CBD OIL

After three full years of hemp cultivation, Linda Noel was confident 2021 would be a success.

Those beginning years were rife with issues, including two broken contracts, an entire crop that went hot and cannabidiol (CBD) regulatory hurdles. She learned along the way, though, and hemp grown for CBD had become her primary crop at Terrapin Farm in Franklin, Mass., where she also grows tomatoes. 

But Noel wouldn’t have grown hemp a fourth year if not for the MA Hemp Industry Survive and Thrive amendment included in the state’s 2021 fiscal budget. The amendment allows licensed hemp producers and processors to sell their products to medical and adult-use cannabis dispensaries in the state. Because hemp-derived CBD is only legal for sale as a topical in the state, it’d bring about a lifeline for Massachusetts’ struggling hemp industry.

That amendment passed in December and was expected to take effect March 11. But so far, Massachusetts’ Cannabis Control Commission (the Commission) has yet to administer an update, guidelines or even a timeline on when the industry can expect the market to open up.

“I’m hopeful by the time we go to harvest, there will be a market to sell in the state,” Noel says.

Now, a sense of urgency permeates the state’s hemp industry. The cultivation season is quickly approaching, and producers like Noel are left to decide whether to grow based only on the hope that regulations will be administered in time. Meanwhile, processors say they’re fielding a boom in calls from interested dispensaries, only to hang in limbo as they await guidance.

“There’s not going to be a hemp industry in Massachusetts if this isn’t implemented in a timely fashion,” says John Nathan, president of Bay State Hemp Company, a licensed hemp extractor and processor in the state. “We’re in a legal [cannabis] state that’s about to drop the ball on hemp—the most benign form of the cannabis plant.”

A Struggling Industry

Massachusetts legalized hemp in 2016—the same year it legalized adult-use cannabis—but hemp production in the state didn’t start until 2018, according to telegram.com. That year, the state issued 13 hemp cultivation licenses, the outlet reports.

That number more than tripled in 2019, when nearly 70 people received cultivation licenses, telegram.com reports.

But trouble came that year when the Massachusetts Department of Agricultural Resources (MDAR) issued policy guidance in late June that stated all hemp-derived CBD products aside from topicals were prohibited for sale in the state.

“Right before harvest, they changed the rules,” Noel says. “We were all growing for the CBD market … and they took the whole market out from under us.”

The industry’s struggles continued into 2020, when 40% of the state’s crop tested above the federal 0.3% THC limit and had to be destroyed, according to Noel and Hillary King, who wrote the amendment to sell hemp products into dispensaries. (The MDAR could not immediately be reached for comment.)

Noel attributes the widespread hot crop to a drought in the state that year. Her 2-acre crop was included in that statistic, though she believes her crop went hot because she waited too long to harvest it.

“Year two went into the freezer, where it still is …. Year three went into the fire pit,” Noel says.

Industry Lifeline

The budget amendment was created to address farmers’ ongoing struggles and help a now-stagnant industry grow. In 2020, MDAR licensed 69 growers for hemp cultivation, nearly on par with the previous year.

SEE MORE: 2020 Hemp Cultivation Data By State

Multiple sources Hemp Grower spoke with for this story say many farmers in the state only planned to grow hemp again because of the amendment.

“As of right now, [farmers] throw seeds in the ground and either have to burn [their crop] or are offered nickels, and it’s just not right,” says Nathan, who currently sources hemp from about 15 farmers in the state.

The amendment would also help hemp processors in the state, who say dispensaries have already begun inquiring about CBD products.

“We’ve had probably two dozen dispensaries reach out to us. There’s this crazy demand,” says Laura Beohner, the president and co-founder of The Healing Rose Company, a hemp processor and manufacturer of finished skincare products, as well as co-founder and director of the Massachusetts Hemp Coalition. “This would be everything for our business.”

Dispensaries in the state are looking to broaden their offerings beyond THC, says King, the author of the hemp amendment who is also the director of wholesale at Northeast Alternatives, a state-licensed dispensary serving both the medical and adult-use markets. But sourcing cannabinoids besides THC from cannabis cultivators is difficult, as THC still by far presents the most lucrative market for these growers.

READ MORE: CBD vs. THC Flower: Why The Price Difference?

Meanwhile, the hemp industry has an oversupply of CBD biomass (and is also increasingly producing other minor cannabinoids), allowing dispensaries to purchase these products at lower price points.

“For me, it came down to the viability of the hemp industry in Massachusetts and wanting to see a functional and vibrant local market that provides these more therapeutic and less psychoactive [cannabinoids] to people in the state,” King says.

But the delay has caused also issues for both dispensaries and processors, who are unable to meet the demand until the Commission provides guidance.

Beohner says she expected the amendment to double her sales for the 2021 season, so she began hiring new employees in anticipation of the demand. But with its status at a standstill, Beohner had to backpedal on the hiring of one new employee. Much like farmers in the state, she is now taking a wait-and-see approach.

Beohner points to the flagrant disconnect of the two industries in the state. “We’re allowed to sell our products everywhere in the state except dispensaries,” says Beohner, who only sells topical products. “It’s frustrating.”

Sense of Urgency

Notably, one potential pitfall of the amendment is that dispensaries are unlikely to be considered as an outlet for hot hemp. King says this is because the amendment focuses solely on hemp products, which are legally defined as containing below 0.3% THC. However, King sees opportunity for MDAR and the Commission to collaborate on developing a pathway for crops that test above the legal THC limit but below the 1% negligence threshold to be sold into cannabis dispensaries.

When asked for comment, spokesperson for the Commission told Hemp Grower the agency has begun talks with MDAR about how to “safely introduce” hemp products into the cannabis supply chain.

“Compliance with Commission testing protocols, seed-to-sale tracking, and packaging and labeling are just a few of the many requirements that the Commission must consider in order to uphold public health and safety when products are sold to patients and consumers,” the Commission spokesperson said. “At MDAR’s invitation, the Commission expects to provide feedback to MDAR on specific areas of concern for its licensees in the months ahead that clarifies these issues and more.”

But some in the industry say the need is urgent as hemp growers make their final decisions whether or not to plant a crop this year.

“This needs to be implemented probably within the next 30 days, or there will be irreversible damage to our hemp industry,” Nathan says.

Despite the hemp hardships over the past few years, some growers, like Noel, retain optimism. But time will tell how long she and other farmers in Massachusetts hold on to their faith in the industry.

“Being a farmer, we tend to say, ‘This is the year, this is going to be a good year,’” Noel says. “I really hope it is.

Shannon Price | Adobe Stock

State-legal cannabis companies aren’t stashing large stacks of cash behind walls or rubber-banded bankrolls in hidden vaults.

Helping motor more than $17.5 billion of legal cannabis sales in the U.S. in 2020, there were 515 banks and 169 credit unions providing services to cannabis-related businesses at the end of last year, according to Financial Crimes Enforcement Network’s (FinCEN) quarterly cannabis banking update.

But those banks are not the “national associations” of the world. Big financial institutions, like JPMorgan Chase, Wells Fargo and PNC, are not going to get into the cannabis space directly, unless there’s more formalized federal reform, said Jonathan Havens, a partner at Saul, Ewing, Arnstein and Lehr’s Philadelphia-based law firm.

Counseling clients on regulatory, compliance, enforcement and transactional matters, Havens has companies in the cannabis industry turn to him for advice on how to get and keep their products on the market, where access to banking comes in handy.

According to the U.S. Department of Treasury’s FinCEN, banks can accept cannabis-related deposits, but there are several compliance steps those institutions need to take, such as filing Suspicious Activity Reports (SARs). When the FinCEN issued guidance in 2014 to clarify the expectations for financial institutions seeking to provide services to cannabis-related businesses, it opened the door for banks to jump into the space—but that door only opened so far.

“I think a lot of these bigger banks said, ‘You know what? The cannabis industry is just not big enough business to us. And, so, it’s not worth it to us,’” Havens said. “The risk isn’t worth it to them.”

Without banking reform, like the Secure And Fair Enforcement (SAFE) Banking Act, which was reintroduced by Rep. Ed. Perlmutter (D-CO) in the U.S. House of Representatives on March 18, financial institutions that work with cannabis clients have yet to receive full confidence in safe harbor at the federal level. According to Perlmutter, passage of SAFE Banking would allow cannabis-related businesses in states with some form of legalization and strict regulatory structures to access the banking system.

Read the full text of the bill below.

“SAFE is a win, win, win, for providers and their communities,” said Dr. Chanda Macias, the first vice chair of the National Cannabis Roundtable. “It will create more jobs, more opportunity and more public safety. We will work hard for passage of this key piece of bipartisan cannabis reform in this Congress.”

The SAFE Banking Act on 2019 overwhelmingly passed the House, 321-103, but it never saw the light of day in the Republican-controlled Senate. The House passed the measure once again in May 2020, as part of the second federal coronavirus relief bill, but it was stripped from the Senate version later in the year. As a result, state-legal cannabis companies don’t have full access to traditional banking options as they operate in a sector that is not federally legal.

But with Democrats now controlling both chambers of Congress and the White House, there’s optimism for banking reform to take shape, said Cresco Labs CEO Charlie Bachtell, who also serves as the chairman of the National Cannabis Roundtable. With legal expertise in corporate governance and regulatory compliance, Bachtell served eight years as the executive vice president and general counselor of Guaranteed Rate—the nation’s seventh largest mortgage bank—and was a leading attorney during the reform of the U.S. mortgage industry.

“There’s a feeling that some sort of banking reform is more likely than less,” Bachtell said. “And I don’t know that that was the case under the prior administration and with the prior makeup of the legislature. So, I think just as a starting position, optimism is key.

“As far as what we’re hearing on the ground, of substantive change, we are hearing that it looks likely that we’ll get something in the very near term that is some form of SAFE that has already been approved by the House on a couple of different occasions, but maybe in a slightly enhanced version of SAFE that will provide that level of clarity and safe harbor for the banking industry as it relates to state-licensed regulated cannabis operators.”

According to FinCEN, there were 55 fewer banks and credit unions providing services to cannabis-related businesses in 2020 than in 2019. But part of that decline coincided with the FinCEN’s release of regulatory guidance in December 2019, which stated financial institutions were no longer required to file SARs for legalized hemp producers.

Without passage of the SAFE Banking Act, Havens said the number of financial institutions servicing the cannabis industry likely won’t experience any major upticks. The banks and credit unions currently participating in the space, by and large, are local, state and regional institutions that are willing to take the compliance risks, he said.

“It’s not the larger banks,” he said. “It’s the banks that have said, ‘You know what, we’re going to get smart on this. We’re going to build up our compliance department. We’re going to charge a premium for accounts, and we’ll make that premium because these businesses are desperate for banks that will take their money. And we’re providing a service, but we know we’re taking some risk.’”

Can SAFE Banking clear the Senate?

Perlmutter has led the charge for cannabis banking reform for years. He was the author of the SAFE Banking Act in the last Congress, and he’s back in the driver’s seat this week with a group of bipartisan sponsors, including Nydia M. Velázquez (D-NY), Steve Stivers (R-OH) and Warren Davidson (R-OH), who reintroduced the bill with more than 100 co-sponsors on Thursday.

But the question remains: Does SAFE Banking have bipartisan support in the Senate to pass as a standalone bill?

The answer is likely yes, said Matthew Ginder, a partner in the cannabis law practice group at Greenspoon Marder, a national firm with more than 200 attorneys who have a presence in 25 cities across 11 states and the District of Columbia.

“I think there is bipartisan support for SAFE Banking to get to the finish line, and in both chambers,” Ginder said. “I don’t know, particularly in the Senate, whether the SAFE Banking Act will be swallowed up by a bill that covers broader reform. I know Schumer, Wyden and Booker are working on their bill to address cannabis reform.”

Sens. Chuck Schumer (D-NY), Ron Wyden (D-OR) and Cory Booker (D-NJ) issued a joint statement on cannabis reform legislation last month, in which they said ending federal cannabis prohibition is necessary to right the wrongs of the failed war on drugs.

“We are committed to working together to put forward and advance comprehensive cannabis reform legislation that will not only turn the page on this sad chapter in American history, but also undo the devastating consequences of these discriminatory policies,” they said. “The Senate will make consideration of these reforms a priority.”

That Democratic trio’s intentions might be more along the lines of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019, which would have removed cannabis from the list of scheduled substances under the Controlled Substance Act and eliminated criminal penalties for an individual who manufactures, distributes or possesses cannabis.

“If they include aspects of the MORE Act, which decriminalizes cannabis, then the need for SAFE Banking becomes less,” Ginder said. “The whole issue with banking and why it’s challenging is because marijuana is considered a Schedule I controlled substance.”

While broader-based reform, like the MORE Act, might be what some stakeholders prefer, Havens said he thinks smaller reforms, like SAFE Banking, are going to be a lot easier of a road to hoe.

Sen. Sherrod Brown (D-OH), the newly seated chair of the Senate Banking, Housing and Urban Affairs Committee, told Cleveland.com he’s willing to consider SAFE Banking but only if it’s complemented by sentencing reform in the Senate Judiciary Committee. The effects of pairing banking reform with sentencing reform in regard to attracting bipartisan support remain to be seen.

With a 50-50 makeup of the Senate, the Democrats do have the tiebreaker vote in Vice President Kamala Harris, but that’s more relevant for reconciliation bills, which can be passed on spending, revenue and the federal debt limit. For non-reconciliation measures, passage involves a 60-vote super majority to invoke cloture if a piece of legislation is partisan and draws a filibuster from opponents.

“I think when it comes to cannabis reform in the Senate, people shouldn’t be thinking about 51 votes necessarily,” Havens said. “They should be thinking about 60 votes and are there 60 votes. And as far as cannabis banking reform, or the SAFE Banking act, there might be 60 votes.”

Are cannabis stakeholders compliant?

In the 2017 motion picture “Molly’s Game,” attorney Louis Butterman (played by Michael Kostroff) tells lead actress Jessica Chastain, “There’s a saying in my business—don’t break the law when you’re breaking the law.”

While the movie was about a high-stakes poker game, a parallel to the cannabis industry revolves around stakeholders not wanting to expose themselves to more risks than they’re already exposed to. For example, if a state-legal cannabis business is compliant toward federal guidance and regulations, then there are fewer risks involved.

The state-legal cannabis industry supported more than 320,000 U.S. workers in 2020, and the majority of stakeholders in the industry are compliant with government mandates, Bachtell said.

“The only way that you can create change that we need for this industry is by showing the legislators, the people holding the pen that could make that change happen, that we’re all good actors, that this is a great professional industry that they should be able to rely on and get behind,” he said.

Like any industry, there still could be some bad apples.

Last month, Eaze Technology’s former CEO James Patterson pled guilty in a federal case accusing the online cannabis company of tricking banks into processing $100 million worth of credit-card based cannabis payments.

The fact that someone would need to develop workarounds to be able to simply engage in transactions with customers who want to participate in a regulated and licensed marketplace is indicative of the fact that the cannabis industry needs some changes that will allow for traditional banking and traditional transactions to take place, Bachtell said.

When it comes to concealing the true nature of credit card payments from banks, that’s where trouble lies, Ginder said.

“Something like that is where you’ll see issues in the space,” he said. “So, misrepresenting or masking the nature of what kind of business you’re conducting.”

More legalization means more pressure for reform

As more states come online with medical or adult-use cannabis legalization, there may be a state bank, a regional bank or a credit union that would seize the opportunity to service that market. State-by-state legalization alone, however, would not induce a huge national uptick in cannabis banking institutions, Havens and Ginder said.

But anytime a new state adopts a medical or adult-use cannabis program, that puts more pressure at the federal level for reform, Ginder said.

“If you’re a senator or a representative and your constituents in your state are now allowed under state law to conduct medical marijuana or adult-use activity, then that representative should be advocating for their constituents to do so in a manner that doesn’t create a risk at the federal level,” Ginder said. “So, I think any time you see another state legalize marijuana, that is just one additional pressure point for reform at the federal level.”

In the previous Congress, the chairman of the Senate Banking Committee was Mike Crapo, a Republican from Idaho, which has neither a medical nor adult-use program. Former Senate Majority Leader Mitch McConnell, of Kentucky, also had a say in SAFE Banking’s holdup in the upper chamber through his inaction of calendaring it for debate.

With the turnover of leadership, however, the optimism for banking reform may be more prevalent to some cannabis operators than others, Havens said. Having worked with several multistate operators, he said he’s never come across any of them that do not have at least one bank they’re banking with, and sometimes they have multiple banks.

“I think it might be harder for maybe the standalone operators who aren’t affiliated with a multistate outfit,” Havens said. “Maybe they don’t have enough business to support the fees that are needed to bank, maybe they’re not making enough revenue where it makes sense. Maybe they’re just, you know, sitting on their own money. But I don’t want to say that I think there’s a lot of businesses out there that just have their own safes and are storing a bunch of cash.”

The Safe Banking Act of 2021 by sandydocs on Scribd

 

Shannon Price | Adobe Stock

State-legal cannabis companies aren’t stashing large stacks of cash behind walls or rubber-banded bankrolls in hidden vaults.

Helping motor more than $17.5 billion of legal cannabis sales in the U.S. in 2020, there were 515 banks and 169 credit unions providing services to cannabis-related businesses at the end of last year, according to Financial Crimes Enforcement Network’s (FinCEN) quarterly cannabis banking update.

But those banks are not the “national associations” of the world. Big financial institutions, like JPMorgan Chase, Wells Fargo and PNC, are not going to get into the cannabis space directly, unless there’s more formalized federal reform, said Jonathan Havens, a partner at Saul, Ewing, Arnstein and Lehr’s Philadelphia-based law firm.

Counseling clients on regulatory, compliance, enforcement and transactional matters, Havens has companies in the cannabis industry turn to him for advice on how to get and keep their products on the market, where access to banking comes in handy.

According to the U.S. Department of Treasury’s FinCEN, banks can accept cannabis-related deposits, but there are several compliance steps those institutions need to take, such as filing Suspicious Activity Reports (SARs). When the FinCEN issued guidance in 2014 to clarify the expectations for financial institutions seeking to provide services to cannabis-related businesses, it opened the door for banks to jump into the space—but that door only opened so far.

“I think a lot of these bigger banks said, ‘You know what? The cannabis industry is just not big enough business to us. And, so, it’s not worth it to us,’” Havens said. “The risk isn’t worth it to them.”

Without banking reform, like the Secure And Fair Enforcement (SAFE) Banking Act, which was reintroduced by Rep. Ed. Perlmutter (D-CO) in the U.S. House of Representatives on March 18, financial institutions that work with cannabis clients have yet to receive full confidence in safe harbor at the federal level. According to Perlmutter, passage of SAFE Banking would allow cannabis-related businesses in states with some form of legalization and strict regulatory structures to access the banking system.

Read the full text of the bill below.

“SAFE is a win, win, win, for providers and their communities,” said Dr. Chanda Macias, the first vice chair of the National Cannabis Roundtable. “It will create more jobs, more opportunity and more public safety. We will work hard for passage of this key piece of bipartisan cannabis reform in this Congress.”

The SAFE Banking Act on 2019 overwhelmingly passed the House, 321-103, but it never saw the light of day in the Republican-controlled Senate. The House passed the measure once again in May 2020, as part of the second federal coronavirus relief bill, but it was stripped from the Senate version later in the year. As a result, state-legal cannabis companies don’t have full access to traditional banking options as they operate in a sector that is not federally legal.

But with Democrats now controlling both chambers of Congress and the White House, there’s optimism for banking reform to take shape, said Cresco Labs CEO Charlie Bachtell, who also serves as the chairman of the National Cannabis Roundtable. With legal expertise in corporate governance and regulatory compliance, Bachtell served eight years as the executive vice president and general counselor of Guaranteed Rate—the nation’s seventh largest mortgage bank—and was a leading attorney during the reform of the U.S. mortgage industry.

“There’s a feeling that some sort of banking reform is more likely than less,” Bachtell said. “And I don’t know that that was the case under the prior administration and with the prior makeup of the legislature. So, I think just as a starting position, optimism is key.

“As far as what we’re hearing on the ground, of substantive change, we are hearing that it looks likely that we’ll get something in the very near term that is some form of SAFE that has already been approved by the House on a couple of different occasions, but maybe in a slightly enhanced version of SAFE that will provide that level of clarity and safe harbor for the banking industry as it relates to state-licensed regulated cannabis operators.”

According to FinCEN, there were 55 fewer banks and credit unions providing services to cannabis-related businesses in 2020 than in 2019. But part of that decline coincided with the FinCEN’s release of regulatory guidance in December 2019, which stated financial institutions were no longer required to file SARs for legalized hemp producers.

Without passage of the SAFE Banking Act, Havens said the number of financial institutions servicing the cannabis industry likely won’t experience any major upticks. The banks and credit unions currently participating in the space, by and large, are local, state and regional institutions that are willing to take the compliance risks, he said.

“It’s not the larger banks,” he said. “It’s the banks that have said, ‘You know what, we’re going to get smart on this. We’re going to build up our compliance department. We’re going to charge a premium for accounts, and we’ll make that premium because these businesses are desperate for banks that will take their money. And we’re providing a service, but we know we’re taking some risk.’”

Can SAFE Banking clear the Senate?

Perlmutter has led the charge for cannabis banking reform for years. He was the author of the SAFE Banking Act in the last Congress, and he’s back in the driver’s seat this week with a group of bipartisan sponsors, including Nydia M. Velázquez (D-NY), Steve Stivers (R-OH) and Warren Davidson (R-OH), who reintroduced the bill with more than 100 co-sponsors on Thursday.

But the question remains: Does SAFE Banking have bipartisan support in the Senate to pass as a standalone bill?

The answer is likely yes, said Matthew Ginder, a partner in the cannabis law practice group at Greenspoon Marder, a national firm with more than 200 attorneys who have a presence in 25 cities across 11 states and the District of Columbia.

“I think there is bipartisan support for SAFE Banking to get to the finish line, and in both chambers,” Ginder said. “I don’t know, particularly in the Senate, whether the SAFE Banking Act will be swallowed up by a bill that covers broader reform. I know Schumer, Wyden and Booker are working on their bill to address cannabis reform.”

Sens. Chuck Schumer (D-NY), Ron Wyden (D-OR) and Cory Booker (D-NJ) issued a joint statement on cannabis reform legislation last month, in which they said ending federal cannabis prohibition is necessary to right the wrongs of the failed war on drugs.

“We are committed to working together to put forward and advance comprehensive cannabis reform legislation that will not only turn the page on this sad chapter in American history, but also undo the devastating consequences of these discriminatory policies,” they said. “The Senate will make consideration of these reforms a priority.”

That Democratic trio’s intentions might be more along the lines of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019, which would have removed cannabis from the list of scheduled substances under the Controlled Substance Act and eliminated criminal penalties for an individual who manufactures, distributes or possesses cannabis.

“If they include aspects of the MORE Act, which decriminalizes cannabis, then the need for SAFE Banking becomes less,” Ginder said. “The whole issue with banking and why it’s challenging is because marijuana is considered a Schedule I controlled substance.”

While broader-based reform, like the MORE Act, might be what some stakeholders prefer, Havens said he thinks smaller reforms, like SAFE Banking, are going to be a lot easier of a road to hoe.

Sen. Sherrod Brown (D-OH), the newly seated chair of the Senate Banking, Housing and Urban Affairs Committee, told Cleveland.com he’s willing to consider SAFE Banking but only if it’s complemented by sentencing reform in the Senate Judiciary Committee. The effects of pairing banking reform with sentencing reform in regard to attracting bipartisan support remain to be seen.

With a 50-50 makeup of the Senate, the Democrats do have the tiebreaker vote in Vice President Kamala Harris, but that’s more relevant for reconciliation bills, which can be passed on spending, revenue and the federal debt limit. For non-reconciliation measures, passage involves a 60-vote super majority to invoke cloture if a piece of legislation is partisan and draws a filibuster from opponents.

“I think when it comes to cannabis reform in the Senate, people shouldn’t be thinking about 51 votes necessarily,” Havens said. “They should be thinking about 60 votes and are there 60 votes. And as far as cannabis banking reform, or the SAFE Banking act, there might be 60 votes.”

Are cannabis stakeholders compliant?

In the 2017 motion picture “Molly’s Game,” attorney Louis Butterman (played by Michael Kostroff) tells lead actress Jessica Chastain, “There’s a saying in my business—don’t break the law when you’re breaking the law.”

While the movie was about a high-stakes poker game, a parallel to the cannabis industry revolves around stakeholders not wanting to expose themselves to more risks than they’re already exposed to. For example, if a state-legal cannabis business is compliant toward federal guidance and regulations, then there are fewer risks involved.

The state-legal cannabis industry supported more than 320,000 U.S. workers in 2020, and the majority of stakeholders in the industry are compliant with government mandates, Bachtell said.

“The only way that you can create change that we need for this industry is by showing the legislators, the people holding the pen that could make that change happen, that we’re all good actors, that this is a great professional industry that they should be able to rely on and get behind,” he said.

Like any industry, there still could be some bad apples.

Last month, Eaze Technology’s former CEO James Patterson pled guilty in a federal case accusing the online cannabis company of tricking banks into processing $100 million worth of credit-card based cannabis payments.

The fact that someone would need to develop workarounds to be able to simply engage in transactions with customers who want to participate in a regulated and licensed marketplace is indicative of the fact that the cannabis industry needs some changes that will allow for traditional banking and traditional transactions to take place, Bachtell said.

When it comes to concealing the true nature of credit card payments from banks, that’s where trouble lies, Ginder said.

“Something like that is where you’ll see issues in the space,” he said. “So, misrepresenting or masking the nature of what kind of business you’re conducting.”

More legalization means more pressure for reform

As more states come online with medical or adult-use cannabis legalization, there may be a state bank, a regional bank or a credit union that would seize the opportunity to service that market. State-by-state legalization alone, however, would not induce a huge national uptick in cannabis banking institutions, Havens and Ginder said.

But anytime a new state adopts a medical or adult-use cannabis program, that puts more pressure at the federal level for reform, Ginder said.

“If you’re a senator or a representative and your constituents in your state are now allowed under state law to conduct medical marijuana or adult-use activity, then that representative should be advocating for their constituents to do so in a manner that doesn’t create a risk at the federal level,” Ginder said. “So, I think any time you see another state legalize marijuana, that is just one additional pressure point for reform at the federal level.”

In the previous Congress, the chairman of the Senate Banking Committee was Mike Crapo, a Republican from Idaho, which has neither a medical nor adult-use program. Former Senate Majority Leader Mitch McConnell, of Kentucky, also had a say in SAFE Banking’s holdup in the upper chamber through his inaction of calendaring it for debate.

With the turnover of leadership, however, the optimism for banking reform may be more prevalent to some cannabis operators than others, Havens said. Having worked with several multistate operators, he said he’s never come across any of them that do not have at least one bank they’re banking with, and sometimes they have multiple banks.

“I think it might be harder for maybe the standalone operators who aren’t affiliated with a multistate outfit,” Havens said. “Maybe they don’t have enough business to support the fees that are needed to bank, maybe they’re not making enough revenue where it makes sense. Maybe they’re just, you know, sitting on their own money. But I don’t want to say that I think there’s a lot of businesses out there that just have their own safes and are storing a bunch of cash.”

The Safe Banking Act of 2021 by sandydocs on Scribd

 

Shannon Price | Adobe Stock

State-legal cannabis companies aren’t stashing large stacks of cash behind walls or rubber-banded bankrolls in hidden vaults.

Helping motor more than $17.5 billion of legal cannabis sales in the U.S. in 2020, there were 515 banks and 169 credit unions providing services to cannabis-related businesses at the end of last year, according to Financial Crimes Enforcement Network’s (FinCEN) quarterly cannabis banking update.

But those banks are not the “national associations” of the world. Big financial institutions, like JPMorgan Chase, Wells Fargo and PNC, are not going to get into the cannabis space directly, unless there’s more formalized federal reform, said Jonathan Havens, a partner at Saul, Ewing, Arnstein and Lehr’s Philadelphia-based law firm.

Counseling clients on regulatory, compliance, enforcement and transactional matters, Havens has companies in the cannabis industry turn to him for advice on how to get and keep their products on the market, where access to banking comes in handy.

According to the U.S. Department of Treasury’s FinCEN, banks can accept cannabis-related deposits, but there are several compliance steps those institutions need to take, such as filing Suspicious Activity Reports (SARs). When the FinCEN issued guidance in 2014 to clarify the expectations for financial institutions seeking to provide services to cannabis-related businesses, it opened the door for banks to jump into the space—but that door only opened so far.

“I think a lot of these bigger banks said, ‘You know what? The cannabis industry is just not big enough business to us. And, so, it’s not worth it to us,’” Havens said. “The risk isn’t worth it to them.”

Without banking reform, like the Secure And Fair Enforcement (SAFE) Banking Act, which was reintroduced by Rep. Ed. Perlmutter (D-CO) in the U.S. House of Representatives on March 18, financial institutions that work with cannabis clients have yet to receive full confidence in safe harbor at the federal level. According to Perlmutter, passage of SAFE Banking would allow cannabis-related businesses in states with some form of legalization and strict regulatory structures to access the banking system.

Read the full text of the bill below.

“SAFE is a win, win, win, for providers and their communities,” said Dr. Chanda Macias, the first vice chair of the National Cannabis Roundtable. “It will create more jobs, more opportunity and more public safety. We will work hard for passage of this key piece of bipartisan cannabis reform in this Congress.”

The SAFE Banking Act on 2019 overwhelmingly passed the House, 321-103, but it never saw the light of day in the Republican-controlled Senate. The House passed the measure once again in May 2020, as part of the second federal coronavirus relief bill, but it was stripped from the Senate version later in the year. As a result, state-legal cannabis companies don’t have full access to traditional banking options as they operate in a sector that is not federally legal.

But with Democrats now controlling both chambers of Congress and the White House, there’s optimism for banking reform to take shape, said Cresco Labs CEO Charlie Bachtell, who also serves as the chairman of the National Cannabis Roundtable. With legal expertise in corporate governance and regulatory compliance, Bachtell served eight years as the executive vice president and general counselor of Guaranteed Rate—the nation’s seventh largest mortgage bank—and was a leading attorney during the reform of the U.S. mortgage industry.

“There’s a feeling that some sort of banking reform is more likely than less,” Bachtell said. “And I don’t know that that was the case under the prior administration and with the prior makeup of the legislature. So, I think just as a starting position, optimism is key.

“As far as what we’re hearing on the ground, of substantive change, we are hearing that it looks likely that we’ll get something in the very near term that is some form of SAFE that has already been approved by the House on a couple of different occasions, but maybe in a slightly enhanced version of SAFE that will provide that level of clarity and safe harbor for the banking industry as it relates to state-licensed regulated cannabis operators.”

According to FinCEN, there were 55 fewer banks and credit unions providing services to cannabis-related businesses in 2020 than in 2019. But part of that decline coincided with the FinCEN’s release of regulatory guidance in December 2019, which stated financial institutions were no longer required to file SARs for legalized hemp producers.

Without passage of the SAFE Banking Act, Havens said the number of financial institutions servicing the cannabis industry likely won’t experience any major upticks. The banks and credit unions currently participating in the space, by and large, are local, state and regional institutions that are willing to take the compliance risks, he said.

“It’s not the larger banks,” he said. “It’s the banks that have said, ‘You know what, we’re going to get smart on this. We’re going to build up our compliance department. We’re going to charge a premium for accounts, and we’ll make that premium because these businesses are desperate for banks that will take their money. And we’re providing a service, but we know we’re taking some risk.’”

Can SAFE Banking clear the Senate?

Perlmutter has led the charge for cannabis banking reform for years. He was the author of the SAFE Banking Act in the last Congress, and he’s back in the driver’s seat this week with a group of bipartisan sponsors, including Nydia M. Velázquez (D-NY), Steve Stivers (R-OH) and Warren Davidson (R-OH), who reintroduced the bill with more than 100 co-sponsors on Thursday.

But the question remains: Does SAFE Banking have bipartisan support in the Senate to pass as a standalone bill?

The answer is likely yes, said Matthew Ginder, a partner in the cannabis law practice group at Greenspoon Marder, a national firm with more than 200 attorneys who have a presence in 25 cities across 11 states and the District of Columbia.

“I think there is bipartisan support for SAFE Banking to get to the finish line, and in both chambers,” Ginder said. “I don’t know, particularly in the Senate, whether the SAFE Banking Act will be swallowed up by a bill that covers broader reform. I know Schumer, Wyden and Booker are working on their bill to address cannabis reform.”

Sens. Chuck Schumer (D-NY), Ron Wyden (D-OR) and Cory Booker (D-NJ) issued a joint statement on cannabis reform legislation last month, in which they said ending federal cannabis prohibition is necessary to right the wrongs of the failed war on drugs.

“We are committed to working together to put forward and advance comprehensive cannabis reform legislation that will not only turn the page on this sad chapter in American history, but also undo the devastating consequences of these discriminatory policies,” they said. “The Senate will make consideration of these reforms a priority.”

That Democratic trio’s intentions might be more along the lines of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019, which would have removed cannabis from the list of scheduled substances under the Controlled Substance Act and eliminated criminal penalties for an individual who manufactures, distributes or possesses cannabis.

“If they include aspects of the MORE Act, which decriminalizes cannabis, then the need for SAFE Banking becomes less,” Ginder said. “The whole issue with banking and why it’s challenging is because marijuana is considered a Schedule I controlled substance.”

While broader-based reform, like the MORE Act, might be what some stakeholders prefer, Havens said he thinks smaller reforms, like SAFE Banking, are going to be a lot easier of a road to hoe.

Sen. Sherrod Brown (D-OH), the newly seated chair of the Senate Banking, Housing and Urban Affairs Committee, told Cleveland.com he’s willing to consider SAFE Banking but only if it’s complemented by sentencing reform in the Senate Judiciary Committee. The effects of pairing banking reform with sentencing reform in regard to attracting bipartisan support remain to be seen.

With a 50-50 makeup of the Senate, the Democrats do have the tiebreaker vote in Vice President Kamala Harris, but that’s more relevant for reconciliation bills, which can be passed on spending, revenue and the federal debt limit. For non-reconciliation measures, passage involves a 60-vote super majority to invoke cloture if a piece of legislation is partisan and draws a filibuster from opponents.

“I think when it comes to cannabis reform in the Senate, people shouldn’t be thinking about 51 votes necessarily,” Havens said. “They should be thinking about 60 votes and are there 60 votes. And as far as cannabis banking reform, or the SAFE Banking act, there might be 60 votes.”

Are cannabis stakeholders compliant?

In the 2017 motion picture “Molly’s Game,” attorney Louis Butterman (played by Michael Kostroff) tells lead actress Jessica Chastain, “There’s a saying in my business—don’t break the law when you’re breaking the law.”

While the movie was about a high-stakes poker game, a parallel to the cannabis industry revolves around stakeholders not wanting to expose themselves to more risks than they’re already exposed to. For example, if a state-legal cannabis business is compliant toward federal guidance and regulations, then there are fewer risks involved.

The state-legal cannabis industry supported more than 320,000 U.S. workers in 2020, and the majority of stakeholders in the industry are compliant with government mandates, Bachtell said.

“The only way that you can create change that we need for this industry is by showing the legislators, the people holding the pen that could make that change happen, that we’re all good actors, that this is a great professional industry that they should be able to rely on and get behind,” he said.

Like any industry, there still could be some bad apples.

Last month, Eaze Technology’s former CEO James Patterson pled guilty in a federal case accusing the online cannabis company of tricking banks into processing $100 million worth of credit-card based cannabis payments.

The fact that someone would need to develop workarounds to be able to simply engage in transactions with customers who want to participate in a regulated and licensed marketplace is indicative of the fact that the cannabis industry needs some changes that will allow for traditional banking and traditional transactions to take place, Bachtell said.

When it comes to concealing the true nature of credit card payments from banks, that’s where trouble lies, Ginder said.

“Something like that is where you’ll see issues in the space,” he said. “So, misrepresenting or masking the nature of what kind of business you’re conducting.”

More legalization means more pressure for reform

As more states come online with medical or adult-use cannabis legalization, there may be a state bank, a regional bank or a credit union that would seize the opportunity to service that market. State-by-state legalization alone, however, would not induce a huge national uptick in cannabis banking institutions, Havens and Ginder said.

But anytime a new state adopts a medical or adult-use cannabis program, that puts more pressure at the federal level for reform, Ginder said.

“If you’re a senator or a representative and your constituents in your state are now allowed under state law to conduct medical marijuana or adult-use activity, then that representative should be advocating for their constituents to do so in a manner that doesn’t create a risk at the federal level,” Ginder said. “So, I think any time you see another state legalize marijuana, that is just one additional pressure point for reform at the federal level.”

In the previous Congress, the chairman of the Senate Banking Committee was Mike Crapo, a Republican from Idaho, which has neither a medical nor adult-use program. Former Senate Majority Leader Mitch McConnell, of Kentucky, also had a say in SAFE Banking’s holdup in the upper chamber through his inaction of calendaring it for debate.

With the turnover of leadership, however, the optimism for banking reform may be more prevalent to some cannabis operators than others, Havens said. Having worked with several multistate operators, he said he’s never come across any of them that do not have at least one bank they’re banking with, and sometimes they have multiple banks.

“I think it might be harder for maybe the standalone operators who aren’t affiliated with a multistate outfit,” Havens said. “Maybe they don’t have enough business to support the fees that are needed to bank, maybe they’re not making enough revenue where it makes sense. Maybe they’re just, you know, sitting on their own money. But I don’t want to say that I think there’s a lot of businesses out there that just have their own safes and are storing a bunch of cash.”

The Safe Banking Act of 2021 by sandydocs on Scribd

 

Shannon Price | Adobe Stock

State-legal cannabis companies aren’t stashing large stacks of cash behind walls or rubber-banded bankrolls in hidden vaults.

Helping motor more than $17.5 billion of legal cannabis sales in the U.S. in 2020, there were 515 banks and 169 credit unions providing services to cannabis-related businesses at the end of last year, according to Financial Crimes Enforcement Network’s (FinCEN) quarterly cannabis banking update.

But those banks are not the “national associations” of the world. Big financial institutions, like JPMorgan Chase, Wells Fargo and PNC, are not going to get into the cannabis space directly, unless there’s more formalized federal reform, said Jonathan Havens, a partner at Saul, Ewing, Arnstein and Lehr’s Philadelphia-based law firm.

Counseling clients on regulatory, compliance, enforcement and transactional matters, Havens has companies in the cannabis industry turn to him for advice on how to get and keep their products on the market, where access to banking comes in handy.

According to the U.S. Department of Treasury’s FinCEN, banks can accept cannabis-related deposits, but there are several compliance steps those institutions need to take, such as filing Suspicious Activity Reports (SARs). When the FinCEN issued guidance in 2014 to clarify the expectations for financial institutions seeking to provide services to cannabis-related businesses, it opened the door for banks to jump into the space—but that door only opened so far.

“I think a lot of these bigger banks said, ‘You know what? The cannabis industry is just not big enough business to us. And, so, it’s not worth it to us,’” Havens said. “The risk isn’t worth it to them.”

Without banking reform, like the Secure And Fair Enforcement (SAFE) Banking Act, which was reintroduced by Rep. Ed. Perlmutter (D-CO) in the U.S. House of Representatives on March 18, financial institutions that work with cannabis clients have yet to receive full confidence in safe harbor at the federal level. According to Perlmutter, passage of SAFE Banking would allow cannabis-related businesses in states with some form of legalization and strict regulatory structures to access the banking system.

“SAFE is a win, win, win, for providers and their communities,” said Dr. Chanda Macias, the first vice chair of the National Cannabis Roundtable. “It will create more jobs, more opportunity and more public safety. We will work hard for passage of this key piece of bipartisan cannabis reform in this Congress.”

The SAFE Banking Act on 2019 overwhelmingly passed the House, 321-103, but it never saw the light of day in the Republican-controlled Senate. The House passed the measure once again in May 2020, as part of the second federal coronavirus relief bill, but it was stripped from the Senate version later in the year. As a result, state-legal cannabis companies don’t have full access to traditional banking options as they operate in a sector that is not federally legal.

But with Democrats now controlling both chambers of Congress and the White House, there’s optimism for banking reform to take shape, said Cresco Labs CEO Charlie Bachtell, who also serves as the chairman of the National Cannabis Roundtable. With legal expertise in corporate governance and regulatory compliance, Bachtell served eight years as the executive vice president and general counselor of Guaranteed Rate—the nation’s seventh largest mortgage bank—and was a leading attorney during the reform of the U.S. mortgage industry.

“There’s a feeling that some sort of banking reform is more likely than less,” Bachtell said. “And I don’t know that that was the case under the prior administration and with the prior makeup of the legislature. So, I think just as a starting position, optimism is key.

“As far as what we’re hearing on the ground, of substantive change, we are hearing that it looks likely that we’ll get something in the very near term that is some form of SAFE that has already been approved by the House on a couple of different occasions, but maybe in a slightly enhanced version of SAFE that will provide that level of clarity and safe harbor for the banking industry as it relates to state-licensed regulated cannabis operators.”

According to FinCEN, there were 55 fewer banks and credit unions providing services to cannabis-related businesses in 2020 than in 2019. But part of that decline coincided with the FinCEN’s release of regulatory guidance in December 2019, which stated financial institutions were no longer required to file SARs for legalized hemp producers.

Without passage of the SAFE Banking Act, Havens said the number of financial institutions servicing the cannabis industry likely won’t experience any major upticks. The banks and credit unions currently participating in the space, by and large, are local, state and regional institutions that are willing to take the compliance risks, he said.

“It’s not the larger banks,” he said. “It’s the banks that have said, ‘You know what, we’re going to get smart on this. We’re going to build up our compliance department. We’re going to charge a premium for accounts, and we’ll make that premium because these businesses are desperate for banks that will take their money. And we’re providing a service, but we know we’re taking some risk.’”

Can SAFE Banking clear the Senate?

Perlmutter has led the charge for cannabis banking reform for years. He was the author of the SAFE Banking Act in the last Congress, and he’s back in the driver’s seat this week with a group of bipartisan sponsors, including Nydia M. Velázquez (D-NY), Steve Stivers (R-OH) and Warren Davidson (R-OH), who reintroduced the bill with more than 100 co-sponsors on Thursday.

But the question remains: Does SAFE Banking have bipartisan support in the Senate to pass as a standalone bill?

The answer is likely yes, said Matthew Ginder, a partner in the cannabis law practice group at Greenspoon Marder, a national firm with more than 200 attorneys who have a presence in 25 cities across 11 states and the District of Columbia.

“I think there is bipartisan support for SAFE Banking to get to the finish line, and in both chambers,” Ginder said. “I don’t know, particularly in the Senate, whether the SAFE Banking Act will be swallowed up by a bill that covers broader reform. I know Schumer, Wyden and Booker are working on their bill to address cannabis reform.”

Sens. Chuck Schumer (D-NY), Ron Wyden (D-OR) and Cory Booker (D-NJ) issued a joint statement on cannabis reform legislation last month, in which they said ending federal cannabis prohibition is necessary to right the wrongs of the failed war on drugs.

“We are committed to working together to put forward and advance comprehensive cannabis reform legislation that will not only turn the page on this sad chapter in American history, but also undo the devastating consequences of these discriminatory policies,” they said. “The Senate will make consideration of these reforms a priority.”

That Democratic trio’s intentions might be more along the lines of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019, which would have removed cannabis from the list of scheduled substances under the Controlled Substance Act and eliminated criminal penalties for an individual who manufactures, distributes or possesses cannabis.

“If they include aspects of the MORE Act, which decriminalizes cannabis, then the need for SAFE Banking becomes less,” Ginder said. “The whole issue with banking and why it’s challenging is because marijuana is considered a Schedule I controlled substance.”

While broader-based reform, like the MORE Act, might be what some stakeholders prefer, Havens said he thinks smaller reforms, like SAFE Banking, are going to be a lot easier of a road to hoe.

Sen. Sherrod Brown (D-OH), the newly seated chair of the Senate Banking, Housing and Urban Affairs Committee, told Cleveland.com he’s willing to consider SAFE Banking but only if it’s complemented by sentencing reform in the Senate Judiciary Committee. The effects of pairing banking reform with sentencing reform in regard to attracting bipartisan support remain to be seen.

With a 50-50 makeup of the Senate, the Democrats do have the tiebreaker vote in Vice President Kamala Harris, but that’s more relevant for reconciliation bills, which can be passed on spending, revenue and the federal debt limit. For non-reconciliation measures, passage involves a 60-vote super majority to invoke cloture if a piece of legislation is partisan and draws a filibuster from opponents.

“I think when it comes to cannabis reform in the Senate, people shouldn’t be thinking about 51 votes necessarily,” Havens said. “They should be thinking about 60 votes and are there 60 votes. And as far as cannabis banking reform, or the SAFE Banking act, there might be 60 votes.”

Are cannabis stakeholders compliant?

In the 2017 motion picture “Molly’s Game,” attorney Louis Butterman (played by Michael Kostroff) tells lead actress Jessica Chastain, “There’s a saying in my business—don’t break the law when you’re breaking the law.”

While the movie was about a high-stakes poker game, a parallel to the cannabis industry revolves around stakeholders not wanting to expose themselves to more risks than they’re already exposed to. For example, if a state-legal cannabis business is compliant toward federal guidance and regulations, then there are fewer risks involved.

The state-legal cannabis industry supported more than 320,000 U.S. workers in 2020, and the majority of stakeholders in the industry are compliant with government mandates, Bachtell said.

“The only way that you can create change that we need for this industry is by showing the legislators, the people holding the pen that could make that change happen, that we’re all good actors, that this is a great professional industry that they should be able to rely on and get behind,” he said.

Like any industry, there still could be some bad apples.

Last month, Eaze Technology’s former CEO James Patterson pled guilty in a federal case accusing the online cannabis company of tricking banks into processing $100 million worth of credit-card based cannabis payments.

The fact that someone would need to develop workarounds to be able to simply engage in transactions with customers who want to participate in a regulated and licensed marketplace is indicative of the fact that the cannabis industry needs some changes that will allow for traditional banking and traditional transactions to take place, Bachtell said.

When it comes to concealing the true nature of credit card payments from banks, that’s where trouble lies, Ginder said.

“Something like that is where you’ll see issues in the space,” he said. “So, misrepresenting or masking the nature of what kind of business you’re conducting.”

More legalization means more pressure for reform

As more states come online with medical or adult-use cannabis legalization, there may be a state bank, a regional bank or a credit union that would seize the opportunity to service that market. State-by-state legalization alone, however, would not induce a huge national uptick in cannabis banking institutions, Havens and Ginder said.

But anytime a new state adopts a medical or adult-use cannabis program, that puts more pressure at the federal level for reform, Ginder said.

“If you’re a senator or a representative and your constituents in your state are now allowed under state law to conduct medical marijuana or adult-use activity, then that representative should be advocating for their constituents to do so in a manner that doesn’t create a risk at the federal level,” Ginder said. “So, I think any time you see another state legalize marijuana, that is just one additional pressure point for reform at the federal level.”

In the previous Congress, the chairman of the Senate Banking Committee was Mike Crapo, a Republican from Idaho, which has neither a medical nor adult-use program. Former Senate Majority Leader Mitch McConnell, of Kentucky, also had a say in SAFE Banking’s holdup in the upper chamber through his inaction of calendaring it for debate.

With the turnover of leadership, however, the optimism for banking reform may be more prevalent to some cannabis operators than others, Havens said. Having worked with several multistate operators, he said he’s never come across any of them that do not have at least one bank they’re banking with, and sometimes they have multiple banks.

“I think it might be harder for maybe the standalone operators who aren’t affiliated with a multistate outfit,” Havens said. “Maybe they don’t have enough business to support the fees that are needed to bank, maybe they’re not making enough revenue where it makes sense. Maybe they’re just, you know, sitting on their own money. But I don’t want to say that I think there’s a lot of businesses out there that just have their own safes and are storing a bunch of cash.”

A thorough cannabis product development process goes far beyond extracting and packaging. Performing advanced analytical testing at each and every stage allows producers to know the quantity, quality and behaviour of compounds in samples. Here are the four key stages from flower to consumption.

Stage 1: Flower

Developing a quality cannabis product begins with knowing the composition of compounds in your starting material. The best analytical tests utilize a metabolomics approach. Metabolomics is a suite of techniques that include a variety of instruments to run samples through in order to receive compositional data. In this stage, LC-qTOF and GC-MS are the best instruments to track all the compounds in the starting plant material. Essentially, metabolomics establishes a fingerprint of the compounds in a plant sample. This is beneficial because producers have to understand how their chosen cannabis plant differs from other cultivars and how it would potentially behave in their desired end product formulations.

Stage 2: Concentrate

After the plant material has gone through an extraction process, producers want to know precisely what is in the extract. Are there compounds that should not be there and are all the desired compounds present? The best way to test the quality of cannabis oils is again to use metabolomics (e.g. via LC-qTOF). This test reveals all the compounds in the sample in order to help the producer determine the purity and consistency of molecules beyond just THC and CBD.

When testing cannabis isolates, it is best to use NMR spectroscopy and X-ray diffraction. NMR characterizes and assesses the purity of single compounds or mixtures in solution or solid state. X-ray diffraction provides information about the crystal structure, chemical composition and the physical properties of the cannabis sample to help the producer prove the identification of desired compounds. Establishing that the concentrates are pure and aligned with what the producer intended to extract is key in this stage of product development.

Stage 3: Formulation

Designing an appropriate drug delivery formula is a universal challenge producers face at this stage of product development. Where nanoemulsion or other carrier approaches are being used, formulation characterization allows producers to understand how their active compounds behave in simulated physiological environments as well as how stable their products are over time. Specifically, nanoparticle sizing and assessing size changes over time can help a formulation scientist ensure the highest quality product is being mixed, and that the desired effect will be imparted on the consumer/patient.

Stage 4: Smoke/Vapor

Many producers might not consider this final stage, but it is critical for all inhalable cannabis products and devices. Using a smoke analyzer and metabolomics testing can identify and quantify compounds present within the formed smoke or vapor from pre-roll joints to vape devices. This is not only important for preventing the production of toxic by-products, but it can help producers create an optimal smoking experience for consumers.

One area that is often an afterthought is quality compliance testing. Despite a number of groups using the required tests well during development, many forget to continue the same robust testing on end products. In the current cannabis product development landscape, there is little guidance on how compliance testing should be conducted on every product “batch.” With these advanced analytical tests, producers can confidently develop compliant, stable and quality cannabis products.

 

Editor’s note: This story was updated at 10:30 a.m. March 17 to include further detail on how Trulieve sources its Delta-8-THC.

With all the buzz surrounding Delta-8-tetrahydrocannabinol (THC) in the cannabis industry, many questions circulate around what the up-and-coming cannabinoid is, where it comes from, and its legal status.

The National Cancer Institute defined Delta-8-THC in a statement as an analogue of THC that contains neuroprotective properties that can increase appetite and reduce nausea, anxiety and pain. It produces some psychotropic effects that are less potent than Delta-9, the primary form of THC found in cannabis.

Though it is naturally occurring in cannabis, Delta-8-THC can be converted in a lab from cannabidiol (CBD) and Delta-9-tetrahydrocannabinol (THC), says Dr. Ethan Russo, M.D., a board-certified neurologist and founder and CEO of CReDO Science. He says he believes it is most commonly converted from CBD.

Industry stakeholders disagree over if it is federally legal and whether it presents a market opportunity for hemp and cannabis businesses.

Photo courtesy of Lifted Made

Lifted Made, a wholly owned subsidiary of Acquired Sales Corp, entered the Delta-8 market last summer when there were only a handful of brands in it, said Nicholas S. Warrender, vice chairman and COO of Acquired Sales Corp and CEO of Lifted Made.  

Once introduced to Delta-8 in winter 2019, the brand started to establish relationships with smaller labs and freelance chemists. The team spent about six months doing its legal diligence to ensure they created a high-quality product they felt comfortable to release to the market, he says.

One problem the brand faced when initially entering the market was testing, as many labs did not have a proper standard operating procedure in place, causing a lot of product to test hot; however, the brand worked through the issue and now sells Delta-8 that a third-party lab extracts from hemp.

The brand offers a variety of Delta-8-infused products through its Urb brand, including, vaporizer cartridges, disposable vapes, chocolate, flower, dabs and vegan gummies. 

Warrender says he’s seen a drastic increase in consumers purchasing Delta-8 products because they are interested in finding a product more potent than CBD but less intense than Delta-9 THC.

Florida-based cannabis company Trulieve operates 77 dispensaries and roughly 2 million square feet of cultivation space in the Sunshine State, three dispensaries and 90,000 square feet of cultivation in Pennsylvania, and one dispensary in both California and Connecticut. It also plans to expand its cultivation and dispensary operations into West Virginia and Massachusetts.

Photo courtesy of Trulieve

Trulieve offers Delta-8 in its TruPod vaporizer cartridges and TruClear Syringes, says Beau Williamson, Trulieve director of research and development.

The company sources all its Delta-8 from medical cannabis—specifically via conversion from Delta-9, Williamson says. “Typically, patients may experience some of the same analgesic and antiemetic effects as Delta-9,” he adds. “Delta-8 also has some of the same psychoactive effects as Delta-9, only in a much milder form.”

Trulieve started manufacturing and selling Delta-8 products to “provide some of the same medical and therapeutic benefits as Delta-9 products without some of the side effects some experience with Delta-9, such as anxiousness,” Williamson says. “Medications that inhibit anxiety are referred to as anxiolytics. Delta-8 is much less likely to induce anxiety in high doses than its more widely known counterpart, Delta-9-THC.”

Where It Comes From

The cannabinoid Delta-8-THC is a natural component of cannabis, Russo says.

“[W]ith very good, modern analysis, like HPLC [high-performance liquid chromatography], where you’re not heating anything, there will be Delta-8 found,” Russo says of the cannabinoid’s natural occurrence in the plant. “Sometimes it’s not a little bit—sometimes it’s high amounts.”

However, he says, “The main source these days seem to be in the lab, turning CBD into it.” In addition to its conversion from CBD, it can also be created via conversion from Delta-9.

RELATED: Dr. Ethan Russo Endorses 1% THC Limit for Hemp

Delta-8 is psychoactive, Russo says, though he adds that more research is needed to better understand its effect on humans. “The ideal thing would be a head-to-head comparison of Delta-9 to Delta-8,” he says. “It has been the contention that it is similar to, but perhaps slightly less potent, than Delta-9.”

But there are potential safety concerns. As with Delta-9, Russo says, Delta-8 can cause issues such as toxic psychosis when consumed in large amounts. Poor quality control and fake product labels are other issues that can come up in the marketplace.

Legal Status

“There’s tons of this stuff being sold over the internet, and with the idea that it’s legal under the hemp bill [2018 Farm Bill],” Russo says of Delta-8-THC. “That is totally wrong.”

When asked if that’s because of language from the Drug Enforcement Administration (DEA) that states that tetrahydrocannabinols are illegal when synthetically produced from cannabis, he said, “Right, that’s true. Additionally, there is this nasty little law … called the [Federal] Analogue Act, which says, basically, if you’ve got a drug that’s chemically closely related to something that is Schedule I, … it’s Schedule I and illegal as well.”

Russo is urging the industry be cautious about Delta-8. “People are basically trying to drive a Mack Truck through a rathole with this kind of thing, and it’s pretty much no holds barred until somebody gets busted,” he says. “It’s not [something] I’m really pleased about, particularly since science doesn’t [present] all the knowledge we should have about this. And that’s the government’s fault, too; if there hadn’t been these roadblocks to research for decades, we wouldn’t be having to answer these questions.”

RELATED: U.S. Hemp Roundtable Warns Against Marketing Psychoactive Properties of Delta-8

Photo courtesy of Trulieve

Alex Buscher, founder of Buscher Law in Denver, said he believes the DEA’s interim final rule (IFR) on “marihuana,” which addresses the implementation of the 2018 Farm Bill and “synthetically derived tetrahydrocannabinols,” should be struck down as invalid.

He points out that the DEA states in the IFR that “synthetically derived tetrahydrocannabinols” are Schedule I substances; however, the 2018 Farm Bill explicitly excludes “tetrahydrocannabinols in hemp” from Schedule I.

“But they didn’t define ‘synthetic,’ and they don’t actually have a definition of ‘synthetic’ in the Controlled Substances Act,” Buscher says. Much of the Delta-8 on the market is converted in a lab from the CBD of hemp that’s legally grown with less than 0.3% THC.

The DEA’s definition of “synthetically derived tetrahydrocannabinols” could be interpreted to include Delta-8 made from isomerized CBD, Buscher says. Delta-8 isn’t mentioned by name in the 2018 Farm Bill, the DEA’s IFR or the Controlled Substances Act.

“The IFR also conflicts with DEA and DOJ’s [Department of Justice] prior interpretations of ‘synthetic cannabinoids,’” Buscher says. “A DEA agent is on record explaining that ‘“synthetic cannabinoids” are “designer drugs” developed from a nonorganic source and intended to produce effects similar to THC, the active ingredient in marijuana.’”

Buscher also points to a National Institute on Drug Abuse document on the DOJ’s site that says “synthetic cannabinoids” are “man-made” and sometimes “sprayed on dried, shredded plant material.” The document mentions “Spice,” “K2” and other products that mimic cannabis’ effects but “may affect the brain much more powerfully than marijuana.” (Russo says these synthetic substances are “full agonists” at CB1 receptors in humans’ endocannabinoid systems and “are nothing like THC or cannabis.”)

A case addressing the DEA’s IFR is currently moving through the U.S. Court of Appeals for the District of Columbia Circuit. As Hemp Grower previously reported, the Hemp Industries Association (HIA) and RE Botanicals of Conway, S.C., sued the DEA over the agency’s IFR in September 2020, stating that the DEA skirted legal procedure, overstepped its regulatory authority and did not act “in accordance with law” when it issued the rule. Buscher says he supports the legal challenge.

A court ruling in favor of the HIA and RE Botanicals could provide some security for plant-touching businesses dealing with Delta-8, Buscher says, but until then, dealing with the cannabinoid could land them in hot water.

“[A]s an attorney, I have to tell my clients it’s not without risk because the DEA rule is essentially raid first and fight you in court later,” Buscher says.

He adds that many states have deemed tetrahydrocannabinols Schedule I substances, and that extends to Delta-8. “A lot of states don’t even have a hemp definition constitutionally, or even a hemp definition that exempts hemp from marijuana,” Buscher says.

Delta-8 VS. Other Cannabinoids

Warrender says he wouldn’t classify Delta-8 as an alternative for other cannabinoids, as they can all produce different effects.

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“Delta-8 is a THC compound; however, it’s chemically different than Delta-9,” Warrender says. “Delta-8 doesn’t have nearly as many psychoactive properties, so you don’t get a heavy high where you’re anxious or can’t quite function at your highest potentials.” 

Some of the common side effects of Delta-9 THC like head fog, anxiety or paranoia, cottonmouth or red eyes seem to not be common with Delta-8, he says. Instead, he says many consumers have reported to have a clear mind and feel relaxed after consuming Delta-8.

“Delta-8 does have some euphoric uplifting values, where you’ll feel it, and that is something that differentiates it from [cannabinoids such as] CBD,” he says. “Those have more of an effect where when you take them, it doesn’t give you an instant feeling, but Delta-8 can give you an instant feeling of relief.”

However, like Delta-9, he says consumers reported to experience a heavier, more intense feeling when consuming Delta-8 infused edibles versus smoking flower or vape, due to how the body metabolizes it.

While he suggests some of these cannabinoids can be paired together, like Delta-8 and CBD, it ultimately depends on the consumers’ needs, expectations and why they are taking a certain product.

“CBD, for example, doesn’t have as many effects, but I’ve gotten a lot of reviews from consumers that say isolated CBD helps for sleep or pain management,” he said. “But others that are looking to have a calming and immediate effect, almost like a refresh, say Delta-8 is a great cannabinoid to use during the day or even at night. So, that’s where all these different cannabinoids come into place.”