Ethan Zohn

A Q&A with Ethan Zohn, Brand Ambassador for Momenta, a Trulieve Brand

By Aaron Green
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Ethan Zohn

Cannabis has been used to treat symptoms of cancer and chemotherapy including severe and chronic pain, nausea and vomiting. Many athletes also turn to cannabis for pain relief, incorporating cannabis into their pre- and post-workout routines. Though many states have legalized cannabis for medicinal and recreational purposes, stigma still exists – even in legalized markets.

MSOs and brands will often employ a brand ambassador to help combat local stigma and gain traction within new markets. Trulieve, America’s largest cannabis multi-state operator with over 160 storefront locations, recently launched Momenta, an everyday wellness and overall well-being brand, in Massachusetts.

We interviewed Ethan Zohn, Brand Ambassador for Momenta, to learn more about his pathway to becoming a brand ambassador and how he incorporates cannabis into his running routines. Ethan is a former professional soccer player, Survivor: Africa winner, and two-time cancer survivor. Ethan is an active runner and incorporated cannabis into his training for the 2022 Boston Marathon. The interview was conducted on April 14, 2022.

Aaron Green: Ethan, tell me, how did you get involved in the cannabis industry?

Ethan Zohn: My entry into the cannabis industry was through cancer, unfortunately. I rarely smoked marijuana growing up and later became a professional soccer player, so cannabis just wasn’t part of my daily life.

Ethan Zohn, former professional soccer player, Survivor: Africa winner and two-time cancer survivor

After being diagnosed with a rare form of blood cancer in 2009, I found a lot of research on the benefits of cannabis mitigating the side effects of chemotherapy. At the time, I was being treated at Memorial Sloan Kettering in New York, where medical marijuana was not legal yet. This meant that none of my doctors could discuss incorporating cannabis into my treatment plan.

Having to resort to illegal methods just to obtain medicine was a horrible experience. At that time, I was very interested in changing minds and educating people about the benefits of cannabis, but it didn’t go particularly well. After initially having positive results from chemotherapy, I relapsed and had to go through it all over again.

That’s when I really leaned into cannabis and CBD. It just became a part of my daily routine and part of my wellness journey. So, that’s where I am now, leading into my partnership with Trulieve and Momenta.

Green: We don’t often hear the story of how a brand ambassador comes to be. How did you link up with Momenta?

Zohn: I was a keynote speaker at Boston Cannabis Week, and Trulieve was also attending the conference. I was already familiar with the brand based on their medical footprint in Florida and introduced myself to the team. During our conversation, I learned they were opening a new dispensary in Framingham, Massachusetts.

As I learned more about Trulieve, I grew to really love their passion and focus on research, patient education and providing quality products. From my experiences in the cannabis world, I just wasn’t seeing much of that. Trulieve was coming at it from a medical perspective, and that aligned more with where I stood. So, I pitched them this crazy idea, “Hey, why don’t I run the Boston Marathon on Momenta products?” From there, it took off as a campaign that included product launches, charity initiatives and even some celebrity support. I think it was a perfect combination of everyone coming together, and we’re all winning in this situation. I’m also running for Active Against Cancer because I support their mission to make exercise an integral part of cancer treatment.

Green: So, you had the sports background prior to cancer and then several years of treatment. What got you back into running?

Zohn: When I was diagnosed, I was training for the New York City Marathon and ended up not being able to run. Cooped up in my hospital room, I’d look out the window and I noticed people were just running up and down First Avenue. I said to myself, “Oh my God. If I get out of this thing alive, I’m going to run. I’m going to put on a pair of shoes. I’m going to break out of this cell and I’m going to just run the streets -and run with freedom.”

Zohn at the 2022 Boston Marathon. Image from his Instagram page

That’s when I really started running marathons. I ran my first marathon nine months after my first stem cell transplant. The second marathon was while I underwent chemotherapy.  Eleven months after my second stem cell transplant, I ran in the 2013 Boston Marathon, which was the year of the bombing. Amidst that tragedy, I was celebrating one year in remission.

I’ve always measured my health and wellness based on how I felt while running. It might sound weird, but I know I’m in good shape if I can run a mile in seven minutes. If it takes me 10 minutes, I need to work out a little bit more. Measuring my life in terms of fitness has always made sense.

It’s a goal of mine to use sports as a platform to educate others on healthy lifestyles. I have a charity called Grassroots Soccer, where we use soccer to teach life lessons to kids. I’ve also worked with the Leukemia & Lymphoma Society in training for triathlons to raise cancer awareness.

There are still many people out there who think of cannabis as an illicit or gateway drug, and I feel a responsibility to challenge those dated stigmas. I feel fortunate to work with Trulieve and educate people on how cannabis can be integrated into anyone’s daily lifestyle as part of their wellness journey. Cannabis has so many applications in my own life and has helped with my insomnia, pain and anxiety. I’m hopeful that my advocacy work around this plant will help other people who are just as invested in their mental and physical health to find relief in more natural ways.

Green: What does your running regimen look like with cannabis and how did you develop that?

Zohn: Before, I always kept sports and cannabis separate. Integrating cannabis into my running routine was a slow process, and I still don’t take any high-dose products when I’m running. Before each race, I take a five-milligram Momenta capsule and take another dose around the hour and thirty minute mark.

People talk about athletes getting into the zone, and I feel like cannabis gets me into the zone quicker. I can lock in and stay laser-focused. Cannabis also plays a huge role in my recovery regimen. I like to use Momenta’s THC-infused creams and cooling gels that come in a variety of cannabinoid ratios.

Green: What makes Momenta products unique?

Zohn: Momenta is a great entry point for anyone looking to incorporate cannabis into their exercise routine or wellness journey. Trulieve started as a medical brand and its products reflect the company’s ongoing commitment to research and quality. I also tend to seek out consistent products, especially when I’m exercising. In my own experience, a gummy will sometimes be too potent, and other times I don’t feel anything. Momenta products, on the other hand, deliver the same experiences every time. I don’t want any surprises on race day or when I’m getting into a workout.

Green: What’s next for Momenta?

Zohn: Momenta recently launched in Massachusetts at three of Trulieve’s locations but I’m confident that it will quickly become a local favorite. The wellness brand is also available in Florida and West Virginia, and I can see Momenta gaining traction among other medical patients interested in supporting their holistic health. I’m excited to watch Momenta grow into a recognizable national brand as Trulieve continues to increase its retail footprint across the country.

Green: Final question: what in cannabis or in your personal life are you most interested in learning about?

Zohn: There needs to be more research on cannabis and how cannabinoids and terpenes impact the body from a health perspective. Federal legalization will be a gamechanger on the research front, and I hope more members of the medical community will study cannabis’ applications for different health concerns. I’m a cancer survivor. My nephew is autistic. I think there’s a lot more exciting research to come.

It’s refreshing to look at cannabis as a new industry growing from the ground up. Whether it’s branding, marketing or technology, people are trying to figure this all out! A lot of what I do influences how cannabis is perceived in society. How can we use cannabis to share messages and draw awareness to what’s happening in the world and the environment? I love seeing cannabis play a role in social issues.

I’m also interested in developing more constructive ways to educate and deter teens from using cannabis. I currently volunteer for the Safe Roots Foundation, which raises money from the cannabis industry and invests those resources into evidence-based teenage drug prevention programs. The industry plays an important role in reducing substance use among minors, and I’m proud to be a part of a movement that educates the youth on safe cannabis use while arming adults with accurate information.

Green: Okay, great thanks Ethan. That concludes the interview.

Zohn: Thanks Aaron.

Cannabis Banking: The Ins, the Outs & the Unknowns

By Tamara L. Kolb, Amy Bean, Caitlin Strelioff
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As the legal cannabis market expands, banks and nonbank financial institutions (NBFIs) across the United States continue to explore how to safely provide banking and other financial services to cannabis-related businesses (CRBs) and other CRB ecosystem players. At the same time, these organizations are taking into account changes they might need to consider relative to their Bank Secrecy Act ( BSA), anti-money laundering (AML) and related compliance programs. 

Regulatory conundrum

The Controlled Substances Act (CSA) identifies the cannabis plant and all its derivatives as a Schedule 1 controlled substance. Schedule 1 controlled substances have a “high abuse potential with no accepted medical use,” and they cannot be “prescribed, dispensed, or administered.” Because cannabis remains classified as a Schedule 1 controlled substance, the CSA “imposes strict controls on possession, manufacturing, distribution, and dispensing” of cannabis.

Under the Money Laundering Control Act of 1986 (MLCA) and the BSA as amended, covered banks and NBFIs are prohibited from providing financial services to businesses that are engaged in illicit activities. Because federal law prohibits the distribution and sale of cannabis, financial transactions involving CRBs are therefore deemed to be transactions that involve funds derived from illegal activities.

As of Feb. 3, 2022, 18 states, two territories, and the District of Columbia have enacted legislation to regulate cannabis for adult use. Thirty-seven states, the District of Columbia and four territories have approved comprehensive, publicly available medical and cannabis programs. Eleven states allow for the use of low-THC, high-CBD substances for medical reasons in limited situations or as a legal defense.

The growing divide between federal prohibition and state legalization of the cannabis industry creates a precarious position for federally regulated banks and NBFIs with the main concern involving exposure to legal, operational and regulatory risk. The situation begs the question: How might the federal government and regulators pursue and prosecute players in the legal cannabis industry?

The current economic trajectory predicts that retail sales of legal cannabis products in the U.S. will surpass an estimated $41.5 billion annually by 2025, and many banks and NBFIs are eagerly awaiting the federal green light to do business with CRBs without fear of prosecution or legal ramifications.

From 2018 forward, Congress has made several attempts to pass legislation that would protect CRBs when cultivating, distributing, marketing, and selling cannabis products in their state-legalized form. These efforts to declassify cannabis-related activity as a specified unlawful activity have thus far been unsuccessful.

The House passing the MORE Act back in 2020

Passage of the Secure and Fair Enforcement Banking Act of 2021 (SAFE Banking Act) and the Marijuana Opportunity Reinvestment and Expungement Act of 2021 (MORE Act) would enable banks and NBFIs to provide financial services to CRBs. The SAFE Banking Act would provide a safe harbor for banks and NBFIs that provide financial services to CRBs. The MORE Act would deschedule cannabis from the CSA entirely.

Questions to ask

Banks and NBFIs interested in providing financial services to CRBs should ask these questions:

  • Do we adequately understand our risk, and what are the implications for our organization? How should we augment our risk assessment process and our controls?
  • To what extent are we willing to accept the risk of banking CRBs? Do we have the ability to identify CRB customers, and if so, do we have any?
  • How should we advise the board of directors about setting risk appetite?
  • What customer due diligence (CDD) and enhanced due diligence (EDD) will we need to safely continue with existing customers and onboard new ones?
  • How will we monitor for unusual and suspicious activity? What will be the alerting and judgmental criteria?
  • How will our resource needs change so that we stay abreast of new processes and controls?

Risk appetite considerations

In order to determine whether to accept or prohibit CRBs, banks and NBFIs should identify the level of acceptable risk they are willing to take on. Several key components need to be considered, such as:

  • The board of directors’ stance on legal cannabis, given that good governance recommends and regulators expect that the board sets risk appetite
  • Cannabis laws in states within the customer footprint and the impact on customers’ communities
  • Risk profile, customer base, geographic location, products, and services
  • Relationship with regulators and any recent deficiencies or weaknesses in the BSA and associated compliance programs
  • Ability to implement appropriate controls and staffing

 Developing a strategic road map

If the decision is made to bank CRBs, banks and NBFIs should perform an assessment of compliance maturity for existing BSA/AML program processes and controls to identify potential gaps and develop a strategic road map that helps the organization achieve its vision for future state compliance and sustainable operations. 

A well-developed and well-articulated strategic road map visualizes what actions or key outcomes are needed to help organizations achieve their long-term goals. When creating the road map, banks and NBFIs need to demonstrate a keen understanding of their desired strategy, outcomes, markets, and products for onboarding and banking CRB customers. Specifically, banks and NBFIs need to define and explain how desired outcomes and business strategies create risk and exposure.

In addition to a road map, banks and NBFIs should develop and document a detailed risk-based approach that is aligned to the organization’s risk tolerance to determine necessary compliance steps when banking CRB customers.

Specifically, the following activities should be considered when developing a CRB banking program that meets regulatory expectations:

  • Identifying BSA/AML control gaps related to CRB risk identification and mitigation and formulating a plan to address them
  • Updating a board-approved policy framework
  • Updating detailed operating policies and procedures
  • Planning for capacity, developing job descriptions, and onboarding new personnel
  • Training for all three lines of defense, senior management, and the board
  • Developing and documenting a phased or full approach to acceptance of CRB customers
  • Developing and documenting a CRB program oversight policy

CRB risk framework

A three-tiered CRB risk framework first proposed in 2016 has quickly become the cannabis industry standard. The framework has evolved and expanded comprehensively to consider many types of CRBs, and evolving legal systems continue to refine the framework.

This framework is intended to help banks and NBFIs differentiate types of CRBs and their corresponding risks, and it separates CRBs into three tiers and details risks for each tier. The following exhibit summarizes the approach:

Risk framework by tier

Level Risk
Tier 1 Direct
Tier 2 Indirect with substantial revenue from Tier 1
Tier 3 Indirect with incidental revenue from Tier 1

Source: CRB Monitor

Even the most conservative of risk appetites equivalent to outright prohibition is not devoid of significant risk considerations. Residual risk frequently encompasses a large number of indirect connections in the total CRB ecosystem. Common examples are printers, lawyers, accountants, landlords, and even utilities and taxing authorities, and all of these are subject to regulatory scrutiny and, importantly, visibility to law enforcement. Also, policies to prohibit or restrict will be audited and examined for compliance, and exceptions will require explanations.

This panorama necessitates expertise and prudence in identifying and evaluating risks within the many layers of CRBs. For example, consider a bank or NBFI that banks a CRB’s employee or vendor. If a bank fails to properly implement controls that would allow it to identify and mitigate risk associated with banking CRBs, it will be susceptible to severe violations of the BSA, including civil money penalties, criminal penalties, and regulatory enforcement actions. 

Implementing necessary precautions

A well-developed road map should consider and implement the following activities:

  • Understanding the most current state and federal cannabis laws and regulations to ensure the bank or NBFI’s compliance
  • Understanding the local, state, or tribal program to ensure CRB customers are compliant with the program
  • Implementing a CRB risk assessment
  • Implementing executive approval practices for direct CRBs
  • Developing adequate risk ratings (possibly through a risk-based, tiered approach) and corresponding monitoring for CRB customers that includes:
    • Integrating various customer onboarding and AML solutions at both onboarding and periodic levels
    • Scheduling regular reviews to include recurring enhanced due diligence, site visits, and transaction monitoring
    • Monitoring for suspicious activity, including red flags, via open sources for adverse information about the CRB customers and related parties such as beneficial owners
  • Performing adequate CDD and EDD that will validate that the CRB-offered products, services, and programs are compliant with most current state laws and regulations by:
    • Collecting appropriate documentation as evidence of compliance, perhaps including a comprehensive onboarding questionnaire, beneficial ownership information, and contracts for the growing, harvesting, transporting and processing of the product
    • Reviewing applications and supporting documentation used to obtain a legal cannabis state license
    • Understanding the normal and expected activity of the organization’s CRB customers and their product usage
  • Developing adequate training programs and governance and oversight programs to address this customer type by:
    • Updating existing policies and procedures to review inherent risk presented by banking CRB customers
    • Updating annual training for employees
  • Auditing initial program design and periodic operational effectiveness

Moving forward cautiously

The ins, outs, and unknowns of cannabis banking are complex, and they require banks and NBFIs to be extremely vigilant with current policy and aware of new developments. Overall, the idea of creating a cannabis program might seem like a daunting task, but with appropriate guidance and care, organizations can provide services in compliance with laws and regulations.

Crowe disclaimer: Qualified organizations only. Independence and regulatory restrictions may apply. Some firm services may not be available to all clients. Given the continued evolution and inconsistency of various state and federal cannabis-related laws, any company should seek competent legal advice relating to its involvement in the cannabis industry, including when considering a potential public offering as a cannabis-related company.

Quality in the Retail Ecosystem: A Q&A with LucidaClub Founder Jack Roosevelt

By Cannabis Industry Journal Staff
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The cannabis retail market is very unique. What began as compassion clubs and wellness centers in the early days of legal cannabis, eventually morphed into dispensaries, quickly becoming the retail model that regulators around the country adopted and businesses implemented.

For most states with legal cannabis markets, the dispensary has been the only way for consumers to buy cannabis and cannabis products. Before the pandemic began, we started seeing a handful of states warm up to allowing delivery services. During the height of the pandemic, more states adopted curbside pickup, e-commerce in some shape or form and delivery services that finally expanded cannabis retail beyond the dispensary. Still though, regulations hamper commercial growth in the retail space and the dispensary remains, by far, the place where most people buy their cannabis.

When Jack Roosevelt, co-founder of LucidaClub

When Jack Roosevelt, co-founder of LucidaClub, entered a dispensary back in 2019 in Massachusetts, he shared an experience all too common in the cannabis industry: An overwhelming number of options, jargon like sativa, indica and strain names that make no sense to the uninitiated, confusing product types and an all-around unpleasant shopping experience. Jack saw all those barriers to entry for the canna-curious or novice consumer and thought that there must be a better way to shop for cannabis.

So he started LucidaClub, a membership-based platform that is designed to guide and educate consumers with the advice of experts who can help people understand cannabis products and make the right purchase decision without all of the frustration and trial and error that is so common.

The name, Lucida, comes from a Latin phrase meaning the brightest star in a constellation. Jack and his co-founder, Lucinda, want their company to be the guiding star on your cannabis journey. LucidaClub isn’t just for the cannabis newbie; their in-house curator and team of experts can help any cannabis consumer find products to better fit their needs for sleep, wellness, relaxation, stress or just to have a good time. We sat down with Jack to chat about the cannabis retail market, what his company is all about and what the future of cannabis retail might look like.Jack Roosevelt will be speaking on the cannabis retail experience at the Cannabis Quality Conference & Expo. Click here to learn more. 

Cannabis Industry Journal: Tell us about your background and how you came to the cannabis space.

Jack Roosevelt: I began my career in finance, working for JP Morgan and Barclays. I left Barclays and joined a renewable energy start up before eventually joining the cannabis space.

My move into the cannabis space was due to an event in the summer of 2019. Adult use cannabis had been legal in Massachusetts since November of 2018. Now, I smoked some weed in high school and college, but hadn’t touched it in at least 20 years. However, cannabis was now legal, so I said maybe there’s an opportunity to find something that would help me unwind at the end of the day, help with sleep and manage some of my stress.

Knowing that I smoked in high school and college, I figured that buying weed was buying weed. How difficult could this be? That took me to going to a dispensary for the first time. Walking through those doors made me realize that buying cannabis today is nothing like buying weed back when I was in college. It’s a fundamentally different experience.

I stood there looking at the menu of strains, with names that meant nothing to me, jargon like terpenes, and even the idea of sativa versus indica at that time was foreign to me. Twenty years ago, we didn’t pay attention to the strain name or anything like that. We’d walk into someone’s dorm room and your option would be ‘this is twenty bucks an eighth, forty bucks an eighth and sixty bucks an eighth.’ You weren’t paying attention to the strain or the name of anything like that.

Coming into the dispensary that day, I thought I’d walk out of there with an eighth of flower and something to help me unwind at the end of the day. I walked out of there with a tincture and it really wasn’t because they upsold me to a better product, it was because it was the least worst option I could see on the menu. It was something I felt that I could understand from a dosing standpoint and it was something that didn’t require knowing the strains or names that mean nothing to me. I was quite frankly looking for the easiest way to purchase something and get out of there as quickly as possible

Sitting in the car afterwards, I was mulling over that experience, the feeling of intimidation, how awkward it was, how frustrating it was. I am 6’8” and 300 pounds I am not a small guy, and I’m not a wallflower. I don’t intimidate easily, so if this was my experience, what was this going to be like for everyone else?

That made me reexamine and take a stronger look at the retail market and the potential growth. How do you engage the consumer like me, for whom there are lots of barriers to entry, most of which are perception-driven. Some of the barriers are regulatory and geographic, but most are perception based. Here in Massachusetts, a lot of the dispensaries are in inconvenient locations. Not all towns allow for rec sales, and not all of those towns that do will allow a dispensary to open on the High Street, so consumers often times have to drive out of their way to get to a dispensary.

So, for me understanding what this new consumer base would look like and how they would come into the market was key. Obviously there would be a natural growth progression for the cannabis market. However, if we could build something to help guide people, answer their questions and make them feel comfortable with what they were buying and how to consume, really hold their hand in the initial stage of a consumer coming back into the market or coming in for the first time, then we could help grow the market quicker and put that natural progression of growth on a faster track.

That experience made me start to do some market research, look at the market size, and what that potential market could look like. Our research shows that, depending on the maturity of the market in question, there are between 1.5 and 4 times the number of Cannacurious sitting on the sidelines than there are active consumers in a market. Here in MA, conservatively there are at least 1.5MM Cannacurious sitting on the sidelines, waiting to come into the market. Because our research showed such a large opportunity he in MA and the Northeast, where we live, we decided to focus our efforts here.. Because we are Cannacurious consumers ourselves, we have a natural understanding and empathy for the consumer. I was definitely not and still am not an expert on cannabis. But if we can find the right experts that can answer the questions that we have then we can do the same for the Cannacurious. For 70+ years, we’ve been told that cannabis is bad, smoking weed is bad and everything associated with it is bad. So, we want to break that negative perception, that stigma that is still lingering and open it up to a more mainstream consumer.

CIJ: What gave you the idea to start Lucida Club?

Jack: What I just told you sums it up pretty well. It was basically built out of personal frustration. I thought that if I had this problem, those feelings of intimidation, awkwardness and frustration, then undoubtedly a lot of other people would too. Therefore, we’re looking at how we can create a platform that would make the buying process as simple and convenient as possible, while educating the consumers at the same time.

CIJ: How does Lucida Club work?

Jack: It’s a concept of simplicity and convenience. There are two sides to this: The E-commerce side, when you sign up and become a member and you want to make a purchase, all you have to do is answer three questions: What experience do you want? Do you want to smoke something or not? And how much money what do you want to spend? We put together three experience packages with three key price points, around $100, around $150 and around $250.

It is based on available inventory, which products and price points match up with different packages. We have fully integrated with Flowhub and are doing the same thing with some other POS systems as well. We see the inventory for our retail partners on a live basis. When one of our members makes a purchase, if they choose the sleep, nonsmoking, $100 package and put that option in their cart, by the time it populates in their cart, our platform has already gone to the dispensary inventory, we’ve allocated their inventory by experience and by order preference. So it will put those top two or three or four items in the cart automatically. The consumer doesn’t have to worry about what brands are available.

We’ve done all the work for them. They just need to pay attention to what experience and price point they want and we take care of the rest.

The other side of our business involves our head curator who combs through all the inventories and manages the product selection. But he also works with with our members as a concierge. When you sign up for our service, you automatically get a free consultation with our head curator, which we encourage all of our members to do before they make their first purchase. That way, we can answer all your questions and make sure the package is really tailored towards you individually. You also get a follow up consultation, which helps to guide additional advice and make sure you get the experience you’re looking for. On top of that, we’re also trying to advance consumer education through a lot of content, answering common questions and help to guide consumers on their journey with cannabis and the role it can play in their lives.

CIJ: How do you think you are innovating the cannabis retail experience?

Jack: When I was sitting in the car that fateful day back in 2019, I looked at retail the same way everyone else does: you build a store, an e-commerce platform, you have a product you’re trying to sell and focus on the product itself. What opened my eyes being the consumer that day was that cannabis unique.

We’ve been told for decades about how bad cannabis is for us and for society and these negative connotations have been drilled in to us. We need to look at the retail space from the consumer’s perspective and the barriers to entry that they feel. It’s not something that a regular retailer can do easily.

By definition, a brick-and-mortar retailer, needs to be everything to everybody, for all of their customers. They have to work with the connoisseurs, the regulars that have been consuming for a long time, who really understand what they’re looking for. At the same time, they need to engage with the canna-curious, the newbie that’s walking in the door for the first time. It’s difficult to focus on one market segment for them. If they were to focus all of their efforts on just the canna-curious, they would be missing out and losing traction and not engaging properly with their other customer bases.

We have the ability to engage with a very specific market segment, the Cannacurious, which is a very large group of people by the numbers but still niche. Our research shows that there are at least 1.5 million Cannacurious in Massachusetts alone that are either sitting on the sidelines or engaging in the market in a very small way. We’ve spoken to a lot of people that have other people make purchases for them, their sister or brother going to a dispensary that feels comfortable picking up a single package of edibles for them. That’s a form of hand holding that we want to provide. We want to make consumers feel comfortable and educate them on how they can choose products for the experience they want.

In my mind when we look at the cannabis space, it’s about how we can help people come into the marketplace, how we can help open their eyes to a litany of other opportunities for them and also how to approach things from a consumer perspective.

CIJ: What do you think the future of retail in cannabis looks like?

Jack: That’s a tough question because so much of that is driven form a regulatory standpoint. I know where I think it would go if regulators were just there to make it easy for consumers and for everyone to do business. It changes so much state to state and market to market. In retail in general, so much is moving online and on to e-commerce. Where you have a situation where people actually understand what they want and they tend to buy the same products on a regular basis, e-commerce is great and easy for them to make a purchase. Delivery opens a lot of doors as well with that. But again, it’s really difficult to look at what is going to happen because the market is so fragmented from a regulatory standpoint.

It won’t develop in one direction easily. Delivery is an option but we don’t have it on a mass scale in Massachusetts. It’s the same with e-commerce. Technically in Massachusetts, purchasing online is not an easy thing to facilitate. It still has to be done at the point of sale in-person with pickup and it hampers e-commerce. This potentially slows down how the market could develop. I definitely know where it could go, but looking into that magic eight ball will still be very cloudy if you ask it for an answer. Sorry, I have to obfuscate things a little there because it’s just so hard to figure out what the regulators will greenlight next and where they want the market to go.

We really just don’t know. There are so many ways to look at that question. If you’re a brick-and-mortar dispensary right now and you’re looking at how the market itself is growing in the state of Massachusetts, it’s tough to say. We went from about sixty licensed retailers during the height of the pandemic to well over 200 now. There’s going to be some consolidation. Whether that means that the growth of MSOs will proliferate and everything will be homogenized going forward, I don’t know what that could mean because at the moment it’s very difficult to have that full homogenization when you’re only allowed to have a handful of retail licenses. How do any of the MSOs gain real traction with three locations? If that changes, if you go somewhere like Florida where the rules are different, you see the true growth of the MSO with dozens of retail locations. Here, we still have a lot of mom-and-pop retailers along with a lot of much smaller MSOs who might have locations in one or two other states.

E-commerce will bring a lot to the market and help brands grow significantly. How we grow depends almost entirely on what the regulatory environment looks like. There are so many different things we could do with our platform, but we are so hampered by the regulations in just this one market alone. We built our platform and business model the way we did because it allows us to be flexible and adapt. As we move into a new market, we can build relationships and new markets open up. It’s all about being flexible if you can be.

Perfecting Your Packaging for Cannabis Beverages

By Julie Saltzman
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Some consumers participating in the legal cannabis market want to avoid inhalable products. They are concerned about the effects of the smoke or they want their usage to be discreet — without the pungent aroma emanating from burning cannabis flower. For those consumers, edibles are the preferred option and a growing product category.

Within the edibles space, the beverage segment — with limited product options in some states — may offer significant potential for growth. In 2021, cannabis-infused beverages accounted for only 1% of total legal cannabis product sales and about 5% of the edibles segment in the United States, reports market researcher BDSA. But cannabis beverage sales are growing around the U.S.

In California, cannabis drinks grew their market share in the edibles category from 4% in 2018 to 7% in 2021. Nevada saw beverages increase their share of edibles revenues from 7% to 10% in the same time frame. And cannabis beverages’ share of edibles sales in Massachusetts went from less than 1% in 2019 to 8% in 2021.

Pegged at $180 million in revenue last year, the cannabis beverage market is projected to reach nearly $500 million by 2026, predicts BDSA.

Today, gummies and chocolate products dominate the edibles category. Although beverages are currently a small segment of edible sales, they may have some inherent advantages — familiarity, faster-acting products from improved bioavailability, and taste and flavor innovations — over other cannabis products. Since beverages can incorporate many different flavors from fruity, cola and sweet to coffee, tea, sour and bitter, these myriad flavor variations can mask or minimize any off-tastes associated with THC.

Viewed as part of their everyday regimen, consumers drink beverages for hydration, nourishment, refreshment and enjoyment. Cannabis beverages are well-suited for consumers’ lifestyles, while gummies and chocolates may be perceived as sugary treats and special occasion items.

Cruise Beverage B Happy Nitro-Infused CBD Drinks.

Brand owners are beginning to recognize the limited availability of products and growth potential of cannabis-infused beverages and are looking to enter the category. Packaging plays a key role in cannabis beverages, with sustainability, regulatory compliance (e.g., child-resistant), labeling compliance (e.g., warning symbols and text), convenience and branding all contributing to the success of the expanding product category.

Sustainable Packaging

Consumers, especially younger generations, are concerned about the environment and support brands that align with their values. According to the 2020 Sustainable Market Share Index from the NYU Stern Center for Sustainable Business, sustainability-marketed products delivered about 55% of the market growth in consumer packaged goods (CPG) from 2015 to 2019 in the U.S. despite being only 16% of the market. Sustainability-marketed goods grew seven times faster than products not marketed as sustainable and nearly four times faster than the overall CPG market.

As a primary consumer touchpoint, packaging is a good way for cannabis beverage brands to show their commitment to the environment. But finding the most sustainable packaging option for a particular application may not always be as straightforward as it seems. Many considerations are involved — material choice (e.g., plastic, glass, or aluminum), recyclability of the material, the weight of the material, recycled content of the final package, package design (minimalist vs. excessive), transportation costs and other factors like reusability.

To help facilitate the process, Berlin Packaging uses life cycle analysis to determine a product’s environmental impact or carbon footprint over its entire life cycle, including sourcing & raw materials extraction (minerals resource use), manufacturing (energy and water usage), distribution (freight miles, fuel usage) and end-of-life (recovery, recycling, reprocessing).

We have the know-how to improve the sustainability of any packaging material — whether it be lightweighting, use of post-consumer recycled (PCR) content, greater recycling rates and more.

Regulatory Compliance

Because legal cannabis products are regulated by individual states and not at the federal or national level, the regulations for cannabis packaging requirements can vary widely from one state to another. However, there are some common rules that all states follow.

Child-resistant capable cap fits snugly over the top of a can.

All cannabis products — including beverages — require child-resistant packaging to meet the standards of the Consumer Product Safety Commission. For aluminum cans, Berlin Packaging offers a child-resistant capable mechanism that fits snugly over the top of a can. Available in polypropylene or a bio-based resin, the single-use device can be custom developed to fit the exact specifications of the customer’s cans. In-stock products are available for standard 202 can ends.

Along with child-resistant capable packaging, states also require some type of warning symbol and statement on the label to indicate the product contains cannabis. Depending on the state, the symbol may be a triangular or diamond shaped in a bright or contrasting color to call attention to it on the label. The symbol typically houses a cannabis leaf image or “THC”.

Convenience

Like any packaged drink, cannabis beverages need to check all the boxes for consumer convenience — easy to drink, portability, cupholder friendly and resealable.

Users can easily reseal PET and glass bottles with continuous thread or lug finish closures, but cans present a challenge. Berlin Packaging offers a solution with a resealable can that opens like a traditional stay-on-tab. Here’s how it works. Lifting the pull tab breaks the tamper-evident band and unlocks the slider mechanism. Pulling the slider opens the can and makes the familiar venting sound — even after reopening.

The configuration of the opening creates a smooth laminar flow to improve the drinking experience. Moving the slider back to its original position and pushing down the pull tab, which produces a clicking sound, reseal the closure. The tamper-evident band remains on the can underneath the pull tab.

Branding

Cannabis beverages come in drops, shots, syrups, carbonated, iced tea, lemonade, fruity, water, sports & energy, mocktails, tea, coffee and hot cocoa.

Because cannabis has been associated with medicinal uses, many consumers use cannabis products to manage their wellbeing and health. Thus, some cannabis products have been positioned to relieve stress, promote relaxation and sleep, reduce pain and inflammation, improve mental focus, enhance mood or simply for indulgence and enjoyment.

Product positioning and the experience the brand owner wants to create for the consumer can help inform the brand design, personality, and narrative or storytelling. It’s also important that the brand design and messaging resonate with the product’s target audience.

Studio One Eleven, Berlin Packaging’s in-house innovation division, can help cannabis beverage marketers with their product branding from concept to commercialization. We offer market research and consumer insights, brand strategy and visual branding design, brand name development, structural package design, and more. Our services are available at no additional charge in exchange for a customer’s packaging business.

Cruise Beverage distributes nitrogen-infused CBD drinks with all-natural ingredients in 12-oz aluminum cans under the B Happy brand. The team at Studio One Eleven helped Cruise Beverage and its B Happy brand tell their story of free-spirited enjoyment with updated branding, expressive flavor names (i.e., Loosen Up Lemon, Peaceful Pear, Mellow Mango, and Blissful Blood Orange), and unique packaging graphics.

Uplifting illustrations speak to the brand’s sense of freedom and relaxation, and the hand-drawn style reflects the craftsmanship of the CBD beverage product. A white background with flavorful pops of color says clean and fresh, while tiny bubble imagery communicates the delightful effervescence of the fizzy drinks.

2022 Cannabis Extraction Virtual Conference

By Cannabis Industry Journal Staff
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2022 Cannabis Extraction Virtual Conference

Sponsored by Hardy Diagnostics

View On-Demand Now

Click here to see all available CIJ events and webinars

Agenda

The Future of Cannabis Concentrates: in Hydrocarbon Extraction & Manufacturing

  • Michelle Sprawls, Director of Science, CULTA

This presentation delves into closed loop hydrocarbon extraction, what products can you make with this type of extraction method, advancements for manufacturing and new techniques.

Hardy Diagnostics Sponsored TechTalk

  • Jessa Youngblood, Food and Beverage Market Coordinator, Hardy Diagnostics

Extraction Optimization Through Artificial Intelligence

  • Dr. Markus Roggen, President & Chief Science Officer, Delic Labs

Attendees can expect to learn about:

  • Data is the basis for optimization, but which data is important and how to collect it.
  • What system exist for extraction optimization?
  • What is Bayesian Optimization, and how does it work?
  • What are the best parameters for extracting average cannabis?

How the Notorious CO2 Became a Superhero: SFC for Green Cannabinoid and Terpene Purification

  • Jason Lupoi, Ph.D., Director of Laboratory Operations, Thar Process

Attendees can expect to learn:

  • Assessment of the ways in which SFC can be used to purify cannabinoids as well as remediate THC from hemp products such that they are compliant with the Farm Bill.
  • The use of SFC for removing unwanted contaminants from product batches or chemical conversion processes such as those used in making delta-8-THC
  • The application of CO2 extraction and SFC for terpene refinement.

View On-Demand Now

The Rise of a New Market… And a New Consumer

By Christiane Campbell
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The adult beverage industry, like any other category of consumer branded products, is driven by trends. If you’re old enough to remember Bartles & Jaymes wine coolers, you probably also remember Zima and Smirnoff Ice, and more recently “healthy” options like Skinny Girl and Michelob Ultra. The sensation that was craft beer saw many brands being acquired by Big Alcohol so that while the brands remain, ownership and production have changed significantly. Gin, tequila and vodka have had their moments in the sun and the current market is undeniably saturated with what is probably the largest current trend – hard seltzers. However, with the seltzer craze waning, many are wondering what’s next. And with the growing sober/California sober trends, some are betting it is cannabis-infused beverages.

Cannabis-infused beverages offer both an alternative method of consumption of cannabis and are also an attractive alternative to alcohol. Infused beverages are more appealing to the new demographic of casually curious cannabis consumers. i.e., consumers that may not be interested in smoking a joint or vaping, but are comfortable micro-dosing from a can or bottle, as they would a seltzer or beer. The same type of consumer may be moving away from alcohol consumption to eliminate hangovers or other negative health effects.

The emerging market and curious consumer group present an enormous opportunity right now for cannabis-infused beverage brands. Of course, with opportunity and growth come challenges. And while cannabis-infused beverages face a host of legal and regulatory challenges relative to sourcing, manufacturing, packaging, labeling, shipping, marketing, distribution and sale, one of the most critically important business assets to address at inception is the brand.

Lines are Blurring, Gaps are Being Bridged

The U.S. cannabis market is currently a geographic hamburger. Hear me out: Geographically, you have a relatively mature market out west and a relatively new and growing market along the east coast. These are the buns. You have a mixed bag in between, with some states coming online and allowing medical or adult use cannabis use and others that have not yet embraced any form of legalization. The landscape has lent itself to the development of regional brands, such that brands that are so similar they might otherwise confuse consumers, have been able to co-exist in different regions without issue, or because there is little to no trade channel or market overlap. Similarly, adult beverages and cannabis have historically been separate verticals, with an arguably low likelihood that a consumer would assume a particular cannabis product and adult beverage product emanate from the same source.

A drink additive, made by Splash Nano, that uses nano emulsion technology

However, lines are blurring and gaps are being bridged. Walls are breaking down. The increasing number of states coming online with legalized cannabis, and the proliferation of multi-state operators (MSOs), means that cannabis brands can grow to be more than siloed regional brands. This will inevitably lead to brands that previously co-existed bumping into one another and there’s bound to be some pushing and shoving. The advent of infused beverages likewise bridges the gap between cannabis products and alcoholic beverages. While the respective industries were not historically per se related, competing, or overlapping, now you’ve got infused beverages that bridge the gap between the two, and traditional alcohol brands (e.g., Boston Beer Company, Molson Coors, Lagunitas, Pabst.) entering the market (albeit under different brands). This makes a strong argument that cannabis and alcohol (or, more generally, adult beverages) are within each other’s logical zones of expansion, for purposes of a likelihood of confusion analysis.

The growing pains infused beverage brands will experience are analogous to those craft beers saw in the 2000 – 2010s. Many craft brewers had catchy, cheeky names and brands that contributed to their ability to engage consumers and develop a following, but failure to clear and protect the brands prior to launch detracted from the brands’ market values. Localized use prior to expansion also led to many brands bumping into one another and stepping on each other’s trademark toes. This was significant as the brands sought investment dollars or an exit strategy, making clear that the brand itself contributed heavily to valuation.

Mitigating Risks and Overcoming Challenges: Search and Protect 

The risks and challenges can be significantly mitigated and/or overcome with proper preliminary clearance searching and assessments, and by seeking and obtaining state or federal protection for the brand or brands, to the extent possible.

Quatreau CBD infused sparkling water

Of course, clearance searches and assessments come with their own challenges, as does federal protection. With respect to clearance searches, these typically look at U.S. federal and state trademark databases. These resources are not sufficient for purposes of clearing a proposed cannabis brand. Many brands are not recorded at the federal or state level and indeed may not even show up in a basic search engine. An appropriate search looks at social media resources like Instagram, Twitter, Facebook and known cannabis resources like Leafly and Weedmaps. Additionally, the scope of the search should exceed cannabis products and services and at least look at alcohol and merchandise. Adoption and use of a brand for a cannabis-infused beverage is high risk if that brand is similar to a prior existing alcohol brand. A current example is Cointreau’s taking aim at Canopy’s adoption and use of QUATREAU for an infused beverage.

A U.S. federal trademark registration presents its own unique challenges, but is incredibly valuable and beneficial to a brand since it provides the owner with a nationwide presumption of ownership and validity in a trademark, and can also secure priority for the owner with a constructive first use in commerce date that is years before actual use of a mark begins. The U.S. Trademark Office categorically denies protection of brands that violate its “lawful use” rule, and will treat as per se unlawful any applied for mark that covers marijuana, or that covers foods, beverages or pharmaceuticals that contain CBD. With respect to brands that cover products containing THC, since it is federally scheduled, use of the brand would violate the Controlled Substances Act (CSA). With respect to brands that cover CBD or products containing CBD, these may be lawful pursuant to the Farm Bill and the U.S. Trademark Office’s subsequent allowance of marks that claim CBD “solely derived from hemp with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent on a dry weight basis,” however under the Food Drug Cosmetics Act (FDCA) it is currently federally unlawful to introduce CBD – even if it fits the definition above – into foods or beverages.

Even if cannabis is not specifically claimed in a trademark application, cannabis brands have a natural gravitation toward names and logos that can do some of their marketing for them, and announce to the world they cover cannabis. This increases the chances that a trademark application for the brand will get push-back from the U.S. Trademark Office, and if not at the initial review stage, then at the point in time when the brand must submit to the U.S. Trademark Office a sample of (lawful) use of the applied-for mark. While this all sounds like bad news for cannabis-infused beverages, all is not lost.

There are typically ancillary and federally lawful products and services cannabis companies offer under their brands that can be covered in a U.S. federal trademark application, and arguments to be made that registered protection of a brand for the ancillary items should be sufficient to enforce against third parties using the same or confusingly similar brands in their space. Some cannabis brands’ lawful ancillary products are actually product lines (e.g., beverages) offered under the same brand that contain no cannabis. Others may be more causally related, like online forums and blogs. The former is closer to the actual product, and the latter would be more beneficial to a brand that is inherently stronger and more distinctive. One note of caution: A trademark application and eventual registration that expressly disclaim cannabis (THC or CBD) may be difficult to enforce against a third party using the same or a similar mark on and in connection with cannabis. So, while there is a natural inclination to follow a U.S. Trademark Office request to disclaim coverage of cannabis, there may be enforcement consequences down the road.

The cannabis-infused beverage market is poised for explosive growth. The brands that survive – and succeed – will be those that position themselves for growth by clearing and buttoning up their brands as early as possible. The market leaders will be those that select strong and distinctive brands, with geographic and market space around them for growth and expansion; and those that protect and enforce their brands, to the extent possible, at the federal and/or state levels.

State of the US Cannabis Payment Processing Market: An Interview with Executives at KindTap and Aeropay

By Aaron Green
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Federal regulations have made compliant credit processing in the cannabis industry difficult to achieve. As a result, most cannabis retailers operate a cash-only model, limiting their ability to upsell customers and placing a burden on customers who might rather use credit. While some dispensaries offer debit, credit or cashless ATM transactions, regulators and traditional payment processors have been cracking down on these offerings as they are often non-compliant with regulations and policies.

Two companies, KindTap Technologies and Aeropay, are addressing the cannabis industry’s payment processing challenges with innovative digital solutions geared towards retailers and consumers.

We interviewed both Cathy Corby Iannuzzelli, president at KindTap Technologies and Daniel Muller, CEO at Aeropay. Cathy co-founded KindTap in 2019 after a career in the banking and payments industries where she launched multiple financial and credit products. Daniel founded AeroPay in 2017 after a career in digital product innovation, most recently at GPShopper (acquired by Financial), where he oversaw the design and development of over 300 web and mobile applications for large scale Fortune 500 companies.

Green: What is the biggest challenge your customers are facing?

Cathy Corby Iannuzzelli, co-founder and president at KindTap Technologies

Iannuzzelli: Our customers include both cannabis retailers and their end consumers. As long as cannabis is illegal at the federal level, normal payment solutions such as debit and credit cards cannot be accepted for cannabis purchases. This has resulted in heavy cash-based sales and unstable, transient work-around ATM payment solutions that can be ripped out with little notice, disrupting the entire business. The lack of a mature payment network to support retail payments for cannabis purchases is a huge challenge for all stakeholders. Cannabis retailers bear the high cost and safety issues of operating a heavily cash-based retail business. Consumers encounter several friction points that require them to change their behavior when purchasing cannabis relative to how they purchase everything else.

Muller: Our cannabis business customers have faced a constantly changing and, frankly, exhausting financial services environment. From the need to move and manage large amounts of cash, to card workarounds, added to the disappointment from legislation around the SAFE Banking Act, these inconsistencies have acted as a roadblock to their potential growth and profitability. Aeropay is in the position to be a stable, long-term, reliable payments partner ready to help them scale their businesses. We believe these opportunities are limitless.

Green: What geographies have got your attention and why?

Daniel Muller, CEO and founder of Aeropay

Iannuzzelli: KindTap’s focus is on the U.S. market where federal policy has created the need for alternatives to traditional payment networks. KindTap is available in every U.S. state where cannabis is legally sold. In terms of our distribution channels, KindTap’s digital payment solution was brought to market during the COVID-19 pandemic when curbside pick-up and delivery became critically important. These channels are where the exchange of cash at pick-up posed the greatest security risk to employees and customers. Our early integrations were with e-commerce platforms focused on delivery and pick-up orders, and our integration partners have strong customer bases in California and the northeast. So, while KindTap can provide its “Pay Later” lines of credit and “Pay Now” bank account solutions anywhere, we have heavier penetration in those regions.

Muller: California, for its established tech culture and how it plays into the cannabis industry – your product simply has to live up to their tech standards to be heard. Also, Chicago, our headquarters, with its newly emerged commitment to financing the cannabis industry and bringing with it a more traditional business approach. In Chicago, you have to have elevated standards of professional practices in any industry you enter. And of course, we love to watch emerging markets like New York and Florida as they head towards adult-use and what shape cannabis and payments will take.

Green: What are the broader industry trends you are following?

Iannuzzelli: We continue to see a strong transition from cash and ATM transactions over to digital payments. Since KindTap has a fully-integrated payment “button” on e-commerce checkout screens, the adoption rate of end consumers to that one-click experience is quite strong. We are also seeing trends of more “express lines” in the retail environment – for those KindTap users who paid online/ahead – and faster/safer delivery experiences to people’s homes since there is no longer the need to collect any payment upon delivery. We are firm believers in the delivery/digital payments combination and a strong increase of that trend as more states allow for delivery.

Muller: The cannabis industry is starting to normalize payments and mirror traditional online and brick-and-mortar. With bank-to-bank (ACH) payments, cannabis businesses can now offer modern customer shopping experiences including pre-payment for delivery orders without the need for a cash exchange at the door, offering the option to buy online pickup in-store and contactless in-store QR scan-to-pay customer experiences. With these familiar and customer-driven options now available, we are seeing widespread adoption, as well as meaningful increases in spend and returning customers.

Green: Thank you both. That concludes the interview!

About KindTap: KindTap Technologies, LLC operates a financial technology platform that offers credit and loyalty-enabled payment solutions for highly-regulated industries typically driven by cash and ATM-based transactions. KindTap offers payment processing and related consumer applications for e-commerce and brick-and-mortar retailers. Founded in 2019, the company is backed by KreditForce LLC plus several strategic investors, with debt capital provided by U.S.-based institutions. Learn more at kindtaptech.com.

About AeroPay: AeroPay is a financial technology company reimagining the way money is moved in exchange for goods and services. Frustrated with the current, antiquated payments landscape, we believe there is a better way to pay and a better way to get paid. AeroPay set out to build a payments platform that works for all- businesses, consumers, and their communities. Learn more at aeropay.com.

An Evaluation of Sample Preparation Techniques for Cannabis Potency Analysis

By Kelsey Cagle, Frank L. Dorman, Jessica Westland
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Sample preparation is an essential part of method development and is critical to successful analytical determinations. With cannabis and cannabis products, the analyst is faced with a very challenging matrix and targets that may range from trace level through percent level thus placing considerable demands on the sample preparation techniques.1 The optimal sample preparation, or “extraction”, method for potency analysis of cannabis flower was determined using a methanol extraction coupled with filtration using regenerated cellulose filters. 

In the United States (US), Canada, and other countries where medicinal and/or adult recreational cannabis has been legalized, regulatory entities require a panel of chemical tests to ensure quality and safety of the products prior to retail sales2. Cannabis testing can be divided into two different categories: Quality and Safety. Quality testing, which includes potency analysis (also known as cannabinoid testing or cannabinoid content), is performed to analyze the product in accordance with the producer/grower expectations and government regulations. Safety testing is conducted under regulatory guidelines to ensure that consumers are not exposed to toxicants such as pesticides, mycotoxins, heavy metals, residual solvents and microbial contaminates.

Potency testing evaluates the total amount of cannabinoid content, specifically focusing on tetrahydrocannabinol (THC) and cannabidiol (CBD). In the US, the biggest push for accurate total THC is to differentiate between hemp (legally grown for industrial or medicinal use), which is defined as cannabis sativa with a THC limit ≤ 0.3 %, and cannabis (Cannabis spp.), which is any cannabis plant with THC measured above 0.3 %3. Potency testing is typically performed by liquid chromatography (LC) with UV detection to determine the quantity of major cannabinoids.

In addition to reporting THC and CBD, their respective precursors are also important for reporting total potency. Tetrahydrocannabinolic acid (THCA) is the inactive precursor to THC while cannabidiolic acid (CBDA) is the precursor to CBD.4,5

Methods and Materials

Sample Preparation

All samples were homogenized using an immersion blender with a dry material grinder. The nominal sample amounts were 200 mg of flower, 500 mg of edibles, and 250 mg of candy samples.

Potency Extraction Method (1)

Twenty milliliters (mL) of methanol (MeOH) was added to each sample. The samples were mechanically shaken for 10 minutes and centrifuged for 5 minutes.

Potency Extraction Method (2)

Ten mL of water was added to each sample. The samples were mechanically shaken for 10 minutes. 20 mL of acetonitrile (ACN) was then added to each sample and vortexed. An EN QuEChERS extraction salt packet was added to the sample. The samples were placed on a mechanical shaker for 2 minutes and then centrifuged for 5 minutes.

Each extract was split and evaluated with two filtration/cleanup steps: (1) a regenerated cellulose (RC) syringe filter (Agilent Technologies, 4 mm, 0.45 µm); (2) a PFTE syringe filter (Agilent Technologies, 4 mm, 0.45 µm). The final filtered extracts were injected into the ultra-performance liquid chromatograph coupled with a photodiode array detector (UPLC-PDA) for analysis.

Figure 1: Calibration curve for THC potency

Calibration

Standards were obtained for the following cannabinoids at a concentration of 1 mg/mL: cannabidivarin (CBDV), tetrahydrocannabivarin (THCV), cannabidiol (CBD), cannabigerol (CBG), cannabidiolic acid (CBDA), cannabigerolic acid (CBGA), cannabinol (CBN), tetrahydrocannabinol (9-THC), cannabichromene (CBC), tetrahydrocannabinol acid (THCA). Equal volumes of each standard were mixed with MeOH to make a standard stock solution of 10 ug/mL. Serial dilutions were made from the stock to make concentrations of 5, 1, and 0.5 ug/mL for the calibration curve (Figure 1).

Instrumental Method

All instrument parameters were followed from Agilent Application Note 5991-9285EN.8 A UPLC with a PDA (Waters Corp, Milford, MA) detector was employed for potency analysis. An InfinityLab Poroshell 120 EC-C18, 3.0 x 50 mm, 2.7 um column (Agilent Technologies, Wilmington, DE) was utilized for compound separation. The organic mobile phase composition was 0.05 % (v/v) formic acid in HPLC grade MeOH and the aqueous mobile phase composition was 0.1 % (v/v) formic acid in HPLC grade water. The mobile phase gradient is shown in Table 1. The flow rate was 1 mL/min (9.5 minute total program), injection volume was 5 uL, and column temperature was 50 °C.

Table 1: LC mobile phase gradient for potency samples6

Discussion and Results

Table 2 summarizes the relative standard deviations (% RSD) were found for the THC calibrator (at 1 ug/mL) and one extract of a homogeneous sample (utilizing 7 replicates).

Table 2- %RSD values for the instrument response precision for THC in both the calibrations and the homogeneous extract.

The cannabinoid potency of various cannabis plant and cannabis product samples were determined for the various extraction techniques In the chromatograms THC was observed ~8.08 minutes and CBD was observed ~4.61 minutes (Figure 2).

Figure 2: Chromatogram of the 10ug/mL calibrator for potency/cannabinoid analysis

Total potency for THC & CBD were calculated for each sample using the equations below. Equation 1 was used because it accounts for the presence of THCA as well as the specific weight difference between THC and THCA (since THCA will eventually convert to THC, this needs to be accounted for in the calculations).

Table 3 shows the % THC and the total THC potency values calculated for the same flower samples that went through all four various potency sample preparation techniques as described earlier. Figure 3 also provides LC chromatograms for flower sample 03281913A-2 and edible sample 03281912-1.

Table 3-THC and Total THC potency values for the same cannabis flower sample processed through the combination of extractions and cleanups.
Figure 3: Potency/Cannabinoid analysis chromatogram for flower sample 03281913A-2 (red trace) and edible sample 03281912-1 (green trace).

The results indicated that with the “Potency Extraction Method 2” (ACN/QuEChERS extraction) coupled with the RC filter provided a bias of 7.29 % greater for total THC % over the other extraction techniques. Since the other 3 techniques provided total THC values within 2% of each other, the total THC of the sample is more likely ~14%.

Since the sample dilution for the above data set reduced the CBD content, an undiluted sample was run and analyzed. This data is reported in Table 4.

Table 4- CBD and Total CBD potency values for the same cannabis flower sample processed through different sample preparation techniques.

The CBD results indicated that with the “Potency Extraction Method 1” (methanol extraction) coupled with RC filter, allowed for a greater CBD recovery. This may indicate the loss of CBD with an ACN/QuEChERS extraction.

With an average ~14% total THC and 0.06% total CBD for a homogenous cannabis flower sample, the optimal sample preparation extraction was determined to be a methanol extraction coupled with filtration using a regenerated cellulose filter. Since potency continues to remain at the forefront of cannabis regulatory testing it is important to utilize the right sample prep for your cannabis samples.


References

  1. Wang M, Wang YH, Avula B, Radwan MM, Wanas AS, Mehmedic Z, et al. Quantitative Determination of Cannabinoids in Cannabis and Cannabis Products Using Ultra-High-Performance Supercritical Fluid Chromatography and Diode Array/Mass Spectrometric Detection. Journal of Forensic Sciences 2016;62(3):602-11.
  2. Matthew Curtis, Eric Fausett, Wendi A. Hale, Ron Honnold, Jessica Westland, Peter J. Stone, Jeffery S. Hollis, Anthony Macherone. Cannabis Science and Technology, September/October 2019, Volume 2, Issue 5.
  3. Sian Ferguson. https://www.healthline.com/health/hemp-vs-marijuana. August 27, 2020.
  4. Taschwer M, Schmid MG. Determination of the relative percentage distribution of THCA and 9-THC in herbal cannabis seized in Austria- Impact of different storage temperatures on stability. Forensic Science International 2015; 254:167-71.
  5. Beadle A. CBDA Vs CBD: What are the differences? [Internet]. Analytical Cannabis. 2019 [cited 2020 Apr 22]; https://www.analyticalcannabis.com/articles/cbda-vs-cbd-what-are-the-differences-312019.
  6. Storm C, Zumwalt M, Macherone A. Dedicated Cannabinoid Potency Testing Using the Agilent 1220 Infinity II LC System. Agilent Technologies, Inc. Application Note 5991-9285EN

How to Navigate Section 280E: Lessons Businesses Can Learn from Recent Court Outcomes

By Jay Jerose
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The cannabis business landscape is complex and is under constant review and control. Further, rules and regulations from both federal and state governments can pose additional challenges and barriers to business owners. For those unfamiliar, there is a section of Internal Revenue Code, Section 280E, that prohibits taxpayers who are engaged in the business of buying and selling certain controlled substances from deducting many typical business expenses that other businesses are able to freely deduct.

What is Section 280E and What Challenges Does it Pose?

A dispensary could deduct the cost of the product it sells, but due to Section 280E it would be unable to deduct necessary and ordinary business expenses such as building rent, insurance or employee wages. This can create a significant tax burden, as taxable income is calculated at the gross profit level instead of starting with net income. As a result, Section 280E has become increasingly relevant for cannabis businesses, which have grown substantially in recent years due to more states opting to legalize marijuana. But despite this trend towards legalization at the state level, cannabis with more than 0.3% THC remains illegal under federal law, which raises questions surrounding Section 280E.

In this article, we take a closer look at recent court cases that highlight challenges with Section 280E, the related outcomes and what it means for businesses in the cannabis space.

Challenging its Constitutionality

Patients Mutual Assistance Collective Corp. v. Commissioner, also known as the Harborside Case, partially involved legal arguments against the constitutionality of Section 280E under the 16th amendment. Harborside argued that income must be present for the IRS to levy an income tax, however Section 280E can frequently cause taxpayers to experience real losses along with taxable income. They argued that they were forced to pay taxes while losing money.

Two circuit courts before this case upheld that Section 280E did not violate either the 8th or 16th amendments to the constitution, leading to the court declining to even address the constitutionality claim. The court addressing a constitutionality issue could lead to unintended consequences for unrelated code provisions, leading this strategy to likely fail due to the mess it could unravel.

Attracting Customers with Freebies

Olive v. Commissioner involved a medical cannabis dispensary that also operated a consumption lounge. While the consumption lounge revenue entirely consisted of sales of medical cannabis, the business also provided services such as health counseling, movies, yoga, massage therapy and beverages at no additional cost. The business attempted to deduct the expenses of these free services as well as the cost of the cannabis itself.

The IRS denied the deductions for the additional services due to the sole source of revenue coming from cannabis sales. The court held that the expenses related to free services were designed to benefit and promote the sales of cannabis and induce further business from its customers.

The court did acknowledge that expenses can be allocated between two separate trades or businesses while still complying with 280E. However, distinct revenue streams need to be established to show the clear separability of the activities and care must be taken to document and support the expense allocations.

Co-mingling Cannabis and Non-Cannabis Enterprises

In the case of Alternative Healthcare Advocates v. Commissioner, the owner of a retail dispensary established a separate management corporation to provide management functions to the dispensary business. The two businesses shared identical ownership, and the management company solely provided services to the joint owner’s dispensary. The management company hired employees, advertised, and handled rent and other regular business expenses on behalf of the dispensary.

Despite the argument from the taxpayer that the businesses were separate entities, and that the management company did not own or “touch” cannabis in any way, the Tax Court ruled that both companies were in the business of trafficking illegal substances. This disallowed expenses on both entities. The IRS argued successfully that the operations of both companies were intertwined. The fact that the management company broke even on expenses and provided no services to any other unrelated entities meant that while legally separate, they were considered part and parcel to each other.

The Solution: Clear Documentation, Allocation and Separation

Californians Helping to Alleviate Med. Problems, Inc. v. Commissioner (CHAMP) involved a public benefit corporation that provided caregiving services along with cannabis to customers suffering from diseases. In this case, the taxpayer argued that they had two separate and distinct lines of service, being the sale of cannabis, and the sale of caregiving services.

While the IRS disagreed with this position and attempted to apply Section 280E to the entire entity, the Tax Court disagreed. It held that the taxpayer was operating with a dual purpose, the primary being the caregiving services, and the secondary being the sale of medical cannabis. The taxpayer’s customers were required to pay a membership fee and received extensive caregiving services, including support groups, one-on-one counseling, addiction counseling services, hygiene supplies and even food for low-income members. While the membership fee did include a set amount of medical cannabis, it was not unlimited. The Court held that the taxpayer’s extensive records and documentation clearly demonstrated two separate and distinct lines of business, with the caregiving being a primary service and the medical cannabis being secondary.

From these court cases and outcomes, it is clear that Section 280E can be confusing. The cannabis industry is a high-risk area, and the IRS has successful court cases to stand behind to back their legislation and agenda. These cases demonstrate two very simple concepts: first, businesses have attempted many creative ways of sidestepping Section 280E and failed; and second, clear documentation and detailed financial records are key, and will be paramount to support any tax positions related to Section 280E.

With the risks associated with conducting business in the cannabis industry, there is a strong likelihood that it will be high on the IRS’ radar over the next few years. Cannabis businesses should carefully consider their interpretation and application of Section 280E as it relates to the costs within their business. It will be important for businesses to utilize and consult with experienced attorneys and cannabis accountants to ensure they not only maintain compliance with federal laws, but also keep up with the changing regulations and court test opinions.


Disclaimer: The summary information presented in this article should not be considered legal advice or counsel and does not create an attorney-client relationship between the author and the reader. If the reader of this has legal questions, it is recommended they consult with their attorney.

Sports Sponsorships in Cannabis: The Long Legal Road Ahead

By Airina Rodrigues
1 Comment

If legal cannabis isn’t already a key facet of American culture, it is well on its way. The multibillion-dollar industry is already ubiquitous in politics, and consumers are increasingly seeing various types of marketing from cannabis brands, from billboards to magazine ads to organic content on social media. It may not be long before sports fans see more of their favorite athletes talking up CBD products for pain management or even see a dispensary chain claim naming rights for a stadium.

The next big marketing frontier for cannabis brands is professional sports sponsorships. And in some respects, it makes sense that athletes might be natural brand ambassadors for an industry focused on pain management and mental health relief. But there are obstacles unique to the highly regulated cannabis market that, paired with the already legality-heavy proposition of sponsorship deals, mean a long road ahead. Here are some key considerations for cannabis and CBD brands looking to a future of sports sponsorships.

The Current Climate

Many leagues have already embraced sponsorship deals with CBD brands, from NASCAR to the United Soccer League. The four pillar sports in the U.S.—the National Football League, the National Basketball Association, the National Hockey League and Major League Baseball—have already relaxed their rules and testing protocols related to athletes and cannabis. In 2019, the NFL reached an agreement with the players’ union to study the pain management benefits of cannabis and in 2020, the NFL announced players will no longer be suspended for positive tests and increased the threshold of allowable THC for positive tests. And stars like powerhouse tight-end Rob Gronkowski and former Denver Nuggets Al Harrington in retirement have attached their names to cannabis and CBD brands.

After dismal profits through the COVID-19 pandemic, the “Big Four” sports leagues may want to consider opening an entirely new sponsorship category via cannabis and CBD. Additional pressure might come from athletes themselves, who want alternative treatments for pain and anxiety. As the public looked in from the outside as the MLB negotiated a new collective bargaining agreement and as leagues renegotiate CBAs generally, player pressure could continue to move the needle on league acceptance of cannabis products.

If sports leagues are expecting to allow cannabis sponsorships in the future, they are likely waiting for federal approval for cannabis

As much as this means less stigma for cannabis, it also illustrates the constant fragmentation that makes it difficult for cannabis businesses to operate like other companies. While the NFL, NBA, NHL and MLB have all eased up on players’ use of the substance, they haven’t embraced CBD sponsorships the same way other leagues have and currently won’t allow their athletes to seek CBD or cannabis sponsorship deals as individuals. Piecemeal state legalization, strict advertising rules, enduring federal prohibitions and a lack of FDA approval are the biggest barriers specific to the cannabis industry. And, while the “Big Four” leagues are not signatories to the World Anti-Doping Agency (WADA) Code, applying their own anti-doping policies, don’t look for cannabis sponsorships or endorsements of Olympic sports or athletes any time soon—WADA prohibits in-competition use of cannabis, although it is conducting a scientific review of the status of cannabis in 2022, indicating a softening may be forthcoming.

Paired with the issues typical to sport sponsorships generally, cannabis companies have much more to consider when seeking sponsorship deals.

Threshold Sports Sponsorships Considerations Relating to Cannabis and CBD 

As a threshold matter, if sports leagues are expecting to allow cannabis sponsorships in the future, they are likely waiting for federal approval for cannabis and specifically, FDA approval for CBD products. The agency decided not to allow companies to market full-spectrum CBD as a dietary supplement in August, and formal guidelines may be years away as medical and scientific data materialize either supporting or negating the health claims. In the meantime, companies and their spokespeople cannot claim certain health benefits in advertising without FDA approval.

Cannabis itself is also still a schedule 1 drug under the federal Controlled Substances Act and has historically been listed among most leagues’ anti-doping bans, although as discussed above, it appears attitudes might be beginning to shift. Even in states where adult use and medical cannabis are legal, taxes are high and advertising rules are incredibly strict. They also vary from market to market. When Connecticut legalized cannabis in 2021, state Attorney General William Tong moved to have all billboards advertising Massachusetts dispensaries removed for violating the state’s cannabis marketing restrictions. With a web of intersecting, and at times conflicting, state regulations at play, national marketing campaigns are highly challenging. The crisscrossing markets on game days and the national exposure of most athletes in the Big Four leagues will likely implicate multiple jurisdictions, and multiple sets of advertising regulations that don’t always mesh. And, even if a policy decision were made to allow some territory-restricted sponsorship deals in the cannabis space, it’s unclear if and how cannabis sponsors could exercise even local broadcasting rights—a key value driver for any sponsorship deal.

Specific Sponsorship Considerations Relating to Cannabis and CBD

In addition to the above, the host of legal and business issues generally applicable to sports sponsorships deals will likely take on a different flavor with respect to cannabis and CBD.

From a commercial perspective, one of the key issues in any sponsorship deal is whether a sponsor will receive exclusive rights in a category. It’s important that sponsors take a critical eye to how a league may have “sliced and diced” that category. For example, a would-be cannabis sponsor may not be expecting a competitor to take up rights in the CBD space. But without close attention to how the sponsorship category is defined, any oversight here could lead to sharing branding space with unwelcome neighbors.

One of the key issues in any sponsorship deal is whether a sponsor will receive exclusive rights in a category.

In highly regulated industry categories such as gambling/casino and sports betting, league policies mandate strict compliance obligations on the part of the sponsor. We should expect to see a similar approach if leagues approve cannabis sponsorships. For example, in gaming and sports betting, league requirements often demand that sponsors notify the team or league of any compliance issues—no matter how nonmaterial, and no matter if they affect any rights or activities in the sponsorship territory. If there are compliance violations, leagues and teams typically demand immediate termination rights. The compliance and disclosure obligations for a highly regulated sponsor can be onerous, and sponsors risk losing their sponsorship investment even for trivial issues that do not bear on the sponsorship. For example, should a minor casino compliance violation in Las Vegas result in termination of a sponsorship deal in New York? Similarly, if a dispensary in Seattle operating under an interstate brand receives a de minimus fine for an inadvertent sale to a minor, should that result in termination of that brand’s sponsorship deal in Colorado? While these types of compliance and termination provisions are typically negotiable to something approximating fairness, look for leagues to take a hard-line stance on compliance issues, and expect that some teams may mandate deal terms that are take it or leave it.

Similarly, leagues and teams often demand strict morals provisions allowing them to terminate if they determine, in their sole discretion, that the sponsor or its activities might cause reputational harm to the team. Although cannabis is rapidly destigmatizing, one might argue that the industry is at least historically aligned with illegality and perhaps inherently aligned with other “sin” industries like gambling, alcohol and tobacco. Teams and leagues know what they are getting into when they accept sponsorship money from these industries, and cannabis sponsors should demand that any such “morals” provisions be exercised by teams only reasonably, in good faith, and with an opportunity for the sponsor to cure any alleged issues.

Further, just like gaming and sports betting operators, cannabis businesses are restricted from marketing to minors. While state laws are a hodge-podge, sales to individuals under the age of 21 are generally prohibited, and cannabis businesses are also generally restricted from marketing to individuals under the age of 21, or even from publishing marketing materials that appeal to children—a subjective standard. These rules, of course, are likely to restrict the type of signage and activation that can occur in stadia. It also poses issues from a digital marketing and data-sharing perspective. Sponsors and teams often negotiate specific activations via social media, websites and email marketing lists. But the parties must keep in mind compliance issues regarding these activations, including taking care to scrub relevant marketing databases of users under the age of 21 and, possibly, “self-excluded” individuals. The gaming industry is familiar with self-exclusion sign-ups, which permit individuals to opt out of relevant marketing and be disallowed from entering gaming establishments. The cannabis industry may not be far behind. In 2020, the Illinois General Assembly introduced HB4134, which if passed would have permitted self-exclusion from targeting mailings, advertising and promotions and from entry into dispensaries. While this bill died, it’s conceivable that we will see efforts to pass similar bills.

Finally, in 2020-21, sponsors, teams and leagues collectively, and regardless of industry, combed through the thorny issues of the COVID-19 pandemic. We can expect to observe a continuing trend of extra scrutiny paid to force majeure and so-called “make good” provisions for missed games or unavailable benefits.