Last week, Steep Hill announced they are expanding into Oregon with a laboratory in Portland. According to the press release, the company has licensed its testing technology to Dr. Carl Balog, a renowned pain and addiction physician.
Steep Hill has expanded significantly over the past year, including new laboratories in Pennsylvania, Maryland, Washington D.C. and Hawaii, among other states. The Berkeley-based company works in lab testing, research and development, licensing, genetics and remote testing. In 2008, Steep Hill opened the first-ever commercial cannabis-testing laboratory in the country.
Jmîchaeĺe Keller, president and chief executive officer of Steep Hill, says this is a development that will help them better understand cannabis chemistry and its medical applications. “We are pleased to announce our expansion into Oregon and especially pleased to partner with Dr. Balog, a physician who brings years of pain and addiction experience to the Steep Hill body of expertise,” says Keller. “In addition, Dr. Balog plans to use his specialized knowledge to aid Steep Hill’s research and development efforts to broaden our understanding of cannabis chemistry and to explore its wider medical applications. In partnering with Dr. Balog, we hope that Steep Hill will be able to help physicians around the United States to curb the opioid epidemic by offering Steep Hill Verified™ medicinal cannabis as an alternative to a crisis that plagues this country.”
Dr. Balog, now owner and medical director of Steep Hill Oregon, says medical cannabis could be an excellent harm reduction tool, and hints at it being a possible tool in the opioid crisis. “I deal with the consequences of the opioid epidemic on a daily basis as a pain and addiction specialist,” says Dr. Balog. “The growing trend of using cannabis products as an alternative to opioids highlights the need for regulated testing. Because of the variability of marijuana preparations, testing ensures that scientific rigor is applied in a standardized way. I am dedicated to ensuring that patients have access to safe, tested cannabis, free from contaminants and to verified labels that can be trusted for their content.”
They expect Steep Hill Oregon to be open for business in the second quarter of 2018.
Formed in 2015, Outco is a vertically integrated, licensed producer of medical cannabis in Southern California. Outco manages Outliers Collective, the first licensed dispensary continually operating in San Diego County. They operate the first licensed cultivation on Native American land in Southern California, the first cultivation building permit in Southern California and the first licensed extraction facility in San Diego County. Outco is on track to be the largest licensed producer of medical cannabis in Southern California.
The company prides themselves on attention to detail; the well versed team implements real science in their cultivation and extraction processes. Lincoln Fish, co-founder and chief executive officer of Outco, has more than 30 years of experience as an entrepreneur. Before entering the cannabis industry, Linc started and sold companies in the healthcare technology and nutraceutical spaces.
Fish’s experience with FDA regulations in nutraceuticals prepared him for running a business in such a tumultuous, highly regulated environment like cannabis. “One thing I took from the nutraceutical industry is how to present products to consumers and letting them know it is safe, effective and consistent,” says Fish. He says he noticed a serious lack of consistency in products. They tested 25 different vape cartridges, with their own oil, to find a consistent product they can use and know that consumers will safely and consistently get the same results. “There is a lot of room for more professionals and a lot of room for more science,” says Fish. “We try to position ourselves in a way that is consistent with where we think policy will go so we are very careful with recommendations from a scientific standpoint, patient information and product safety.”
According to Fish, they currently distribute cannabis products to about 75 licensed dispensaries in Orange County, San Diego and Los Angeles. With construction underway at their cultivation facility on Native American land, Fish says they plan to generate roughly 2600 pounds of cannabis each month. Gearing up for that in addition to the expanding recreational market requires some planning in advance, says Fish. Part of that plan is making sure quality controls are in place to keep consistency in the product quality and dosage. They are also actively seeking to open their distribution channels further.
“We are building out a full lab of our own in addition to third party testing to perform internal quality controls,” says Fish. Equipped with their own laboratory instrumentation like HPLC and GC, they hope to establish proper in-house quality controls as well as provide that resource to younger startup companies. As one of the founding partners of Canopy San Diego, an ancillary startup accelerator, Fish sees great potential in working with younger companies to get them off the ground. Fish met Outco’s vice president of extraction, Dr. Markus Roggen, at a Canopy San Diego event. It was there that they had the idea to build a startup accelerator for companies that actually touch the plant- extractors, cultivators and infused-product manufacturers, as opposed to a startup accelerator that would only help ancillary businesses.
Dr. Roggen, who is an organic chemist by training, heads up Outco’s supercritical CO2 extraction operation. “I came to the ‘art’ of cannabis extraction with an open, yet scientifically focused mind,” says Dr. Roggen. “My approach was to look past the myths and stories about extraction methods and focus on finding data, as there really wasn’t much available. I therefore, from the beginning, started to study the capabilities of our extraction equipment by chemometric methods.” Chemometrics is the science of relating measurements made on a chemical system or process to the state of the system via applications of mathematical methods. “Already the first sets of experiments showed that long-held beliefs in the cannabis community were inaccurate,” says Dr. Roggen. “For example the particle size of extracted material matters. Or that it is possible to preserve and even isolate terpenes by CO2 extraction methods.” With plans to have a full plant and analytical chemistry laboratory on site, they hope to perform more research that focuses on optimizing extraction processes.
Dr. Allison Justice leads their cultivation team with a background in greenhouse management and commercial horticulture. Dr. Justice says plants are grown, starting at a young age (seed or vegetative cutting), with the protection of biological control agents. “Biological control is a management strategy that entails the release of beneficial insects or fungi, such as parasitoids and predators, in order to suppress or regulate insect populations in greenhouses and grow rooms,” says Dr. Justice.
When implemented properly, this eliminates the need to use synthetic pesticides. “Biological control agents are not put in place to eradicate pest populations yet are applied as preventives to minimize plant damage and maintain their own populations.” They are constantly evaluating light types, spectrum and intensity to determine optimal ranges, according to Dr. Justice. They don’t use any pre-mixed “cannabis” nutrient supplements for their plants, instead they design an experiment to determine the desired levels and ratios of essential plant nutrients. “We have found it crucial to determine what ratios of nutrients the plant actually needs and by knowing this, we know how to manipulate the recipe determined by the plant’s given nutritional symptoms,” says Dr. Justice. Every type of adjustment in cultivation and extraction is based on results from experimentation rooted in legitimate science. Instead of guessing when it might be time to harvest, they use a water activity meter, logging and recording all the data to determine the appropriate time to trim and cure plants. Performing analytical testing at every step is key, says Fish.
Looking toward the recreational market, Fish sees an obvious opportunity to expand their wholesale operations substantially, with several larger new cultivation projects planned. “The key though is to produce flower and concentrate offerings with the same standards we employ for medical cannabis,” says Fish.
This November 8th, voters in five states will head to the polls to decide on legalizing recreational cannabis and another three states have ballot initiatives that would legalize medical cannabis. If any of those five states pass a measure for recreational legalization, including Massachusetts, Maine, Nevada, Arizona and California, (which are all leading in the polls) they could potentially create massive new market opportunities for cannabis brands that have their eye on expansion.
Nancy Whiteman, co-owner of Wana Brands and chair of the Cannabis Business Alliance Infused Product Committee, sees great potential in capitalizing on those markets early. Whiteman has been working with Wana Brands since 2010 in Colorado, starting out in the young medical market there.
After expanding to the recreational market, Wana Brands saw its sales skyrocket. From January to August 2016, Wana had the best-selling candy brand in Colorado with 21% dollar share, according to BDS Analytics. Wana Brands has already expanded to Oregon and will launch in Nevada on November 15th, with agreements signed to expand in other states as well. “The model we are pursuing is a licensing agreement where we partner with existing or new license holders in their state,” says Whiteman. “In many ways they are doing the heavy lifting, but we are providing an enormous lift by licensing our intellectual property to them.” That model for growth is becoming increasingly common in some of the more established brands, like Steep Hill Laboratories, GFarma Labs, Dixie and others. Whiteman says that Wana Brands also has a partner in Illinois, Massachusetts and a number of other states they hope to reach.
According to Mark Slaugh, executive director of the Cannabis Business Alliance and chief executive officer of iComply, a compliance services provider, brands from Colorado expanding to other states need to ask themselves if their reputation is on the line with these new operators. “If you are licensing to companies that are not compliant, the penalties could be huge and they vary state to state- that could potentially hurt the overall brand image nationally,” says Slaugh. “People doing the licensing that are operating with full compliance really need to look at controlling that risk and mitigating that as much as possible.” With brand trust on the line, there are substantial risks that come with expansion. “We help clients ensure quality is consistent so, for example, an edible product would taste the same in Colorado as it would in Nevada or Arizona. They need to follow the intellectual property consistently but more importantly follow those specific regulations in that state to stay afloat.” Managing ongoing compliance in different states requires monitoring regulatory updates across multiple markets, which can get incredibly complex.
“Six years ago, it was much easier to get into the market in Colorado,” says Whiteman. “There were no capital requirements, no limits on the number of licenses, but there was still a lengthy application and vetting process- as long as you met those minimum requirements you could get a license.” Other new states put stringent limits on the number of licenses granted and some have extraordinarily cost-prohibitive capital requirements, up to a million dollars, as is the case for New York. “Anyone who becomes a license holder in Massachusetts has to be prepared to embark on three separate business models, which is a massive undertaking,” says Whiteman. Massachusetts requires license holders to cultivate, process and dispense in a vertically integrated model.
In other states, Wana Brands is working with exclusive partners who will have the capabilities to manufacture and distribute throughout the entire state, but in Massachusetts that won’t be the case. “To cover the state, we need several partnerships; the partner we are working with is a little south of Boston,” says Whiteman. But all that could change if voters in Massachusetts legalize it recreationally, opening a much larger market than the current medical program. “With no legislation drafted yet, the regulatory environment is still up in the air in Massachusetts so there is no way of telling what the recreational market will look like.” In terms of ongoing regulatory compliance, Whiteman believes that Colorado still has some of the most stringent rules. The universal symbol printed on every individual edible product serving is one example. “Every state has different lab testing and licensing requirements, but Colorado looks like the most stringent currently,” says Whiteman. “Colorado requires a full gamut of lab testing including homogeneity, potency, residual solvents, contaminants and soon pesticides too.” According to Mark Slaugh, Nevada’s lab testing regulations are fundamentally different from Colorado’s with regard to sampling procedures, but the broader inconsistencies in lab standards need to be addressed. “The lack of laboratory standardization state to state with regard to methods creates a big challenge to get consistent, proficient lab testing across the board,” says Slaugh.
A big differentiator between Colorado and other states is that it was a first mover. “When Colorado came online there were not any established brands to speak of anywhere in the country- we were all pioneers,” says Whiteman. “Because it is so difficult to get a license in another state, either the organization or investor groups are looking to partner with established brands.” The advantages to this business model are many. Expediting your entry to market gets you the advantage of being a first mover. Working with an established brand also minimizes risks and the learning curve. “Bigger players understand that building a brand from scratch is time consuming and expensive so I think we will see a lot of these partnerships.”
As those new states come online, similarities in their regulations might appear in the form of standard operating procedures (SOPs) or good manufacturing practices (GMPs). “We might start to see a standardization from state to state that models FDA GMPs or USDA GAPs, [good agricultural practices] moving toward a framework that is more consistent with the possibility of federal regulation,” says Slaugh. Another commonality among a number of states is the implementation of a statewide tracking system. According to Slaugh, California has no such mandated system in place yet. “They will probably have one eventually but the market is so localized there- we will see if California will be ready with a statewide compliance system for tracking by 2018,” says Slaugh. “With such a weird patchwork of local governments allowing or not allowing certain operations to exist, it is a tough business to be in and it’s getting tougher every day.”
G FarmaLabs, a family-owned and operated business, has been operating in California since November of 2013, when they launched at a Marijuana Business Conference in Seattle that year. Ata Gonzalez, founder of G FarmaBrands and chief executive officer of G FarmaLabs, has been in the cannabis industry since 2009, cultivating in California and operating marijuana dispensaries, when he took notice of the changing industry and consumer trends shifting toward consumption of edibles and concentrates.
“Once the Cole Memo hit in August of 2013, the cannabis industry took off and so did we through a combination of great timing and well thought out regular market packaging and marketing,” says Gonzalez. “With our background in cultivation, we use quality flower as the foundation of our brand, and our proprietary cannabis oil formulations are the backbone of the brand, we use that oil to infuse all regular market edibles products.” They are vertically integrated, beginning with their cultivation of seven strains, so they monitor every blend going into their products and test for potency and pesticides in a consistent manner.
Another key ingredient in their brand recognition seems to come through great product diversity. G FarmaLabs has twenty flavors of infused chocolate bars, a variety of chocolate truffles, pretzels, brittle, chocolate covered cherries, teas, lemonades and other forms of infused edibles. They manufacture a variety of cannabis oil concentrates that come in a syringe to refill cartridges or put on your dry flower or joint but they also sell pre-filled vape cartridges, and pre rolled cannabis cigarettes called G Stiks.
Luigi De Dominicis, chief technology officer of G FarmaBrands, says their extraction process is another essential factor in the brand’s success. They run their raw plant material through supercritical fluid extraction (SFE) with CO2. “We do not use solvents like butane to extract our oil because CO2 is proven to be safe for both the operator and end user; we pride ourselves in putting out a safe and quality product,” says De Dominicis. “The same product that goes into our cartridges and syringes goes into our edibles with a different refinement process, which are all tested for potency, microbials and pesticides to ensure consistency, safety and quality.”
In building a successful recreational brand, their expansion model will play a crucial role in keeping their reputation for quality and consistency. David Kotler, Esq., regulatory counsel for global territories at G FarmaBrands, cites their licensing model as the primary distinction between G FarmaBrands and other large marijuana brands looking to expand across state lines. “We are trying to own and control every operation and keep it consistent with production and manufacturing versus giving up control via the licensing process and giving it to others,” says Kotler. This distinction means that G FarmaLabs producers and processors in different states will all operate under the same best practices regardless of location, ensuring consistency from one state to the next.
“While most states have some form of residency requirements, we are planning to grow organically and self contained, ideally expanding to areas where G FarmaBrands can hold licenses,” adds Kotler. For example, Maryland does not have a residency requirement in their licensing application so that is one of the states they are actively pursuing.
Moving forward, G FarmaBrands is positioning itself for national recognition. “It is difficult in this current regulatory state to state structure to have a national brand, but national recognition is certainly attainable through our great in-house marketing team,” says Kotler.
Running an expansion model of keeping everything very internal, along with their dedication to safety and quality, G FarmaBrands is very well-positioned to be the premier cannabis brand for the state of California, and possibly the nation. They recently harvested a crop in Washington State and in 2016, their products will come to market there. As GFarmaBrands attempts to expand into Maryland for manufacturing, cultivating and operating a retail dispensary, Gonzales keeps his mind set on sustainable growth through 2016 and beyond.