CBD OIL

New Mexico lawmakers concluded their 60-day legislative session March 20, but Gov. Michelle Lujan Grisham decided their work is not done without an adult-use cannabis bill on her desk. The Democrat executive announced Friday, March 26 that she will call the legislature into a special session on March 30 to take care of the unfinished business.

House Bill 12, which cleared the lower chamber of the state legislature, 39-31, on Feb. 26, would legalize adult-use sales and consumption for those 21 and older, allow possession of up to 2 ounces of cannabis flower or 16 grams of cannabis extract, levy a 12% excise tax on cannabis and provide reinvestments toward communities disproportionately affected by prohibition. 

But the Senate ran out of time to act, as the upper chamber postponed floor debate on the measure to focus on other bills, according to the Associated Press. At the conclusion of the 60-day session, Lujan Grisham said rushing through amendments in the final hours of a session, when there’s a mountain of work to be done, is not the right way to accomplish something of the magnitude as adult-use legalization.

As a result, she called the March 30 special session to take up a pair of economic and job creation items that were left unfinished: legalizing adult-use cannabis and expanding the Local Economic Development Act (LEDA), Lujan Grisham announced in a press release Friday.

“I am grateful to those legislative leaders and members who have expressed enthusiasm about returning to the people’s work so soon after a challenging 60-day session,” she said. “The unique circumstances of the session, with public health safeguards in place, in my view prevented the measures on my call from crossing the finish line. While I applaud the legislature and staff for their incredible perseverance and productivity during the 60-day in the face of these challenges, we must and we will forge ahead and finish the job on these initiatives together for the good of the people and future of our great state.”

With a bipartisan agreement on the importance of the legalization initiative—lawmakers from both parties approached a balanced compromise measure in the final hours of the 60-day session—Lujan Grisham intends to see through final passage of the potentially significant economic driver, she said.

According to Rep. Javier Martínez, who sponsored H.B. 12 with Reps. Andrea Romero and Deborah A. Armstrong, economic projections indicate that adult-use legalization would create more than 11,000 jobs and generate $28.6 million in tax revenue in the first year of implementing a program, which H.B. 12 aimed to have launched no later than April 1, 2022.

But House Republicans criticized the governor’s special session effort as frivolous and disrespectful in the run-up to Good Friday and Easter celebrations in a heavily Roman Catholic state, according to the AP. 

In response to the governor’s announcement, Emily Kaltenbach, senior director for Resident States and New Mexico at the Drug Policy Alliance, said the special session offers New Mexicans another chance to make sure equity and justice are center to the legalization.

“New Mexicans may not have to wait much longer to reap the benefits and justice cannabis legalization will provide—especially to Hispanic/Latinx, Black, Native and Indigenous communities, who have been disproportionately impacted by prohibition,” she said.

“We have been working around the clock to ensure that the racial justice and equity provisions, public health priorities, and medical cannabis patient protections will be included in the special session cannabis legalization package,” Kaltenbach said. “New Mexicans are ready to see marijuana legalization become a reality in the state, but they have made it clear that repairing the damage done by the drug war is non-negotiable.”

Nearly 75% of New Mexicans approve of cannabis legalization with provisions in place to ensure tax revenue is reinvested back into communities, including 94% of Democrats, 93% of Independents and 46% of Republicans, according to the Drug Policy Alliance.

This will be the third special session of the legislature Lujan Grisham has called, according to the governor’s press release. The first, in June 2020, encompassed an emergency agenda related to the COVID-19 pandemic, among other items. The second, in November 2020, included taking up a $330 million emergency relief package related to the pandemic.

New Mexico lawmakers concluded their 60-day legislative session March 20, but Gov. Michelle Lujan Grisham decided their work is not done without an adult-use cannabis bill on her desk. The Democrat executive announced Friday, March 26 that she will call the legislature into a special session on March 30 to take care of the unfinished business.

House Bill 12, which cleared the lower chamber of the state legislature, 39-31, on Feb. 26, would legalize adult-use sales and consumption for those 21 and older, allow possession of up to 2 ounces of cannabis flower or 16 grams of cannabis extract, levy a 12% excise tax on cannabis and provide reinvestments toward communities disproportionately affected by prohibition. 

But the Senate ran out of time to act, as the upper chamber postponed floor debate on the measure to focus on other bills, according to the Associated Press. At the conclusion of the 60-day session, Lujan Grisham said rushing through amendments in the final hours of a session, when there’s a mountain of work to be done, is not the right way to accomplish something of the magnitude as adult-use legalization.

As a result, she called the March 30 special session to take up a pair of economic and job creation items that were left unfinished: legalizing adult-use cannabis and expanding the Local Economic Development Act (LEDA), Lujan Grisham announced in a press release Friday.

“I am grateful to those legislative leaders and members who have expressed enthusiasm about returning to the people’s work so soon after a challenging 60-day session,” she said. “The unique circumstances of the session, with public health safeguards in place, in my view prevented the measures on my call from crossing the finish line. While I applaud the legislature and staff for their incredible perseverance and productivity during the 60-day in the face of these challenges, we must and we will forge ahead and finish the job on these initiatives together for the good of the people and future of our great state.”

With a bipartisan agreement on the importance of the legalization initiative—lawmakers from both parties approached a balanced compromise measure in the final hours of the 60-day session—Lujan Grisham intends to see through final passage of the potentially significant economic driver, she said.

According to Rep. Javier Martínez, who sponsored H.B. 12 with Reps. Andrea Romero and Deborah A. Armstrong, economic projections indicate that adult-use legalization would create more than 11,000 jobs and generate $28.6 million in tax revenue in the first year of implementing a program, which H.B. 12 aimed to have launched no later than April 1, 2022.

But House Republicans criticized the governor’s special session effort as frivolous and disrespectful in the run-up to Good Friday and Easter celebrations in a heavily Roman Catholic state, according to the AP. 

In response to the governor’s announcement, Emily Kaltenbach, senior director for Resident States and New Mexico at the Drug Policy Alliance, said the special session offers New Mexicans another chance to make sure equity and justice are center to the legalization.

“New Mexicans may not have to wait much longer to reap the benefits and justice cannabis legalization will provide—especially to Hispanic/Latinx, Black, Native and Indigenous communities, who have been disproportionately impacted by prohibition,” she said.

“We have been working around the clock to ensure that the racial justice and equity provisions, public health priorities, and medical cannabis patient protections will be included in the special session cannabis legalization package,” Kaltenbach said. “New Mexicans are ready to see marijuana legalization become a reality in the state, but they have made it clear that repairing the damage done by the drug war is non-negotiable.”

Nearly 75% of New Mexicans approve of cannabis legalization with provisions in place to ensure tax revenue is reinvested back into communities, including 94% of Democrats, 93% of Independents and 46% of Republicans, according to the Drug Policy Alliance.

This will be the third special session of the legislature Lujan Grisham has called, according to the governor’s press release. The first, in June 2020, encompassed an emergency agenda related to the COVID-19 pandemic, among other items. The second, in November 2020, included taking up a $330 million emergency relief package related to the pandemic.

Based on the recent string of cannabis thefts in Portland, Oregon, the spotlight is shining even brighter on the need for enhanced security measures at cannabis dispensaries throughout the country. According to the Oregon Liquor Control Commission, the Portland metro area alone has experienced more than 120 cannabis shop burglaries since March 2020, resulting in a reported total loss of more than $500,000 in cash and products.

Robbing a cannabis dispensary is as lucrative as robbing a bank. Cash is king in the shops until the Secure and Fair Enforcement (SAFE) Banking Act is passed to prohibit federal banking regulators from penalizing depository institutions that provide banking services to legitimate cannabis businesses. Until the Act is passed, it is widely known that all transactions must be done in cash—which makes cannabis dispensaries a prime target for thieves.

While many security protocols—such as product traceability systems and security cameras—are mandated by each individual state, dispensary owners should take measures to actively secure their product, protect their employees and preserve their businesses as theft increases.

One of the quickest and most cost-effective ways to fortify shop security is by implementing rolling security doors. After determining what level of security is needed, consider these four tips to help deter criminal activity and ensure the safety of both employees and products.

Tip 1 – Defend The Storefront
Designed to prevent against looting events and burglaries, heavy-duty rolling steel doors offer cannabis business owners robust security. They can be retrofitted into existing buildings, are exterior mounted and are ideal for storefront defense—including protecting glass windows, which can be expensive to replace. Unlike more common rolling grilles, thieves can’t see merchandise when the rolling door is lowered. In addition to the door giving the building a secure look, blocking sight access is key to deterring criminals.

Heavy-duty steel doors must also be lift- and pry-resistant. Manufacturers put the doors through rigorous testing, and some security doors even meet Department of Defense forced entry standards, which can provide up to an hour of protection against violent attacks against the door to gain entry. Look for rolling security doors that can withstand heavy impact and resist pry attempts with common tools, as well as doors that are lift resistant. Some manufacturers offer doors with robust slide locks and rigid heavy-duty bottom bars, enabling the doors to withstand up to 4,500 lbs of lifting effort.

Tip 2 – Protect While Allowing Visibility and Airflow
If product visibility is desired, but more robust security is needed at the storefront—beyond a security measure such as impact glass—a heavy-duty security grille is an excellent choice. Security grilles are easy to custom order and don’t require structural modifications to fit individual spaces. They are easily installed behind storefront glass, are compact enough to remain out of sight when not in use and require little maintenance.

It’s important to work with a manufacturer to select a rolling grille that provides dependable, increased security. Choose grille curtains with rods that are spaced closer together and have heavier links. Security grilles with these features are harder to lift and pry than standard rolling grilles.

Rolling security grilles are also an ideal solution to protect counters inside the dispensary. They can be easily concealed in small headspaces where there is limited ceiling room.

Tip 3 – Fortify A Store Within A Store
For cannabis dispensaries located within high-end retail shops, it is important to consider additional security measures to separate the dispensary from the rest of the store.

A store within a store may be subject to different hours of operation as states often dictate specific operating hours for cannabis dispensaries. Altered operating hours necessitate an easy way to secure only a small section of a larger store.

If aesthetics are of concern inside retail shops, a woven metal mesh grille will provide both beauty and security without imposing looks while securing cannabis products as customers browse throughout the store. Manufacturers offer a variety of patterns and even logo designs as a way to bring more creativity to a grille’s aesthetics—making them rolling pieces of art.

Tip 4 – Secure Deliverables
Dispensary owners sometimes overlook the fact that thieves target deliveries. Deliveries that are made at the back of the store or in receiving areas may be the most at risk. It is of utmost importance to be aware of how deliveries are timed, who is present during them, and how the product is handed off.

Robust rolling service doors provide the best security for delivery entrances and are more secure than traditional rolling sectional doors. Made from slats of formed galvanized steel, aluminum or stainless steel, these rolling doors are completely customizable to meet existing building designs and are ideal for areas with limited overhead room.

Robust Protection
By closely evaluating the levels of security needed, the layout of the building and where deliveries take place, security updates and enhancements are easily implemented with the right rolling doors. Every door is made for a specific opening, so each one is custom-made for its application. Choose a knowledgeable manufacturer that will help determine which rolling closure suits the dispensary’s needs.

Democrats in the Delaware House and Gov. John Carney are on the same side of the political aisle, but whether they’re on the same side of the adult-use cannabis legalization aisle remains to be seen.

The Health and Human Development Committee cleared House Bill 150, the Delaware Marijuana Control Act, on March 24. The legislation would create adult-use legal framework, including opportunities for small businesses to be licensed. It would also ensure people living in areas disproportionately affected by prohibition have equal access to the market, according to a press release by chief sponsor Rep. Ed Osienski.

Behind the support of six other sponsors and nine co-sponsors—all Democrat—in the 41-member House, H.B. 150 also aims at shutting down the illicit market by diverting demand from illegal enterprises, and empowering law enforcement with the ability to ensure a safe, legal market for the cultivation, sale and adult-use of cannabis, Osienski said.

“Support for adult recreational marijuana has been growing for years in Delaware and across the country. We have seen other states successfully enact policies that established a safe and legal market for cannabis, and we have studied those laws to craft the best policy for Delaware,” he said. “We believe we have a solid bill that has the support of the public, and we believe we have the political will to pass this bill into law.”

A University of Delaware poll in 2018 indicated that 61% of Delaware voters support legalizing adult-use cannabis. Support for legalization has also reached 68% nationally, according to a November 2020 Gallup Poll.

Neighboring New Jersey Gov. Phil Murphy signed an adult-use cannabis legalization bill last month, following voters’ approval of a constitutional amendment in the November 2020 election. Up in New England, Massachusetts, Vermont and Maine also have legalized adult-use cannabis.

“We would be establishing a new industry that will create good-paying jobs for Delawareans while striking a blow against the marijuana illegal market,” Osienski said. “We also listened to concerns from communities that have been historically impacted by the prohibition of marijuana, and to promote equity, we have included provisions so they can participate in this new market.”

But from a governor’s standpoint, Carney isn’t entirely sold on the adult-use legalization efforts, the Democrat executive’s spokesman, Jonathan Starkey, told the Associated Press March 24.

“The governor’s position hasn’t changed,” Starkey said to the AP. “He supported decriminalization and an expansion of Delaware’s medical marijuana program. But he still has concerns about legalizing recreational marijuana.”

Carney has not directly said whether or not he’d veto H.B. 150, if it reaches his desk, according to the AP.

While Osienski said he believes H.B. 150 aims at shutting down the illicit market, critics argue the legislation will have little impact on that front, and instead will result in increased use among minors, more traffic deaths and injuries, and more people struggling with mental health and substance abuse issues, according to the AP.

Under the bill, which would allow adults 21 and older to purchase up to 1 ounce of cannabis from a licensed retail store, the Division of Alcohol and Tobacco Enforcement (DATE) would absorb cannabis enforcement and create a separate, administrative Office of Marijuana Control Commissioner within the Department of Safety and Homeland Security, according to Osienski’s release.

The legislation would allow for up to 30 retail licenses, 30 manufacturing licenses and 60 cultivation licenses to be issued within 16 months of the bill’s effective date. It also would establish a competitive licensing process through the Office of Marijuana Control Commissioner using a scoring system that rewards applicants for paying a living wage, providing employer-paid health insurance, providing a defined benefit pension plan, providing sick and paid leave to workers, hiring more full-time workers, focusing on diversity of workforce and other factors, according to Osienski’s release.

In addition, the measure includes a 15% tax, described as a cannabis control enforcement fee, that would be assessed at the point of sale, according to the bill’s text.

H.B. 150 also has companion support in the 21-member upper chamber, including sponsorship from five senators and co-sponsorship from four senators—all Democrat. Sen. Trey Paradee, the chief sponsor, offered his viewpoint in Osienski’s release.

“The time has come for us to replace an illegal market that has overwhelmed our court system and damaged lives with a legal, regulated and responsible industry that will create thousands of good-paying jobs in Delaware,” Paradee said. “We have seen the benefits of a thriving legal cannabis industry in 15 other states. We have had time to study what works and what does not. This legislation is sound economic policy, strong social justice reform and a job creator that we absolutely should pass this year.

The cannabis industry saw close to $15.5B in deals across VC, private equity, M&A and IPOs in 2020 according to PitchBook data. Early and growth stage capital has been a key enabler in deal activity as companies seek to innovate and scale, taking advantage of trends towards national legalization and consolidation. Entourage Effect Capital is one of the largest VC firms in cannabis with over $150MM deployed since its inception in 2014. Some of their notable investments include GTI, CANN, Harborside (CNQ: HBOR), Acreage Holdings, Ebbu, TerrAscend and Sunderstorm.

We spoke with Matt Hawkins, co-founder and managing partner at Entourage Effect Capital. Matt started Entourage in 2014 after exiting his previous company. He has 20+ years of private equity experience and serves on the Boards of numerous cannabis companies. Matt’s thought leadership has been on Fox Business in the past and he has also recently featured on CNBC, Bloomberg, Yahoo! Finance, Cheddar and more.

Aaron Green: How did you get involved in the cannabis industry?

Matt Hawkins: We’ve been making investments in the cannabis industry since 2014. We’ve made 65 investments to date. We have a full team of investment professionals, and we invest up and down the value chain of the industry.

I had been in private equity for 25 years and I kind of just fell into the industry after I’d had an exit. I started lending to warehouse owners in Denver that were looking to refinance their mortgages out of commercial debt into private debt, which would then give them the ability to lease their facilities to growers. I realized there would be a significant opportunity to place capital in the private equity side of the cannabis business. So, I just started raising money for that project and I haven’t looked back. It’s been a great run and we’ve built a fantastic portfolio. We look forward to continuing to deploy capital up to and through legalization.

Green: Do you consider Entourage Effect Capital a VC fund or private equity firm? How do you talk about yourself?

Hawkins: In the early stages of the industry, we were more purely venture capital because there was hardly any revenue. We’re probably still considered a venture capital firm, by definition, just because of the risk factors. As the industry has matured, the investments we make are going to be larger. The reality is that the checks we write now will go to companies that have a track record of not only 12 months of revenue, but EBITDA as well. We can calculate a multiple on those, and that makes it more like lower/middle-market private equity investing.

Green: What’s your investment mandate?

Hawkins: From here forward our mandate is to build scale in as many verticals as we can ahead of legalization. In the early days, we were focused on giving high net worth individuals and family offices access to the industry using a very diversified approach, meaning we invested up and down the value chain. We’ll continue to do that, but now we’re going to be really laser focused on combining companies and building scale within companies to where they’re going to be more attractive for exit partners upon legalization.

Green: Are there any particular segments of the industry that you focus on whether it’s cultivation, extraction or MSOs?

Hawkins: We tend to focus on everything above cultivation. We feel like cultivation by itself is a commodity, but when vertically integrated, for example with a single-state operator or multi-state operator, that makes it intrinsically more valuable. When you look at the value chain, right after cultivation is where we start to get involved.

Green: Are you also doing investments in tech and e-commerce?

Hawkins: We’ve made some investments in supply chain, management software, ERP solutions, things like that. We’re not really focused on e-commerce with the exception of the only CBD company we are invested in.

Green: How does Entourage’s investment philosophy differ from other VC and private equity firms in cannabis?

Hawkins: We really don’t pay attention to other people’s philosophies. We have co-invested with others in the past and will continue to do so. There’s not a lot of us in the industry, so it’s good that we all work together. Until legalization occurs, or institutional capital comes into play, we’re really the only game in town. So, it behooves us all to have good working relationships.

Green: Across the states, there’s a variety of markets in various stages of development. Do you tend to prefer investing in more sophisticated markets? Say California or Colorado where they’ve been legalized for longer, or are you looking more at new growth opportunities like New York and New Jersey?

Hawkins: Historically, we’ve focused on the most populous states. California is obviously where we’ve placed a lot of bets going forward. We’ll continue to build out our portfolio in California, but we will also exploit the other large population states like New Jersey, New York, Arizona, Massachusetts, Michigan, Ohio and Illinois. All of those are big targets for us. 

Green: Do you think legalization will happen this Congress?

Hawkins: My personal opinion is that it will not happen this year. It could be the latter part of next year or the year after. I think there’s just too much wood to chop. I was encouraged to see the SAFE Banking Act reappear. I think that will hopefully encourage institutional capital to take another look at the game, especially with the NASDAQ and the New York Stock Exchange open up. So that’s a positive.

I think with the election of President Biden and with the Senate runoffs in Georgia going Democrat, the timeline to legalization has sped up, but I don’t think it’s an overnight situation. I certainly don’t think it’ll be easy to start crossing state lines immediately, either.

Green: Can you explain more about your thoughts on interstate commerce?

Hawkins: I think it’s pretty simple. The states don’t want to give up all the tax revenue that they get from their cultivation companies that are in the state. For example, if you allow Mexico and Colombia to start importing product, we can’t compete with that cost structure. States that are neighbors to California, but need to grow indoors which is more expensive, are not going to want to lose their tax revenues either. So, I just think there’s going to be a lot of butting heads at the state level.

The federal government is going to have to outline what the tax implications will be, because at the end of the day the industry is currently taxed as high as it ever will be or should be. Anything North of current tax levels will prohibit businesses from thriving further, effectively meaning not being able to tamp down the illicit market. One of the biggest goals of legalization in my opinion should be reducing the tax burden on the companies and thereby allowing them to be able to compete more directly with the illicit market, which obviously has all the benefits of reduced crime, etc.

Green: Do you foresee 280E changes coming in the future?

Hawkins: For sure. If the federal illegality veil is removed – which means there’ll be some type of rescheduling – cannabis would be removed from the 280E category. I think 280E by definition is about just illegal drugs and manufacturing and selling of that. As long as cannabis isn’t part of that, then it won’t be subject to it.

Green: What have been some of the winners in your portfolio in terms of successful exits?

Hawkins: When the CSC started allowing companies in Canada to own U.S. assets, the whole landscape changed. We were fortunate to be early investors in Acreage and companies that sold to Curaleaf and GTI before they were public. We are big investors in TerrAscend. We were early investors in Ebbu which sold to Canopy Growth. Those were huge wins for us in Fund I. We also have some interesting plays in Fund II that are on the precipice of having similar-type exits.

You read about the big ones, but at the end of the day, the ones that kind of fall under the radar – the private deals – actually have even greater multiples than what we see on some of the public M&A activity.

Green: Governor Cuomo has been hinting recently at being “very close” on a deal for opening up the cannabis market in New York. What do you think are the biggest opportunities in New York right now?

Hawkins: If it can get done, that’s great. I’m just concerned that distractions in the state house right now in New York may get in the way of progress there. But if it doesn’t, and it is able to come to fruition, then there isn’t a sector that doesn’t have a chance to thrive and thrive extremely well in the state of New York.

Green: Looking at other markets, Curaleaf recently announced a big investment in Europe. How do you look at Europe in general as an investment opportunity?

Hawkins: We have a pretty interesting play in Europe right now through a company called Relief Europe. It’s poised to be one of the first entrants to Germany. We think it could be a big win for us. But let’s face it, Europe is still a little behind, in fact, a lot behind the United States in terms of where they are as an industry. Most of the capital that we’re going to be deploying is going to be done domestically in advance of legalization.

Green: What industry trends are you seeing in the year ahead?“We’re constantly learning from other industries that are steps ahead of us to figure out how to use those lessons as we continue to invest in cannabis.”

Hawkins: Well, I think you’ll see a lot of consolidation and a lot of ramping up in advance of legalization. I think that’s going to apply in all sectors. I just don’t see a scenario wherein mom and pops or smaller players are going to be successful exit partners with some of the new capital that’s coming in. They’re going to have to get to a point where they’re either selling to somebody bigger than them right now or joining forces with companies around the same size as them and creating mass. That’s the only way you’re going to compete with companies coming in with billions of dollars to deploy.

Green: How do you see this shaking out?

Hawkins: That’s where you start to look into the crystal ball. It’s really difficult to say because I think until we get to where we truly have a national footprint of brands, which would require crossing state lines, it’s going be really difficult to tell where things go. I do know that liquor, tobacco, beer, the distribution companies, they all are standing in line. Big Pharma, big CPG, nutraceuticals, they all want access to this, too.

In some form or fashion, these bigger players will dictate how they want to go about attacking the market on their own. So, that part remains to be seen. We’ll just have to wait and see where this goes and how quickly it goes there.

Green: Are you looking at other geographies to deploy capital such as APAC or Latin America regions?

Hawkins: Not at this point. It’s not a focus at all. What recently transpired here in the elections just really makes us want to focus here and generate positive returns for investors.

Green: As cannabis goes more and more mainstream, federal legalization is maybe more likely. How do you think the institutional investor scene is evolving around that? And is it a good thing to bring in new capital to the cannabis market?

Hawkins: I don’t see a downside to it. Some people are saying that it could damage the collegial and cottage-like nature of the industry. At the end of the day, if you’ve got tens of billions of dollars that are waiting to pour into companies listed on the CSC and up-listing to the NASDAQ or New York Stock Exchange, that’s only going to increase their market caps and give them more cash to acquire other companies. The trickle-down effect of that will be so great to the industry that I just don’t know how you can look the other way and say we don’t want it. 

Green: Last question: What’s got your attention these days? What’s the thing you’re most interested in learning about?

Hawkins: We’re constantly learning about just where this industry is headed. We’re constantly learning from other industries that are steps ahead of us to figure out how to use those lessons as we continue to invest in cannabis. We all saw the correlation between cannabis and alcohol prohibition. The reality is that the industry is mature enough now where you can see similarities to industries that have gone from infancy to their adolescent years. That’s kind of where we are now and so we spend a lot of time studying industries that have been down this path before and see what lessons we can apply here.

Green: Okay, great. So that concludes the interview!

Hawkins: Thanks, Aaron.