

The deal also includes an 18-month option for Jushi to purchase equity in another Vireo Health subsidiary, Pennsylvania Dispensary Solutions, for an additional $5 million in cash.

Florida Cannabis Company Lists on CSE Bluma Wellness, which operates as One Plant in Florida’s medical marijuana market, started trading on the Canadian Securities Exchange under the ticker symbol BWEL. Bluma CEO Brady Cobb said the Fort Lauderdale-based company initially will focus on expanding in Florida, particularly emphasizing the premium-flower market and next-day delivery. He noted the company has a new 54,000-square-foot greenhouse and a second 24,000-square-foot cultivation facility in the state. One Plant currently has three dispensaries in Florida and hopes to open an additional seven dispensaries and delivery hubs by November.

By Omar Sacirbey High Times-Harvest Deal

Jushi also agreed to purchase Minneapolis-based Vireo Health International’s grower-processor operations in Pennsylvania for $37 million. That acquisition involves the purchase of Pennsylvania Medical Solutions (PAMS), a licensed medical marijuana grower-processor in Scranton.

Multistate marijuana operator Acreage Holdings of New York closed on a deal to acquire a New Jersey medical cannabis operation for $10 million, plus the assumption of debt. The acquisition of Compassionate Care Foundation gives Acreage a foothold in a marijuana market where state residents will vote on an adult-use initiative in Acreage’sNovember.acquisition includes licenses for cultivation, processing and three dispensaries. The company, which operates under The Botanist brand, has licenses to operate two other New Jersey dispensaries—one in Egg Harbor and another on the Atlantic City Boardwalk. The closing of the New Jersey deal came only a few days after Canadian cannabis producer Canopy Growth reached an agreement to amend its acquisition of Acreage and slash the values of the deal from $3.4 billion to about $900 million to reflect the cannabisstock slide and Acreage’s financial condition.

Denver-based Schwazze, formerly Medicine Man Technologies, said it has terminated acquisitions of two Colorado marijuana businesses—cultivator Los Sueños Farms and concentrates company Dabble Extracts Schwazze, a vertically integrated operator, said in an investor news release that it moved quickly on the deals and, thus, did limited due diligence after Colorado enacted a law last year that opened up the state’s cannabis industry to outside money.

Ancillary Biz Tries Plant-touching Route

August 2020 | mjbizdaily.com 19 continued investment in technology infrastructure and general corporate purposes. The financing is in the form of a senior secured note that is convertible into common stock at $11.50 per share. The note has a face value of $17 million and is being issued with an original issue discount of approximately 12%.

Cash-strapped Acreage recently secured a short-term loan for $15 million with an interest rate of 60%. Acreage’s revenues in the first quarter of 2020 totaled $24.2 million, up 15% from the previous quarter, but the company has yet to break even on its operations.

Denver-based marijuana edibles producer Dixie Brands said it will change its name to separate itself from the historic context of the word “Dixie” and to “stand shoulder to shoulder with the Black community.” The 10-year-old Denver-based company has operations in six states. The company has not chosen a new name yet but said it is committed to doing so as soon as possible. Name suggestions can be sent to community@dixiebrands.com.

MedMen Loses Virginia MMJ Dispensary License

Schwazze said it remains in negotiations for other previously announced acquisitions and recently announced it had signed definitive acquisition agreements to purchase 14 Star Buds retail locations in Colorado for $118 million in cash and stock.

Method Man Launches Marijuana Firm Rapper and actor Method Man said he’s launching a new marijuana business specifically aimed at boosting other Black-owned cannabis companies. The business—dubbed Tical, short for Taking Into Consideration All Lives, also the title of Method Man’s first solo album—will soon begin selling marijuana products to Black-owned retailers in California.“Personally, it is essential that we use our brand to help bring awareness to the social, systemic and economic injustice in communities that have struggled with oppressive mass incarceration and racially biased policing policies,” Method Man, whose legal name is Clifford Smith, said in a statement.

Ancillary firm GreenGro Technologies of Anaheim, California, acquired 4 acres in Southern California to propagate CBD-rich hemp seeds. CEO Matthew Burden said the project is expected to be operational by the third quarter of 2020 and generating revenues by the fourth quarter. Burden estimated seeds could fetch $15,000 to $30,000 per pound wholesale.

Trulieve Opens 50 th Florida Store

Schwazze Walks Away From Colorado Cannabis Deals

Dixie to Change Name

Acreage Makes New Jersey Acquisition

State regulators voted to rescind MedMen Enterprises’ license for a medical marijuana dispensary less than a month after the state’s governor signed a bill to legalize MMJ. MedMen inherited the conditional license from Chicago-based PharmaCann for $10 after a merger between the two companies was scuttled in December 2019. The 6.64-acre location in Staunton was not developed, violating the conditions required to receive a license and begin MMJ sales.

Florida-based Trulieve Cannabis Corp. opened its 50th location in the state on June 26. The Ocala-based dispensary is the first in Marion County and has approximately 4,400 square feet and 10 point-of-sale stations.

The initial order of 2,250 bottles labeled under the Medleaf brand has a target availability date of Oct. 1. THC Global will offer Medleaf exclusive access to its CBD 100 Full Spectrum medicine through the end of 2020. Khiron Signs Distribution Deal in Germany for Medical Cannabis Imports and Sales Khiron Life Sciences Corp., a companyintegratedverticallycannabiswithcoreoperations in Latin America and Europe, entered into a distribution agreement with Nimbus Health in Germany. Khiron plans for its EU-GMP medical cannabis to be available in German pharmacies in the third quarter of 2020. Have a company announcement you want us to consider? Send a news release or general information to (Note:omars@mjbizdaily.com.We’relookingfornews about expansions, financing, deals, partnerships and similar developments, not product-related announcements.)

THC Global Group in Australia signed an agreement to produce and supply cannabis medicines to Medleaf in New Zealand. THC Global plans to submit its products for review in accordance with New Zealand’s new regulations and seek registration of these medicines before supplying them to Medleaf.

DEVELOPMENTSINTERNATIONAL

“The reality is, for a lot of those folks, they don’t need the full-on brick-and-mortar model,” Jocelyn told Marijuana Business Daily. “In those areas, maybe it’s a cupboard, maybe it’s a cabinet. Their selection would be limited, but maybe that’s all that’s required in those areas.”

Delta 9 currently operates four licensed cannabis stores in Manitoba and recently announced that its retail subsidiary had acquired two Modern Leaf retail cannabis stores in Alberta.

DEVELOPMENTSCANADA

THC Global Signs White Label Agreement With Medleaf Therapeutics

Hospitality Meets Cannabis in Manitoba

Manitoba marijuana producer and retailer Delta 9 Cannabis inked a deal to be the “exclusive cannabis partner” of the Manitoba Hotel Association (MHA), a transaction that could promote development of hotel-operated cannabis stores in the province. Under the partnership, Delta 9 will canvass MHA members and “develop interest in establishing retail cannabis outlets and selling Delta 9 Cannabis products on site in Manitoba hotels,” according to the company.

Clever Leaves Obtains EU-GMP Approval Clever Leaves, an international cannabis company with its primary operations in Colombia, obtained European Union-Good Manufacturing Practice certification to produce marijuana products for medical purposes at its Colombian facilities. The company plans to use the certification “to serve international markets,” according to a news release. EU-GMP is an essential requirement to export medical marijuana—particularly extracts—to the European Union.

Auxly Closes $3 Million Tranche of Financing Auxly Cannabis Group in Toronto issued an additional $3 million worth of unsecured convertible debentures under its $25 million debenture standby facility with an institutionalDebenturesinvestor.havea conversion price of 3.05 cents per common share, and the investor received warrants to purchase 5.4 million common shares at an exercise price of 3.66 cents per common share. Each convertible debenture will mature June 26, 2022, and will bear guaranteed interest from the date of issue at 7.5% per annum, payable semiannually on June 30 and Dec. 31 of each year.

MHA President and CEO Scott Jocelyn said that the store-within-a-store model could work for some of the group’s 275 member hotels, especially in rural areas.

Marijuana Business Magazine | August 202020 Company News | U.S., Canada & International

Industry Developments | International & State National

Supplement-industry trade associations have been pushing for product standards, he added.

The move came a day after the FDA released draft guidance for clinical research related to developing cannabis and derivative products.

“It would raise the bar for the industry, push out unsavory firms who are producing unsafe products and allow marketers to say that they comply with (U.S. Food and Drug Administration) requirements, which would hopefully smooth out the true patchwork of state requirements, among other benefits.”

• Import and/or export of medical cannabis allowed.

Medium: Implementation has begun but is still limited or restricted; lots of room for the market to develop.

Other

Cannabis attorney Jonathan Havens, a Washington DCbased partner with Saul Ewing Arnstein & Lehr, said the enforcement policy could be claims-focused, or meant to stop CBD companies from making illegal, unsubstantiated claims about their products. The policy could also be serving size-based, product standards-based or something else entirely, Havens said.

• Doctors can prescribe medical cannabis.

Low: Legislation has been passed, but implementation is very limited or nonexistent. Decriminalization is not included.

• Cultivation, manufacture or sale of medical and/or recreational cannabis allowed.

Marijuana Business Magazine | August 202022

High level of medical development/implementation Medium level of medical development/implementation Low level of medical development/implementation - illegal but

federally

High: Countries at the forefront of the global industry.

FDA Makes Moves On Cannabis Research and CBD Enforcement

Federal food and drug officials submitted a policy document about CBD enforcement for White House approval in late July, meaning that long-awaited industry guidance on CBD could come in a matter of weeks.

Frameworks are established, and adoption is well underway.

The new guidance provides a glimpse of what the process could look like when the agency drafts International&

MAP LEGEND

Countries included have passed legislation at the federal level and must fulfill at least one of the following criteria:

unique circumstances Recreational

News

15,

reserved. Data is

August 2020 | mjbizdaily.com 23 guidance for ingestible products such as dietary supplements.

Mexico to Implement 3-year-old MMJ Law as Full Legalization Delayed

Canadian Cannabis Inventory Hits New High, Indicating Pain Ahead for Producers

As of April, Canadian cultivators and processors had amassed roughly 1.4 million pounds of unpackaged cannabis inventory and 187,500 pounds of packaged inventory was being held by federal license holders, retailers and wholesalers.

Federal license holders in Canada are stockpiling more cannabis than ever, new government figures show, indicating that some producers are in store for more financial pain as the market looks for equilibrium.

“It’s plain old supply and demand,” said Craig Wiggins, managing director of market researcher TheCannalysts. “If you cannot sell what you’re making, it starts backing up, and you will eventually have to write it down or destroy it if it doesn’t sell.”

A bill to fully legalize cannabis, including for recreational use, has been delayed multiple times. Anne Holland All rights current as of July 2020.

The General Health Law of Mexico was amended in mid-2017 to authorize cannabis for medical use; however, that amendment did not create any specific rules or regulations to facilitate a functioning medical marijuana market.

Ventures.

The Mexican Secretariat of Health announced in late June that authorities plan to finalize medical cannabis regulations by Sept. 9.

A group opposed to legalized recreational marijuana, Arizonans for Health and Public Safety, filed a lawsuit to halt a ballot initiative that would allow adults in the state to possess up to 1 ounce of adult-use cannabis. The lawsuit challenges the 100-word summary of the Smart and Safe Arizona Act, saying the proposal failed to tell voters who signed petitions that the proposed law: Would cover more potent forms of marijuana.

Arizona

• Changes state law on driving under the influence.

oils. WA OR NV AZ MT WY NM ND IDSD UT NE KS OK TX MN WI IA MO IL IN MI OH PA NY KY WV VA TN NC SC MSALGA AR LA FL CT MA RI VT NH ME NJ MD DC CO DE AK HI CA © 2020 Marijuana Business Daily, a division of Anne Holland Ventures. All rights reserved. Data

•

• Doesn’t specifically say that a 16% tax on cannabis sales can’t be increased by the Legislature.

Arkansas State medical cannabis regulators voted to issue two additional cultivation licenses in response to supply concerns in the rapidly growing market. Five Arkansas companies with permits to grow medical cannabis then filed a lawsuit to stop three new cultivation licenses from being issued. The suit claims the licenses violate language in the 2016 law that legalized MMJ in Arkansas. The language stipulated that new licenses would be granted only if existing growers couldn’t meet dispensary demand. State regulators were allowed to issue up to eight cultivation licenses, but only three growers currently are in operation. This map does not include states that have legalized only CBD-based is current as of July 15, 2020.

■ Medical ■ Recreational Note:

Marijuana Business Magazine | August 202024 State News Industry Developments | International & State

The state legislature passed a bill that would reserve some cannabis licenses for social equity applicants and offer financial incentives to help get these businesses off the ground. Separately, the city of Denver issued MedPharm the first medical marijuana research and development license to study MJ-related treatments for diseases. The permit allows the company to cultivate, process, manufacture and transfer marijuana to other laboratories or cannabis businesses for research purposes. MedPharm’s first project will be to study marijuana’s effect on Alzheimer’s and dementia. The company is also seeking partnerships.

Illinois Gov. J.B. Pritzker delayed the issuance of 80-plus marijuana business permits; now it’s unclear when the licenses might be granted. The permits originally to be awarded July 1 included 40 new craft cultivation permits, 40 infuser licenses and an uncapped number of transporter permits. The delay has some applicants worried they could be forced to pay rent on business properties while they wait, since the state required applicants to have locations lined up before the licenses were awarded. Permits for 75 storefront licenses still have not been granted, although the plan was to distribute them earlier this year.

The state Supreme Court delayed a second set of oral arguments for a case in which Tampa-based Florigrown alleged that licensing limits imposed by a 2017 law violated the MMJ constitutional amendment approved by Florida voters in 2016. If Florigrown’s case is successful, it could open up stand-alone licensing opportunities in Florida’s vertically integrated medical marijuana market. However, the state’s high court, which held oral arguments on the issue in early May, won’t hear a second set of arguments until Oct. 7; industry officials had expected a ruling this summer.

August 2020 | mjbizdaily.com 25

California

The Los Angeles City Council’s decision to double the number of social equity retail marijuana licenses from 100 to 200 was the result of a legal settlement, according to a plaintiff in the lawsuit. Another 602 retail applicants who tried to win permits last fall remain out of luck. In unrelated news, the three regulatory agencies that oversee California’s marijuana industry said they’re offering license fee payment deferrals of up to 60 days for business permits expiring in July and August.

Colorado

Florida

Iowa Gov. Kim Reynolds signed a bill into law that replaces the 3% THC cap with a perpatient limit of 4.5 grams of THC for a 90-day period, but it’s unclear how much the move will boost the state’s heavily regulated medical cannabis market. The provision is a much weaker version of a measure that Reynolds vetoed last year that would have capped THC quantities at 25 grams for 90 days. Patients certified as terminally ill can get more than the 4.5-gram limit, and a doctor can recommend a higher amount to treat a particular medical condition.

A law taking effect this month permits any physician in good standing with the board of medical examiners to recommend MMJ for any condition the doctor considers debilitating to the patient. Until now, doctors could prescribe cannabis to patients in Louisiana to treat only certain approved medical conditions, with MMJ products available exclusively through dispensaries called medical marijuana pharmacies. An unsuccessful piece of legislation this year would have removed restrictions on the sale of cannabis flower, but the bill did not pass the state Legislature.

Marijuana Business Magazine | August 202026

Louisiana

Industry Developments | International & State EQUIPMENTMEGA&SUPPLY™

Currently, less than 10% of the state’s nearly 500 municipalities have opted in. Maine’s largest city, Portland, recently capped retail store licenses at 20 and adopted stricter rules on where retailers can be located. Additionally, litigation surrounds residency issues both in Portland and on the state level.

The trial of former Fall River Mayor Jasiel Correia, who is accused of trying to extort $600,000 from at least four prospective marijuana businesses, was delayed until at least January 2021 because of the coronavirus pandemic. Correia pleaded not guilty to taking bribes to help prospective business owners obtain marijuana licenses. The trial originally was to begin in May.

The state is inching toward launching a projected $300 million-a-year recreational cannabis market nearly four years after residents voted to legalize adult-use marijuana. Former Gov. Paul LePage, an adult-use cannabis opponent, stifled early efforts to implement the program, which was further postponed by the coronavirus.

Maine

August 2020 | mjbizdaily.com 27

Massachusetts

Missouri State regulators approved BeLeaf Medical of Earth City and Archimedes Medical Holdings of Perryville to become the first medical cannabis companies to begin cultivating MMJ in the state. BeLeaf Medical holds three cultivation, two processing and five dispensary licenses.

International & State Michigan Adult-use marijuana sales in Michigan surpassed medical cannabis sales for the first time. Recreational marijuana sales for the week of June 8-14 totaled $10.02 million, beating the MMJ market’s $9.97 million in sales for the same time period. Since adult-use sales began, Michigan’s medical marijuana patient count has declined by 7%, or 19,000 people.

Marijuana Business Magazine | August 202028 Industry Developments |

August 2020 | mjbizdaily.com 29

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Nebraska Medical marijuana advocates gathered more than 182,000 signatures for a petition to place medical marijuana legalization on the November ballot. Signature-collection efforts were put on hold during the COVID-19 outbreak, but organizers were able to gather signatures from all of the state’s 93 counties. If the Secretary of State’s office validates the signatures, voters will decide whether to allow Nebraskans to use, possess, access and produce cannabis for serious medical conditions. A doctor or nurse practitioner’s recommendation for MMJ would be required.

Montana New Approach Montana, a group hoping to legalize recreational marijuana in the state, submitted roughly 52,000 signatures for verification—more than double the required amount—to qualify a November ballot initiative that would regulate and tax adult-use MJ sales in the state. According to the ballot initiative, the state Department of Revenue would license and regulate the industry, which would permit smokable flower sales and require testing for potency and contaminants. A 20% retail tax would be assessed on adult-use products.

•

The revocation of six business permits.

The required sale of eight additional licenses.

New Jersey Gov. Phil Murphy said legalizing marijuana could help the state with a serious budget shortfall caused by the coronavirus. Legalizing recreational cannabis would be “an incredibly smart thing to do,” Murphy said on a radio talk show. New Jersey voters will decide in November whether to legalize adult-use marijuana.

•

International & State Nevada

At its first meeting, the state’s Cannabis Compliance Board penalized vertically integrated operator CWNevada for a range of alleged regulatory violations including failing to pay state taxes, running afoul of the state’s MJ inventory track-and-trace program, selling untested cannabis products and employees hiding or destroying evidence and lying to regulators. The company operated the Canopi dispensaries in Las Vegas as well as grow operations and production facilities in other parts of Nevada. Penalties levied by the CCB included: A $1.25 million fine.

Industry Developments |

• Regulations concerning hemp cultivation and extracts.

New Mexico

• Strict testing requirements for pesticides, heavy metals and microbials.

• Labeling requirements.

• Criteria about license suspensions or revocations. Ohio State medical marijuana regulators officially added cachexia, or wasting syndrome, to the list of conditions for which doctors in the state can recommend MMJ for treatment, making it the first new qualifying condition since state lawmakers passed legislation legalizing medical marijuana sales in 2016. Board members once again decided against adding anxiety and autism spectrum disorders to the list.

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The state’s largest medical marijuana company is suing the New Mexico health department over new MMJ regulations it calls “arbitrary and capricious.” Ultra Health, based in Bernalillo, is challenging several of the new rules, including:

Two people in Oregon died with lung-related illnesses and more than 20 fell ill from vaping in 2019. In other news, the OLCC also moved to extend the ability of licensed marijuana retailers to continue curbside delivery. A temporary rule allowing cannabis stores to sell curbside expires in September.

Even before the pandemic, momentum was slowly building; Gov. Tom Wolf has increasingly spoken in support of legalizing adult-use marijuana since last fall.

The fifth-most-populated state is increasingly viewed as a market poised to legalize recreational marijuana. That could occur within the next year via the state’s Legislature, according to industry observers, as lawmakers seek out revenue sources to replenish state coffers depleted by the coronavirus pandemic.

The state Attorney General’s Office said it won’t enforce a stricter two-year residency requirement and 1,000-foot school buffer-zone rule until a lawsuit challenging them plays out in court. The medical marijuana business group that filed the suit claimed the new buffer rule could affect hundreds of dispensaries, possibly putting them out of business. Separately, Oklahoma medical marijuana regulators are administering laboratory testing after a three-month grace period to ensure enough licensed labs are in place amid the coronavirus pandemic. The mandatory testing requirements apply to all marijuana products sold by a licensed grower or processor. MMJ customers may request to see the test records and compare them to the product label.

Marijuana Business Magazine | August 202032

Oklahoma

Rhode Island Medical cannabis regulators began accepting applications for six dispensary licenses, a move that will triple the number of retail outlets for the $60 million-plus market. With only three dispensaries currently licensed, the state has some of the most patients per dispensary—despite Rhode Island having only roughly 18,000 patients. Unlike the three existing vertically integrated dispensaries, the six new dispensaries will have to procure their product from the state’s 56 stand-alone cultivators. The licenses will be issued through a lottery process, with one permit issued for each of six geographic zones

Oregon

Note: Entries sourced from Marijuana Business Daily, Hemp Industry Daily and other international, national and local news outlets. These developments occurred before this magazine’s publication deadline, so some situations may have changed.

The Oregon Liquor Control Commission, which regulates marijuana in the state, took its first step to ban non-cannabis additives from inhalable products containing THC, though MJ-derived terpenes will be allowed. The OLCC said there is no regulatory body that evaluates the safety of these ingredients when inhaled.

Pennsylvania

Industry Developments | International & State

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Marijuana Business Magazine | August 202036

How CompetetoWiththe

Omar Sacirbey Legal cannabis firms have plenty of ways to offer customers value beyond MarketIllicitpricing

“The illicit market exists because the licenses are nearly impossible to secure. They are ridiculously expensive. The hoops are impossible for anybody to jump through. And, of course, they’ve seen the roll-up of cannabis industry licenses at a wide majority of publicly traded companies that are run by white, male boards of directors. It’s a huge problem,” said Debby Goldsberry, CEO of Magnolia Wellness in Oakland, California.“Thereal issue is we have to get more licenses out there and we have to make The illicit market presents some of the toughest competition for legal marijuana companies. Underground cannabis cultivators and sellers don’t pay the same hefty taxes and licensing fees as their state-legal counterparts, making them almost impossible to beat on price. But marijuana executives have several other strategies they can leverage to get the upper hand:

• Win customer loyalty by being a socially responsible community business.

Kris Krane

• Legal companies can make and sell products that are difficult for illicit sources to replicate, such as infused drinks, pills and capsules as well as topicals and transdermal patches.

• Combat bogus packaging by following the lead of cannabis companies that are incorporating technologies such as radio frequency identification (RFID) tags and tamper-proof holograms.

Cannabisnationwide.industryadvocates continue to argue that legalization would eliminate the illicit market because consumers would prefer to buy marijuana legally instead of from underground suppliers. But that theory hasn’t panned out—even in states with legal marijuana—thus dealing a blow to one of the primary arguments for legalization: that it would knock out the illicit market. Rather, the illicit market continues to thrive—or at least survive—in most states that have legalized recreational cannabis. In California, the nation’s largest legal adult-use market, roughly 80% of cannabis sales are underground, according to Washington DC-based analytics company New Frontier Data. The illicit market is even stronger in medical-only states, and it’s the only way to procure marijuana in states with no legal markets at all.

By contrast, illicit cannabis in the Midwest and on the East Coast is more expensive, giving these products less of a competitive edge versus legal merchandise, Krane said. “It’s going to continue to be an issue—especially in a place like California, where there are so many regulations and taxes that drive the prices up. It’s just harder to compete with what are generally really good products on the illicit market that are much cheaper,” Krane said.

Beyond the cost obstacles and regional wrinkles, economic, societal and cultur al issues also feed the illicit markets.

Why? Cannabis from western states is far cheaper because so much is pro duced, and the scale makes illicit prod ucts there more competitively priced. Illicit West Coast cannabis products also tend to be high quality, Krane added.

How Compete With the Illicit Market

Marijuana Business Magazine | August 202038 T he illicit marijuana market is among the biggest and most complex challenges facing legal cannabis businesses—one that takes revenue from licensed companies and hampers the growth of state-legal MJ programs

For starters, many illegal operators want to become legal but can’t because of state license caps and/or local munic ipal prohibitions that limit the number of licenses to go around. Moreover, the relatively limited number of licens es that are available are prohibitively expensive for most illicit market players who want to go legal.

A LINE IN THE SAND

• Take advantage of advertising options. Though regulations exist regarding marijuana advertising, legal cannabis businesses have more options than illicit competitors.

THE PRICE OF ADMISSION Why does the illicit market continue to thrive in recreational states at the expense of legal marijuana businesses? The overwhelming reason is cost of product. Legal marijuana businesses must pay thousands of dollars for licenses—not to mention taxes, testing and other regulatory fees. These costs increase the price of state-legal cannabis at least 10%-25%—and often closer to 50%—above what is typically charged for illegal cannabis, depending on the Illicitstate.cannabis markets also vary regionally, complicating the search for solutions.“Legalmarkets are losing sales to the illicit market in some places,” said Kris Krane, president of 4Front Ventures, a multistate operator headquartered in Arizona. “It seems to be more of an issue on the West Coast than it is in some of the East Coast markets.”

• Target consumers who are more likely to try cannabis from a legal source and provide them with exemplary customer service and education.

August 2020 | mjbizdaily.com 39

California’s Illicit Cannabis Market $3.1B Licensed $8.7B Unlicensed $6.4B Unlicensed$7.2B Licensed 873 Licensed 2,835 Unlicensed 2019Profits 2024 Projected Dispensaries Source: BDS Analytics, Bureau of Cannabis Control, CannaSafe, Los Angeles Times and the United Cannabis Business Association.

Of course, legal operators want to see bad operators punished—particularly those who use dangerous pesticides or sell to minors—regardless of whether they are permitted. But not all underground operators are nefarious.

ILLICIT GONE LEGAL

A dearth of local licenses in California, Massachusetts and other states have contributed to marijuana “deserts” that allow the illicit market to thrive.

But why wait for federal legalization to compete with the illicit market? In the following pages, Marijuana Business Magazine shares insights and advice from cannabis executives familiar with this seemingly indomitable foe.

“Cannabis consumers at large are ethical, socially responsible people, and big cannabis makes us feel sick,” Goldsberry said. “Turning the permits over to corporate cannabis is a giant turnoff for the cannabis culture. It’s very much part of what’s keeping the illicit market alive.” That social conscience also complicates enforcement measures against the illicit market.

“It’s an issue, and frankly, it’s probably going to remain an issue until cannabis is legal nationwide and we can really en joy the economies of scale of interstate, international commerce that’ll bring pricing down to a point where it’ll be virtually impossible for the illicit market to compete,” Krane said.

Many are small growers with a passion for cannabis and cultivate it cleanly.

“There’s still a market for people who go and find a pound of cannabis in Humboldt County (California) and bring it home and share it with their friends.

Others are illicit dealers trying to keep friends supplied.

The cannabis isn’t being tested, but by looking at it and feeling it, smelling it and even taking a little sip of it, you can tell the quality. I’m not sure if we want to get rid of that,” Goldsberry said.

Some operators also point to cultural issues—notably decades-old cannabis growing traditions in states such as California and Oregon—and consumer disdain for what’s perceived as the corporatization of cannabis.

In fact, many licensed business owners are former illicit market operators themselves who empathize with those walking a mile in the shoes they used to wear. Many operators, despite having gone the legal route, still see cannabis first and foremost as medicine—and if an illegal source is a patient’s only access to safe cannabis, so be it.

Short of federal legalization—or at least banking and tax reforms coupled with many more states legalizing recreational cannabis—little can be done to eliminate the illicit market.

Colorado-based cannabis research firm BDS Analytics expects California's regulated market will eclipse the illicit market by 2024. the licenses more accessible. There’s the fundamental question that’s driving this whole thing,” Goldsberry added.

Checklist for Taking on the Illicit Market Target new cannabis consumers (page 41). Provide good customer service and education (page 42). Offer a wide selection of safe products that are readily available (page 44). Deploy smart advertising (page 45). Be a good corporate citizen (page 46). Offer competitive pricing (page 47). to Compete With the Illicit Market

Confounding Competitor

Many cannabis executives believe that by leveraging these advantages, it is possible to outcompete illicit operators— not to mention state-regulated peers. is such a new, high-growth market that you have an opportunity to prove yourself to all segmentations of consumers. Whether it’s selection, quality testing, the method (of consumption), there’s so many different reasons that customers can connect with,” said Chris Melillo, vice president of retail operations for Curaleaf, a multistate operator based in Massachusetts.

How

□

True, beating them on price might be nearly impossible, but there are other ways for legal businesses to entice customers and provide value that illicit operators can’t offer. These range from safe merchandise and advertising deals to a wide selection of products.

□

By Omar Sacirbey T he illicit marijuana market is a formidable adversary unburdened by regulations, taxes, employee expenses, childproof packaging and other costs. But that doesn’t mean your business can’t compete with illicit-market competitors.

□

Marijuana Business Magazine | August 202040 The Most

□

“This

The illicit marijuana market continues to undermine legal cannabis businesses across the nation—but licensed companies have multiple tools to compete

“We tend to target older people (and) women, people who are familiar and interested in cannabis and interested in that kind of holistic cannabis lifestyle,” Pitts said. “They’re going to be more interested in finding things that are tested, clean and well packaged—that look professionally done and have professional service.”

TARGET NEW CUSTOMERS

Studies published in 2019 by Seattle data firm Headset and California delivery company Eaze show that Gen Xers, baby boomers and women are the industry’s fastest-growing consumer segments— and most purchase from state-regulated operators. That means legal businesses should pay close attention to converting the canna-curious into active consumers—while making sure not to ignore their loyal customers, of course.

Photo Courtesy of Ganja Goddess. Zachary Pitts

Many longtime cannabis consumers prefer their illicit connections over licensed dispensaries, so converting them to the legal market can be challenging.However,a growing number of consumers are interested in trying cannabis and would seldom obtain it illegally. In fact, new marijuana consumers and former users returning to the plant are among the fastest-growing segments of the cannabis market.

“Make sure you’re hitting market share that the illicit market can’t,” said Zachary Pitts, CEO of Ganja Goddess, which operates a statewide delivery service in California and a recreational store in Seattle.

The fact that cannabis has been declared “essential” in many states during the COVID-19 pandemic should make that conversion easier.

More than 70% of Ganja Goddess’ customers are older than 35, Pitts said, and about half are women.

August 2020 | mjbizdaily.com 41

Customers who are curious about cannabis can turn into loyal shoppers if they have a good retail experience.

“You really give them a comfort and become the experts on cannabis for anybody looking to either step into cannabis, or anybody that’s already there and has evolving questions as their conditions may change,” Melillo said.

“That’s a competitive advantage that you have over illicit operators. They’re not going to have the setup for customer service and educating their customers, reaching out to those demographics,” said Zachary Pitts, CEO of Ganja Goddess.

The Green Solution (TGS), a retail chain in Colorado, offers customers “concierge level” service where they get one-on-one attention from“Onebudtenders.ofourbigthings is education,” said Steve Lopez, CEO of The Green Solution (TGS). “When people come into our stores, they get one-on-one attention. And during that point, we explain to them our processes. They understand they’re buying the safest product in the market.”

“Onboarding” new patients is something that Curaleaf spends time on as well. New patients receive consultations about what products might best meet their needs and are also told how the company’s products are made and tested.

“I think face-to-face you build both confidence and your reputation. And having those conversations is supported by the labeling and the transparency that we provide.”

Providing good customer service and educating shoppers about cannabis in a way that makes them feel comfortable appeals both to newbies and veteran marijuana users who might not have tried a wide array of products, such as edibles, concentrates, tinctures and topicals.

Marijuana Business Magazine | August 202042

CUSTOMER SERVICE & EDUCATION How to Compete With the Illicit Market

Photo Courtesy of Magnolia Wellness

If a customer finds something he or she really likes—a certain strain that helped them with a specific condition, for example—that person can feel confident the item will be available on the next visit. Or, at the very least, that consumer can request it. In the underground market, customers have a more limited selection that has little consistency, and special requests are harder to“It’sfulfill.a stability of the source,” explained Debby Goldsberry, CEO of Magnolia Wellness in Oakland, California.Legaloperators can also use pointof-sale tracking systems to follow what individual customers like and then give them personalized product recommendations.

Carrying a wide variety of products is a good way to keep consumers returning to try new items.

VARIETY & SOURCE RELIABILITY

Another appeal that legal businesses can leverage over illegal operators is the variety of products available.

Marijuana Business Magazine | August 202044

How to Compete With the Illicit Market

“We can discuss what worked and what didn’t work … so that when you come in, we’ve developed this feedback loop about what you like and don’t like and we know what to recommend,” Goldsberry said.

Lopez at TGS agreed. “You want to take a scientific approach to consumer research. We are constantly doing surveys and getting feedback and then giving that feedback to store (general managers) in weekly calls. We see consumer reviews that come in every day from the previous day. That gives me a lot of insight,” Lopez said.

Goldsberry added: “The ability to do consumer education and product education and the stability of the supply. That is a big bonus of the regulated market, and that’s something illicit market folks can’t provide as much.”

Retail customers appreciate the stability of knowing their favorite products will be available each time they visit. Courtesy of Charlotte's Web

Another advantage that legal operators have is the proven safety of their products through lab testing and other compliance measures. This is especially noteworthy in the wake of last year’s vaping crisis, in which an additive found primarily in illicit THC vape cartridges, vitamin E acetate, was blamed for scores of deaths and illnesses.

The vaping health scare of 2019 brought renewed attention to the importance of safe, well-manufactured hardware.

“I think particularly on the vape product side we could be doing a better job of letting people know why they should be purchasing from the legal market,” said Andrew Kline, director of public policy at the National Cannabis Industry Association. Melillo from Curaleaf agreed. “What’s really important is the ability for Curaleaf to carve out its reputation on quality and safety, which has probably been the main focus that combats against the illegal market. It’s one of the things that you hear most from our customers, that you understand what you’re getting. It’s labeled, it’s safe, it’s regulated—and that’s where we can really differentiate,” heWhilesaid. it might be easier to make a safety pitch for legal vapes, some executives perceive illicit-market consumers to be less concerned about lab“Theresults.ability to have tested cannabis versus nontested cannabis isn’t a factor (for those buying outside the legal cannabis market). My friends that still access the illicit market do not seem to care about that because they believe anecdotal evidence shows the cannabis stream has been fine for 100 years,” Goldsberry said.

August 2020 | mjbizdaily.com 45

PITCHSAFETYTHE

He added: “Lean into your ability to engage with customers in every way, in every manner. Social media, email marketing, texting. Events, when they are allowed again.”

Illicit

Another way to leverage the visibility that legal businesses enjoy over their illicit rivals is by being a positive force in the local community. That means building a reputation not just as a marijuana store but as a neighborhood pillar and booster.

Additionally, when consumers buy cannabis at a licensed dispensary, the taxes from those purchases go to state and local funds that are earmarked for projects such as drug education, homeless shelters and social equity programs designed to promote minority participation in the legal marijuana industry.“IfI’mbuying from a dispensary, I know that my money is going into a pool … that’s going to be used for good, depending where you shop. This is why we advise consumers to find locally owned shops, shops owned by people of color that are doing local good,” Goldsberry said.

Marijuana Business Magazine | August 202046

OUTREACH&ADVERTISING

(See “Good Citizenship” in the July 2018 issue of Marijuana Business Magazine.)

That advertising and outreach, Pitts noted, should factor in the demographics of new cannabis consumers and the canna-curious.

“It’s important to speak to them at their level,” he said. “You’re not going to attract women with pictures of women in bikinis. That was a very common type of advertisement a decade ago.”

How to Compete With

Despite all the advertising restrictions they face, legal cannabis businesses are still far freer than illegal businesses to advertise. While it’s true some illicit operators advertise on social media, the dark web and elsewhere, legal businesses still have many more avenues through which to advertise and get their message out to a far broader audience.

“You have the advantage of being able to be visible in a way that illicit businesses cannot. You should use that visibility to your advantage,” Pitts of Ganja Goddess said. “We’ve been using billboards for years, and now more MJ businesses are catching on and using billboards, too, which is something that illicit companies can’t do.”

“We are still doing community work, advocating for political change, supporting our community, supporting medical marijuana patients, offering ancillary services,” Debby Goldsberry of Magnolia Wellness said. Dispensaries, for example, could support local nonprofit groups and make it possible for their consumers to do so as well.

Photo by Soliman Productions the Market

Unlike illicit product manufacturers and dealers, state-licensed companies can hold events and exhibit products in markets with regulated cannabis.

“We’re going to be building in a level of automation in the production of infused products—particularly edibles products—and doing them in a way that is so hyperefficient, with so much automation that we think we’ll be able to get the price point down to a place where it’ll be able to compete with illicit-market pricing, at least on the edibles side of things,” Krane said.

“We go from our highest-quality, top-of-line stuff—that’s one price point—all the way to the lowest price point, where we cut back a little bit on the packaging as well as marketing on some products,” he noted.

Another way to leverage economies of scale is by bulk buying, although Krane noted that’s not always possible.

August 2020 | mjbizdaily.com 47 COST & PRICING

While such an investment can pay off in a large market such as California, Krane warned it wouldn’t be worth the capital outlay in smaller state markets, say those with fewer than 10 million potential cannabis consumers.

“A lot of companies have died in the last year in Washington because their cost of production is more expensive than the wholesale price for flower,” Krane said. “We’ve figured out how to get yields that are well above the industry average, and that’s allowed us to not only stay afloat but really thrive in what’s arguably the most competitive market in the country.”

“In terms of pricing, you just have to remain competitive. You can’t allow too much of a gap between the illicit and legal market, or you’re just going to lose too many customers,” said Pitts of GanjaLopezGoddess.saidTGS prices its products in “the middle” of the market but also has “tier pricing.”

“We have something for everyone. I just don’t think you can ever compete with the black market because you never know what the supply’s going to be, you never know what prices are going to be on the street,” Lopez said. “We just focus on what our (licensed) competitors are doing and compete againstKranethem.”of4Front

“In some markets like Oregon, where there is so much supply, you can buy bulk cheaper by negotiating long-term, guaranteed contracts,” Krane said, adding that states such as Illinois and Massachusetts don’t have the supply to accommodate bulk purchases.

Although beating the illicit market on price alone is nearly impossible, that doesn’t mean you should neglect cost-cutting and pricing strategies.

Ventures doesn’t think battling the illicit market on price is so fruitless. “The best thing you can do is build economies of scale that allow you to compete,” he said.

“They’ll catch up to a degree, but they may never really get to the point where Oregon or Washington are now.”

One way to exploit economies of scale is through automation. For example, 4Front recently purchased a seven-figure edibles-manufacturing machine from Europe that Krane said can produce an array of hard and soft candies in large volume. The company plans to deploy the hardware in Southern California.

Conversely, it might be nearly impossible to compete with the illicit market on flower prices in California, but Krane believes it’s more plausible in markets in the Midwest and East Coast, where illicit cannabis isn’t as cheap as that found in western states—not to mention some western markets such as Washington state, where 4Front has cultivation and manufacturing operations.

In markets such as California and Massachusetts, the lack of licenses is less a state-level problem and more a local issue because many local governments—upwards of 60% to 80%, some experts say—have prohibited or limited marijuana businesses from opening. The results are vast “legal pot deserts” where illicit marijuana dealers are the only sources of cannabis for miles around. Goldsberry speculated that many looters of marijuana companies included people from these “deserts.”

By Omar Sacirbey Cannabis business licenses are prohibitively expensive for many marijuana cultivators and sellers, leaving would-be entrepreneurs stuck in the illicit market. Courtesy Photo.

From Illicit to Legit How to Compete With the Illicit Market

Offering more affordable licenses is one solution, and there are precedents for how that might be done. Before Proposition 64 legalized recreational cannabis in California, both San Francisco and Berkeley offered what Goldsberry called “marijuana cottage industry licenses.”

“I saw people who probably sell marijuana for a living and cannot access a permit because they’re too expensive,” she said. “The illicit market exists because the licenses are nearly impossible to secure.”

Marijuana Business Magazine | August 202048

D ebby Goldsberry, the CEO of Magnolia Wellness in Oakland, California, and a longtime champion of cannabis and social equity, had a realization while viewing videotape of looters robbing her store in June amid protests against the killing of George Floyd in Minneapolis.

Scarce and expensive cannabis business licenses keep underground operators from joining the legal market

For example, before 2018, San Francisco issued cottage-industry permits to people who made edibles in their kitchens. Like larger businesses, they had to follow standard health codes and other compliance measures.

“Let’s do that,” Goldsberry said of licensing small marijuana businesses. “I think that’s the solution.”

Berkeley also issued permits for what were essentially home-based delivery services. “You buy it in your front living room. You store it in your bedroom and

COTTAGE INDUSTRY LICENSES

Many marijuana business owners such as Goldsberry and public-policy experts argue that one of the best ways to shrink the illicit market is to get illegal operators to join the legal sector. In fact, many do. But a scarcity and high cost of licenses has made going legal impossible for many more aspiring cannabis business entrepreneurs, leaving them stuck outside the legal market while looking in.

STUMBLING BLOCKS

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VARIED LICENSING OPTIONS

The Emerald Triangle in particular—comprised of Humboldt, Mendocino and Trinity counties—has been the source of illegal marijuana sold around the U.S. for decades. Given how much those farmers can still sell their cannabis for in states that maintain prohibition, such as Texas, that’s not likely to change any time soon.

These programs no longer exist, however, and the companies had to close—although many probably continued operating illicitly, Goldsberry said.

Average Retail Price Per Ounce of Adult-Use Cannabis: California Legal Market vs. Out-of-State Illicit Markets

Marijuana Business Magazine | August 202050 you take it out to your buddies and sell it in their living room. That is how the market is operated. So legalize that,” Goldsberry said.

Pitts believes that if Washington state allowed deliveries, the practice would seriously hurt the state’s illegal market. “If Washington started licensing delivery, they’d probably have a lot more success in getting rid of the illicit market almost completely.”

“It’s kind of a balancing act,” Krane said. “If there is too much production, and the prices come down too much, some of that might actually wind up in the illicit market and put the programs themselves in jeopardy. You’ve got to find that right balance.”

Copyright 2020, Marijuana Business Daily, a division of Anne Holland Ventures Inc. You may NOT copy this report, or make public the data and facts contained herein, in part or in whole. AND Retail Price Per Ounce of Adult-Use Cannabis: California Legal Market vs. Out-of-State Illicit Markets

“It worked fine—really great, actually. And as those companies get bigger, they can graduate into their own spaces. And it was really a good scheme.”

Relatively low wholesale prices for cannabis farmers around the state have also provided an obvious incentive for many growers to play in both the legal and illegal markets—or to stay completely in the illegal market.

16 LICENSED BUSINESSES OPERATING IN BOTH THE LEGAL

Across All Listed

Besides California: $293

While taxes and licensing fees drive up the cost of producing legal cannabis, regulated California marijuana retailers offer impressive pricing compared to some states with no legal cannabis or only medical marijuana.DebbyGoldsberry

Note: Data current as of Feb. 11, 2020. California pricing data refers to average pretax price for 1 ounce of cannabis purchased from a licensed retail store. Figures for all other states describe the price per ounce for medium-quality, adult-use cannabis purchased on the illicit market.

Plenty of illegal operators still ship marijuana to East Coast markets, such as New York, where they can often fetch even higher prices than marijuana grown in nearby Massachusetts which has a legal rec market, simply because of the California brand and quality.

DakotaSouth Texas $300$200$100$0$400OuncePerPrice $283

BALANCING ACT Kris Krane, president of 4Front Ventures, a multistate operator headquartered in Arizona, agreed more licenses would help, but he also issued a warning: “When there is no interstate commerce but too many licensed vendors, you could end up with a glut of product,” he said, pointing to Oregon, which many industry observers believe sends its surplus marijuana to states with no legal cannabis market.

Note: Data current as of 2/11/2020. California pricing data refers to average pretax price of one ounce of cannabis purchased from a licensed retail store. Figures for all other states describe the price per ounce for medium quality adult-use cannabis purchased on the illicit market.

How to Compete With the Illicit Market

CaliforniaIdahoMontanaNebraskaKansasWyomingNorthDakota $105 $244 $245 $247 $321 $327 $336 $343 Average Price Per Ounce States

Source: Headset, Price of Weed

ILLICIT MARKETS Chart 10: Average

Zachary Pitts, the president of Ganja Goddess, which operates a statewide delivery service in California and a Seattle recreational store, agreed more licenses would be helpful—but not just any“Ifkind.you don’t offer them an option to operate legally, they’re not going to operate legally,” Pitts said. For example, Washington state doesn’t allow delivery, so the illicit market is almost exclusively conducted by dealers who meet buyers in homes or on the street—unlike California, where that situation also exists but there are many unlicensed storefronts serving customers.

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“Colorado has actually done a much better job than some states like Washington and Oregon, where you had a price per pound under $100 because there was just so much supply,” he said. “Colorado did a good job of regulating the legal supply, and then they’ve also been doing a good job also closing down a lot of these illegal grows (and) limiting the product that’s out there.”

“Punitive measures that can be taken that don’t involve jail: fines or similar punishments. Just like slumlords are fined for violations, landlords who allow illicit operators should also be fined,” said Kyle Kazan, CEO of Glass House Group in Long Beach, California, and retired officer from the Torrance, California, police department who is active in the Law Enforcement Action Partnership, an anti-prohibition and harm-reduction group based in Medford, Massachusetts.

“They hit that market pretty hard to the point where we have people coming into our dispensary and telling us that they hadn’t been in the dispensary in a couple of years because they had been buying illegally, but now, because that market’s drying up, they felt like they were forced back into the dispensaries,” Lopez said.

And once consumers try the legal market, Lopez added, they are often positively surprised by the variety of products, giving licensed stores a chance to convert them for good.

Levying fines and targeting landlords provide ways for authorities to shut down illegal businesses without resorting to jail time

By Omar Sacirbey Kyle Kazan is CEO of Glass House Group. Courtesy Photo.

How to Compete With the Illicit Market

Why? Advocates of marijuana legalization campaigned partly on the promise that state-legal cannabis markets would create opportunities for those groups harmed by the war on drugs, and locking up people for conducting business others are doing with the state’s blessing would be frowned upon by those inside and outside the legal industry.

Marijuana Business Magazine | August 202052 W hile other industries with illicit-market issues can call on law enforcement to punish perpetrators by closing them down, fining them and even jailing them, that doesn’t work quite so well in cannabis.

“I want to see fewer people go to jail for marijuana. ... So I would be going after any landlord with massive daily fines. The landlord will be the agent for the government to get rid of them, and it won’t cost the government that much money. If the landlord is asleep at the wheel, there are civil penalties.”

Alternative ENFORCEMENT Measures

More traditional enforcement can also have a role in reducing the illicit market. Steve Lopez, CEO of The Green Solution, a vertically integrated company in Colorado, said hundreds of illegal indoor grows have been closed in the state over the past year or so, diminishing illegal supply and driving customers to legal outlets.

“Once people start realizing the cost difference for what you get, what the value of it is, we’ve been able to hold on to them,” Lopez said. “We’re addressing those price points with a much-higherquality product. So people come back, a lot of them start joining our loyalty program, and then they just change their habits from the guy down the block.”Asregulators get smarter about employing alternative-enforcement measures, along with revising regulations in a way that makes operating a legal cannabis business less expensive, the illicit market will diminish if not entirely disappear, Kazan said.

“I’ll be stunned if we’re having this conversation in five years,” he said.

LegalizingArizona.marijuana at the national level would help to:

Federal

• Reassure reluctant consumers and combat the stigma associated with marijuana.

Marijuana Business Magazine | August 202054

INTERSTATE COMMERCE

• Bring legal prices more in line with those offered by illicit-market sellers.

Opening commerce across state lines could drive down prices for legal marijuana if growers in states with robust production and prime outdoorgrowing conditions could sell flower to markets that lack adequate supply and growing climate.

• Allow companies to import cannabis from low-cost overseas suppliers.

A s long as some states prohibit cannabis, there will always be an illicit market for marijuana.

Krane pointed out that ending alcohol prohibition meant no one could make beer cheaper than companies that produce at scale, such as Anheuser-Busch, which is why there’s no longer a strong illicit market for alcohol.

• Foster interstate commerce so marijuana could be shipped from states that have more suitable climates for cultivation.

Even in states such as Washington and Oregon, where overproduction in the state-legal marijuana market has caused prices to tumble, wholesale prices might be even lower if producers could maximize production for nationwide sales. This would help to stop diversion of product to the illicit market and curb prices for consumers as well.

Other markets that want to protect the economic benefits of their state programs might not be so keen to allow out-of-state marijuana. After all, the current cannabis Federal legalization would likely permit interstate commerce, meaning states with good climates for cultivation could provide marijuana to other markets.

Will Legalization say underground operators will persist until cannabis is sold legally nationwide

By Bart Schaneman THE MARKET? With the Illicit Market

“Until it’s legal everywhere, we’re never going to really end the illicit market,” said Kris Krane, president of multistate vertically integrated cannabis company 4Front Ventures, which is based in

While growers in regions such as Northern California, which has a climate naturally suited to producing cannabis, might be in favor of interstate sales, Krane posited that some states could even opt for “import-only” businesses rather than allow cultivation within their borders.

Experts

SMOKE OUT

ILLICIT

For the past couple of years, marijuana businesses in states bordering other legal cannabis programs—such as California, Oregon and Washington—have advocated to allow the sale of marijuana to licensed companies in nearby markets. But absent a change in federal law, the likelihood of the plan ever becoming a reality is “Federalslim.legalization means interstate commerce, and interstate commerce means a significant reduction in wholesale pricing,” Krane said.

How to Compete

• Drive down prices to make cannabis cheaper.

“If we want the legal market to compete with the illicit market, we’ve got to make it so people can sell (legal cannabis) for cheaper,” said Troy Dayton, CEO of The Arcview Group, an Oakland, California-based cannabis investment firm.

Copyright 2020, Marijuana Business Daily a of Anne Holland Ventures Inc. You may NOT copy this report, or make public the data and facts contained herein, in part or or call 720.213.5992 ext. 1. Prices based on Caulkins 1,500-foot

Part of the fundamental problem with the illicit market has also been the high barriers for entry to the legal industry, including compliance costs with various state laws that easily run into the hundreds of thousands of dollars. The costs of doing business legally are quite clear, particularly upstream in the supply chain. The average cost of producing an illegal pound of cannabis indoors is only $458, contrasted with the average cost of $705 per pound for legal indoor growers. That means there’s very little financial incentive for operators who have a solid footprint in the underground market—including out-of-state buyers for flower in places such as Texas, Georgia and New York, which are all major destinations for illegally grown California cannabis—to even try to participate in the legal market.

“There are states in this country that are never going to legalize cannabis on their own,” he added. “Federal legalization could really make a big difference there.”

IMPORT, EXPORT As seen elsewhere, in Canada for example, legalizing cannabis federally would allow U.S. companies to export and, more likely, import product from overseas.Canadian companies have been partnering with businesses on other continents since Day One of adult-use marijuana legalization.

Note: Prices based on Caulkins 1,500-foot indoor model. Assumes 10,000 square feet of cultivation space producing 4,200 pounds of cannabis per year.

SLAYING THE STIGMA

“We don’t worry much about the contents of our ibuprofen when we buy it off the shelves,” Saik said. “The government has a role in making sure the products are safe.”

12 INCENTIVE FOR SUPPLIERS TO CONTINUE PROVIDING PRODUCTS TO THE ILLICIT MARKET Chart 6: Estimated Production Costs Per Pound of Marijuana: Indoor Illicit Grow vs. Legal Indoor Grow Note:

Legal cannabis cultivators spend nearly $250 more than their illicit counterparts to grow a pound of cannabis. Cultivation and testing make up most of the price difference.

*Labor-intensive processes are estimated to cost roughly double for a legal grow because of time-intensity involved in tagging each plant with RFID tags, logging nutrients and measurements at various stages of the growing and harvesting cycles.

division

indoor model. Assumes 10,000 square feet of cul�va�on space producing 4,200 pounds of cannabis per year. *Labor-intensive processes are es�mated to cost roughly double for a legal grow because of the �me-intensity involved in tagging each plant with RFID tags, logging nutrients and measurements at various stages of the growing and harves�ng cycles. Source: Reason Founda�on Marijuana Taxa�on and Black Market Crowd-Out report Copyright 2020 Marijuana Business Daily, a division of Anne Holland Ventures Inc. All rights reserved. Es�mated Produc�on Costs Per Pound of Marijuana: Indoor Illicit Grow vs. Legal Indoor Grow $0$100$200$300$400$500$600$700$800Produc �on Cost per Pound Illicit Grow Legal Grow Harves�ngHarves$16�ng CulDrying/CuringDrying/Curing$8$10$5 �va�on taxTes$0 � $0ngMaterialsMaterials$100$100 Ligh� Ligh$75ng � $75ng $100Rent$100Rent ManicuringManicuring$130$130 LaborLabor$80$40 Cul�va�on tax $154 Tes� $40ng Harves�ng* $8 Drying/Curing*$5 Harves�ng* $16 Drying/Curing*$10MaterialsMaterials$100$100 Ligh� Ligh$75ng � $75ng $705/poundtotal $458/poundtotal$100RentRent$100

in whole. For more copies or editorial permissions, contact CustomerService@MJBizDaily.com

August 2020 | mjbizdaily.com 55 market supports jobs and fattens tax coffers in participating states.

That likely will result in U.S. companies developing operations and building grow sites in countries such as Colombia or Mexico to meet production needs.

“That’s going to be the most efficient way to grow cannabis,” he said. “That’s going to lower the price, and that relates back to competing with the illicit market.”

The public would be comforted by the safety that comes with federal regulations and traceability, according to HeSaik.compared federally regulated marijuana to how the public views pharmaceutical medicine.

By opening interstate trade, cannabis could be grown primarily in those regions that are best suited for it, which would allow for larger economies of scale, according to Dayton.

interstate commerce is going to have to be allowed,” Krane said. “We don’t really restrict the free movement of goods across state lines.”

Dayton agrees that interstate business is a key component of federal legalization fighting off the illicit market. He pointed out that the current legal market has built-in costs such as high taxes and licensing fees that would be alleviated by legalization.

As long as marijuana is federally illegal, there will be a stigma around it. A change in the national law could go a long way to help convince consumers to try it for the first time.

And because enforcement has failed for decades to stamp out the illegal marijuana market, there’s no good reason to think that any new wave of police tactics will work. Rather, what most in the California market are hoping for is to quash the illicit market through economics. If legal retailers can get decent price parity with illegal operators, they might be able to take the profit motive out of the illicit market over the long term, thereby turning the tables on their underground competitors and removing any solid reason for them to continue doing business.

In the event of federal legalization, however, those states might not have much“Ultimately,choice.

Dayton believes that in the future, most cannabis will be grown in Central and South America because land and labor are cheaper in those regions and the climate is better suited for cultivating the plant.

“The stigma around marijuana is certainly perpetuated by the federal government’s lack of legalization of the product,” said Barry Saik, CEO of California-based Greenbits, which supports retailers in more than a dozen states with point-of-sale platforms. “People would feel more comfortable if there was federal involvement in enforcement of the rules.”

CL: Better quality, new strains and cheaper. Plus, the satisfaction of supporting family operations, not conglomerates. What does the legal market provide that you can’t compete with because of a lack of investment and capital resources?

KM: I sold to some dispensaries in Los Angeles. A few of them went to the regulated market but didn’t make it. Some unregulated liquor stores in New York, too, but they’re not my customers anymore.

By John Schroyer Marijuana growers have prospered in California for decades—and, more often than not, they did so outside the law. Two illicit cultivators agreed to speak anonymously with Marijuana Business Magazine about how they navigated the legalization of medical marijuana and, subsequently, adult-use cannabis.

One of those growers, referred to here as KM, has been cultivating marijuana outdoors since 1992. At last count, KM had 2,000 sun-grown plants. “Each year it gets bigger,” KM said of the operation.

CL: I sold my first pound of Humboldt County cannabis in 1990 for $6,400. I only had to grow 20-30 plants to make ends meet. Now, pounds sell for about $800-$1,100—of which $500-$700 covers costs, so I’ve had to grow more.

CL: Not that I know of. I always go through a middleman, so honestly, I don’t know where it went. What do you provide that the state-legal market cannot?

Marijuana Business Magazine | August 202056 Flouting the

A second grower, CL, has been cultivating and selling cannabis for 38 years. Currently, CL’s farm includes about 600 outdoor-grown plants. After the passage of California Proposition 215 in 1996, the Medical Marijuana Initiative, CL started selling to medical marijuana patients.

How to Compete With the Illicit Market

What price were you getting for a pound of marijuana before legalization compared to what you got immediately after? How much has it changed?

Scarce and expensive cannabis business licenses keep underground operators from joining the legal market

KM: There’s more of a demand for certain strains. You have to figure out what the buyers want before they want it and grow those strains. At harvest, the buyers have more power; farmers need to pay their bills, and the market is flooded with flower. When it dries out, the farmers have more power.

CL: A storefront and marketing. Why are you growing and selling your product in the illicit market instead of the legal one?

KM: Safety from jail and a bank account. Mass production. There are definitely still investors out there for the traditional (illicit) market grows.

CL: This market provides a better price to farmers (because of the lack of taxes and other regulatory costs). The logistics are easier; I don’t have to separate my operations or hire other people to transport and do data entry/reporting). I want to continue helping others who are not in the system—many can’t comply even if they want to.

KM: Tax-free cannabis! Getting the product straight from the farmer.

“We didn’t consider ourselves outside the law,” CL said. “We always had cardcarrying people who took our product.”

KM: A pound of outdoor cannabis in 2000 sold for $3,500-$4,200. A pound in 2010 went for $2,800-$3,300. In 2018, a pound went down to $800—and that’s AAANow,outdoor.(apound sells for) about $950$1,500. People seem happy at that range for outdoor-grown cannabis, the buyers and the farmers.

CL: Demand is less now—most likely due to the number of cannabis sources both inside and outside of California. Did you ever supply any of the medical marijuana dispensaries?

What does your production look like now compared to pre-legalization? Has demand changed?

It’s difficult to quantify how much cannabis legalization cuts into the illicit market. But according to some marijuana dealers, regulating the industry has done little to lure longtime buyers away from underground Onedistribution.suchindividual (an illicit seller in Boston whom we’ll call MG to ensure anonymity) has been selling cannabis since before Massachusetts legalized medical marijuana in 2012. Initially, MG exclusively sold flower. A few years ago, vape cartridges were added to the offerings along with branded edibles products.

CL: Corporate entities will just get bigger and eat up smaller operators.

CL: (The biggest hurdle is) not making any profit. But I am earning a living wage. We’re having to consider moving to indoor growing because (law enforcement) is now invading our privacy from the sky, and I risk losing my land. How easy is it to grow and sell on the illicit market? What are some of the risks you’ve faced in doing that?

KM: I think the California markets (both illicit and regulated) are a good indication of how things will look on the federal level. The government will excessively tax interstate cannabis commerce.

Cannabis is not MG’s primary business. Still, he makes “decent” money from marijuana and hopes to get a cannabis business license eventually. MG applied for three licenses under Massachusetts’ social equity program last year but was unsuccessful.

KM: My biggest business hurdle right now is getting fair market value. Brokers out there want to add their take, and buyers want the lowest price. I have to hold out on the product sometimes to get the price I need to cover my costs and make a profit. You run the risk of losing out on a deal completely by holding out for a higher price—but if all farmers did that, we could raise the price.

The hard truth is we have bills; we’ve got to pay the trimmers and get ready for next season. Sometimes you have to take that lower price.

How do you think things will change for you once cannabis is legalized at the federal level?

CL: I risk my land every year cultivating. My freedom is at risk every time I drive to make a sale. I don’t prefer indoor growing, but I may have to for economic reasons. I feel my freedom of working outdoors—in the sun and on the land—slowly slipping away. It’s pretty heartbreaking. I was able to transition from hiding (pre1996) to being open with what I do (1996-2014), which was pretty validating on a personal/social level. I am now feeling the pressure to begin hiding again.

Illicit ChangeLegalizationDealer:Didn’tMuch

CL: Yes, and it took too much time and money—that’s not where I want to spend either (of those resources).

What are your biggest business hurdles right now, and how much of a profit are you generally making on your harvests?

Did you try to get a license to grow legally at some point? If not, why not?

KM: No, not in my lifetime. The regulated California market will supersede the traditional (unregulated) market, but the traditional market will never go away completely. There are too many outlaws in California—especially in Humboldt County, where the best cannabis is grown. There are plenty of traditional-market folks out there making a good living on growing and even packaging cannabis. There are too many folks out there that will never want to pay taxes on their crops.

Marijuana Business Magazine | August 202058

MG said two of his associates received initial approvals for social equity licenses and are in the licensing pipeline. MG wants to apply for a cannabis business license again at some point, but for now, buying real estate is the focus. “It ’s expensive. You need a team of people,” MG said of applying for a license. “It’s not a walk in the park.” – Omar Sacirbey

KM: We still are on the lookout for helicopters; that hasn’t changed. People who want to rob you. Taxes. Honestly, it’s hard out here.

MG said only a small number of his customers have defected to the legal market, but most stay because of price and loyalty. Some illicit dealers have seen small decreases in business because of customers getting medical marijuana cards, but overall, MG believes legalization has had little to no impact on the illicit market. Before the coronavirus outbreak, MG was paying $1,500-$2,000 per pound for midgrade cannabis; the same product now costs $2,400-$2,800 per pound. Premium cannabis currently costs MG $3,800$5,000 per pound, or about $500-$1,000 more than pre-coronavirus prices. MG typically sells ounces of midgrade cannabis for $150-$200, while premium product goes for $300-$400 per ounce. Wholesale prices for vape cartridges have gone up in recent months, but not so much that MG has had to raise his prices (currently $40 per cartridge). By comparison, most cartridges from licensed dispensaries in the Boston metro area cost $55-$65.

These interviews were edited for length and clarity.

How to Compete With the Illicit Market

KM: I had an investor/partner that went through with the paperwork for a permit. At one point in 2018, I had an acre of canopy permitted. I sold my property with the permit that year.

Do you think the legal market in California is ever going to supplant the illegal market?

August 2020 | mjbizdaily.com 59

Products

Products to One-Up THE ILLICIT

By Margaret Jackson

The illicit market takes a large chunk of sales away from licensed cannabis businesses, but products that are difficult to replicate or require expensive equipment to manufacture generally are found only in legal marijuanaManufacturingshops. selling such products is one way for legal cannabis businesses to draw new customers and get a leg up on the illicit market. that aren’t easily duplicated

“Beforecompanies.thetrack-and-trace system was implemented, we would collect MARKET

“The black market looks for very simple things like flower and high-milligram edibles,” said Lyden Henderson, chief operating officer of San Diego-based Outbound Brewing, which makes THC- and CBD-infused beers. “The illicit market counts milligrams; they want the highest milligrams of THC per dollar.” Outbound Brewing is vigilant about working only with licensed distributors to get its infused beers onto store shelves, according to Henderson. The extra step provides yet another way to ensure business goes to state-legal cannabis

San Diego-based Outbound Brewing creates hemp-infused nonalcoholic beers. Infused beverages are one of the more difficult products for illicit manufacturers to produce.

and

Cannabis-infused beverages, topicals, patches and pills are hard for unlicensed producers to replicate

include: • Topicals and salves. • Dissolvable tablets. • Tinctures. • Pills and capsules. • Transdermal patches. • Infused beverages. DOING YOUR HOMEWORK

Courtesy Photo

How to Compete With the Illicit Market retail licenses and cross-reference them against the BCC (Bureau of Cannabis Control) website to make sure the company name matched up with what is licensed in the state,” Henderson said.

UNTESTED AND TOUGH TO PRODUCE Aaron Riley, CEO of Los Angeles-based testing lab CannaSafe, said the least likely products to be found on the illicit market are topicals, but all other cannabis goods are available illegally.

Verano’s line of Avexia Medicinal Cannabis offers topicals, tinctures and tablets in various ratios of CBD to THC.

For example, transdermal patches aren’t commonly sold by illicit retailers because it’s difficult to manufacture an adhesive formula that sticks to skin when it’s dosed with cannabinoids, said Nial DeMena, co-founder and CEO of Manna Molecular Science, a Massachusettsbased manufacturer of transdermal patches and infused products.

Transdermal patches are difficult for illicit operators to replicate because the adhesive has to remain sticky while the interior is coated in cannabis oil. Photo Courtesy of Manna Molecular Science

“Almost every illicit product we have tested contains pesticides, especially anything concentrated,” Riley said. Michael Mayes, CEO of Chicagobased cannabis consulting firm Quantum 9, said products that require expensive equipment to manufacture don’t make it to the illicit market.

Marijuana Business Magazine | August 202060

Medicinal products and those made to look like pharmaceuticals also are difficult to reproduce, said David Spreckman, director of retail for Chicago-based vertically integrated cannabis company Verano Holdings.

Outbound’s beers would be difficult to replicate because there is a significant amount of chemistry involved in extracting cannabis oil and turning it into a water-soluble solution, to say nothing of what it takes to brew the“Therebeer. is a considerable footprint for a brewery required,” Henderson said. “They would have to develop a nonalcoholic recipe and get a brewer on board, but no brewer would put their license at risk to do” business with an illicit operator.

“I think it’s much easier for the (illicit) market to reproduce flower strains and even vape cartridges,” Spreckman said. “The big issue is that while a vape cart might look and smell legitimate, if it hasn’t been bought from a licensed dispensary, it hasn’t been tested” for contaminants.

“We add this really oily, gooey cannabis substance that causes it to slide all over the place,” DeMena said. “If you put it on a Band-Aid, it’s not going to stick. You can make fakes, but there’s a big difference between using the real McCoy and using something that’s adhesive with a bunch of stuff on it. Good adhesive is really hard to manufacture, and it’s really hard to make it look like a factory-made patch.”

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Marijuana Business Magazine | August 202062 Holograms, QR codes and other technologies can make copying cannabis products an expensive endeavor By Margaret Jackson Custom seals can include holograms, QR codes and scratch-off verification codes unique to the product. Photo Courtesy of CannVerify Using Packaging to STOP FAKES How to Compete With the Illicit Market

• Tracks where the products are sold.

Brothers Vicken and Shant Jabourian, co-founders of the San Diego-based anti-counterfeiting and brand-protection company CannVerify, said that before they sell the company’s tamper-proof holographic seals with unique QR codes, they verify the business they are selling to is Tolegitimate.avoidselling its seals to illegitimate businesses, CannVerify:

• Looks at social media to ensure the company has a history and is

KushCo sells stickers to help marijuana companies track their products throughout the supply chain. Courtesy Photo

• Confirms that emails come from an official company domain.

• Asks to see the company’s physical product line and packaging.

“Thecredible.source for the fake packaging is China,” Vicken Jabourian said. “You have the manufacturers making packaging for legitimate businesses and counterfeiters asking to reproduce the packaging.”

To combat bogus packaging, many cannabis companies are turning to technologies such as radio frequency identification (RFID) tags and tamperproof holograms and incorporating them into their packaging.

August 2020 | mjbizdaily.com 63

• Checks the company’s license number against state records.

C hinese manufacturers have been knocking off high-end products for years—think Louis Vuitton bags, Air Jordan sneakers and Rolex watches. Now, they’ve gone one step further: making counterfeit cannabis packaging that’s helping to bolster the illicitOften,market.thecounterfeit packaging looks so much like the real thing that consumers believe they’re purchasing a legitimate product that has been lab tested to comply with state laws such as those governing mold and pesticides.

Jordan Lams, founder and CEO of Long Beach, California-based multistate operator Moxie, said that before he sells gummies or flower to a retailer, he conducts rigorous background checks on the stores and ensures his custom packaging is difficult to duplicate. Moxie’s custom packaging includes multicolored tins for gummies, cardboard boxes with a see-through window as well as glass jars with gold tamper-evident seals for flower.

KushCo sells stickers with De La Rue technology to its packaging customers, allowing them to monitor where the package goes throughout the supply chain and ensure products do not enter the illicit market.

Andrew Kline

COUNTERFEIT PACKAGING A PROBLEM Counterfeit products aren’t the only problem for legitimate cannabis businesses.“Wehave to do something about the counterfeit packaging that exists online,” said Andrew Kline, director of public policy at the National Cannabis Industry Association. “The other challenge is making sure people aren’t selling that kind of packaging with fake results at any trade shows, which is a little harder to police.”

to Compete

During the 2019 vape crisis, California-based KushCo Holdings entered an exclusive distribution agreement with De La Rue, a European provider of anti-counterfeiting and authentication solutions that prints more than 8 billion product-authentication labels annually. The partnership provides enhanced packaging with secure visual authentication technology using threedimensional images, label tracking and data-capturing capabilities.

Marijuana Business Magazine | August 202064

Moxie packages its flower with gold, tamper-evident seals and uses multicolored tins for its line of gummies. Courtesy Photos

How With the Illicit Market

“It would be nearly impossible to replicate any of our products, and we ensure that through packaging,” Lams said. “It would take hundreds of thousands of dollars of investment for someone to rip it off. It’s too much of an investment to undertake.”

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struggling economy paves the way for marijuana companies to secure better values on real estate

By Adrian D. Garcia

Deals Real Marijuana Business Magazine | August 202068

Others hope landlords will slash rents to fill vacancies or avoid losing existing cannabisMarijuanatenants.companies that want to acquire properties from distressed businesses should be prepared to identify and capitalize on opportunities, experts say. Meanwhile, those cannabis businesses that need relief in rent or that hope to use their own properties to bring in cash should consider the legal and debt

currently“Youimplications.seemanylandlordsprovidingrentalpayment de-

BETTER SHOP AROUND “A lot of the calls that I’m getting are from companies that are looking for businesses that have failed and want to take advantage of those opportunities,” said Paula Turner, broker and co-owner at Desert Pacific Properties.

On the national level, industrial rent prices were up nearly 9% year-over-year to an average of $6.30 per square foot at the close of the first quarter of 2020, according to the most recently available data from Chicago-based JLL. The commercial real estate firm shows a 4% increase in office prices from the first quarter of 2019 to the first quarter of 2020. JLL does not break out the data for the cannabis industry, but costs rose in established marijuana metro areas such as Denver, Los Angeles and Portland, Oregon.

• Some landlords are providing rental payment deferment and, in some cases, rent forgiveness for tenants struggling amid the pandemic.

Marijuana Business Magazine | August 202070 M any cannabis companies are eager to take advantage of any dip in commercial real estate prices that accompany economic downturns.Amidthe coronavirus-induced recession, some marijuana businesses are hoping to pick up assets and properties from rivals and mainstream companies that scale back or close shop altogether.

• Those looking to finance real estate purchases through sale-leaseback transactions should consider their options and review the terms carefully. Paula Turner

Deals Real

• Operators that are unable to make rent and are forced to close might be able to terminate their leases through force majeure clauses or other conditions detailed in their rental agreements.

ferment—perhaps even, in some cases, forgiveness options,” said Garrett Graff, managing attorney at Denver-based Hoban Law Group. “There’s a lot of flexibility being extended throughout the cannabis industry in general, and that includes within landlord-tenant relationships. At some point down the road, as a derivative impact of the pandemic, we will see companies that are unable to continue operating, and that will free up additional real estate to be purchased,” Graff said.

• Using a slower, phased approach might make economic sense for building cannabis businesses going forward.

• Buyers might find that real estate opportunities vary even within the same geographical area because of differences in zoning regulations, taxes and economic incentives. Experts recommend working with a broker and shopping around.

The COVID-19 pandemic could create opportunities for cannabis operators to buy or lease real estate at discounted prices compared to just a year ago, experts say. But while some businesses are looking for deals, others are just hoping for a lifeline to continue operating. Here are some considerations for how the economic downturn could impact the cannabis real estate market:

“At some point down the road, as a derivative impact of the pandemic, we will see companies that are unable to continue operating, and that will free up additional real estate to be purchased.”—GarrettGraff Hoban Law Group

Mike Sassano

Royal Emerald previously planned to set up shop in Vista, California, but ran into red tape during the licensing process. The company later considered Palm Springs and Cathedral City before being wooed by Desert Hot Springs officials, Turner“Desertsaid.Hot Springs just rolled out the red carpet and got very creative,” she said. “Because (Royal Emerald’s project) is a research and development facility, it was allowed in their commercial zone. And so, instead of going through the whole conditional-use permit process, they got the approvals within two weeks.”

PROPERTY AS AN ASSET

Deals Real

Marijuana Business Magazine | August 202072

One real estate tool that is growing in popularity for struggling cannabis businesses or those needing to access capital is the sale-leaseback, Sassano said. (See “Cash Cow” in the February 2020 issue of Marijuana Business Magazine.)Underthis arrangement, companies often sell their cultivation, processing and storage facilities—and, in some cases, retail stores—to cannabisfocused real estate investment trusts, or REITs. In exchange for the upfront cash, the companies sign a long-term

The real estate firm in Palm Desert, California, has a division dedicated to assisting cannabis companies. Marijuana businesses looking for real estate could benefit from enlisting a broker and looking at several listings.

Opportunities can vary even within a geographical area because of differences in zoning regulations, taxes and economic incentives.

Desert Pacific Properties recently worked with San Diego-based Royal Emerald Pharmaceuticals to sign a lease with the option to purchase a 90,000-square-foot site in Desert Hot Springs, California.

TAKE IT SLOW Major players have had to scale back or reconsider their operations in recent months. Canopy Growth, for instance, pulled back on cannabis cultivation in Africa, Canada, Colombia and the United States. Los Angelesbased MedMen Enterprises closed five of its eight Florida medical marijuana dispensaries in May. Other multistate operators including New York-based Acreage Holdings and Arizona-based 4Front Ventures and Harvest Health & Recreation also have scaled back by laying off workers and disposing of operations.Nowthat the economic situation doesn’t support unbridled growth in the industry, more cannabis companies might consider a phased building approach, said Mike Sassano, founder and CEO of Solaris Farms.

Royal Emerald is expected to begin operations at the site in late 2020. The company plans to build up to 3 million square feet of office and manufacturing space, according to Desert Pacific Properties.

The cultivator can build up to 300,000 square feet of grow space on its current land in Las Vegas. Phase One of the project is currently operating and consists of 34,000 square feet of cultivation, production and operational space. “We build according to what the market demands at the time. And that’s how I run these projects,” Sassano said. “I always tell people to cut (development projects) back to a reasonable spend and develop management first.”

August 2020 | mjbizdaily.com 73 lease with their new landlord. After the agreement, such businesses are tenants in the properties they once owned. Sometimes the agreement includes a purchase option where the cannabis firm can buy back its property at prenegotiated prices.

Cannabis operators that were deemed nonessential and/or forced to close by their state or local government officials might be able to make a case that their right to use their property was violated and their lease should be terminated, he noted.

Building in phases can be prudent in an economic downturn.

David Lesser

Cannabis operators that find themselves unable to make rent going forward will have to review their leases for how to terminate their agreements with the least financial and legal obligations.

“When you do that deal, the property is not owned by you. The building is not owned by you. It’s owned by the saleleaseback group,” Sassano said. “If you keep making the payments and if, at the end, you’re able to pay off the balloon ... well then that property reverts back to you. They’ll hand over the keys and do the title-deed transfer. And now you own your business outright.”

Landlords can offset some of their concerns around marijuana businesses by charging higher rents. They can also tack on addendums to the lease to reduce liabilities and guarantee issues are addressed, experts say.

The most frequently cited concerns of landlords leasing to marijuana-related businesses involve smell from the site, risk of theft of cash on property, moisture issues and fire hazards, according to a National Association of Realtors (NAR) report published in February.“Itdoes seem like in states where marijuana has been legal the longest—so, legal before 2016—that commercial (realtor) members are more willing to both lease to and work with the cannabis industry,” said Jessica Lautz, vice president of demographics and behavioral insights at NAR.

WORKING WITH LANDLORDS Cannabis businesses struggling to make rent amid the economic downturn could talk with their landlords about payment deferment or forgiveness, Graff said. “Many landlords recognize that there’s a value to working with their tenants in the short term to ensure the continuity of long-term rental payments.”

“I’ve never seen that happen yet,” he added.Moreover, cannabis companies that want to expand too quickly can land in hot water by using the capital of the deal to temporarily shore up issues in their business—and eventually find themselves again pinched for cash. Companies must weigh a saleleaseback against their other options for capital, said David Lesser, chair and CEO of Power REIT. The real estate investment trust based in Old Bethpage, New York, owns and leases out cannabis cultivation facilities to licensed operators in Colorado and Maine. “‘Sale-leaseback’ is kind of a buzzword. What we’re doing fundamentally is entering into longterm leases with operators, and that gives them the long-term runway to operate and grow their businesses,” Lesser said.

PAYING PREMIUMS FOR PROPERTY Businesses in the leaseendplant’sindustry—thanksmarijuanatothefederalillegality—oftenuppayingapremiumtotheirfacilities,Lessersaid.“Typically,youseeahighgoing-in rate with a big built-in premium for cannabis. And then, it just escalates from there,” he said. “I don’t think that’s sustainable, and hence, we’ve tried to take a somewhat different approach.”

Power REIT charges higher rent upfront to its cannabis tenants and then reduces the cost—typically in the third year. The leases also have a built-in reduction in the event of federal legalization, Lesser said.

“Many lease agreements will have provisions concerning a force majeure clause that in the event of an act of God—which one might suggest, if not expressly state, that a pandemic would qualify as—would provide a right of termination. Furthermore, many leases will have clauses concerning the right for a quiet use and enjoyment by the tenant, meaning that they will have the continuous ability to operate out of that facility,” Graff said.

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Marijuana Business Magazine | August 202076 Green By Susanna Donato Lockdown

Indoor cannabis growers should take a layered approach to security, from reinforced structures to access control and high-tech cameras

Courtesy Photo

August 2020 | mjbizdaily.com 77

ETG Systems in Denver set up this security operations center, where staff can remotely monitor multiple facilities continuously. Security experts say remote monitoring is a good option for nighttime surveillance.

Employees at High Desert Relief enter through a tall, overhead gate and park behind another sliding gate in a lot that isn’t visible from the street.

Stuart’s 32,000-square-foot grow sits behind barbed-wire fencing and 12-foot cinder-block walls. “To anybody who drives by, it looks like a vacant building. (We want to) operate with no one realiz ing what’s going on,” he said. “Just keeping the nuisance odor down—we seal our rooms, use carbon filters and all that—to not broadcast what we’re doing here.”

• Minimize internal losses by limiting access to secure areas, performing background checks and restricting street clothes and personal belongings to an employee locker room.

• Pay employees well to eliminate the temptation for them to supplement their income via internal theft.

“It’s common practice for indoor cultivation (in warehouses) to reinforce all existing windows so there’s no entry

Simon and Grant Whitus, president of Denverbased Helix Security, agree that grow facilities should have only one entrance with a temporary holding area. In this mantrap, operators can screen visitors before admitting them to restricted access areas.

“When you’re looking at reinforcements on your facility, you’ve got to focus on the choke points,” Simon advised. “You don’t have to have the whole thing built out of reinforced concrete to have the building be secure and have your employees feel safe.”

• Provision access points to limit entry, including vaults and curing and trim rooms.

BRICK-AND-MORTAR SECURITY

Powered gates that offer keycard access, long-range RFID or license-plate recognition cost $6,000 to $10,000, but the cost is worth it, said Mihai Simon, president of ETG Systems, a Denver systems integrator with a heavy emphasis on security and surveillance. Otherwise, “people will cut corners and leave the gate open. Proper measures cost money to do right. … Put in something that will last without having to manage it all the time—or worse, have it shut off because it’s too inconvenient to use.”

It’s hard to know how many theftrelated losses happen at cannabis greenhouses because growers are reluctant to announce their vulnerabilities. But losses do happen—and cultivators can take steps to protect themselves.

Here’s how:

Perimeter doors should be professional-grade steel with commercial access-control locks. The combination could cost from $1,500 to $3,500.

Marijuana Business Magazine | August 202078 In the past few years, thefts at cannabis grow facilities have made headlines as thieves got brasher. In 2017, for example, Seattle cannabis businesses (both growers and retailers) were victims of 65 burglaries—some striking boutique indoor growers at the most vulnerable time: just as their crop was ready for sale. The Seattle cannabis crime wave revealed a weak point in the regulatory process. After growers compared notes and an investigative journalist documented the thefts, Washington state removed grow houses from its public map of cannabis businesses. But in just about every state, cannabiscrop tracking isn’t going anywhere, and anyone can find growers’ locations as a matter of public record. Such news underscores why it’s up to growers to protect themselves, according to Withexperts.wholesale recreational marijuana prices ranging from $1,000 to $2,400 per pound in legal markets, cannabis remains big business. In addition, the illicit market still thrives in many states, making cannabis crops a tempting target forIt’scriminals.hardto calculate an industrywide total for growers’ losses to theft. That’s because, experts agree, many crimes are never reported—let alone solved. The key for growers looking to protect their crops: Control access, and don’t make it easy for the bad guys. Even controlling the odor from your grow can help make your facility a less-conspicuous target for“Ourcrooks.philosophy on security is layering it,” said grower Drew Stuart, who uses fences, walls, gates and technology to safeguard High Desert Relief, the medical marijuana company he co-owns in Albuquerque, New Mexico. “We can’t necessarily stop anybody from wanting in. We can just slow them down, and that’s why we do it.”

REINFORCING THE STRUCTURE

• Secure the property with an access-controlled gate, reinforced walls and entrances as well as commercial-grade locks.

• Consider a security guard to protect employees during working hours, but don’t rely on a guard at night. Instead, invest in smart cameras and virtual monitoring to interrupt would-be criminals early.

SimonMihai

LockdownGreen

The first and most obvious security consideration is the physical plant, including walls, entries, vaults and fencing. State regulations mandate different approaches to structural security: Oregon demands commercial-grade locks on exterior access points and a steel-framed vault for all product, while Washington requires an alarm system on entry points and having all fencing in view of cameras. Experts agreed the regulations are just a starting point. While going above and beyond regulation-required security might cost more, Stuart said, “It’s peace of mind, and we would invest appropriately to do it. None of our costs (for security) have been out of control.”

Nug’s two retail shops remained open for business during the protests, Oram said, with a vastly reduced inventory and battered storefronts that have boarded-up windows and doors.

During the drying process, store product and flower in rooms with steel mesh-reinforced walls secured with commercial-grade locks.

Dozens of cannabis businesses in California, Illinois, Massachusetts, Ohio and Oregon were damaged or looted following protests in response to George Floyd’s death in May while he was in police custody in Minneapolis.

Outside, if there’s any risk of ram-raiding—using a vehicle to smash into a building—consider installing bollards, protective concrete or steel posts that deflect vehicles.

Stolen inventory from Nug’s cultivation operations alone is at least $2 million, he said.

The Farmacy Berkeley in California was broken into by armed robbers, according to owner Sue Taylor, who said several cars pulled up outside her shop after midnight May 30. She said the vehicles carried roughly 30 individuals who overwhelmed security guards and broke into the shop. Early on June 1, would-be robbers targeted the shop two more times, she said.

Not far south from The Farmacy Berkeley, Magnolia Wellness in Oakland, California, also was hit multiple times and “cleaned out” of its cannabis inventory, said CEO Debby Goldsberry.

Nug CEO John Oram told Marijuana Business Magazine that all five of the company’s California locations had been targeted, with losses reaching into the millions of dollars—not including property damage or lost sales hours.

In Albuquerque, Stuart’s dry room/dry product storage is an actual vault inherited from the site’s previous tenant, a jewelry manufacturer. “It’s all reinforced concrete, endowed with rebar every 12 inches, with big combination steel doors. That probably would have cost us $150,000 to put in.”

“The whole point of a secure storage room or vault is to make sure that whoever gets into your facility will not have easy access to your stash,” Simon said. “Whether a vault is raided usually is based on how long it takes somebody to break into the vault.”

“There’s nothing left at our place,” Goldsberry said, adding that her shop was broken into on May 30 and May 31. Perpetrators stole all the inventory on site, and police didn’t respond for hours, Goldsberry said.

She’s also not sure how much the losses total or if her insurance will cover any of the repairs or lost inventory.

“For over 10 years, my team and I have been building a top-10 brand in arguably the largest cannabis market in the world, and to see it crushed in 24-48 hours is just heartbreaking. I want to cry,” Oram said.

LockdownGreen

Though securing the structure is only the beginning, growers don’t need to go overboard, Whitus said. “We’ve seen companies spend tens of thousands of dollars in building secure walls and securing windows. But we feel that if you have guards during the day and a good monitoring system at night, you’re spending far less money and still getting law enforcement there. Money is better spent on a good system than on trying to fortify a location.”

Several business owners said they believe the damage was inflicted by professional criminals rather than the protesters themselves.

– John Schroyer Cannabis Businesses Targeted in Looting Spress California-based Nug lost at least $2 million in product when its cultivation facility was robbed earlier this year. Courtesy Photo

“Reinforcing potential entry points through the AC or other ducts in the roof is also common.”Growers can incorporate cinder block or concrete-reinforced walls with multiple layers of drywall for interior ceilings, Simon added.

Even Jersey barriers, the concrete blocks that sometimes direct highway traffic, can be a useful deterrent. (Jersey barriers cost about $300 per 4 feet.)

ALARMS, CAMERAS, ACCESS Security for a grow facility can range from simple keypads to state-of-the-art cameras with advanced analytics that detect changes in humidity to biometric data such as face scans or fingerprints. But most growers can leave those features to the movies and focus on essentials that make the most of their investment.

Goldsberry believes criminals were using the protests as a cover. “There’s organized gangs that have been targeting cannabis businesses for years. That’s what this is,” Goldsberry said.

Marijuana Business Magazine | August 202080 points through windows,” Whitus added.

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“We get mixed responses,” Kafaii said. “There’s pushback from some and relief from others.”

Pay can be another theft deterrent. Stuart said, “We pay really well, too, so people aren’t concerned with money; they don’t feel they have to help themselves. We think it’s important to invest in the people who are responsible for these things.”

To help combat theft, Whitus recommends employees don’t enter the growing area until they have changed into their work clothes, such as scrubs or medical-style clothing without pockets. Once changed, employees can enter the secured area to do their work, including cutting. When they leave, they change into street clothes and cannot return into the secured area, where the product is, until their next shift.

That doesn’t mean growers should operate on blind trust. After a painful loss early in the life of the business—from an employee he considered a close friend—Stuart and his team learned their lesson. “I can’t say we haven’t had anything taken, but not to the extent that we’ve noticed—and we do check.”

Growers should weigh product wet and dry and know their standard formula for dry-down, Stuart recommended. “If anything’s off, then we investigate. There’s no fixed standard—some strains dry more than others, some hold moisture, but we’ve got a good guide internally.”

Just as growers should monitor their alarms, cameras and staff, they should evaluate and update their security plans on a regular basis.

In Albuquerque, New Mexico, High Desert Relief co-owner Drew Stuart agrees with that general approach. “We have employees change into topcoats: no pockets, no bags,” he said. “You can’t completely micromanage—you have to have people you can trust. But … there are very few times an individual is in a room by themselves. They’re in there with 10 other guys, so they will be less inclined to try to do something.”

Some state regulations, including California’s, require audit logs to be stored in a secure environment. Experts recommend investing in reliable, redundant storage for security records such as audit logs and months to years of security-camera footage.

In addition to exterior and interior visual cameras, Stuart’s Albuquerque facility includes drop cameras in specific locations, including the vault, with sound monitoring. If the vault camera hears a burglar working with tools, it sets off an alarm. These kinds of camera installations aren’t cheap if they’re done right.

Eliminating Inside Jobs

Simon estimates on-site storage at anywhere from $3,000 to $30,000, depending on how much video a grower is required to keep. States such as California and Pennsylvania, for instance, require growers to store up to four years of video. Instead of “a stack of 11 DVRs,” Simon advised growers to invest in a professional, computer server-based solution. Brown agreed. “There’s a real benefit to backing up video to the cloud. For one, you’re eliminating the large capital expense of NVRs (network video records) and local storage hardware. You’re also protected from hard-drive failure if video is stored redundantly in the cloud. And it protects your data from being stolen (during a break-in).”

Grant Whitus, president of Denver-based Helix Security, says most cash and product loss at cannabis companies is internal.

Helix Security recommends a twice yearly review and evaluation.

– Susanna Donato

LockdownGreen

“It’s an ongoing basis for us,” Kafaii said. “We do reevaluate it constantly—every couple weeks. Usually, no major changes are made unless they’re needed.”

While buying hardware involves one initial capital expense, cloud video involves a recurring monthly or yearly fee. The cost varies depending on the resolution of stored video and the number of days stored. An alarm system is standard these days and often required by regulations. Every potential entrance point should be alarmed, from fences to windows and doors.

Ali Kafaii

“Most grows do use keycard or key-fob access control for tracking employees’ movement throughout a facility,” said Kevin Brown, sales manager for Helix Security. “You want to be able to limit access to individual rooms. For example, only manager-level employees should have access to the vault room and security room. The access-control system also produces an audit log. Should you have an incident, you’ll be able to see who accessed which rooms when.”

Cameras and video recording are a vital security tool—and a core cost. Ali Kafaii is co-founder and chief operations officer of Source Cannabis in Los Angeles, which operates two grows in the city. “We have interactive cameras, which people monitor 24/7. We do anything anybody could imagine for securing the safety of the building—including cameras that cover certain hallways (and) areas that would be dead spots, like angles and turns or corners. We make sure we can cover everything, including the roof.”

Marijuana Business Magazine | August 202082

At Source Cannabis in Los Angeles, co-founder and Chief Operating Officer Ali Kafaii takes internal security a step further. His employees change into scrubs when they’re working. When employees enter and exit, company security searches them and their belongings.

“If anyone charges less than $300 per camera installed, I’d be cautious—unless it’s a super-simple install,” Simon warned. “You’re looking at cabling costs, camera setup, miscellaneous materials, licensing costs for software and storage, which may not be included in that cost.”

“Technology can show its investment value when you pair it with the human element. Then you get what you’re paying for and then some.”

Another advantage to advanced cameras: “There are vandal-proof cameras that protect from physical destruction,” said Kevin Brown, Helix Security’s sales manager. “One of our video analytics is tampering detection. If somebody spray-paints over a camera, an alert pops up on our operator’s screen, and we know that camera’s gone out.”

“Especially where you have an overnight guard, make sure he has a fixed panic button,” Simon said. “That’s a vulnerability I would caution against. If you have a guard, make sure he has a panic button as some kind of backup.” Physical barriers are the first line of defense against theft.

August 2020 | mjbizdaily.com 83

Simon said employing an unarmed guard around the clock at $20 per hour could cost $200,000 per year.

Alarms, access, audits and RFID crop tracking:

Real-time video monitoring has a range of costs and a range of ways to measure that expense. Simon estimated its monitoring services cost between $100 and $500 per month for most cannabis growers. Helix Security prices its live monitoring starting at 50 cents per camera, per hour, for 10 to 20 cameras. By comparison, monitoring an alarm might cost only $35-$75 per month—but that alarm tends to notify the police, sometimes for nonissues. Repeated false alarms could result in charges of hundreds of dollars per month.

– Susanna Donato

“We typically recommend having fixed panic buttons installed so you know where they’re located,” said Brown, who recommended one in almost every room. “In addition, you can have mobile panic buttons,” which employees wear around their wrist or on a lanyard.

“An armed guard offers more security but also more liability. That’s a huge cost unless you’re a big grow,” he said. “But you can offset that cost by having a human guard during the day with a virtual guard at night and cut guard costs by half—or more.”

TheCameras:Heart of Security

“Instead of an armed guard at a customer’s site, we do remote monitoring. With that, we end up saving the customer a lot of money,” said Mihai Simon, president of Denver-based ETG Systems.

Similarly, all Helix systems include a battery-backup system. States mandate different battery backup times—in Colorado, it’s four hours. That battery backup stays in the security room with a grower’s video “Remotestorage.video monitoring or virtual guard services are a hot subject for all industries, not just cannabis,” Simon said. “That’s because the value is tremendous.”

“The (criminals) all realize there are cameras at a facility. What they haven’t seen is the speaker systems we use now,” explained Grant Whitus, president of Helix Security, also in Denver. “Our live monitors can say, ‘We can see what you’re doing, law enforcement is on the way, and everything’s being “That’srecorded.’”thetypeof security that’s going to happen more and more,” Simon agreed.

They’re all part of the cannabis cultivation business. But the new face of security monitoring looks less like a burly man in a uniform and more like a reflective camera lens.

Stuart’s team gets motion-sensor alarm notifications once or twice a week, though the culprit isn’t always a burglar. “Cats set them off; people looking in the trash (at the retail store).” High Desert Relief’s alarm notifies seven people, so there’s always someone to glance at their phone and handle the situation, no matter the hour. “In this industry, you have to sleep lightly,” Stuart said. Panic buttons are another key security element. Unlike an alarm that might alert an owner or sound a siren, panic buttons instantly notify the police department. These links to the police cost $50 to $500 to set up, depending how much wiring is involved.

Photo Courtesy of Source Cannabis Drew Stuart

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Marijuana Business Magazine | August 202086 By Margaret Jackson Best by: Aug. 31, 2020 Contents: Shelf-stability experts reveal expirationbest-by,makerscannabis-infusedhowproductshouldusesell-byanddates Storage: Read in a quiet, well-lit area Aug. 31, 2020 Shelf-stability reveal Read

87August 2020 | mjbizdaily.com

• Testing for shelf stability ensures products provide a consistent and safe experience for customers.

Flower is more sensitive to aging than other cannabis products such as edibles.

“Shelf-life stability in the world of cannabis-infused edibles is essentially no different than it is in the world of regular food products or dietary supplements,” said Drew Hathaway, senior scientist at Commerce City, Colorado-based Stillwater Brands. “The three key pillars of shelf-life stability for any industry should be understanding how your product’s physical, chemical and microbial stability can potentially change over the full duration of the product’s shelf life.”

• Best-by date.

• Sell-by date. The best-by date is not the expiration of shelf life. It’s the time frame during which all the ingredients and product attributes are at their best, including sensory characteristics, color fastness and flavor intensity. Ingestible products—including cannabis edibles—can be consumed safely well past their best-by date. The expiration date indicates when a food is no longer safe to consume from a spoilage standpoint or a point in time when the preservative system is no longer active and harmful microbial activity might be present.

• Know the difference between the sell-by date, best-by date and expiration date.

• Flower is more sensitive to prolonged shelf life than live resins or rosins.

• Expiration date.

Courtesy Photo Shelf stability

Like any product that is ingested, cannabis has a shelf life. Manufacturers of infused cannabis products such as candies, beverages and creams need to make sure their products can withstand time on store shelves and in customers’ homes.

Shelf-life stability is no different in the cannabis industry than it is with mainstream food products or dietary supplements. It’s important to understand how your products’ physical, chemical and microbial stability change over time to determine how long they’ll last on store shelves and in customers’ homes. Here’s some practical advice to help navigate the maze:

Marijuana Business Magazine | August 202088

Shelf stability refers to both the length of time a product is at its sensory best and, for foods that spoil over time, a direct measure of product safety, said Scott Riefler, chief scientific officer for Sōrse Technology, a Seattle-based CBD emulsion ingredient supplier.

“Of course, food safety is the paramount concern,” Riefler said. “This is followed by consumers liking the product, which drives brand loyalty and repeatTherebusiness.”arethree distinct shelf-life terms:

• Packaging plays a key role because it provides a barrier between the product and the surrounding environment.

WHAT IS STABILITY?SHELF-LIFE

• Take cues on shelf life from the food and beverage industry.

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According to Hathaway, the three pillars of shelf-life stability for cannabisinfused products are:

“Chemical stability is an aspect of shelf life that gets extra attention in the cannabis space, as that is the main factor that will determine how much THC, CBD or other cannabinoids are present at the time of consumption,” Hathaway“Physicalsaid.stability is often intertwined with a product’s chemical and microstability, which is why all three are important to monitor over time,” Hathaway said. “All three aspects can be controlled and even predicted by a sufficient understanding of the product formulation, production process and packaging.”

• Physical stability: Do the flavor, texture or other sensory attributes change over time?

• Microbial stability: Is my product safe to eat for its full shelf life?

• What is the quality lifespan of a “Flowerproduct?isprobably the most sensitive,” Farrar said, adding that flower dries out and loses its potency over time.

Shelf stability

CHECKING STABLILITY

Marijuana Business Magazine | August 202090

“If you have eaten a cannabis edible past its best-by date, you shouldn’t be concerned,” Riefler said. “If you have consumed something that is past its expiration date, you need to be aware of the potential microbial issues.”

The shelf life stated on the label is often significantly shorter than reality stated on a product labeled “sell by” or “best by.” However, there could be microbial issues if a product is past its expirationCannabisdate.edibles have a shelf life similar to their non-cannabis counterparts, Riefler said. THC and other cannabinoids don’t go bad—but they do slowly lose their potency over time, so most infused products are labeled with a best-by date rather than an expiration date.

• C hemical stability: Does the THC/CBD content of my product stay the same throughout its shelf life and stay within the allowed variance range defined by my state’s legal program?

Photo Courtesy of Stillwater Brands

Testing for shelf stability before launching any product is essential to ensure you’re providing a consistent and safe experience for your customers, regardless of whether the product they purchased was produced yesterday or is at the end of its shelf life, Hathaway said.

Cannabis distillates have a long shelf life. THC does not go bad, but it does lose its potency over time.

Knowledge around how to create and evaluate shelf-life stability of food and beverage products is wellestablished through decades of research and experience, Hathaway said. But because the cannabis industry is so young, scientists are still learning some of the fundamental attributes about incorporating CBD and THC into food and beverage products, he said. “Formalized, properly designed research studies can finally be conducted by reputable researchers, which will continue to add to this knowledge base,” Hathaway said. “The industry continues to rapidly evolve its learnings, which will only continue to accelerate as legalization spreads to new states and countries.”

• What is the legal lifespan of a product?

Graham Farrar, CEO of Carpinteria, California-based Glass House Farms, said test results are good for 12 months. He said producers of cannabis products should be asking:

The sell-by date is used for foods that require special storage such as milk or meats. It represents the last date the product should be purchased, but how long it remains safe to consume is based on the consumer’s storage method.

Appropriate packaging also is crucial for THC- and CBD-infused topical items such as lotions and salves, said Kat Merryfield, founder of Dunlap, Tennessee-based Kat’s Naturals, which produces a line of CBD products.

Merryfield’s packaging is modeled after the cosmetics industry. The double-walled jars used for Kat’s Naturals CBD creams withstand heat, and its tinctures are in dark bottles.

“Since packaging is the only physical barrier between the product and the outside environment, its importance should not be underestimated,” Hathaway said. “Ideal packaging will prevent the food product from being exposed to external oxygen, moisture and light, as all three aspects can negatively affect a product’s chemical, microbial and physical stability.”

Packaging for cannabis flower should protect the contents from light and have a true vacuum seal. Beverages and concentrates should be refrigerated to keep them in prime condition.

August 2020 | mjbizdaily.com 91

Labels on packaging should have basic instructions for how to properly store the products. Best-by or use-by date notations refer to when product attributes are at their prime.

Some extracts are quite durable, Farrar said. Gummies made with distillates have a long shelf life as long as they’re not left in a hot car. Extracts such as live resins and rosins don’t get better with age. However, resins stored in a cool, dark spot should have a fairly lengthy shelf life.

Simple barrier films are sufficient packaging for products such as confections that are not susceptible to spoilage because of their low water content. For products where there is potential for spoilage or microbial growth, oxygen barriers are needed.

Photos by Marianne Lynn

Packaging plays a key function in the shelf life and safety of cannabis products. It provides a barrier to the surrounding environment, keeping contents sanitary and microbe free. It also prevents oxidization and, in the case of beverages, stops ultraviolet light from attacking liquids.

THE ROLE OF PACKAGING

“If people are using water-based lotions, they should be in pumps or squirt bottles,” Merryfield said. “Water holds all kinds of bacteria. Once that gets in the oil, it begins to grow.”

Marijuana Business Magazine | August 202094

Photo Courtesy of The Clear

BestPracticesInExtraction | Bart Schaneman

Starting with high-quality flower can help create a consistent product such as this distillate.

Companies cite quality raw material, documentation and testing as keys to a reliable product

• Having products tested in-house as well as by a third-party

he cannabis-extraction process is highly technical and has many variables and moving parts, all of which can affect the consistency of the final

Keeping Extraction Consistent

results in a cannabis extraction lab requires keen attention to detail, and it all starts with the flower used for extraction.

• Sourcing from growers who provide reliably consistent product.

Achievingproduct.consistent

Marijuana processors who are concerned with making a high-quality, dependable product should consider:

• Developing standard operating procedures for the extraction process.

“Everylaboratory.stepin the process matters and has a very big impact on the quality of the product,” said Jorge Useche, the Bogota, Colombia-based research and development director for cannabis company Clever Leaves. Reliable Sources For Useche, the dry flower his company uses in the extraction process has a large impact on the consistency of its finished goods.

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BestPracticesInExtraction | Bart Schaneman

• Using flower grown from clones under specific, predictable conditions translates into extracted products that are more likely to offer users the same effects between batches.

For some of its extracted products, Clever Leaves works with only three strains: one high in CBD and two high in THC. The company has about 25 products in development using these strains. Useche said using only three strains rather than many different types of input material helps Clever Leaves ensure consistency and quality.

Tennant at Precision Extraction Solutions agrees that stability and consistency in products can be achieved by keeping a close eye on Consumers crave consistency and the ability to predict the effects of cannabis. Marijuana extractors rely on these steps to create a reliable product:

Marijuana Business Magazine | August 202096

Sourcing your genetics from clones rather than seeds reduces the chance of product variability.

Tennant said most variations in cannabis extracts come from a fluctuation in the terpenes and cannabinoids, so providing feedback to cultivators is important.

• Creating extract from a specific strain offers more predictable results than relying on what is available from vendors.

“Working with the growers is pretty easy,” Tennant said. “Most (cultivators) are pretty savvy when it comes to keeping mother plants and genetics stable.”

• Following and documenting extraction protocols means the product should retain the same characteristics regardless of changes in staffing.

Proper Procedures For Barone at Clear Cannabis, consistency arises from a company’s ability to generate standard operating procedures and protocols, which include documenting much of the process. He recommends staffing an extraction lab with operators who understand the importance of that documentation and keeping checklists to track every step.

• Comparing terpenes and cannabinoid profiles in lab results can confirm whether batches are generally consistent.

For Chris Barone, chief science officer of Denver-based Clear Cannabis, it’s crucial that staffers understand the importance of proper procurement, meaning the company’s flower buyers must be on the lookout for pesticides or any other contaminants that could affect the quality and consistency of the final“Someproduct.starting materials can yield weird flavors,” he explained. Quality input material is even more important to creating a consistent product than the extraction process itself, agreed Nick Tennant, chief technology officer at Precision Extraction Solutions, a hemp- and marijuana-extraction company based in TennantDetroit. recommends using a single-source genetic strain from clones rather than grown from seed. A clone will be an exact genetic replica every time, while seeds can display variability.Theclones should all be grown the same way, under the same lights and with the same nutrients.

Photo Courtesy of Precision Extraction Solutions

Before Clever Leaves brings in a shipment of flower, the humidity and microbial concentration is tightly controlled and tested. Then, when the shipment arrives at the processing facility after traveling up to 62 miles, Useche repeats the tests to understand how shipping might have changed the flowerʼs sensory properties.

Bart Schaneman covers cultivation and extraction for Marijuana Business Magazine. Reach him barts@mjbizdaily.com.at

BestPracticesInExtraction |

In addition to following European Union-Good Manufacturing Practice in its CO2 extraction lab, Clever Leaves follows Good Agricultural Practices established by Colombian authorities.

Test It Twice Clever Leaves sends its finished products to be tested by a thirdparty laboratory to verify its own test“Weresults.have an internal lab that has the capability to evaluate cannabinoids and other parameters like humidity,” UsecheBaronesaid.has his own internal quality-control process, which includes testing his flower for cannabinoid content as well as fats and lipids to evaluate consistency. His quality-control team also tests packaging and cartridges.ClearCannabis staffs several people in departments across the company to focus on testing for consistency. “That’s the first line of defense,” he said of the testing. Bulk oil is tested for homogeneity; the product is tested again once it’s loaded into hardware such as vape pens. The team also grades the final products.“Wehave someone who will oversee all of the batches and test all of them to make sure they taste right,” he said. “You want to make sure the Blue Razz tastes like Blue Razz.”

Marijuana Business Magazine | August 202098 standard operating procedures to maintain variables such as temperature and humidity.

Finding a single strain that works well and using it across multiple product lines can help to standardize the extraction process.

Photo Courtesy of The Clear

To ensure predictable results, an extraction lab should have in-house testing capabilities.

Bart Schaneman

Photo Courtesy of Clever Leaves

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RobertsMichele

By Omar Sacirbey M ichele Roberts had an interest in the cannabis sector well before an executive search firm asked if she would be interested in joining the board of directors at Chicago-based multistate operator Cresco Labs.

Roberts, executive director of the National Basketball Players Association and one of the nation’s top trial lawyers, is a believer in marijuana’s medical potential and had been pushing the NBA to remove cannabis from its list of banned substances. She’s also followed the evolution of the cannabis industry.

NBA Union Leader Joins Cresco Board

 Cresco Gets New CFO Dennis Olis joined Cresco Labs as chief financial officer July 1, replacing Ken Amann, who had served as the company’s CFO since 2015 and is retiring Dec. 31. Olis comes to Cresco from Nasdaq-listed Allscripts Healthcare Solutions, where he was also CFO. Before Allscripts, Olis held a variety of senior finance and operations positions at telecommunications firm Motorola. MedMen Co-Founders Out The co-founders of directors.therelinquishedoperatormultistateCalifornia-basedmarijuanaMedMentheirroles oncompany’sboardof Adam Bierman stepped down from his seat on the board, and Andrew Modlin left his post as an “observer” to the board. Their departures from the MedMen board follow the dual resignations in January of Bierman and Modlin as CEO and president, respectively.TheJanuary resignations didn’t stop trouble from following the erstwhile executives. In April, a MedMen creditor said it was seeking to seize Bierman’s and Modlin’s personal homes as partial repayment for a debt. In May, Nevada regulators began looking into an allegation by former MedMen Chief Financial Officer James Parker that Bierman and Modlin made illegal campaign donations to the state’s governor.

Marijuana Business Magazine | August 2020100 Industry Players | New Hires & Promotions A look at some recent hiring moves in the marijuana industry

What does Roberts hope to have accomplished at Cresco two years from now? “To the extent that Cresco can operate as a leader in that space in identifying, encouraging and empowering communities of color, my goal is for us to be the gold standard in that regard. It will only increase the company’s success, and other people in the industry will want to duplicate it,” she said.

“I’ve been following the industry for several reasons, one of which is I’ve been interested in how an evolving industry can offer opportunities to communities of color,” she said. Her “Worried,”verdict?said Roberts, who took her current post with the NBA union in 2014 after distinguished careers at two law firms—Skadden, Arps, Slate, Meagher & Flom and Akin Gump—as well as the office of the Public Defender Service for the District of Columbia, where she was appointed chief of the trial division. Roberts witnessed the tech boom leave communities of color behind, and she believes the same thing could happen in cannabis.

DennisOlis

“When cannabis decriminalization started to be taken seriously, I remember thinking, ‘Here we go again. Are we going to be kept out of this industry because of an inability to find investors? Will this yet again be a missed opportunity for communities of Butcolor?’”Roberts sees improvements, too, including social equity programs and work that Cresco and some other cannabis companies are doing to create opportunities for people of “Cresco’scolor.workforce has been growing pretty rapidly over the past few years. They need to and have already begun the process of figuring out a way to maintain a culture of inclusivity,” Roberts said. “Identifying people of color and women who have those skill sets, you simply have to have the will.”

August 2020 | mjbizdaily.com 101

 Curaleaf Hires Social Responsibility Leader

Stevenson is also a founding board member and elected treasurer of the Cannabis Beverage Association as well as former management associate for Citigroup Microfinance, where he worked to fund minority- and womenowned businesses.

 Portland, Oregon, Gets New Cannabis Liaison

Aurora Founders Out, Commercial Officer In After stepping down as Aurora Cannabis CEO in February, co-founder Terry Booth left the board of directors in late June. Under Booth’s stewardship, the Alberta-based company spent roughly $3.2 billion (CA$4.5 billion) on mergers and acquisitions from 2017 through 2019. More recently, Aurora has had to shed hundreds of jobs. The president and director of Aurora’s board, Steve Dobler, also retired June 30. He co-founded the company with Booth in 2013.

 Vertosa Promotion Oakland, California-based Vertosa, a cannabis technology company that creates THC and other cannabinoid emulsions for infused product companies, promoted Austin Stevenson from vice president of products and innovation to chief innovation officer. As a founding team member, Stevenson was instrumental in the commercialization of Vertosa’s flagship emulsion systems. Before signing on with Vertosa, Stevenson built the regulatory hemp/CBD testing program for Eurofins Scientific, a multinational food-, environmentand product-testing services company.

Curaleaf Holdings, a vertically integrated, multistate cannabis operator headquartered in Wakefield, Massachusetts, appointed Khadijah Tribble vice president of corporate social foundedBeforeresponsibility.Curaleaf,TribbleMarijuanaMatters, a cannabis-education and advocacy incubator. She is also the founder of the Marijuana Policy Trust, a think tank providing expertise for building an inclusive and diverse cannabis industry, and served as CEO of Ground Game, a health technologies consultancy. Tribble also served on many boards and advisory groups, including the Human Rights Campaign’s Diversity and Inclusion Advisory Board, and was a founding member of the National LGBTQ Chamber of Commerce Supplier Diversity Committee.

Aurora also announced that Miguel Martin, president of Aurora USA and CEO of Reliva, a CBD subsidiary in Natick, Massachusetts, was appointed chief commercial officer of Aurora. Mar tin replaces Darren Karasiuk, who had held the position since February 2019. Martin became president of Aurora USA after it acquired Reliva in May 2020. Before joining Reliva, Martin was the president of Logic Technology, a manu facturer of electronic cigarettes. He also served as a senior vice president and general manager at Altria Group. New York CBD Brand Gains COO Marketing and operations specialist Barney Stacher joined High Falls Hemp NY, a CBD and wellness brand in High Falls, New York, as chief operations officer. Stacher was previously executive sales director of Azuca’s CBD division. He also chaired Vistage International, a chief Beverages,members,organizationexecutive-membershipwithmorethan14,000andco-foundedTeanyanicedteacompany.

The Office of Community & Civic Life in Portland, Oregon, appointed Dasheeda Dawson, a veteran marijuana entrepreneur and activist, as its new Cannabis Program Supervisor. Dawson, who is based in Portland, is a board member of Doctors for Cannabis Regulation, co-founder of the Cannabis Education Advocacy Symposium & Expo and founder and CEO of MJM, a cannabisfocused management consulting firm. She also has held several other leadership roles inside and outside the cannabis sector.

Coleman co-founded Pure Genesis, a women- and minority-focused cannabis business. She also serves on the West Virginia governor’s working group for cannabis legalization. Caruso is a partner at Archer & Greiner and served nearly five years as the executive director of the New Jersey Assembly Majority Office, where he worked for then-Speaker and current Lt. Gov. Sheila Oliver.

Carl Craig assumed the role of CEO for both Denver companies. He had been the companies’ chief operating officer. Agricor is a state-certified laboratory.Americanlaboratory. Botanacormarijuana-testingisaNorthhempandCBDtesting

 Cannasure Gets Business Development Director Cleveland-based Cannasure Insurance Services hired Jim McErlean as director of business development. Before Cannasure, McErlean was Western U.S. business development manager at NSM Insurance Group in Pennsylvania and served on the board of the National Association of Home Builders. Hired or promoted someone for a senior-level position? Send a news release or general information to omars@mjbizdaily.com.

Marijuana Business Magazine | August 2020102 Industry Players | New Hires & Promotions

The board of directors of Chicagobased Fyllo, a compliance technology company serving highly regulated industries, elected Mitchell Kahn as chair. He originally joined Fyllo’s board in November 2019. Kahn is principal and CEO of Illinoisbased Greenhouse Group, which has medical cannabis dispensaries in Illinois and a cultivation facility in Nevada, as well as CEO and founder of Grassroots Cannabis. Before Grassroots, he co-founded Frontline Real Estate Partners, a Chicago-based real estate investment and advisory company where he is still chair.

Craig previously served as chief operations officer for Microbial Solutions at Charles River Laboratories, a New York Stock Exchange-listed company. New Jersey Cannabis Group Expands

 Lab Group Nabs CEO Agricor thatLaboratories jointlyLaboratories and Botanacorannounced

 Compliance Software Firm Expands Board



The New Jersey CannaBusiness Association has two new members on its board of directors: Pure Genesis CEO Faye Coleman and attorney Bill Caruso of Archer & Greiner.

Faye ColemanBill Caruso

Curtis Wallace Head of Cultivation, WeedMD, Aylmer, Ontario

Anthony Bowen Director of Cultivation, Nova Farms, Attleboro, Massachusetts

The entire Nova Farms team shares the hard work that goes into it and comes together to celebrate a successful harvest collectively.

We hire extra labor for the harvest push—last year, we hired 15 temp workers, but it has yet to be seen how many we will need this year. We utilize freeze-drying technology on a portion of our harvest as well, which helps ensure that the best product possible can be delivered to our processing lab.

Marijuana Business Magazine | August 2020104 QuestionoftheMonth |

Planning for the Fall Harvest

Harvest season is fast approaching for outdoor growers, so we asked: How do you prepare for fall harvest?

E ach month we survey a group of marijuana industry executives and ask them an important industry question. We welcome your suggestions for topics. Email us at magazine@mjbizdaily.com

We have 20,000 square feet of newly constructed dry room that we use to hang, dry and cure the outdoor harvest. To make harvest more efficient, we strategically place strains in the field to line up with the dates each one finishes. This allows us to clear the field quickly.

Jay Bouton Director of Cultivation, Culta, Cambridge, Maryland Outdoor cultivation in the Northeast can be unpredictable, and you always need to be prepared to pivot. Throughout the season, Nova Farms maintains a weekly IPM (integrated pest management) program to ensure optimum plant health. Our staff will monitor the progress of each cultivar from week to week and determine the proper time to harvest. We complete all our final pre-harvest compliance checks and begin harvesting utilizing a combination of traditional hand-harvesting paired with automation to ensure efficiency and preservation of each batch. We approach harvest with an all-hands-on-deck mentality.

How do fallprepareyouforharvest?

We learned a lot from our inaugural outdoor experience last year. We were able to discern which cultivars are optimal outside and what is needed in the way of nutrients, irrigation control and soil management for the seven strains we selected this year. With the data we collected about flowering patterns, cannabinoid/terpene profiles, harvest windows, etc., we mapped out and adopted a robust set of protocols and processes. A very important aspect is the awareness of the labor, equipment and gear required throughout the season. Our 27-acre outdoor field is located on the same property as our hybrid greenhouse, so we are able to utilize our staff on-site as needed, along with a newly built, 25,000-squarefoot, stand-alone, fully licensed processing facility that is solely dedicated to the outdoor harvest during those months.

By Omar Sacirbey

Before harvest, we defoliate heavily toward the end of the season to increase the amount of sunlight that penetrates into the canopy.

As for special equipment, during harvest we use leaf-defanning machines to remove all of the unwanted plant material as well as take leaf off by hand. We also use Mother Bucker bucking machines to remove flowers from stems more efficiently.

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Market AtA Glance

Missouri regulators approved the first medical cannabis cultivation company in the state in June, extending the expected sales launch into the fourth quarter of 2020. Missouri’s MMJ program initially was expected to launch this spring, but it has been delayed by a number of factors, including the coronavirus pandemic. The state took in more than 2,200 applications for 192 dispensary, 60 cultivation and 86 processing licenses. But the program faces more than 800 appeals, several lawsuits and a state legislative inquiry into alleged misconduct and conflicts of interest.

– Jenel Stelton-Holtmeier

Marijuana Business Magazine | August 2020106 measuresMain State tax requirements Application fee Annual license fee Amendment 2 2018 4% excise tax on retail sales plus applicable state and local sales taxes. Cultivators $10,000 Cultivators $25,000 Dispensaries $6,000 Dispensaries $10,000 Manufacturers $6,000 Manufacturers $10,000

| Missouri

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votingrequiredapplicantsurearoundrequirementfoundationalmakingtheequityhastheprofits,rightsand control of the business. But we really wanted to focus on the concept of unconditional ownership. The new definition prohibits the divestment or relinquishment of any part of the social equity applicant’s requisite equity share under any circumstances. We are requiring the equity applicant be offered the highest officer position in the business, or another individual that’s appointed by mutual agreement of the parties.

I’ve certainly sat across the table from countless investors, none of them with Black or brown faces. And when they pass on the investment, is it because I’m Black? I don’t know the answer to that. What I do know is that in every circumstance, I am the only person in the room who looks like me. Race and economics are inextricably linked.

– Cat Packer Executive director of the Los Angeles Department of Cannabis Regulation, on recent changes the city made to its rules regarding marijuana social equity.

Source: Marijuana Business Daily – Jeff Gray CEO of SC Labs in Santa Cruz, California, on the impact of being Black in the marijuana industry.

Source: Marijuana Business Daily

Marijuana Business Magazine | August 2020112 Notable Quotes | Insightful Industry Observations

The definition of equity share still maintains a

In this sector today, we’re seeing cash dry up and a lot of companies that are now for sale, so we wanted an opportunity to look and react to what was happening in the marketplace should we find the right thing that could help us get further, faster. Building a reserve of cash to be smart about how we accelerate the growth of our company was a priority for us. So this fundraise was much more opportunistic than it was to cover shortfalls. – Deanie Elsner CEO of Charlotte’s Web, on why the Coloradobased CBD company initiated a fundraising effort during the COVD-19 health crisis.

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