Tag Archives: procedure

Alternatives to Bankruptcy for Cannabis Companies: Part 2

By Brent Salmons, Yuefan Wang
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Part 1 of this series discussed the lack of bankruptcy protections for cannabis companies, since bankruptcy in the U.S. is an exclusively federal procedure and cannabis remains illegal under federal law and proposed a number of alternative options for businesses struggling in the current environment. Part 2 of this series focuses on one of these alternatives: state law receiverships.

Background

A cannabis operation facing financial difficulties may try to avail itself, on the one hand, of the contractual remedies described in Part 1 of this series, but these remedies may be flimsy given their narrow scope and reliance on voluntary negotiation between parties whose relationship is already likely tense; on the other hand, the statutory remedies described in Part 1 of this series may be too rigid and absolute, necessitating the disposition of a business as a collection of assets, instead of its continued operation as a going concern. An alternative is receivership, a flexible but powerful quasi-judicial approach paralleling federal bankruptcy able to be administered by state courts. Compared to federal bankruptcy, state receivership is both over and under-inclusive: while receivership can be used in many more situations than insolvency, such as a financially healthy business that is nonetheless subject to regulatory action, receivership provides less comprehensive protection for an insolvent business.

Receiverships have their roots in English and Welsh courts of equity, which were seen as offering fairer remedies than their contemporary common law courts, bound as they were by ponderous precedent. In contrast, courts of equity had more discretion to apply remedies which could be more tailored and “equitable” to an individual petitioner, even if such remedies were not codified. While this separation of equitable and common law courts does not generally exist in the modern U.S. legal system (except for a few hold-out states, most notably, Delaware), the legacy remains in the type of civil remedy available: while most remedies are awarded as monetary redress for a past wrong suffered by a plaintiff (e.g. liquidated damages for the discloser of confidential information or the “benefit of the bargain” for the seller of a company), equitable remedies often require prospective action (or forbearance of an action) by the defendant (e.g. an injunction on disclosure by a recipient of confidential information or specific performance by a purchaser of a company). To draw the analogy out, bankruptcy is a “legal” process to address insolvency since it is governed by a comprehensive regime of federal statutes and rules in the Bankruptcy Code (which is, ironically, applied by specialized federal courts), while receivership is the “equitable” side of the same coin: a judicially-created remedy to manage or liquidate a business, among other actions, where it would not be equitable (or, most importantly for cannabis businesses, not possible) for a bankruptcy action.

Some states with legalized cannabis have cannabis-specific receivership statutes, usually providing that the receiver either be temporarily or fully licensed similar to any other operator of a cannabis business.As an equitable remedy used by various states and federal entities, generalizations about the receivership process are difficult to make. However, broadly speaking, a typical receivership process begins with a complaint filed against the entity for which receivership is sought in state court. This filing can be made by a variety of parties outside of the standard debtor-creditor relationship (reflecting the equitable nature of receiverships), including by regulators and disputing owners of a business. After this filing, a motion to appoint the receiver (which is usually but not always a third party) is filed with the court; consent of the opposing party is generally not required in appointing a receiver but can often make the process easier. The complainant must then establish standing and the occurrence of certain events, including insolvency, but also mismanagement of a corporation or a foreclosure. The requirements of such events are fact-specific and may often be governed by statute or the contractual relationship between parties. The order appointing the receiver usually sets out the specific powers the receiver has in any given case to oversee the disposition or operation of the assets subject to the receivership (called the “receivership estate”) for the benefit of its’s creditors.

Receivership laws generally fall into two categories: some states provide for a broad general statute, sometimes accompanied by statutes specific to industries which are heavily regulated, entity types, or process, while in other states the power is an extension of the court’s powers, set forth in the state’s rules of civil procedure. States also differ as to whether a receivership is considered an independent remedy, a standalone legal action which can be pursued in and of itself (e.g. a petition by a creditor to appoint a receiver to resolve settle an unpaid debt), or an ancillary remedy, a legal action that supports a primary claim (e.g. a request to appoint a receiver in connection with a dispute over the ownership of a business). Some states provide for general receiverships, which allows receivers to take control of an entire business, while other states also allow limited receiverships, which allows the receiver take control of a portion of a business, while the owner operates the remainder. Some states with legalized cannabis have cannabis-specific receivership statutes, usually providing that the receiver either be temporarily or fully licensed similar to any other operator of a cannabis business.1

Below is an overview of the laws and rules governing receiverships in certain states which have legalized cannabis.

Arizona
In Arizona, receivership is governed by statute, with a general statute and specific statutes for certain industries and type of receivership. Arizona law recognizes that principles of equity apply to all matters relating to receivers, providing the court overseeing the receivership with additional power to decide the remedies available to the receiver. In addition, Arizona has enacted a specific statutory framework for the appointment of receivers for commercial real property and personal property related to or used in operating the real property. Arizona also uses a separate receivership statute to provide for corporate dissolution receiverships, in which a court in a judicial corporate dissolution proceeding may appoint one or more receivers to wind-up, liquidate, or manage the business and affairs of the corporation.

There are no specific statutes governing receiverships of cannabis businesses, so the general receivership statute applies to cannabis businesses, subject to Arizona’s rules governing the operation of a cannabis business. For example, Arizona cannabis regulations that require anyone volunteering or working at a medical or recreational cannabis dispensary to be registered with the cannabis regulator similarly apply to a receiver appointed over a licensed cannabis business.

California

California does not have significant entity-specific or industry-specific statutes for receiverships; rather a California court’s power to appoint a receiver is granted under the state’s rules of civil procedure. Receiverships in California are solely an ancillary remedy; a receivership is commenced once a complaint is filed and any party to the action may seek to appoint a receiver. Circumstances that allow for the appointment of a receiver are fact-specific and at the discretion of a judge, although contractual provisions for the appointment of a receiver are given weight under the rules. Sales of assets in the receivership estate must be submitted to, and approved by, the appointing court.

While the rules of civil procedure provide for the general powers of a receiver, the specific powers a receiver possesses in any given case is granted by the judicial order appointing the receiver; this appointment order is therefore, along with the court itself, the primary authority for the parties in any given receivership. California explicitly disqualifies certain persons, such as parties to the lawsuit, an attorney of a party, a person interested in an action, or any person related to any judge of the court within the third degree, as receivers.

While California’s receivership rules do not explicitly contemplate cannabis businesses, receiverships for cannabis companies have taken place, but in our experience are less common in California than assignments for the benefit of creditors (which we will address in a later article). Like other licensed businesses in California, cannabis companies must provide notice to the state regulatory agency which granted the license. It is up to the agency’s discretion whether the business may be operated under the existing license or whether the receiver must secure a new or temporary license.

Colorado

Like California, no generally applicable receivership statute exists in Colorado; instead, receiverships are governed by the state’s rules of civil procedure. Under these rules, a receiver can be appointed under a court’s general equitable powers. Appointment of a receiver is an independent remedy in Colorado, but is contingent on a lawsuit having commenced and the court having deemed the receivership as necessary and proper. In addition to the court’s general equitable powers to appoint a receiver, and unlike California, Colorado has receivership statutes that are entity and industry specific. The entity-specific statutes permit the appointment of a receiver for the judicial dissolution of for-profit corporations, non-profit corporations, limited liability companies, and cooperatives, and the industry-specific statutes permit the appointment of a receiver for the windup of failed insurance companies and the closure of long-term care facilities.

Similar to California, the court order appointing a receiver governs the entire receivership process and any disposition of the assets of the receivership estate must be submitted to and approved by the court.

As befitting the first state to legalize adult-use cannabis, Colorado’s cannabis regulations specifically address receiverships: the rules create a notice and application requirement for all court appointees, including receiverships, and require receivers to register with the regulator as a “temporary appointee” of the court.

Illinois

Illinois does not have a comprehensive receivership statute; instead, the state has industry-specific statutes, including for regulated industries such as nursing home facilities and telecommunication carriers. Illinois also provides for “equity receiverships”, which are used as an ancillary remedy in business disputes in order to stabilize a business that is adversely affected by fraud, neglect, waste, dissipation, or other misconduct during the pendency of the underlying proceeding. If the underlying matter is within the general or statutory jurisdiction of the court, then such court has jurisdiction over the receivership.

There are no specific statutes governing receiverships of cannabis businesses, but the governing statute does contemplate operation of a cannabis business by a receiver, so regulations promulgated thereunder should apply to receivers as well, including with respect to licensing.

Maryland

Adult-use cannabis sales only began in Maryland July 1, 2023. Maryland has a general receivership statute.

Receivers in Maryland are generally appointed by the person seeking appointment, including the court, and must meet certain qualifications, such as not having any material financial interest in the outcome of the receivership, and not having any debtor-creditor relationship with or equity interest in any party to the receivership. While the general receivership statute provides for broad powers of the receiver, including general management of receivership property, hiring professionals, and issuing subpoenas, the court may modify or expand the powers of the receiver via the appointment order.

While there is no cannabis-specific receivership statute, Maryland’s medical cannabis rules contemplate and authorize the transfer of licenses to a receivership; similar rules have been proposed for adult-use cannabis licenses as well.

Nevada

Nevada has a broad receivership statute, in addition to both entity and industry specific statutes. Case law is not well-developed and mostly predates the current statutory scheme, but there is support for a receiver being appointed outside of a statutory context, specifically when the situation is governed by contractual agreement.

The general receivership statute provides that a receiver may be appointed in a variety of situations, such as fraudulent property purchases, foreclosure of mortgages, or the dissolution or insolvency of a corporation.

Nevada has a statutory regime for receiverships for cannabis companies. Unlike the general statute, there are significant requirements for who can be a receiver for a cannabis business. A receiver must first secure a cannabis establishment agent registration card for a cannabis receiver issued by Nevada’s cannabis regulator. In addition, the receiver must submit an application to the regulator accompanied by, among other requirements, a statement saying the receiver has not previously had an agent registration card revoked. The receiver must also provide proof that she has (1) experience or knowledge of the cannabis industry, (2) experience as a receiver appointed by a court, (3) knowledge and skills necessary to make reasonable financial decisions, and (4) adequate financial capacity to fulfill the duties of a receiver. If the regulator is satisfied with the receiver’s application, it will issue the receiver an agent registration card which must be renewed two years after issuance. It is worth noting that Nevada’s statute governing the non-transferability of certain agent registration cards for cannabis allows the regulator to adopt regulations that give priority in the processing of transfers of licenses for transferors subject to receivership. To date, however, no such regulations allowing priority for receivership processing have been adopted.

Washington

Washington has a general receivership statute, but not any entity or industry-specific receivership statutes. Washington’s receivership structure with overhauled in 2004 with the passage of a new law, so it is not completely settled whether receivership is now an independent or ancillary remedy; however, the language of the statute language suggests that it is an independent remedy.

To be appointed a receiver in Washington, the individual must meet certain requirements, including not being a party to, or be closely controlled by a party to, the underlying action and not having materially adverse interest to the person against whom receivership is sought. The general statute specifically outlines the powers of the receiver. Certain actions by the receiver require court approval before being finalized, including the assumption or rejection of executory contracts, and sales of property outside the ordinary course of business.

Washington law specifically provides for receiverships for cannabis companies. To be a receiver, the person must satisfy the requirements of Washington’s receivership law, and either be preapproved by the cannabis regulator or else be approved post-application. In order to qualify for the regulator’s preapproved receiver list, or be approved post-application, the putative receiver must (1) submit an application, (2) have been a Washington resident for at least six months prior to submission, (3) submit to and pass a criminal background check, (4) provide financial disclosures as requested by the regulator, and (5) disclose any interests in the cannabis licensees. Once a person is appointed as receiver for a cannabis licensee, she shall not have a financial interest in, or simultaneously serve as receiver for, another licensed cannabis retailer. The receiver may not also serve as a receiver for, or be a party of interest in, more than five cannabis retail licensees or more than three cannabis producer and/or processor licensees at the same time. Finally, any person who files a receivership action involving a cannabis licensee must provide notice to the regulator.

Part 3 of this series on Alternatives to Bankruptcy for Cannabis Companies continue our review of receivership in various states and other bankruptcy alternatives, including assignments for the benefit of creditors.

Reference

  1.  As cannabis legalization continues to spread, more robust industry-specific receivership rules may be promising given the heavily regulated and specialized nature of the business, similar to how a number of states have industry-specific rules for other heavily regulated industries.

The 3-Legged Stool of Successful Grow Operations: Climate, Cultivation & Genetics – Part 6

By Phil Gibson
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This is Part 6 and the final chapter in The 3-Legged Stool of Successful Grow Operations series. Click here to see Part 1, here to see Part 2, here to see Part 3, here for part 4 and here for Part 5.

Standard Operating Procedures (SOPs)

Figure 1: Precision aeroponics at FarmaGrowers GMP Facility, South Africa

Every objective has to have a vision and a vector of where you want to go and what you want to achieve. “Winging it” is okay for an innovative artistic endeavor where creativity is spontaneous and one-of-a-kind art is produced. Unfortunately, that is not how one creates a top-quality cultivation operation.

Customers expect guarantees of consistency; quality assurance means a purchase is safe to consume. Medicinal products around the world require Good Manufacturing Practices (GMP) certification. These are really just SOPs that document repeatable procedures to guarantee that the most recent batch offers the same results as the first certified effort. This brief covers the importance of documented operating procedures for a successful grow business with high quality customer results.

Figure 2: The objective – trichome covered flowers, DanCann, Denmark

Almost nobody gets excited about discussing quality, but experienced manufacturers know that quality control reduces waste and improves operations. Everyone learns that they have to implement feedback, improvement and quality control procedures to guarantee profitability and longevity in any business.

So, what is an SOP? A standard operating procedure defines ‘a task’ to be performed ‘at a location by a person or a role on a specific schedule.’ These definitions will include role definition, responsibilities, personnel training, equipment & service procedures, material handling, quality assurance controls, record keeping, approved procedures & instructions, documentation, references and appendices, all of which define your business and how it is to operate.

Now, you might ask, we are just growing plants, is all this really necessary? The short answer is, it depends. If you expect to export globally, do business in Europe and other markets, get licensed by Health Canada or some day be approved to ship to other States, then yes. If you are a regional craft cannabis supplier, maybe not, but there are many tasks that are required to grow where a better documented process can benefit your operation and the quality of the product delivered to your consumers.

Figure 3: Flower maintenance, DanCann, Denmark

We provide a bulleted list of recommendations in the full white paper but to touch on a few highlights that every operator should keep in mind, SOPs define the following structures for your business.

Personnel training is done for ‘this task, in this way’ & ‘this role is responsible’

Job descriptions reduce misunderstandings and increase worker ownership in your facility. Documenting your activities minimizes task overlap and conflicts that can lead to no one executing on something that may be important but not urgent. You want to eliminate employees thinking “I didn’t know it was my responsibility.”

Consultants or visitors must be aware of and follow the same requirements as your employees if you are to maintain the quality of your grow. Specific training should be given to anyone that handles or works around toxic chemicals. Safety sheets are not just paper; They keep people alive.

Equipment & Service Procedures

Be direct and specific in your task definitions, i.e., “Use 5ml of soap, clean until no plant matter or debris remains.”

Figure 4: Full GMP certified facility, FarmaGrowers, South Africa

Ideally, grow facilities, equipment and access will be designed with cleaning in mind from the start. This is not always possible but it is the mark of successful manufacturing or production companies.

Cleaning, cleaning, cleaning: think sterile, food safety and consumer consumption protections. SOPs should define cleaning methods and materials. This cleaning is done on schedule and aligned to your preventative maintenance and calibration requirements. Precise results require precise structure for any long-term operation.

We recommend that you integrate pictures and videos in the instructions for your procedures and training so that nothing is left to chance or misinterpreted.

Material Handling, Containers, Labels, Quality Assurance

Personnel contamination/cross-contamination are the death of any grow operation. Do everything you can to limit stray or wandering plant material, dust or debris from migrating from one grow room or area to another. Isolation is a good way to limit outbreaks to a specific room to minimize losses.

Figure 5: Documented SOPs must be followed & reviewed regularly

If something nasty happens to one of your rooms. Good labeling enforced by your quality assurance team is a simple way to increase the likelihood that employees will do a task as intended. This adds to your repeatability as people change jobs or roles are redefined.

Approved Procedures & Instructions

Quality assurance is all about repeatability and intended outcomes. Documenting procedures and intended use enables every new employee to follow the experience of the masters and duplicate their success. Testing, sampling and logging your results along the way enables you to know that you are on schedule and on process, so you can predict your results every time.

Part of your continuous improvement approach will be to deal with exceptions that are not covered by your procedures. Learning about those exceptions and capturing your experience with an improved method will lead to better outcomes the next time around.

Documentation, References, Appendices

Figure 6: Flower sealed & ready for export, DanCann, Denmark

You’ve done all of this hard work to capture your operation, so you need a complete library of your reference work and approach that employees can access. It does your operation no good if you capture your methods and no one ever looks at them again. Training cycles and reviewing your defined procedures is key to a consistent high-quality result.

Hero Award

Standard Operating Procedures (SOPs), Good Manufacturing Procedures (GMP) and Good Agricultural & Collection Practices (GACP), are all terms that will become more familiar as cannabis production joins into one global market. Professional results will be required and national or international certifications will be the guarantees that any global customer can trust that a product meets the standards they expect.

We have many customers in North America and around the world. but DanCann Pharma is the most aggressive when it comes to meeting international standards and results. Producing flower that is so pure that no irradiation is required for export, the DanCann operation is fully certified for production throughout Europe and they are sold-out of capacity for the coming year. They are currently expanding their operations in Denmark and are a solid example to follow for a well-defined repeatable operation. FarmaGrowers in South Africa is a close second in this race with multiple export certifications of their own. The future looks bright for both of these global operations.

For the complete white paper on Top Quality Cultivation Facilities, download the document here.

The 3-Legged Stool of Successful Grow Operations: Climate, Cultivation & Genetics – Part 4

By Phil Gibson
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This is Part 4 in The 3-Legged Stool of Successful Grow Operations series. Click here to see Part 1, here to see Part 2, and here to see Part 3. Stay tuned for Part 5, coming next week.

Integrated Pest Management (IPM)

Aeroponic & hydroponic systems can operate with little to no soil or media. This eliminates the pest vectors that coco-coir, peat moss/perlite and organic media can harbor as part of their healthy biome approach. Liquid nutrient systems come at the nutrient approach from a different direction. Pure nutrient salts (nitrogen, potassium, magnesium and trace metals) are provided to the plant roots in a liquid carrier form. This sounds ideal for integrated pest management programs, but cultivators have to be aware of water and airborne pathogens that can disrupt operations. I will summarize some aspects to consider in today’s summary.

The elimination of soil media intrinsically helps a pest management program as it reduces the labor required to maintain a grow and the number of times the grow room doors are opened. Join that with effective automation with sensors and software, and you have immediate improvements in pest access. Sounds perfect, but we still have staff to maintain a facility and people become the number one source of contamination in a grow operation.

Figure 1: Example of Pythium Infected & Healthy Roots

Insects do damage directly to plants as they grow and procreate in a grow room. They also carry other pathogens that infect your plants. For example, root aphids, a very common problem, are a known carrier of the root pathogen, Pythium.

Procedures

One of the most common ways for pests to access your sealed, sterile, perfectly managed facilities are in the root stock of outsourced clones. If you must start your grow cycles with externally sourced clones, it is strongly recommended that you quarantine those clones to make sure that they do not import pest production facilities into your operation. Your operation management procedures must be complete. If you take cuttings from an internal nursery of mother plants, any pathogens present in your mother room will migrate through cuttings into your clones, supply lines, and subsequently, flower rooms.

Figure 2: Healthy Mothers & Clones, Onyx Agronomics

Start your gating process with questioning your employees and visitors. Do they grow at home or have they been to another grow operation in the last week? In the last day? You may be surprised by how many people that gain access to your grow will answer these questions in the affirmative.

Developing standard operating procedures (SOPs) that are followed by every employee and every visitor will significantly reduce your pest access and infection rates, and hence, increase your healthy harvests and increase your profitability. Procedures should include clothing, quarantining new genetics and cleaning procedures, such as baking or irradiating rooms to guarantee you begin with a sterile facility. This is covered more in the complete white paper.

Engineering Controls

Figure 3: Access Control: Air Shower, FarmaGrowers

Technology is a wonderful thing but no replacement for regimented procedures. Considered a best practice, professional air showers, that bar access to internal facilities, provide an aggressive barrier for physical pests. These high velocity fan systems and exhaust methods blow off insects, pollen and debris before they proceed into your facility. From that access port into your grow space, positive air flow pressure should increase from the grow rooms, to the hallways, to the outside of your grow spaces. This positive airflow will always be pushing insects and airborne material out of your grow space and away from your plants.

Maintaining Oxidation Reduction Potential (ORP)

ORP is a relative measurement of water health. Perfect water is clear of all material, both inert and with life. Reverse osmosis (RO) is a standard way to clear water but it is not sufficient in removing microscopic biological organisms. UV and chemical methods are needed in addition to RO to clear water completely.

ORP is an electronic measurement in millivolts (mV) that represents the ability of a chemical substance to oxidize another substance. ORP meters are a developing area and when using a meter, it is important to track the change in ORP values rather than the absolute number. This is due to various methods that the different meters use to calculate the ORP values. More on this in the white paper.

Oxidizers

Figure 4: AEssenseGrows Aeroponic Nozzles

There are two significant ways to adjust the ORP of a fertilizer/irrigation (fertigation) solution. The first is by adding oxidizers. Examples are chemical oxidizers like hydrogen peroxide (H2O2), hypochlorous acid (HOCl), ozone (O3) and chlorine dioxide (ClO2). Adding these to a fertigation solution increases the ORP of the fertigation solution by oxidizing materials and organic matter. The key is to kill off the bad things and not affect the growth of plants. Again here, the absolute ORP metric is not the deciding factor in the health of a solution and the methods by which each chemical reaction occurs for each of these chemicals are different. This is compounded by the fact that different ORP meters will show different readings for the same solution.

Another wonderful thing about automation and aeroponic and hydroponic dosing systems is that they can automatically maintain oxidizing rates and our white papers explain the methods executed by today’s automation systems.

Water Chilling

Another way to adjust ORP is to reduce the water temperature of the reservoirs. Maintaining water temperature below the overall temperature of your grow rooms is imperative for minimal biological deposition and nutrient system health. Water chillers use a heat exchanger process to export heat from liquid nutrient dosing reservoirs and maintain desired temperatures.

The benefit of managing ORP in aeroponic and hydroponic grow systems is highly accelerated growth. This is enhanced in aeroponics due to the effectively infinite oxygen exchanging gases at the surface of the plant roots. Nutrient droplets are sprayed or vaporized in parallel and provided to these root surfaces. Maximizing the timing and the best mineral nutrients to the root combustion is the art of grow recipe development. Great recipes drive superior yields and when combined with superior genetics and solid environmental controls, these plants will deliver spectacular profits to a grow operation.

Another Hero Award

Before closing this chapter, we have many cultivators that are producing stellar results with their operational and IPM procedures, so it is hard to choose just one leader. That said, our hats are off to RAIR Systems again and their director of cultivation, Ashley Hubbard. She and her team are determined to be successful and drive pests out of their operations with positive “little critters” and the best water treatment and management that we have seen. You are welcome to view the 7-episode walkthrough of the RAIR facility and their procedures here.

To download the complete guide and get to the beef quickly, please request the complete white paper Top Quality Cultivation Facilities here.

Stay tuned for Part 5 coming next week where we’ll discuss Genetics.

cannabis close up

Benefits To Growing Cannabis In A Cleanroom Environment

By Steve Gonzales
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cannabis close up

For commercial cannabis growers, consistent crop yields are vital to maintaining product profitability, as well as durable profitability. Since cannabis thrives under certain conditions, the more control a cultivator has over those conditions, the easier consistent harvests become.

While factors like humidity, light exposure and water may be easy enough to control in any indoor environment, other influential factors can be more difficult to control, such as mold or other contaminants. Growing in a controlled cleanroom environment ensures healthy, high-quality cannabis by mitigating some harder-to-control threats. For these reasons, growing cannabis in a cleanroom environment is rapidly becoming the gold standard in the industry.

A Closer Look at the Cleanroom Environment

A cleanroom facility is a specially designed room or modular addition designed to support a tightly controlled grow environment for crops. The design of the cleanroom relies on several design features to deter issues with pollutants, such as insects, mold, airborne microbes and dust. Even though cleanroom environments are often affiliated with cultivating certain types of crops, these facilities are also valuable in other industries, such as medicine, biology and pharmaceuticals.

Cleanrooms can be conservatively sized or massive. They can be configured to accommodate different processes, and they can be built to suit a specific grower’s preferences. However, several features are key, such as:

  • Cleanroom-rated HEPA (high-efficiency particulate arrestor) filtration
  • Contamination control mats
  • Positive-pressure airflow systems
  • Double-door air chambers at entry points
  • Moisture-resistant wall panels
control the room environment
Preventing contamination can save a business from extremely costly recalls.

One fundamental requirement of a cleanroom is to control the introduction of contaminants into the space. Contaminants can be carried in on the people who visit the space. Therefore, cleanroom implementation must come along with strict protocols when it comes to employee entry into the room. For example, air showers, special gowns, masks and other measures may be required. 

The Benefits of Cleanroom Environments for Cultivators

On the surface level, cleanrooms make it possible to achieve a well-controlled environment for cannabis cultivation. However, while this is undeniably important in terms of consistent crop yields and profitability, cleanrooms pose a number of broader advantages for cultivators and end customers.

Meet Laboratory Testing Guidelines and Protocols

For now, states create product testing regulations for cannabis. Most states that have legalized medical or adult use cannabis have created protocols for lab-testing products for pesticides and microbes. When batches of cannabis product do not meet state lab-testing standards, the product can be recalled or destroyed. In 2016, Steep Hill published an alarming study that showed they detected pesticides in roughly 70% of the samples they received and up to one third of all samples would have failed to meet regulatory standards. Cleanrooms reduce a grower’s reliance on pesticides.

Negate the Risk of Fungal Contamination

Cleanrooms negate the risk of fungal contamination through proper ventilation, particulate control and positive pressure.

Cannabis is prone to certain types of fungal spores that can cause severe illness in end customers. For example, Aspergillus mold spores are common in cannabis and can lead to cases of chronic pulmonary aspergillosis. In large doses, Aspergillus mold spores may even cause liver failure due to the carcinogenic mycotoxins the spores produce in the body. Cleanrooms negate the risk of fungal contamination through proper ventilation, particulate control and positive pressure. 

Create a Safer Work Environment for Employees

Employees who work in cultivation facilities in the cannabis industry face various occupational hazards. Many of these hazards are related to being in contact with fungicides, mold spores and chemical fertilizers. The exposure can result in issues such as allergic reactions, respiratory irritation and other physical threats. Cleanrooms and how they function can deter many of these risks. For example, the lack of need for fungicide use automatically lowers the risks due to lacking exposure. Further, because protective gear is required to maintain the integrity of the cleanroom, there is less of a chance an employee’s skin or respiratory system is exposed to irritants.

Cleanrooms: The Potential Future of Cannabis Cultivation

As cannabis becomes a more robust industry and regulations become more clearly defined, growing standards are bound to change. As speculations of national regulations veer closer to reality, growing cannabis industrially may even mean required cultivation facility upgrades. Cleanroom environments give growers firm control over the health of their crops while ensuring clean products for customers. Therefore, these innovative and health-forward implementations could easily become the norm in the cannabis industry in the future.

Cannabis Receiverships: A Viable Alternative to Bankruptcy

By Oren Bitan
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Doing business in California’s legal cannabis industry remains a risky endeavor. The majority of the industry is still unlicensed, tax rates at the state and local levels are high (notwithstanding a recent reprieve from California’s cultivation tax) and there are not enough licenses to meet geographic demand throughout the state. Outside financing remains difficult to secure for equipment, tenant improvements, account receivables and working capital because, under the federal Controlled Substances Act (CSA), cannabis remains a Schedule I narcotic. Therefore, entrepreneurs, investors and lenders who have stakes in state-sanctioned cannabis enterprises expect to see returns that justify the higher level of risk, which places additional financial pressure on cannabis businesses. In addition to the industry specific challenges, the United States economy is on the verge of a recession that may further hamper the industry notwithstanding the industry’s resiliency during the pandemic when it was deemed to be an “essential” industry that benefited from consumer spending of stimulus monies.

These outside pressures increasingly lead to ownership disputes and creditor defaults that result in litigation and the need for restructuring. In some instances, business partners cannot agree about control and finances of the licensed businesses and in other instances unpaid creditors file suit to enforce their interest in a company’s assets. And sometimes a local municipality discovers wrongdoing by an operator and initiates a health and safety lawsuit to cease the illegal condition.

Bankruptcy reorganization is an option typically utilized by struggling businesses to shed or restructure debt. Cannabis businesses, however, cannot take advantage of bankruptcy remedies because bankruptcy is a product of federal law and federal law still prohibits the sale of cannabis.

As a result, stakeholders in legal California cannabis enterprises must consider alternatives to bankruptcy to collect what they can on their loans and investments in the event the enterprise becomes insolvent or requires restructuring. A well-established alternative to bankruptcy is a state court remedy – the appointment of a receiver over the assets of a business or over the entire business operations. Through the receivership process, stakeholders may obtain many of the same protections available to them through bankruptcy

A. Federal Illegality Bars Access to Bankruptcy Protection

Over the past ten years, bankruptcy courts have routinely prohibited licensed cannabis businesses from seeking bankruptcy protection because cannabis remains illegal at the federal level under the Controlled Substances Act (CSA). Bankruptcy trustees are typically charged with managing and operating property in the same manner that the owner would be bound to do if in possession thereof. Because cannabis remains illegal at the federal level, trustees are not able to manage and operate licensed cannabis businesses.

B. Receivership as an Alternative to Bankruptcy

Under California law, a receiver is a neutral agent of the court appointed to preserve, control, manage and ultimately dispose of property that is subject to the litigation before the court.1 The receiver, therefore, holds property for the court, not the parties to the litigation.

Appointment of a receiver is a statutory provisional remedy. Other than corporate dissolutions under Code of Civil Procedure section 565, the law does not have a specific cause of action to appoint a receiver. Thus, the proponent of a receiver must have a valid cause of action in an underlying lawsuit.

1. The Appointment of a Receiver

The appointment of a receiver rests within the trial court’s discretion. Code of Civil Procedure section 564 contains the broadest statutory authority to appoint a receiver. Subdivision (b), details twelve possible situations in which a receiver may be appointed, most of which are beyond the scope of this article. The most common of these is a lender’s request to appoint a receiver when a borrower defaults on a loan and the lender seeks the appointment of a receiver over its collateral. The statute, however, clarifies that the situations listed in the statute are not exclusive: a court may appoint a receiver “[i]n all other cases where necessary to preserve the property or rights of any party.”

The receiver’s powers are limited by the statute under which the court appointed the receiver and those conferred by the court. The appointment order should, therefore, detail the duties the receiver owes to the court, and actions that the court authorizes the receiver to take to perform those tasks. The order should also specify the property that will be part of the receivership estate.

2. The Receiver’s Powers

The receiver has general statutory powers.2 The statutory powers include (i) commencing or defending litigation; (ii) taking and possessing property of the receivership estate, (iii) receiving rent, collecting debts, and making transfers, and (iv) acting in accordance with the court’s instruction with respect to the property.3 But the court’s authorization is necessary to sue the receiver and for the receiver to commence litigation.4 In the foregoing scenarios, the receiver is immunized personally from tort liability, but not in his or her official capacity as receiver.5

In addition to taking possession of property, the receiver may dispose of receivership property with the court’s approval.6 If the receiver is an equity receiver, the receiver may take possession and satisfy creditors from all the debtor’s assets.7

The court may further authorize the receiver to issue “certificates of indebtedness” to raise money to administer the receivership estate.8 This device permits the receiver to provide liquidity to the estate and gives the certificate holder an interest-bearing priority claim against the receivership estate.

3. Liquidating Cannabis Assets Through a Court Appointed Receiver

After the court appoints the receiver, the receiver should have sufficient powers to, among other things: (i) take over the management of the company; (ii) open bank accounts; (iii) borrow money by issuing receivership certificates; (iv) manage all of the company’s property; (v) hire counsel and other professionals; and (vi) sell the receivership estate’s assets for the benefit of the creditors. To maximize repayment to the creditors, the receiver may hold an auction to sell the assets and assist in facilitating the cancellation of company’s state license while the buyer of the assets secures its state license after the local license is transferred.

State cannabis licenses may not be sold or transferred.9 Yet, to maximize recovery for the creditors, the receiver may need to participate in the regulatory process to maintain a license during the pendency of the receivership and to assist in the amendment of a license while a prospective buyer seeks to obtain its own license. To do so, the receiver will first need to qualify as a licensee under state law to join as a licensee on the license and further the licensee as a going concern. Next, the principals of the prospective buyer will themselves need to qualify as licensees under the license. Then, once the sale of the company’s assets (including any interest in the license) to the buyer closes, the receiver and the company’s original owners will terminate their capacities as licensees of the license, leaving only the new owners as licensees. Thus, the proposed order should be written with attention to ensure the receiver has powers to further the foregoing and not diminish the value of the receivership estate.

After the conclusion of the sale of all assets, the receiver will need to obtain a discharge from the court of his or her duties as receiver. The receiver may do so by the parties’ stipulation or by motion. Together with the request for a discharge, the receiver should seek approval to pay: (i) any lenders to the receivership estate; (ii) professionals that the receiver hired; and (iii) him or herself for his or her services. Upon the court’s approval, the receivership will be terminated.

The conflict between federal and California law regarding cannabis continues to be an impediment for stakeholders in California’s cannabis market. Because of this conflict, stakeholders in California’s legal cannabis market lack access to vital traditional institutions, such as bankruptcy remedies. As a result, stakeholders must be prepared to consider alternatives such as a court appointed receiver, which can be a useful alternative to both secured creditors and unsecured creditors. Stakeholders who pursue a court appointed receiver will benefit from a long-established body of law and experienced professionals.

References

  1. Cal. Rules of Ct., r. 3.1179(a).
  2. Cal. Civ. Proc. Code §§ 568-570.
  3. Free Gold Mining Co. v. Spiers, 136 Cal. 484, 486 (1902); Steinberg v. Goldstein, 129 Cal. App. 2d 682, 685 (1954).
  4. Vitug v. Griffin, 214 Cal. App. 3d 488, 493 (1989).
  5. Chiesur v. Superior Court, 76 Cal. App. 2d 198, 201 (1946).
  6. Helvey v. U.S. Bldg. & Loan Ass’n, 81 Cal. App. 2d 647, 650 (1947).
  7. Turner v. Superior Court, 72 Cal. App. 3d 804, 812 (1977).
  8. Cal. Civ. Proc. Code § 568.
  9. See e.g., Cal. Code Regs. tit. 16, § 5023(c).

From Factory to Flower – 4 GMP Insights for the Grow House

By Tom Blaine
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At first glance, the layout of a grow room and a factory production line might seem to have little in common. But whether a facility is producing plants or parts, adopting good manufacturing practices (GMP) can benefit plant quality, harvest consistency and production economics.

What is GMP?

Simply defined, GMP refers to a production system made up of processes, standards and safeguards designed to consistently meet a defined quality standard. In the grow house, establishing, documenting and implementing GMPs can help guard against problems ranging from plant contamination to inconsistent harvests. GMPs can be organized into five key categories, each which contribute to cultivation:

  • People: The people working in the grow house understand their responsibilities
  • Processes: Production processes are clearly documented and consistent across harvests
  • Procedures: Guidelines are documented and communicated to all employees
  • Premises: Grow rooms and equipment are clean and maintained
  • Products: Materials used in cultivation (fertilizers, lighting, growing media, etc.) are assessed

Optimizing each of these five P’s in production can help cultivators protect their business and their margins even as flower prices in both legacy and emerging states continue to trend downward. Below, we look at four GMP insights that can help cultivators coordinate the five Ps to achieve quality, consistency and economic objectives harvest after harvest, without massive investments in capital, even during turbulent market conditions.

#1 Know your numbers and their value

Avoid the temptation to lump production costs into very broad categories, i.e., “cost of goods.” Understanding the exact cost of all inputs that go into a grow is a precedent to cost-effective production. The price of the plant material, energy consumed, labor, nutrients, fertigation and other inputs involved in the grow should be calculated to determine the actual cost of a grow room. If rooms are set up consistently, you can multiply to get an aggregate production cost across the facility.

Growing media

Look beyond the price tag when calculating costs and consider the value each input brings to the grow. Nutrition is a good example. Understanding the concentration of specific nutrients in a product can be a better way of evaluating its value than simply looking at the cost of the goods. And consider whether added nutrients are actually adding value to the product produced. More isn’t always more. In most cases, simple salts will supply the plant with what it needs to grow.

Growing media is another opportunity to evaluate the cost/benefit of cultivation inputs. How much yield can be achieved with a particular medium compared to a different choice? For example, a bag of coco may initially appear to be the low-cost choice for cultivation. Upon a deeper evaluation, though, the cost per plant of coco is generally higher when you factor in the amount of media used for each plant (and that doesn’t even factor in the labor to fill the pots).

# 2 Reduce time waste

Among the various inputs in each growing cycle, labor represents a significant cost.  Are labor hours being put to the best use and not wasted? American industrialist and innovator in mass production Henry Ford stated, “Time waste differs from material waste in that there can be no salvage. The easiest of all wastes and the hardest to correct is the waste of time, because wasted time does not litter the floor like wasted material.”

One way to see the cost of wasted labor dollars is to set up a camera and record a day of activity in the grow room during each step of a grow cycle. Or simply observe the responsibilities that are requiring workers’ time on a typical day. Watching employees’ work in the grow room may reveal how a room’s set-up is contributing to or hindering production. Are employees spending their time on tactics that add value or are they being slowed down by manual processes, such as filling containers, watering and relocating plants in the facility? Are there steps and process that could be automated, such as fertigation? Seeing how employees’ time is being used can identify opportunities to direct efforts toward functions that add value or cut costs. What would be the economic benefit of reducing a half-day of set-up time in the grow house or automating some processes?

GMPBeyond better allocation of human capital, understanding how time is used in the growing operation can suggest changes to materials used in the grow. For example, selecting a growing media that comes in plugs and blocks with pre-drilled holes for efficiently dropping in new plants can reduce time spent filling pots or configuring containers. Automating functions like fertigation and watering can not only reduce labor time but increase the precision of delivery when it comes to water and nutrients.

#3 Introduce incremental improvements

Many manufacturers rely on pilot plants to mitigate risk before process scale-up takes place across an enterprise. The same approach can benefit the grow house. Resist the temptation to overhaul the system and instead focus on introducing one change at a time. This disciplined approach will allow you to evaluate if a change is actually delivering value and should be applied more broadly. The wisdom of a cautious approach to improvements is reflected in a quote by innovation magnate Steve Jobs, co-founder of Apple. Observing that not every innovation will be a win, Jobs stated, “Sometimes when you innovate you make mistakes. It is best to admit them quickly and get on with improving your other innovations.”

When introducing a new element into the grow, pilot it in one “sample” area before adding it to the entire operation. Then give the innovation time to be evaluated before deploying it more widely. This measured approach can help reduce the risk that accompanies making a change to processes and will allow you to evaluate the relative benefit of any change or innovation. And as changes are introduced one at a time, it is easier to determine which changes are contributing value.

#4 Satisfy the market, not just the spec

Regulatory bodies set the compliance criteria for purity or quality standards in manufacturing, but the ultimate mark of approval is awarded by customers in the marketplace. A harvest may meet all of the quality specs, but if customers don’t want to buy it, achieving GMP metrics is a moot effort. The marketplace will always have the final say on a product’s commercial viability.

Understand what the market wants and be able to replicate it consistently harvest after harvest. Manufacturing a product that meets the market’s desired performance attributes is essential to sustaining and growing operations. Production quality is only as good as the last harvest and any degradation in product quality will diminish buyers’ trust. History shows that the challenge of achieving consistent production quality and reliability isn’t just a problem for cultivators. Among several factors that doomed the short-lived Edsel sedan introduced in 1957 were problems arising from assembly workers having to use different tools and techniques. A lack of consistency in producing cars or cultivars can turn off customers and profitability.

A tension exists between achieving production consistency and the opportunity to introduce changes that improve the grow. By integrating improvements into the production system one measured change at a time, cultivators can assess which improvements to continue and what needs to be tweaked. But as manufacturing has long demonstrated, continuous improvement is an ongoing journey.

As cultivators consider the 5 Ps of people, processes, procedures, premises and products, applying these four GMP insights can help growers in emerging and legacy markets navigate changing market conditions and drive continuous improvement.

Reducing Cross Contamination in Your Lab

By Nathan Libbey
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Cross Contamination

Cross Contamination – noun – “inadvertent transfer of bacteria or other contaminants from one surface, substance, etc., to another especially because of unsanitary handling procedures. – (Mariam Webster, 2021). Cross contamination is not a new concept in the clinical and food lab industries; many facilities have significant design aspects as well as SOPs to deliver the least amount of contaminants into the lab setting. For cannabis labs, however, often the exponential growth leads to a circumstance where the lab simply isn’t large enough for the number of samples processed and number of analytical instruments and personnel needed to process them. Cross contamination for cannabis labs can mean delayed results, heightened occurrences of false positives, and ultimately lost customers – why would you pay for analysis of your clean product in a dirty facility? The following steps can save you the headaches associated with cross contamination:

Wash (and dry) your hands properly

Flash back to early pandemic times when the Tik Tok “Ghen Co Vy” hand washing song was the hotness – we had little to no idea that the disease would be fueled mostly by aerosol transmission, but the premise is the same, good hand hygiene is good to reduce cross contamination. Hands are often the source of bacteria, both resident (here for the long haul; attached to your hands) and transient (easy to remove; just passing through), as they come into contact with surfaces from the bathroom to the pipettor daily (Robinson et al, 2016). Glove use coupled with adequate hand washing are good practices to reduce cross contamination from personnel to a product sample. Additionally, the type of hand drying technique can reduce the microbial load on the bathroom floors and, subsequently tracked into the lab. A 2013 study demonstrated almost double the contamination from air blade technology versus using a paper towel to dry your hands (Margas et al, 2013).

Design Your Lab for Separation

Microbes are migratory. In fact, E. coli can travel at speeds up to 15 body lengths per second. Compared to the fastest Olympians running the 4X100m relay, with an average speed of 35 feet per second or 6 body lengths, this bacterium is a gold medal winner, but we don’t want that in the lab setting (Milo and Phillips, 2021). New lab design keeps this idea of bacterial travel in mind, but for those labs without a new build, steps can be made to prevent contamination:

  • Try to keep traffic flow moving in one direction. Retracing steps can lead to contamination of a previous work station
  • Use separate equipment (e.g. cabinets, pipettes) for each process/step
  • Separate pre- and post-pcr areas
  • Physical separation – use different rooms, add walls, partitions, etc.

Establish, Train and Adhere to SOPs

Design SOPs that include everything- from hygiene to test procedures and sanitation.

High turnover for personnel in labs causes myriad issues. It doesn’t take long for a lab that is buttoned up with cohesive workflows to become a willy-nilly hodgepodge of poor lab practices. A lack of codified Standard Operating Procedures (SOPs) can lead to a lab rife with contaminants and no clear way to troubleshoot the issue. Labs should design strict SOPs that include everything from hand hygiene to test procedures and sanitation. Written SOPs, according to the WHO, should be available at all work stations in their most recent version in order to reduce biased results from testing (WHO, 2009). These SOPs should be relayed to each new employee and training on updated SOPs should be conducted on an ongoing basis. According to Sutton, 2010, laboratory SOPs can be broken down into the following categories:

  • Quality requirements
  • Media
  • Cultures
  • Equipment
  • Training
  • Sample handling
  • Lab operations
  • Testing methodology
  • Data handling/reporting/archiving
  • Investigations

Establish Controls and Monitor Results

Scanning electron micrograph shows a colony of Salmonella typhimurium bacteria. Photo courtesy of CDC, Janice Haney Carr
Scanning electron micrograph shows a colony of Salmonella typhimurium bacteria. Photo courtesy of CDC, Janice Haney Carr

It may be difficult for labs to keep tabs on positivity and fail rates, but these are important aspects of a QC regimen. For microbiological analysis, labs should use an internal positive control to validate that 1) the method is working properly and 2) positives are a result of target analytes found in the target matrix, not an internal lab contamination strain. Positive controls can be an organism of choice, such as Salmonella Tranoroa, and can be tagged with a marker, such as Green Fluorescent Protein in order to differentiate the control strain. These controls will allow a lab tech to discriminate between a naturally contaminated specimen vs. a positive as a result of cross-contamination.

Labs should, in addition to having good QC practices, keep track of fail rates and positivity rates. This can be done as total lab results by analysis, but also can be broken down into customers. For instance, a lab fail rate for pesticides averages 4% for dried flower samples. If, during a given period of review, this rate jumps past 6% or falls below 2%, their may be an issue with instrumentation, personnel or the product itself. Once contamination is ruled out, labs can then present evidence of spikes in fail rates to growers who can then remediate in their own facilities. These efforts in concert will inherently drive down fail rates, increase lab capacity and efficiency, and result in cost savings for all parties associated.

Continuous Improvement is the Key

Cannabis testing labs are, compared to their food and clinical counterparts, relatively new. The lack of consistent state and federal regulation coupled with unfathomable growth each year, means many labs have been in the “build the plane as you fly” mode. As the lab environment matures, simple QC, SOP and hygiene changes can make an incremental differences and drive improvements for labs as well as growers and manufacturers they support. Lab management can, and should, take steps to reduce cross contamination, increase efficiency and lower costs; The first step is always the hardest, but continuous improvement cannot begin until it has been taken.

References

Margas, E, Maguire, E, Berland, C. R, Welander, F, & Holah, J. T. (2013). Assessment of the environmental microbiological cross contamination following hand drying with paper hand towels or an air blade dryer. Journal of Applied Microbiology, 115(2), 572-582.

Mariam Webster (2021. Cross contamination. Retrieved from https://www.merriam-webster.com/dictionary/cross%20contamination

Milo, M., and Phillips, R. (2021). How fast do cells move? Cell biology by the numbers. Retrieved from http://book.bionumbers.org/how-fast-do-cells-move/

Robinson, Andrew L, Lee, Hyun Jung, Kwon, Junehee, Todd, Ewen, Perez Rodriguez, Fernando, & Ryu, Dojin. (2016). Adequate Hand Washing and Glove Use Are Necessary To Reduce Cross-Contamination from Hands with High Bacterial Loads. Journal of Food Protection, 79(2), 304–308. https://doi.org/10.4315/0362-028X.JFP-15-342

Sutton, Scott. (2010). The importance of a strong SOP system in the QC microbiology lab. Journal of GXP Compliance, 14(2), 44.

World Health Organization. (2009). Good Laboratory Practice Handbook. Retrieved from https://www.who.int/tdr/publications/documents/glp-handbook.pdf

HACCP

HACCP for Cannabis: A Guide for Developing a Plan

By Radojka Barycki
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HACCP

Hazard Analysis and Critical Control Points (HACCP) is a systematic approach that evaluates hazards that may potentially be present in food products that can harm the consumer. The process used to manufacture the product is evaluated from raw material procurement, receiving and handling, to manufacturing, distribution and consumption of the finished product1. The documented process is what is known as HACCP plan. Although HACCP was designed to evaluate hazards in foods, it can be used to assess or evaluate hazards that may potentially be present in cannabis consumable products (edibles and vaping) that can cause harm to the consumer.

HACCP plan development requires a systematic approach that covers 5 preliminary steps and 7 principles. A systematic approach means that each step must be followed as outlined. Skipping a step will result in a HACCP plan that most likely will be ineffective to control potential hazards in the product.

The 5 preliminary steps are:

  1. Establish a HACCP team
  2. Describe the product
  3. Establish the intended use of the product
  4. Develop a flow diagram
  5. Verify the flow diagram

The 7 Principles are:HACCP

  1. Conduct a hazard analysis
  2. Identify the critical control points (CCPs)
  3. Establish critical limits (CL)
  4. Establish monitoring procedures
  5. Establish corrective actions
  6. Establish verification procedures
  7. Establish records and record keeping procedures1,2

It is important to mention that HACCP plans are supported by programs and procedures that establish the minimum operational and sanitary conditions to manufacture safe products. These programs and procedures are known as pre-requisite programs (PRP) or preventative controls1,2.

Figure 1. Flow Diagram

A multidisciplinary team must be established in order to ensure that all inputs of the product manufacturing process are considered during the hazards analysis discussions. The description of the product and its intended use provides detail information on ingredients, primary packaging material, methods of distribution, chemical characteristics, labeling and if any consumer might be vulnerable to the consumption of the product. A verified flow diagram is an accurate representation of the different steps followed during the product manufacturing process and will be used to conduct a hazard analysis. An inaccurate flow diagram will set the stage for an inadequate HACCP plan. Therefore, it is important that the HACCP team members verify the flow diagram. Figure 1 is a flow diagram for a fictional infused apple juice manufacturing plan that I will be using as an example.

The hazard analysis is the backbone of the HACCP plan. There are two elements that must be considered when conducting the hazard analysis:

  • Identification of the hazard associated with the ingredient(s) and/or the product manufacturing steps. These hazards have been categorized as: Biological, chemical (including radiological) and physical. Biological, chemical and physical hazards should be considered for each ingredient, primary packaging and process step. Also, it is important that the team is specific as to what hazard they are referring to. I often find that biological hazards are identified as “pathogens” for example. The team has to be specific on which pathogen is of concern. For example, if you are processing apple juice, the pathogens of concern are pathogenic coli and Salmonella sp. However, if you are processing carrot juice, you need to add Clostridium botulinum as a biological hazard also. If the choice of method to eliminate the hazards is pasteurization for example, the processing temperature-time combinations will differ greatly when manufacturing the apple juice vs. the carrot juice as C. botulinum is an organism that can sporulate and, therefore, is harder to kill.
  • Characterization of the hazard. This implies determining the significance of the potential hazard based on the severity of the consequence if it is consumed and the likelihood of occurrence in the ingredient or process step. Only steps in the process that has significant hazards should be considered further.
Table 1. Ingredient Hazard Analysis

In my professional experience, the hazard analysis is one of the most difficult steps to achieve because it requires the expertise of the multidisciplinary team and a lot of discussion to get to the conclusion of which hazard is significant. I find that a lot of teams get overwhelmed during this process because they consider that everything in the process may represent a hazard. So, when I am working with clients or providing training, I remind everyone that, in the bigger scheme of things, we can get stricken by a lighting in the middle of a thunderstorm. However, what will increase our chances would be whether we are close or not to a body of water for example. If I am swimming in the middle of a lake, I increase my chances to get stricken by the lighting. In comparison, if I am just sitting in my living room drinking a cup of coffee during the thunderstorm, the likelihood of being stricken by a lighting is a lot less. The same rationale should be applied when conducting the hazard analysis for manufactured products. You may have a hazard that will cause illness or death (high on the severity chart) but you also may have a program that mitigates the likelihood of introducing or having the hazard. The program will reduce the significance of the hazard to a level that may not need a critical control point to minimize or eliminate it.

Table 2. Process Hazard Analysis (1)

Clear as mud, right? So, how would this look like on the infused apple juice example? Table 1 shows the hazard analysis for the ingredients. Tables 2 and 3 show the hazard analysis for the part of the process. In addition, I have identified the CCPs: Patulin testing and pasteurization. There is a tool called the CCP decision tree that is often used to determine the CCPs in the process.

Once we have the CCPs, we need to establish the critical limits to ensure that the hazard is controlled. These limits must be validated. In the case of Patulin, the FDA has done several studies and has established 50 ppm as the maximum limit. In the case of pasteurization, a validation study can be conducted in the juice by a 3rd party laboratory. These studies typically are called thermal death studies (TDS) and provide the temperature and time combination to achieve the reduction of the pathogen(s) of concern to an acceptable level that they do not cause harm. In juice, the regulatory requirement is a 5-log reduction. So, let’s say that the TDS conducted in the infused apple juice determined that 165°F for 5 seconds is the critical limit for pasteurization. Note that the 5 seconds will be provided by the flow of the product through the holding tube of the pasteurizer. This is measured based on flow in gallons per minute.

Table 3. Process Hazard Analysis (2)

Monitoring is essential to ensure that the critical limits are met. A monitoring plan that outlines what, how, when and who is responsible for the monitoring is required.

Ideally, the system should not fail. However, in a manufacturing environment, failures can happen. Therefore, it is important to pre-establish steps that will be taken to ensure that the product is not out of the control of the facility in the event of a deviation from the HACCP plan. These steps are called corrective actions and must be verified once they are completed. Corrective actions procedures must address the control of the product, investigation of the event, corrective actions taken so the deviation doesn’t reoccur and product disposition.

Table 4. HACCP Plan Summary

Verification activities ensure that the HACCP plan is being followed as written. Typically, verification is done by reviewing the records associated with the plan. These records include but are not limited to monitoring records, calibration records, corrective action records, and preventive maintenance records for equipment associated with the CCPs. Record review must be done within 7 working days of the record being produced.

Finally, establishing records and record keeping procedures is the last step on developing HACCP plans. Records must be kept in a dry and secure location.

Table 4 show the summary of the HACCP plan for the infused apple juice example.

For more information on how to develop a HACCP plan for your facility, read the resources below:

  1. HACCP Principles and Application Guidelines – The National Advisory Committee on Microbiological Criteria for Foods (NACMCF)
  2. ASTM D8250-19: Standard Practice for Applying a Hazard Analysis Critical Control Points (HACCP) Systems for Cannabis Consumable Products

Processes, Protocols and Layers of Protection: Essential Security Measures for the Medical Cannabis and Hemp Industries

By Joshua Wall
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As legalization of cannabis products from hemp to medical cannabis takes root across the U.S., there’s a growing need to understand and build good security practices. While many think of security as safeguarding assets like facilities and product, effective security does much more. It protects a business’ workers, providing them secure workplaces and incomes. Ideally, it reaches from supply chain to customers by ensuring consistently safe products.

To truly understand the value of this for a brand or for the industry as a whole, consider the opposite: the destructive effect – on a brand and on the industry at large – of unsafe or tampered product reaching customers, or of crimes occurring, just as the industry seeks to demonstrate its validity and benefits. Security is vital not only to individual farmers, processors or customers but to all who value what the industry brings to those who rely on CBD or medical cannabis products for their wellbeing.

Know the Threats.

Part of the learning process involves understanding the value of the product.Security is all about anticipating and reducing risks. These can include physical threats from natural sources – think flood, fire, tornado or crop fail – or from human threats. Human threats can arise from organized criminals, hackers, amateur thieves, vandals – or insiders.

As regulated industries, hemp and cannabis businesses also face risk of losses, which can be significant, from penalties ranging from fines to being shut down for non-compliance. While rules vary from state to state and continue to change, a disciplined approach to security is foundational to reducing risk at many levels. Rigorous operational processes must incorporate security that addresses risks at multiple points of access, transport and sale of products.

Learn the Rules.

In a rapidly evolving industry, one of the most important things producers can do is to learn. Security requirements vary by region and providers need to be aware of what is available. Get to know your state, local and federal resources for your operating area. California law, for example, specifies use of high-resolution video surveillance in dispensaries, while others do not.

Joshua Wall, Chief Operating Officer at Harvest Connect LLC

Part of the learning process involves understanding the value of the product. With medicinal cannabis, it’s helpful to grasp both its commodity value and the street value that could make it attractive to thieves. In “Why Marijuana Plant Value is So Important for Adjusters,” Canadian Underwriter Magazine gave examples that indicate the size of losses that may occur in growing and processing operations:

“In the medical marijuana space, ClaimsPro has already seen losses primarily between $150,000 and $750,000. These losses, mostly on Vancouver Island, were for fire and water damage, as well as boiler machinery issues, physical damage to buildings and specialized greenhouse equipment, as well as extra expense and business interruption.”

The same article notes a claim over $20 million at another single flower greenhouse. Security needs to reflect what’s present on our premises.

Educating the community can reduce risk as well. Producers of industrial hemp may need to inform would-be thieves that what they are looking at is not street-valued product. To protect the crops, which are generally grown outdoors and do not require a full security detail, a best practice is simply posting signs on the property that say explicitly “No THC.” 

Begin with a Risk Assessment.

Security begins with a professional evaluation of site vulnerabilities, examining key weaknesses that could be exploited by attackers. These include:

  • Monitoring access to the site is a foundational principle of security.
  • Design limited access points into the facility as well as prepare for possible facility breaches with perimeter access control, technological redundancies and ballistic glass for defensive architecture measures.
  • Look at route vulnerabilities as well.
  • Hedge site risk by not limiting your operation to a single site where one incident could wipe out an entire year’s crop.

The nature of threats is always changing. A 2018 Newsweek article described the struggles of legal cannabis farmers against illegal and potentially cartel-backed and violent operations in California. While a 2020 Business Insider report described indications that legalization was prompting some cartels to leave cannabis alone and move on to fentanyl and meth. “While Mexican drug cartels made their money predominantly from marijuana in past decades, the market has somewhat dissipated with the state-level legalization of cannabis in dozens of states across the US.”

Define Levels of Risk and Access.

The best security matches spending to risk in a commonsense way. Are you more at risk from the occasional smash and grab incident or is there reason to anticipate an organized assault? As in many industries, the greatest risk often comes from employee fraud or theft. Hiring carefully, paying fairly and training staff well are important to long term security.

Iron Protection Group in a training session
Image credit: Tampa Bay Times

How will the product be moved around within the facility and beyond it – and what staff are responsible for each part of the journey? Who can enter the cultivation areas and what protocols must they follow? On site staff should be trained on what to look for if they observe a security breach. Consider biometrics such as retinal scans, fingerprint scans or similar.

In cases where valuable product or cash is present, guards can play an important role. Harvest Connect uses only high-level former military or police officers in these roles, an approach recognized by many. Hunter Garth of Iron Protection Group notes they have “the ability to de-escalate a potentially harmful situation and the fortitude to see a mission through to completion, no matter what external circumstances may arise.”

Inventory and Transaction Controls

Inside threats from sloppy processes can be just as insidious as attacks. Poor tracking of inventory by Oregon’s legal cannabis producers made headlines in 2018 as The Oregonian reported, “U.S. Attorney Billy Williams told a large gathering that included Gov. Kate Brown, law enforcement officials and representatives of the cannabis industry that Oregon has an ‘identifiable and formidable overproduction and diversion problem.’’ Discipline, applied by state pressure but carried out by producers themselves, has begun to reduce the diversion of untracked product into the black market a year later.

Cannabis businesses need a professional approach to monitoring all product and money that moves through its systems. These operational processes can include time, date and attendance stamps on all inventory. Similarly, accounting systems and software must follow the highest professional standards. Lastly, when breaches occur, it is essential that fraud and theft are caught, eliminated and prosecuted as appropriate.

Nurturing an Emerging Industry

Security resources are an integral part of maintaining the integrity of a business’ supply chain. As the product moves from the fields to processing centers to consumers, purity assurance becomes an operational objective. Ultimately, protecting the product through secure and professional practices is the optimal way to serve customers, build a brand, and sustain the industry.