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Law Enforcement Seizes $1.2 Billion of Cannabis in Southern California

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Los Angeles County Sheriff’s Department

Law enforcement arrested 131 people during a 10-day operation last month in Southern California. 

More than 400 law enforcement personnel from city, county, state and federal agencies seized $1.2 billion of illegal cannabis harvests and plants in Southern California during a 10-day eradication operation resulting in 131 arrests last month.

Despite exhausting human and financial resources during the operation, Los Angeles County Sheriff Alex Villanueva is still calling the largest operation in his department’s history part of an ongoing whack-a-mole game because more than half of the illicit cultivation practices on his team’s radar remain operational in the Antelope Valley of the High Desert, he said.

“The beauty of it is, they can’t hide,” he said in a press conference held July 7. “We see them. We’re going to come after them. It’s hard work. But with the resources, we’re going to get to all 100 percent of them. We got about 40 percent of them we addressed. We’ve got 60 percent to go.”

Operation personnel served search warrants at 205 locations. In the weeks leading up to the operation, investigators conducted reconnaissance flights and surveyed approximately 70% of all the available lands in the Antelope Valley—a region in northern LA County and the southeastern portion of Kern County, which constitutes the western tip of the Mojave Desert. During their flights, the investigators identified more than 500 illegal cannabis grows in LA County, Villanueva said.

Cannabis Business Times

In addition to the arrests—22 of which include felony charges—the sting operation seized and destroyed approximately 372,000 plants, 33,480 pounds of harvested cannabis, 65 vehicles, including two water trucks, 33 firearms and $28,000 in cash that was for one day’s payroll, Villanueva said. The eradication operation ran from June 8-18.

The majority of those arrested were undocumented persons, Villanueva said. Many of the illegal grows have been directly tied to Mexican drug trafficking organizations as well as Asian and Armenian organized crime groups, he said.

Los Angeles County Sheriff’s Department

Sheriff Alex Villanueva provides a summary of the 10-day operation during a press conference July 7. 

“What we want to do is send a clear and loud message to the cartels and anyone doing an illegal operation in the high desert,” Villanueva said. “Your days are over and we’re coming for you.”

While investigators said they identified more than 500 illegal outdoor cannabis grows in LA County, Villanueva said there are as many as 860 illegal grows in neighboring San Bernardino County to the east, while Kern County to the north, Riverside County to the southeast and Ventura County to the west are also experiencing illegal operations.

“Well, this is a whack-a-mole game,” the sheriff said. “[San Bernardino County has] a lot less resources in terms of personnel than we do, so this is at least, on the grow side, this is a five-county problem that we need to resolve, and it’s going to take manpower. We have the ability, the willingness, the technical know-how, the expertise—what we’re always short on is the resources to get the people employed.”

Sheriffs’ department members from Kern, Riverside, San Bernardino and Ventura counties were among the 400-plus personnel involved in the LA County operation. Also collaborating on the operation were deputies from the Community Partnerships Bureau; Safe Street and Special Victims Bureau detectives; cities of Lancaster and Palmdale station deputies; Drug Enforcement Administration (DEA) agents; the California National Guard; and California Department of Fish and Wildlife agents. Water theft enforcement teams made 19 additional arrests.

Environmental Impacts

Los Angeles County Sheriff’s Department

Law enforcement seized two water trucks involved in water theft associated with the illegal grows in Southern California. 

Water theft continues to threaten the water supply for residents in the eastern portion of the Antelope Valley, leaving many of the region’s potato, alfalfa and carrot farmers without a necessary resource, Villanueva said. The theft occurs from fire hydrants and unpermitted water wells that were being drilled on the grow sites.

“Most Californians would be shocked and disappointed at the amount of water these unlicensed, illegal grows are using, especially as California suffers from a drought,” DEA Associate Special Agent in Charge Curt Fallin said in the LA County Sheriff’s Department press release.  “By our calculation, the illegal grows in Los Angeles, Riverside and San Bernardino counties require an astounding 5.4 million gallons of water a day, every day.”

On July 8, Gov. Gavin Newsom asked Californians to voluntarily cut back on household water consumption by 15% compared with last year, as he expanded his regional drought state of emergency to apply to 50 counties, or roughly 42% of the state’s population, Los Angeles Times reported.

The water theft by illegal cannabis growers is part of an effort to irrigate each plant up to 3 gallons of water per day in the High Desert, according to Eric Lindberg, the senior engineering geologist and chief of the South Coast Cannabis Regulatory Unit, who represented the Los Angeles Regional Water Quality Control Board during the July 7 press conference.

Los Angeles County Sheriff’s Department

Illegal pesticides mixed at an illegal grow site posed danger to the environment. 

Unregulated cannabis cultivation operations often allow fertilizers, pesticides, petroleum fuels, sediment, irrigation tailwater, trash and human waste to be released into the environment and to pollute waters of the state, Lindberg said. And illegal diversions of surface water for cultivation drains lakes and streams, he said.

“In many cases, illegal pesticides are found at illicit cannabis cultivation sites,” Lindberg said. “Many of these pesticides are banned for use in the United States because they’re highly toxic to humans and animals. Illegal pesticides can contaminate the soil, service water and ground water, and are easily mobilized by stormwater runoff.

“Pesticides used to exterminate insects, rodents, mold and weeds can move up the food chain and can cause secondary poising and mortality of pets and other animals. These pesticides can also contaminate our drinking water supplies.”

Threat to Wildlife

Los Angeles County Sheriff’s Department

Forest trash and two dead bears, linked to illegal chemical use, were found near the illegal grow sites. 

During the 10-day operation, enforcement personnel also rescued 180 animals, including 84 dogs, many of which are up for adoption.

In addition, two dead bears were discovered nearby the illegal grow sites. Their deaths we directly attributed to pesticide use, according to the sheriff’s release.

Chloe Hakim, a biologist for the Department of Fish and Wildlife Region 5, as well as the lead scientist for the Los Angeles County regional department, said during the press conference that both scientific and enforcement action are needed to stop illegal grows and to mitigate their negative impacts.

Los Angeles County Sheriff’s Department

Illegal growers cut down protected Joshua trees to build their 100-foot hoop houses. 

Focused on protecting the diverse plant, fish and wildlife resources for their ecological value, and the habitat they depend upon, Hakim said seeing first-hand what the illegal grow sites have done to surrounding habitats has been tragic. During her field assessments, Hakim said she observed substantial alterations to streams from sediment buildups attributed to illegal cultivations through grading that can cause death and abnormalities to aquatic species, as well as stream crossing that cause fish impediment and other harms to nearby plants and wildlife.

Trash, illegal pesticides and illegal fertilizers also do harm, she said.

“Just a quarter teaspoon of carbofuran, which is an illegal pesticide that some illegal growers use, can kill a bear,” she said. “And you can only imagine what that can do to us humans when the sheriffs come across [it] and they’re picking out the weed, and biologists of our agency come across and they step by this pesticide. This is something that is important to resolve and important to get ahead and completely eradicate this kind of an issue.”

Some of the region’s critical species that need their habitats protected to thrive and survive include the Mohave ground squirrel, desert tortoise and Swainson’s hawk, as well as Joshua trees, which are protected under California state law, but illegal cultivators have cut them down to build their hoop houses.

Intimidating Local Residents

Los Angeles County Sheriff’s Department

U.S. Rep. Mike Garcia describes his run-in with a cartel member to the media during a July 7 press conference. 

Not only are the illegal growers threatening wildlife and water supplies for local residents, but they’ve threatened and intimidated the locals themselves, U.S. Congressman Mike Garcia said during the press conference. Garcia represents California’s 25th District, which encompasses the majority of LA County’s northern region, including the cities of Lancaster and Palmdale.

“When I first heard about this problem at the beginning of this year, it was one of these things that you couldn’t believe it until you actually saw it,” he said. “I ended up going flying with the local sheriffs out in Palmdale in April. I saw it from the air at the time. There were roughly 400 to 500 of these illegal nurseries in the local area, and it was absolutely heartbreaking to see.”

After he landed, Garcia said he took a 25-minute drive to Pearblossom, an unincorporated community of roughly 2,500 people, where he held a townhall with local residents. The testimonies Garcia heard from those locals were absolutely tragic, he said. They were being threatened on a daily basis by bad actors and cartel members with weapons, he said.

“While I was at this townhall, we had a member of the cartel, an armed member of the cartel, in the front row,” Garcia said. “He was there to send a clear message, not to me, but to the residents that talking to elected officials about this problem was a bad idea. He was there to intimidate.”

Los Angeles County Sheriff’s Department 

Seventy-four greenhouses on roughly 10 acres represent just one of the 205 illegal grow sites law enforcement officials eradicated during a 10-day operation last month in Southern California. 

Before last month’s operation, the illegal growers in the Antelope Valley faced zero risk and a substantial reward of up to $15 billion harvested from the High Desert on an annual basis, Garcia said.

While the sting operation resulted in the seizure of harvested cannabis and plants worth roughly $1.2 billion, investigators said that the operation accounted for only 40% of the illegal outdoor grows in the county, where up to four harvests per year can materialize. If those illicit grows went uninterrupted by law enforcement, LA County alone would have shadowed the state-legal market, which brought in $4.4 billion of retail sales in 2020.

“After this operation, we were able to rebalance the risk-versus-reward matrix, and we need to continue to make sure that the risks are unlimited and the reward is absolutely zero for these cartel members,” Garcia said.

Continued efforts are all about reclaiming the county for the residents of the Antelope Valley, Villanueva said.

Founded in 1850, the LA County Sheriff’s Department was the first professional police force in the Los Angeles area and worked to tame the lawlessness of the county over 150 years ago, he said. The department shouldn’t have to try and re-tame it again to regain a sense of law and order for a civil society, he said, but that’s what it’s had to do.

Los Angeles County Sheriff’s Department

Law Enforcement seized 33 firearms. 

When Lancaster Mayor Rex Parris took the podium during the press conference, he picked up one of the 33 confiscated firearms from a nearby display table and pointed it in the direction of media members.

“This is the cartels,” he said. “We are very, very close to driving down the freeway and seeing bodies hanging from the overpasses. That is what’s coming. And if you have any doubt, our citizens have to look at this part of the gun; not this part.”

Parris set the gun back down on the table and said the cartel members are even walking into people’s homes to intimidate them.

Later in his remarks, Parris lightened the tone when talking about Lancaster lending its tractors and construction equipment that were used to tear down the illegal cultivation sites. “I got to ride one; it was great fun,” he said.

Continuing Efforts

Los Angeles County Sheriff’s Department

Law enforcement spent 10 days eradicating 372,000 cannabis plants and 33,480 pounds of harvest. 

Although many of the 131 individuals arrested were armed, Villanueva said they showed little resistance. Before the operation, the illegal farmers’ biggest threat was actually being ripped off by other cartels stealing their harvests, he said.

“We didn’t meet any really resistance at all, because typically when we showed up at one of the grows, everyone just took off into the desert running or they surrendered,” Villanueva said. “We didn’t get a lot of resistance.

“No one got away, for the record. Every single person that we put our eyes on is in custody.”

The 22 felony and 109 misdemeanor arrests have been filed with LA County District Attorney George Gascón’s office for consideration, Villanueva said. However, the sheriff did not offer overwhelming faith in the DA’s office.

“We have been very disheartened by the district attorney not filing on our cases for human trafficking when it comes to sex crimes and prostitution,” Villanueva said. “So now we’re going to present this and see what the district attorney will do, but hopefully he’ll do the right thing.”

With the district attorney’s decision out of his hands, Villanueva said his department will focus on eradicating the other 300-some sites investigators identified during their aerial reconnaissance. Last month’s operation cost about $1 million, he said. During the second week of the operation, his department had to scrounge around to pay for the gasoline involved in the eradication efforts, he said.

Los Angeles County Sheriff’s Department

Supervisor Kathryn Barger talks about ongoing funding and support efforts during the July 7 press conference. 

To help future efforts, Supervisor Kathryn Barger, who represents the 5th District on the five-member LA County Board of Supervisors, said she’s going to provide the sheriff’s department discretionary funding through her district allocation.

Further funding from the county was blocked by the majority of the supervisors, Parris said. That’s why Lancaster’s city equipment was used 17 miles outside of its jurisdiction, he said.

Last month, Barger’s office allocated $100,000 to the operation, she said during the press conference. Beyond that, the eradication efforts need to be more than an episodic position, she said.

“I have told my colleagues it’s only a matter of time before it leaves the Antelope Valley and hits down below,” she said. “What began as water theft has exploded to become the infiltration of organized crime groups in the Antelope Valley who are operating internationally.

“This illegal activity is impacting the quality of life for residents and businesses, and if left unaddressed, will have long-lasting and devastating effects in the region.”

As the illicit market continues to thrive throughout California, the outdoor operations in the Antelope Valley are the LA County Sheriff’s Department’s primarily focus because they are the most visible, Villanueva said.

Meanwhile, the cartels are gobbling up cash-only real estate transactions, sometimes buying up entire neighborhoods of residential homes, and gutting the interiors to convert them into indoor grows, he said.

“So, you can see them starting to shift their operations to indoors,” Villanueva said. “That’s the next logical step for these illegal cartels.”

How Brand Partnerships Differentiate Gage Growth in the Michigan Market

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In Oklahoma, illicit growing operations are dominating the medical cannabis market, and it’s taking a toll on local growers. 

“When Oklahoma passed the State Question 788 [the Medical Marijuana Legalization Initiative] in June 2018, really for about the first two and a half years, we had very little, criminal activity that worked its way into our lane,” says Mark Woodward, the public information officer at Oklahoma Bureau of Narcotics (OBN). “But in the last six to eight months, we’ve seen an influx of both legal and criminal organizations pouring into Oklahoma and applying for a license.” 

Woodward says the OBN has shut down more than two dozen criminal growing operations between April and June, and the organization currently receives about 30 to 100 tips a week of suspicious farms. 

There are a few standard methods of illicit cannabis operations the OBN is recognizing, he says. 

“We’ve got some dispensaries that are selling out-of-state [illicit] market products from places like Nevada and California coming here,” he says. “We’ve got some criminal organizations that come here, and they just start growing. They never get a license, and they think because it’s so overwhelming in Oklahoma, nobody will notice as we’ve got over 7,300 licensed growers.” 

The operations that are growing without a license have been relatively easier to crack down on, Woodward says. If the OBN gets a tip on a suspicious operation, runs the address, and no active license is registered, they can immediately go to a judge and get a warrant and file cultivation, he says. 

However, nine out of ten times, this is not the case, and the situations are much more complex. 

To apply for a license in Oklahoma, 75% of the ownership must be owned by someone who has lived in the state for a minimum of two years; however, these illicit companies are finding a way around that through hiring “ghost owners,” he says. 

“They’re working with local attorneys and others who can pop up fraudulent paperwork to find somebody who will agree to be the quote-unquote ‘owner,'” he says. “They’re having these ghost owners put their names on sometimes over a hundred licenses. When in reality, they know nothing about the farm, other than they go to the mailbox once a month for a $5,000 check.” 

“So that fraudulent business structure is set up, so they get their license, and they cross every ‘T’ and every ‘I’ so that they don’t draw attention to themselves,” he adds. “But a hundred percent of their product is being moved off the farm in box trucks in the middle of the night to the East coast and the money is laundered all over the U.S. and outside of the U.S.” 

Woodward says these situations involve a thorough investigation to “peel back” all the layers of fraudulent ownership to discover who is moving the workers and plants and who is laundering and wiring the money all over the world. 

“Through our criminal investigation and through working with federal partners, we’re tracing their product all over the U.S., and one hundred percent of the product is being sold to people who are not legally allowed to have it,” he says.  

The OBN has identified several farms tied to some of these criminal elements, but it’s challenging to keep up, as new ones are coming in every day, he says. 

“The drug organizations can bring in new workers and [several thousand] three-foot plants within 48 hours,” he says. “They know we’re going to clamp down eventually, but because our licenses and our land is cheap, they can grow for $400 a pound in Oklahoma, and turn that around and flip that for $2,400 a pound in Brooklyn, New York. So, they cannot get here fast enough because they know the profit margin is just absolutely off the charts.” 

With three major highways running through the state, and Oklahoma being centrally located in the U.S., it’s an ideal place for a distribution center, says Corbin Wyatt, owner of Likewise Cannabis, an Oklahoma-based vertically integrated cannabis company. 

“I think people are looking at Oklahoma as a great hotbed and an opportunity to grow and then distribute,” Wyatt says. “But on top of that, the licensing process is so easy and cheap, and there’s no cap. So not only are we ideal for it from distribution and a cost for production standpoint, but it’s also easily accessible, more easily accessible than anywhere else in the country to get growing licenses.” 

One of the most significant impacts the illicit market has had on local growers is they are fighting an excess of production, Wyatt says. 

“When people are essentially just saying, ‘Oh, you know what, that doesn’t concern me; also, it’s cheaper in the legal market to cover my basis. So, I’m really making my money in the illegal market.’ That hurts everybody, because suddenly you go from what’s a profitable and enjoyable industry to be a part of to we’re competing against people that aren’t playing by the same rules.” 

Woodward says the OBN has attended several of the Oklahoma Cannabis Industry Association’s meetings, where the company has heard from several growers who express the same frustration as Wyatt. 

“We’ll be in a room of hundred people saying, ‘We’ve got our life savings invested and we can’t keep our head above water because we’re having to test our batches, follow all the pesticides and regulations and pay our workers fair wages, which is keeping our prices much higher than the illicit market. We just can’t compete,'” he says. “And again, those are their words, not ours. They’re begging for help.” 

To get a handle on the illicit market, Wyatt says several things must change, including implementing seed-to-sale tracking and stricter requirements for the state’s licensing process. 

“There really just needs to be a better system in making sure that when people are trying to come in to get licenses, that it’s not only legal but it’s done as the rules say it should be done,” Wyatt says. 

The state has already taken some steps to implement stricter law enforcement. 

“Just yesterday, U.S. Senator James Inhofe said that they’re going to make a request to Congress for $4 million to help start up a full-time enforcement unit here in Oklahoma,” Woodward says. “We’ve hit a number of farms and we’ve got dozens of active investigations, but our agents are also working with fentanyl, heroin, cocaine and prescription fraud—they’re spinning a lot of plates.” 

Woodward says the OBN has a commitment from the legislature and congressional delegation to help the agency start a full-time unit that will consist of 20 to 30 strategically located agents who will work with sheriffs and police departments all over Oklahoma to get a better handle on this issue.  

“We’re doing a good job, but we can’t do it fast enough to meet how many new applicants are coming in here.”

 

CBD in Japan … what’s the status?

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Cannabidiol’s popularity is not limited to the West. Interest in CBD is growing worldwide, including Japan. Japanese law prohibits recreational cannabis, but certain types of CBD are allowed.

Many jurisdictions that legalize CBD focus on hemp rather than cannabis plant material. This is because hemp naturally contains significantly less tetrahydrocannabinol (THC) than normal cannabis plants.

However, Japanese law works differently. The country’s Cannabis Control Act prohibits the use of cannabis flowers and leaves, but makes exceptions for the stems and seeds of the plant. Even in THC-rich cannabis plants, most of the psychoactive compound is concentrated in the flowers. The stems contain almost no THC. CBD is legal in Japan if it does not contain THC and is made from cannabis stems or seeds.

But it can be Japan Relaxation of its rules about cannabis in general. The government recently paved the way for cannabis-based drugs. The country’s hemp farmers expressed the hope that the new regulations would lead to more freedom in the industry.

“The release of medical cannabis is good news for patients and opens the way for research development and raw material production,” said Harumi Kikuchi of the Hokkaido Industrial Hemp Association (SLEEVE).

“We are also looking forward to the discussion about the revision of the Cannabis Control Act, which will allow the cultivation of industrial cannabis to be expanded.”

Earlier this year, the HIHA published a four-page letter calling Japan’s Cannabis Control Act “obsolete” and asking for updated laws. Specifically, the organization requires permission to sell hemp flowers and leaves.

“It is unreasonable to ban the use of flowers or leaves that do not contain THC and this element of the law should be abolished,” the association wrote.

If Japan revised its law to allow CBD from hemp plants rather than just the stems, it would open the market to foreign brands.

 

Image source: Wikipedia

The post CBD in Japan … what’s the status? appeared first CBD health and wellness.

How labs test for CBD and other smaller cannabinoids

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Testing has become a fundamental part of the cannabis industry. Laboratories have sprung up across the country to provide testing services to the hundreds of companies that now exist in this fast growing industry. One of the most important things these labs test for is the presence and concentration of cannabinoids, both large and small, using a variety of high-tech tools and equipment.

Several Dozens of cannabinoids found in cannabis. However, not all of them are that valuable to the cannabis industry, at least not yet. Currently, the most valuable cannabinoids are tetrahydrocannabinol (THC) and cannabidiol (CBD), which are known as the most important cannabinoids.

As the industry matures and research continues, other cannabinoids are known as the smaller cannabinoids, can prove to be just as valuable as THC and CBD. These other cannabinoids of interest currently include tetrahydrocannabinolic acid (THCA), tetrahydrocannabivarin (THCV), cannabidiolic acid (CBDA), cannabidivarin (CBDV), cannabigerol (CBG), and cannabichromene (CBC). When speaking of these minor cannabinoids, it is important to understand that the term “inferior” does not refer to the effect these cannabinoids have on their users. Rather, the term “minor” refers to their concentrations in cannabis plants – the main cannabinoids are more abundant than the smaller ones, hence the terminology.

When labs test for cannabinoids, they use two principles Test methods: Ultra High-Performance Liquid Chromatography (HPLC) and Gas Chromatography (GC). Both tests tell you what cannabinoids are in a sample and also show you how concentrated they are in the sample.

However, both tests are not the same. In fact, HPLC is often the preferred test when handling cannabis and cannabinoids because it is a test method that can be done at room temperature. While GC tests require a heat catalyst to trigger a reaction in the sample to detect cannabinoids present. This heat catalyst prevents GC tests from detecting the cannabinoids THCA and CBDA, which turn into THC and CBD when heated. In other words, HPLC is a more comprehensive test for cannabinoids.

Image source: https://www.pexels.com/photo/set-of-glass-tube-in-laboratory-4021793/

Oklahoma Struggles With Illicit Cannabis Operations Affecting Local Growers

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In Oklahoma, illicit growing operations are dominating the medical cannabis market, and it’s taking a toll on local growers. 

“When Oklahoma passed the State Question 788 [the Medical Marijuana Legalization Initiative] in June 2018, really for about the first two and a half years, we had very little, criminal activity that worked its way into our lane,” says Mark Woodward, the public information officer at Oklahoma Bureau of Narcotics (OBN). “But in the last six to eight months, we’ve seen an influx of both legal and criminal organizations pouring into Oklahoma and applying for a license.” 

Woodward says the OBN has shut down more than two dozen criminal growing operations between April and June, and the organization currently receives about 30 to 100 tips a week of suspicious farms. 

There are a few standard methods of illicit cannabis operations the OBN is recognizing, he says. 

“We’ve got some dispensaries that are selling out-of-state [illicit] market products from places like Nevada and California coming here,” he says. “We’ve got some criminal organizations that come here, and they just start growing. They never get a license, and they think because it’s so overwhelming in Oklahoma, nobody will notice as we’ve got over 7,300 licensed growers.” 

The operations that are growing without a license have been relatively easier to crack down on, Woodward says. If the OBN gets a tip on a suspicious operation, runs the address, and no active license is registered, they can immediately go to a judge and get a warrant and file cultivation, he says. 

However, nine out of ten times, this is not the case, and the situations are much more complex. 

To apply for a license in Oklahoma, 75% of the ownership must be owned by someone who has lived in the state for a minimum of two years; however, these illicit companies are finding a way around that through hiring “ghost owners,” he says. 

“They’re working with local attorneys and others who can pop up fraudulent paperwork to find somebody who will agree to be the quote-unquote ‘owner,'” he says. “They’re having these ghost owners put their names on sometimes over a hundred licenses. When in reality, they know nothing about the farm, other than they go to the mailbox once a month for a $5,000 check.” 

“So that fraudulent business structure is set up, so they get their license, and they cross every ‘T’ and every ‘I’ so that they don’t draw attention to themselves,” he adds. “But a hundred percent of their product is being moved off the farm in box trucks in the middle of the night to the East coast and the money is laundered all over the U.S. and outside of the U.S.” 

Woodward says these situations involve a thorough investigation to “peel back” all the layers of fraudulent ownership to discover who is moving the workers and plants and who is laundering and wiring the money all over the world. 

“Through our criminal investigation and through working with federal partners, we’re tracing their product all over the U.S., and one hundred percent of the product is being sold to people who are not legally allowed to have it,” he says.  

The OBN has identified several farms tied to some of these criminal elements, but it’s challenging to keep up, as new ones are coming in every day, he says. 

“The drug organizations can bring in new workers and [several thousand] three-foot plants within 48 hours,” he says. “They know we’re going to clamp down eventually, but because our licenses and our land is cheap, they can grow for $400 a pound in Oklahoma, and turn that around and flip that for $2,400 a pound in Brooklyn, New York. So, they cannot get here fast enough because they know the profit margin is just absolutely off the charts.” 

With three major highways running through the state, and Oklahoma being centrally located in the U.S., it’s an ideal place for a distribution center, says Corbin Wyatt, owner of Likewise Cannabis, an Oklahoma-based vertically integrated cannabis company. 

“I think people are looking at Oklahoma as a great hotbed and an opportunity to grow and then distribute,” Wyatt says. “But on top of that, the licensing process is so easy and cheap, and there’s no cap. So not only are we ideal for it from distribution and a cost for production standpoint, but it’s also easily accessible, more easily accessible than anywhere else in the country to get growing licenses.” 

One of the most significant impacts the illicit market has had on local growers is they are fighting an excess of production, Wyatt says. 

“When people are essentially just saying, ‘Oh, you know what, that doesn’t concern me; also, it’s cheaper in the legal market to cover my basis. So, I’m really making my money in the illegal market.’ That hurts everybody, because suddenly you go from what’s a profitable and enjoyable industry to be a part of to we’re competing against people that aren’t playing by the same rules.” 

Woodward says the OBN has attended several of the Oklahoma Cannabis Industry Association’s meetings, where the company has heard from several growers who express the same frustration as Wyatt. 

“We’ll be in a room of hundred people saying, ‘We’ve got our life savings invested and we can’t keep our head above water because we’re having to test our batches, follow all the pesticides and regulations and pay our workers fair wages, which is keeping our prices much higher than the illicit market. We just can’t compete,'” he says. “And again, those are their words, not ours. They’re begging for help.” 

To get a handle on the illicit market, Wyatt says several things must change, including implementing seed-to-sale tracking and stricter requirements for the state’s licensing process. 

“There really just needs to be a better system in making sure that when people are trying to come in to get licenses, that it’s not only legal but it’s done as the rules say it should be done,” Wyatt says. 

The state has already taken some steps to implement stricter law enforcement. 

“Just yesterday, U.S. Senator James Inhofe said that they’re going to make a request to Congress for $4 million to help start up a full-time enforcement unit here in Oklahoma,” Woodward says. “We’ve hit a number of farms and we’ve got dozens of active investigations, but our agents are also working with fentanyl, heroin, cocaine and prescription fraud—they’re spinning a lot of plates.” 

Woodward says the OBN has a commitment from the legislature and congressional delegation to help the agency start a full-time unit that will consist of 20 to 30 strategically located agents who will work with sheriffs and police departments all over Oklahoma to get a better handle on this issue.  

“We’re doing a good job, but we can’t do it fast enough to meet how many new applicants are coming in here.”

 

Insurance Matters: How Retailers Can Protect Themselves from Liability for Recalled Products

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As cannabis legalization becomes more widespread across the U.S., farmers are discovering new ways to grow the crop.

DeMario Vitalis, owner of New Age Provisions Farms, a farming business based in Indianapolis, has experience growing a variety of crops outdoors, but a couple years ago, he began searching for something new—a method that might provide him more control over his work. 

In 2019, Vitalis started to explore cultivating hemp indoors hydroponically—the process of growing plants in soilless nutrient solution, Cannabis Business Times previously reported.

That year, Vitalis began working with Freight Farms, a Boston-based company that provides farmers with cultivation software integrated within a 320-square-foot shipping container. He received his first shipping container from the company in August 2020 and his second one in January.

Through the use of automation equipment, the Greenery S and farmhand, Freight Farms has created a way for growers to control and access their farming operations from anywhere in the world.

According to James Woolward, chief marketing officer at Freight Farms, the Greenery S manages the environment inside the 40-foot shipping containers using four specialized systems: air, light, water and nutrient control. It also has sensors throughout the grow area so it can relay information, data and updates about the grow directly to farmhand, an operating system app that growers can download on their phone.

Freight Farms works with farmers who grow several different crops hydroponically inside shipping containers, including lettuces, leafy greens, herbs, flowers, roots and more, but the company recently started incorporating cannabis and hemp.

“We have three or four [growers] at the moment that grow cannabis and hemp,” Woolward says. “They’re independent customers, so they buy the farm from us, and then they build their own business. We have quite a lot of customers [who use this as] an addition to their traditional agriculture because you’re removing seasonality, basically.”

The Benefits

One of the most significant benefits of growing hydroponic cannabis and hemp in a shipping container is that growers do not have to worry about the outdoor climate, Woolward says. Instead, they can harvest year-round, even in areas that reach extremely hot or cold temperatures.

“We have a lot of customers in Alaska and Canada, and you can imagine during the winter, the [shipping containers] become more of an engine of their business because it gives [them] that control 365 days a year,” he says.

© Courtesy of New Age Provisions Farms

Vitalis

Despite Vitalis’ experience with outdoor cultivation, he says he prefers growing in the shipping container. It has given Vitalis better control over his crops—something he felt he needed, as he can manage his crops even when he’s not in the vicinity. The Freight Farms environmental control system allows him to see what’s happening within and around his hemp crops.

“It reminds me if levels are getting too low or too high to check the app and set alerts,” he says. “If I leave the farm, I’m able to get into the app, turn the lights on and make sure the fans and pumps are running. And as that stuff is going, it also measures the environment in the farm. It measures the temperature, humidity, CO2 [carbon dioxide] levels, pH levels and EC [electrical conductivity] levels. So, all of that is at the palm of your hand, and you can also control and set those levels as well, according to what you’re growing.”

Additionally, Woolward says the harvest time in a shipping container compared to growing outdoors can be shorter (depending on the variety) because of the intensity of nutrients going straight into the plants, combined with the LED lights, which growers can use to replicate natural light but at a higher strength, he says.

Challenges

Vitalis says one of the biggest learning curves from transitioning from growing outdoors to growing to growing hydroponically indoors was learning the correct dosing of nutrients for his crops.

As Robert Eddy, a consultant and former Purdue University greenhouse manager, previously wrote for Cannabis Business Times, when growing hydroponically, the “nutrient solutions are automatically fed into irrigation lines using a fertilizer injector drawing from concentrated fertilizer tanks or pumps drawing from reservoirs of pre-mixed solutions.”

“When you grow outdoors, the nutrients are provided with the soil, but in a shipping container, you have to supplement the nutrients and the dosing tanks,” Vitalis says. “In [hydroponic cultivation], the nutrients that the hemp plants need are also absorbed by other plants, such as your herbs and your lettuces. So, you just have to do trial and error and see what the hemp likes and what the other lettuces like. [Freight Farms] also gives you a supplemental tank to put extra nutrients in as well.”

Ensuring the tanks inside the shipping container are filled with water was another challenge Vitalis faced when transiting to hydroponic farming. If the tanks aren’t filled, it effects the nutrients as well.

“When growing hydroponically, you’re totally reliant on water,” he says. “One of the things I had to learn was to make sure the tanks are filled, the pumps are running, and that there’s water flowing because the machine will tell you that the pump is on and that it’s running, but it won’t tell you that there’s water flowing through the pumps.”

He suggests growers pursuing hydroponic cultivation to check the water flow frequently to ensure their plants remain healthy, he says.

Opportunities

Growers can purchase a farm from Freight Farms for roughly $140,000, and operating costs could range from $25,000-$30,000 a year depending on wages like electricity, water and annual supplies, Woolward says.

Woolward suggests growers have a good understanding of their local zoning, regulations and customer base before cultivating in a shipping container.

“The key to our successful customers is their good business people that go and find the market and understand their market and the best way to service that market to get the occurring revenue,” Woolward says.

Vitalis also suggests that growers weigh the pros and cons of growing hydroponically versus growing traditional depending on their area.

“Sometimes there may be more benefits to doing a traditional type of farming than it is to grow hydroponically,” Vitalis says. “For example, if you have access to a bunch of land, it may make sense for you to grow traditional farming. You just want to make sure your numbers are right before you jump in.”

New Age Provisions Farms Brings Hemp Operation Into Automated Hydroponic Shipping Container Environment

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As cannabis legalization becomes more widespread across the U.S., farmers are discovering new ways to grow the crop.

DeMario Vitalis, owner of New Age Provisions Farms, a farming business based in Indianapolis, has experience growing a variety of crops outdoors, but a couple years ago, he began searching for something new—a method that might provide him more control over his work. 

In 2019, Vitalis started to explore cultivating hemp indoors hydroponically—the process of growing plants in soilless nutrient solution, Cannabis Business Times previously reported.

That year, Vitalis began working with Freight Farms, a Boston-based company that provides farmers with cultivation software integrated within a 320-square-foot shipping container. He received his first shipping container from the company in August 2020 and his second one in January.

Through the use of automation equipment, the Greenery S and farmhand, Freight Farms has created a way for growers to control and access their farming operations from anywhere in the world.

According to James Woolward, chief marketing officer at Freight Farms, the Greenery S manages the environment inside the 40-foot shipping containers using four specialized systems: air, light, water and nutrient control. It also has sensors throughout the grow area so it can relay information, data and updates about the grow directly to farmhand, an operating system app that growers can download on their phone.

Freight Farms works with farmers who grow several different crops hydroponically inside shipping containers, including lettuces, leafy greens, herbs, flowers, roots and more, but the company recently started incorporating cannabis and hemp.

“We have three or four [growers] at the moment that grow cannabis and hemp,” Woolward says. “They’re independent customers, so they buy the farm from us, and then they build their own business. We have quite a lot of customers [who use this as] an addition to their traditional agriculture because you’re removing seasonality, basically.”

The Benefits

One of the most significant benefits of growing hydroponic cannabis and hemp in a shipping container is that growers do not have to worry about the outdoor climate, Woolward says. Instead, they can harvest year-round, even in areas that reach extremely hot or cold temperatures.

“We have a lot of customers in Alaska and Canada, and you can imagine during the winter, the [shipping containers] become more of an engine of their business because it gives [them] that control 365 days a year,” he says.

© Courtesy of New Age Provisions Farms

Vitalis

Despite Vitalis’ experience with outdoor cultivation, he says he prefers growing in the shipping container. It has given Vitalis better control over his crops—something he felt he needed, as he can manage his crops even when he’s not in the vicinity. The Freight Farms environmental control system allows him to see what’s happening within and around his hemp crops.

“It reminds me if levels are getting too low or too high to check the app and set alerts,” he says. “If I leave the farm, I’m able to get into the app, turn the lights on and make sure the fans and pumps are running. And as that stuff is going, it also measures the environment in the farm. It measures the temperature, humidity, CO2 [carbon dioxide] levels, pH levels and EC [electrical conductivity] levels. So, all of that is at the palm of your hand, and you can also control and set those levels as well, according to what you’re growing.”

Additionally, Woolward says the harvest time in a shipping container compared to growing outdoors can be shorter (depending on the variety) because of the intensity of nutrients going straight into the plants, combined with the LED lights, which growers can use to replicate natural light but at a higher strength, he says.

Challenges

Vitalis says one of the biggest learning curves from transitioning from growing outdoors to growing to growing hydroponically indoors was learning the correct dosing of nutrients for his crops.

As Robert Eddy, a consultant and former Purdue University greenhouse manager, previously wrote for Cannabis Business Times, when growing hydroponically, the “nutrient solutions are automatically fed into irrigation lines using a fertilizer injector drawing from concentrated fertilizer tanks or pumps drawing from reservoirs of pre-mixed solutions.”

“When you grow outdoors, the nutrients are provided with the soil, but in a shipping container, you have to supplement the nutrients and the dosing tanks,” Vitalis says. “In [hydroponic cultivation], the nutrients that the hemp plants need are also absorbed by other plants, such as your herbs and your lettuces. So, you just have to do trial and error and see what the hemp likes and what the other lettuces like. [Freight Farms] also gives you a supplemental tank to put extra nutrients in as well.”

Ensuring the tanks inside the shipping container are filled with water was another challenge Vitalis faced when transiting to hydroponic farming. If the tanks aren’t filled, it effects the nutrients as well.

“When growing hydroponically, you’re totally reliant on water,” he says. “One of the things I had to learn was to make sure the tanks are filled, the pumps are running, and that there’s water flowing because the machine will tell you that the pump is on and that it’s running, but it won’t tell you that there’s water flowing through the pumps.”

He suggests growers pursuing hydroponic cultivation to check the water flow frequently to ensure their plants remain healthy, he says.

Opportunities

Growers can purchase a farm from Freight Farms for roughly $140,000, and operating costs could range from $25,000-$30,000 a year depending on wages like electricity, water and annual supplies, Woolward says.

Woolward suggests growers have a good understanding of their local zoning, regulations and customer base before cultivating in a shipping container.

“The key to our successful customers is their good business people that go and find the market and understand their market and the best way to service that market to get the occurring revenue,” Woolward says.

Vitalis also suggests that growers weigh the pros and cons of growing hydroponically versus growing traditional depending on their area.

“Sometimes there may be more benefits to doing a traditional type of farming than it is to grow hydroponically,” Vitalis says. “For example, if you have access to a bunch of land, it may make sense for you to grow traditional farming. You just want to make sure your numbers are right before you jump in.”

Flower-Side Chats Part 7: A Q&A with Max Goldstein, CEO of Union Electric and Founding Partner at OpenNest Labs

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In this “Flower-Side Chats” series of articles, Green interviews integrated cannabis companies and flower brands that are bringing unique business models to the industry. Particular attention is focused on how these businesses integrate innovative practices in order to navigate a rapidly changing landscape of regulations, supply chain and consumer demand.

The California legal flower market is the largest in North America. According to recent BDSA data, monthly cannabis sales in January 2021 were $243.5 million. Flower sales represented 35.6% of overall sales, or about $87 million, representing a $1 billion yearly run rate for 2021 flower sales in California.

Union Electric was founded in California in 2020 as one of OpenNest Labs’ first incubator brands. Its model is uniquely asset-light, and focused on filling an area of opportunity with a consumer-first approach, aimed at an underserved market: the working-class customer. The name Union Electric was inspired by the punching-in and punching-out aspect of working a union job — more specifically, the average cannabis user’s job. The name also represents the brand’s union of stakeholders: Customers, cultivators and retailers alike, working together to provide affordable, quality products.

Max Goldstein is the CEO of Union Electric and Founding Partner at OpenNest Labs. Max incubated Union Electric at OpenNest Labs, a cannabis venture studio he helped co-found, and launched the brand in 2020 the day after COVID lockdowns began in California. Prior to Union Electric, Max worked at Google managing a 90 person, 12-market partnerships team.

Aaron Green: How did you get into the cannabis industry?

Max Goldstein: I’ve had a fun entrepreneurial and professional journey.  I started my career in my 20s with Google working in the marketing department sitting at the intersection of new product development and customers. During that time, I really learned the ins and outs of bringing products to market and building brands. I had to understand how to value and champion the customer, or the user. At Google, I was sitting at the intersection of people building products that are affecting billions of people’s lives and users and customers that potentially have really cool insights and feedback. It was an incredible learning experience. I was able to focus on what I’m good at, which is that early stage of businesses and most importantly, listening to the consumer and developing products and services that they ultimately really want.

Max Goldstein, CEO of Union Electric and Founding Partner at OpenNest Labs

Near the end of 2018, I co-founded OpenNest Labs, a cannabis venture studio. We came together as a four-person partnership to form OpenNest, as an assortment of skill sets, with all of us contributing an area of focus that we could really combine our experiences to take focused and concerted efforts at building brands that resonate with different consumers across various form factors in cannabis and health. My partner Tyler Wakstein has been in the cannabis industry for several years and helped launch the brand, hmbldt (which is now Dosist) and a number of other projects in the cannabis space.

Green: Was Union Electric an incubation project out of OpenNest?

Goldstein: Yes. Union Electric is the first project we incubated out of OpenNest. We launched the day after the pandemic. So, it was interesting timing.

At Union Electric we’re focused on the core, everyday consumer of cannabis. I think a lot of folks, particularly the new money that have come into the industry, have often focused on new form factors or things that they think the new cannabis consumer is going to enjoy or appreciate. Because quite frankly, that’s their level of familiarity with the industry. For us at Union Electric, we want to hit the end of the market with exactly what they want and that is high-potency, affordable flower with a brand that really stands for something and has values.

Union Electric is positioned as an advocate for the legal cannabis industry as a whole. We look at the stakeholders and the work that needs to be done across the board. The idea of just being one member of the value chain and not trying to ultimately uplift and elevate everyone in that value chain, it’s just not going to work in cannabis. We’ve seen a lot of people trying to go at this alone and I think the pandemic, if anything, showed that you’re only as good as your partners. We truly believe that the investment in our partners, in the local communities and everyone that’s really touching this industry is critical to ultimately building success for one company because a rising tide raises all ships.

Green: How did you settle on the name Union Electric?

Goldstein: One of the things that we wanted to do was focus the brand on who we see as the core consumer, which is somebody that is working hard, like a shift worker punching in and punching out and putting in the long hours on a daily basis and using cannabis as a critical part of their personal wellness and relief. There are elements of that which we certainly want to tap into. The “Union” represents our stakeholder approach, which is, all of us are in this together and our tagline “roll together” represents that. The “Electric” part is what we’ve seen cannabis sort of representing culturally, and for people more broadly. This is an exciting product that’s going to change a lot of people’s lives and, and I just don’t think there’s anything else in our lifetimes that we’re necessarily going to be able to work on from a consumer-packaged goods perspective, that’s going to change as many people’s lives. It’s electric. That’s how we came up with the name.

The coloring and a lot of the brand elements that we focused on were about providing transparency and simplicity to the marketplace: big font and bold colors. There are little nuances with our packaging, like providing a window just so people can see the flower on our bags. We look at the details and made sure that we’re ultimately out of the way of the consumer and what they want, but providing that vehicle that they’re really comfortable with.

Green: You have an asset-light business model, focusing on brand and partnerships. How did you come to that model?

Goldstein: I think everyone who’s operating and working in cannabis right now is looking at strategy and what the model is that’s going to work for them. We’re ultimately going to find out what works, which is why this industry is so fun and exciting. Our specific approach is really under the assumption that vertical integration in a market that’s maturing as quickly as California is going to be hard, if not impossible – it’s just too competitive. There are too many things going on in order to be successful in California. You have to be really good at cultivation, really good at manufacturing, really good at distribution, and then ultimately, you have to be able to tell a story of that process to ensure sell-through and that you really resonate with the consumer.

I think the big, missed opportunities that we’re seeing are that a lot of great cultivators are not marketers or storytellers. They really do need people that are there to help amplify and provide transparency to their stories. There are amazing stories out there of sacrifice and what cultivators have done to create a new strain. We all enjoy Gelato. What’s the process to make that happen or to create any other new strain? It’s fascinating. It’s too hard for a lot of these cultivators to go out and tell that story themselves. So, we act as a sales and marketing layer on top of the supply chain to provide visibility, transparency and trust with the consumer so that they know who grew their product, how it was grown, when it was cultivated and that they can build a real strong relationship with that cultivator as well.

It’s also hard to be a brand that’s using 19 different suppliers, selling the same genetics and expecting the same results. As an example, we’ve gotten Fatso from one of our partners, Natura. We’ve also gotten Fatso from Kind Op Corp (fka POSIBL). We renamed one of the strains – by adding a number on the end – just so that the consumer knew that we’re not saying that this is the same product, because it’s not. It’s from a different farmer and there’s going to be differences. While it does create a little bit more complexity for the consumer, we ultimately believe that every consumer has a right and will expect to know that type of information in the future.

Green: You launched Union Electric one day after the COVID lockdowns began in California. How did you navigate that landscape?

OpenNest Labs Logo

Goldstein: A lot of praying to the cannabis gods! It was really an incredibly challenging and difficult time. We were all concerned about the impacts of the virus. There were moments where we didn’t even know if dispensaries would be open, particularly in states that just legalized. You went from something being completely illegal to an essential business in 12 months. As a team, we were just trying to hold on to our hats and focus on product and partnerships.

Fortunately, with a brand like ours and the price point that we’re operating at, we just needed to consistently be on the shelves and available, and to be present with the bud tenders. So, we focused on that and shoring up our supply chain and just trying to wait it out. COVID forced a lot of cannabis companies to make a lot of decisions quickly and I think in some ways, because we have not been in the market for 24 months under one paradigm, we were pretty quick to be able to adjust and keep the team super lean to fit the emerging and rapidly changing environment. We learned a lot. We focused on partnerships and we leaned into the model that we set out to build which is being asset-light and focusing on the sell-through.

Green: I understand you have a 2% giveback program. Tell me about that.

Goldstein: The 2% giveback program was something that we wanted to put on the bag from day one. It’s on every bag that we made and put out into the market. We’ve seen a lot of cannabis companies come in and invest tens and hundreds of millions of dollars in infrastructure. Then, month 24 they realize “oh, crap, I gotta figure out what I’m going to do to get back and actually tap into the issues that are most important to cannabis consumers.” These are issues like social equity, equitable development of the industry, and ensuring that cannabis companies and its owners are active, responsible members of society.

What we’re going to focus on with our giveback program is working with our supply chain partners. We highlight the local communities, because when you look at the landscape in California, two thirds of its municipalities still don’t allow cannabis operations. We’re in a heart and minds battle still, even here in California, just proving that the operators here are not criminals and that they’re not going to bring negativity to local communities.

As we scale in California and scale to other states, the giveback program for us is a platform and a medium to work with our supply chain partners to make sure that we’re giving back and investing every step of the way. As founders and operators, it’s how we show that we are being mindful of the importance of equitable development of the industry. Ultimately, prosperity is going to come if everyone is getting a piece of the pie.

Green: What are you most interested in learning about?

Goldstein: I’m a student of history (I was a history major) and I was very fortunate to be part of a big evolution of technology development starting in 2011 working at Google and other tech companies. In some ways, this is the second generational industry that I’ve been a part of, and I have a lot of regrets about how the first one developed – not that I necessarily was the chief decision maker. The idea that large tech companies would always act responsibly (i.e. “Don’t be evil”) didn’t really pan out. I think it was an ignorant thought process as a person in my young 20s.

What I’m most interested in learning is: Can the cannabis industry develop consciously? Can you keep the greed and the things that bring industries down at bay? How can I, as an operator, be the best facilitator of that future? I’m always thinking how I can continue to bring in the people around us and around me as the CEO of Union Electric to ensure that we’re always focused on that.

Green: Great, that concludes the interview. Thank you, Max.

Goldstein: Thanks Aaron. 

From Union Electric: Union Electric Cannabis will be offering their first Regulation CF crowdfund raise in an effort to give everyday consumers a stake in one of California’s fast growing cannabis brands. Due to the ever-evolving legal status of cannabis in the US, there have been very few opportunities for individuals to invest early on in American cannabis brands. This decision to give everyday cannabis smokers access to investing in their favorite cannabis brand (for as little as $100) is a natural manifestation of Union Electric’s mission: Collective power and championing accessibility for the plant. You can learn more about their raise by visiting https://republic.co/union-electric

Terra Tech Corp. Announces Successful Closing of Merger with Unrivaled and Rebranding as Unrivaled Brands, Inc.

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A public cannabis company with a strong focus on the international market is stepping into Mexico’s nascent medical cannabis industry.

Clever Leaves, a cultivator, manufacturer and distributor listed on the Nasdaq, announced its entrance into Mexico last month with an active pharmaceutical ingredient (API) supply agreement with CBD Life, beginning with cannabidiol (CBD) isolate.

In 2017, Mexico legalized medical cannabis with tetrahydrocannabinol (THC) concentrations below 1%. But Mexico’s health ministry didn’t pass medical cannabis regulations, including those addressing cultivation and harvesting, until this January. (The country’s supreme court also declared adult-use cannabis prohibition unconstitutional in late June.)

Luisa Conesa, an attorney and cannabis activist, told Reuters of the medical regulations: “[The regulation] is not aimed at patients growing their own cannabis, it is aimed at pharmaceutical companies producing pharmaceutical derivatives of cannabis which are classified as controlled substances that need prescription.”

Some companies aiming to create products can import cannabis plant material, according to the news source.

A June press release from Clever Leaves said the company’s partnership with CBD Life “is Clever Leaves’ first commercial agreement in the Mexican market, and it comes shortly after regulations were fully approved in the country, providing a strategic growth opportunity in one of the world’s largest pharmaceutical markets.”

Speaking with Cannabis Business Times and Hemp Grower, Clever Leaves CEO Kyle Detwiler said he and others at the company see Mexico as a “great demand center for medical cannabis, for other cannabinoid products.”

The opening of the market is allowing Clever Leaves to get in on the ground floor with shipping cannabis product there. “I think an announcement like our first shipment to Mexico is a reminder that—listen, in other geographies, cannabis hasn’t really reached the saturation—both societally as well as regulation-wise—as it has in the U.S.,” Detwiler said. “A lot of these countries are just beginning their cannabinoid journey.”

Photo courtesy of Clever Leaves

Detwiler

Clever Leaves follows in-depth quality procedures to produce the pharmaceutical-grade product the Mexican government requires, Detwiler said, noting the company’s adherence to European Union Good Manufacturing Practices (EU-GMP).

Clever Leaves has about 400 employees, 2 million square feet of greenhouse production and 70 million square feet of expansion potential in Colombia, and more than 100,000 square feet of greenhouse production on 9 million square feet of “agricultural and agro-industrial land” in Portugal, according to U.S. Securities and Exchange Commission (SEC) filings.

“So, we have a smaller operation [in Portugal], but it’s for the production of flower, whereas Colombia’s for the production of extracts right now based on what’s permitted in those two geographies,” Detwiler said.

Simultaneously, Clever Leaves is focused on other operations around the globe, including in the U.S. Its wholly owned subsidiary Herbal Brands, which “manufactures and distributes non-cannabinoid nutraceutical products to more than 15,000 retail locations” across the U.S., per the SEC filings, entered into a partnership with LooperGroup and TruSource Hemp Group in February to import CBD into the U.S.

Detwiler said the goal there is to build upon existing relationships with U.S. retailers to provide them with CBD products, pending greater regulatory clarity in the country.

In Colombia, the company manufactures the CBD isolate that it sells into Mexico, and grows the cannabis from which it derives that isolate.

When asked about future plans for working in the Mexican market, Detwiler said: “Clever Leaves is really out there to be a B2B partner to the industry. I think there’s probably a lot of companies in Mexico thinking through the decision calculus of ‘Hey, wait a minute. Maybe I should go out and build a huge cultivation operation, maybe even a big processing center.’”

However, it could take several years to build out those facilities, become GMP-certified and -compliant—which the Mexican government requires for the entire supply chain—gather stability data and so on, Detwiler said.

“Let me save people the suspense: It’s a pretty low cost to produce our products in Colombia, so even if you could build it in Mexico, I don’t think you would be able to be cost-competitive with sort of a Colombian-produced solution,” he said.

In April 2020, Clever Leaves announced it would supply Canopy Growth subsidiary Canopy LATAM with cannabis extract that Clever Leaves produced through its Colombia operations.

One grower aside from Clever Leaves who has decided to cultivate in Colombia noted the low production costs in speaking with CBT. Cultivator Flora Growth shared its costs to cultivate flower—6 cents per gram—though that business cultivates its entire crop outdoors.

But there are always challenges exporting cannabinoids, Detwiler said, adding: “Imagine showing up with 10 kilograms of fine white powder coming from Colombia into a country for the first time.”

And, when the United Nations’ (UN) Commission on Narcotic Drugs (CND) voted in December 2020 to remove cannabis from Schedule IV of the 1961 Single Convention on Narcotic Drugs, the CND “opened the door to recognizing the medicinal and therapeutic potential of the drug, although its use for non-medical and non-scientific purposes will continue to remain illegal,” according to a UN webpage.

Still, Detwiler remains optimistic about Latin America. He said he has a history of investing in the region, including while serving as a principal at The Blackstone Group and as a member of Kohlberg, Kravis, Roberts & Co.’s private equity practice.

The cannabinoid journey is under way there, as elsewhere, though he said global demand for minor cannabinoids has yet to really take off.

“I think in the U.S., you are starting to see CBN [cannabinol] products often around a sleep claim that are starting to emerge,” he said. “CBG [cannabigerol], CBGA [cannabigerolic acid] are starting to pop up as—I guess some people are saying [they] kind of [accentuate] the cannabinoids that are otherwise already present. There are a variety of different things that I think we’re really just scratching the surface on.”

However, he said, “In any case, Clever Leaves is currently able to provide high THC, high CBD and balanced products to our clients, and also has the capabilities to develop a customized product in a reasonable period of time for our clients.”

A Q&A with George Mancheril, Founder & CEO of Bespoke Financial

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Bespoke Financial was the first licensed FinTech lender focused on the legal cannabis industry. Founded in June of 2018, Bespoke offers four types of lending products: Invoice financing, inventory financing, purchase money financing and a general line of credit. With just over two years of originating loans to clients, they have benefitted from being a first mover in the cannabis lending space.

George Mancheril is the founder and CEO of Bespoke Financial. He has over fourteen years of experience in finance, with a special focus on asset-based lending, off balance sheet financing of commercial assets and structured credit. Following a stint with Goldman Sachs, he worked at Guggenheim Partners Investment Management’s Structured Credit Group in Los Angeles where he worked on structuring esoteric asset financing for a variety of commercial assets including airplanes, container leases and receivables.

Since 2018, Mancheril and his team at Bespoke Financial have deployed over $120 million in principal advances without any defaults and across eleven states. We sat down with Mancheril and asked him about the history of his business, how it’s been received so far and how the past few years of financial activity in the cannabis sector might shape the future.

Cannabis Industry Journal: What is Bespoke Financial in a nutshell?

George Mancheril: Bespoke Financial is the first licensed FinTech lender focused on the legal cannabis industry. Bespoke offers legal cannabis businesses revolving lines of credit that address the top problem in the industry – lack of access to non-dilutive, scalable financing to capitalize on growth opportunities and improve profitability. Due to the federal illegality of cannabis, traditional banking institutions cannot work with our clients even though these operators are working within the legal regulatory framework of their state. Bespoke solves this problem for businesses across the cannabis supply chain along with ancillary companies affected by the lack of access to traditional capital markets.

CIJ: How does your company help cannabis businesses?

George Mancheril, Founder & CEO of Bespoke Financial

Mancheril: Bespoke Financial offers 4 lending products – all are structured as a revolving line of credit but each allows our clients to access capital in a unique way based on their specific needs. Our Invoice Financing product, allows businesses to borrow capital against their Accounts Receivables in order to manage general business expenses, particularly if the borrower’s business growth is slowed due to a long cashflow conversion cycle. Inventory Financing and Purchase Money Financing allow our clients to finance payments to their vendors, which helps our clients achieve economies of scale by increasing their purchasing power. Lastly our general Line of Credit allows for the most flexibility for our clients to utilize our financing by either financing payments made directly to vendors or drawing funds into the client’s bank account to manage business expenses.

CIJ: I know the company is only a few years old, but can you tell me about your company’s success so far?

Mancheril: [Clarification, Bespoke was founded in June 2018 so we’ve been around for 3 years but we now have over 2 years of originating loans to clients.] Bespoke Financial has benefitted by being a first mover in the cannabis lending space as the first licensed lender specifically addressing the financing needs of cannabis operators, starting in early 2019. Over the past 2 years we have developed and refined our proprietary underwriting model to identify over 50 active clients spanning the entire cannabis supply chain. Since inception, Bespoke has deployed over $120 million in principal advances without any defaults to date and expanded our geographic footprint across 11 states. Our growth and success highlights our company’s expertise in structuring financing solutions which address the unique capital needs of cannabis companies.

CIJ: Can you discuss how the recent M&A activity, current and recent market trends, as well as the pandemic has affected your company’s growth?

Mancheril: The cannabis industry overcame a variety of challenges presented by the COVID-19 pandemic, ending the year with record sales in both new and existing markets. The support from state and local governments, evidenced by the industry’s essential business designation and the easing of regulations, coupled with increasing consumer adoption of cannabis combined to increase the industry’s demand for capital throughout the pandemic. Bespoke was well positioned to partner with cannabis companies across the supply chain and was proud to help our clients thrive during this pivotal period.

Jeeter was able to grow sales over 1,000% within the first year of working with Bespoke

Coming into 2021, the cannabis industry and investors shared a very positive outlook for the future based on the previous year’s experience and expectations of material easing of federal regulation. While M&A activity in the industry has increased over the past 6 months, the overall consensus has been that both the frequency of exit opportunities and the corresponding valuations will continue to increase as federal decriminalization opens new sources of capital and materially changes investors’ valuation assumptions. In general, we’ve seen cannabis companies focused on both capitalizing on the increasing opportunity presented by the industry’s organic growth and maximizing the benefits of future regulation changes by utilizing the resources and capital currently available to increase revenue, expand into new markets, and work towards profitability. All of these factors have further compounded the industry’s demand for financing and we expect to see continued growth in our lending activity in line with the industry’s growth.

CIJ: Who has been your most successful client?

Mancheril: We have a handful of cases studies and client success stories here on our website. One of the most exciting growth stories we have seen has been our client DreamFields whose in-house brand, Jeeter, is now the #1 pre-roll brand in the state of California. Prior to working with Bespoke, the brand was not ranked in the top 25 but was able to grow sales over 1,000% within the first year of working with us and achieve the #1 spot in their product category.