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Insight for Cannabis Entrepreneurs & Investors with Leslie Bocskor

Leslie Bocskor

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Matthew: Hi, I’m Matthew Kind. Every Monday and Wednesday look for a fresh episode where I’ll take you behind the scenes and interview the leaders of the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Do you know that feeling when you sense opportunity, when you see something before most people and you just know it will be successful, then you're ready. Ready for CannaInsider Consulting. Learn more at www(dot)canninsider(dot)com/consulting. Now here's your program.

As the cannabis market continues to grow many new entrepreneurs and investors are gravitating to the industry but lack the context and framework to understand how to succeed in this space. That is why I’ve asked Leslie Bocskor, The President of Electrum Partners back to help us get the key insights and context that many newcomers need to prosper. Leslie welcome back to CannaInsider.

Leslie: It’s a pleasure to be here as always. Thank you very much for having me on the show again.

Matthew: To give us a sense of geography can you tell us where you are in the world today?

Leslie: Today I’m in Las Vegas, Nevada enjoying a beautiful, sunny, warm, and dry day.

Matthew: Good. Now you were on the show in 2014 but for new listeners can you give us a little bit of an overview and background about yourself and why you got into the cannabis industry?

Leslie: Sure. I’ve always been sympathetic to cannabis and the plight of cannabis prohibition. Going back to when I first encountered “The Emperor Wears No Clothes” by Jack Herer in the 80s and when I moved down to Las Vegas, Nevada from New York I discovered that medical marijuana was obviously not just what they do in California with granola and yoga and it was a more substantial industry than I had previously thought. We ended up getting very involved in the policy side of it and helping Nevada establish a robust and well regarded regulatory framework that serves the interests of the citizens of the state, the consumers of the product, the patients in medical marijuana and is a very business friendly environment.

That led me to forming Electrum Partners that got involved in the licensing advising people in the industry. We ended up being very deeply involved in the licensing process and advising people in their strategy in the state and outside. I also ended up contemplating and have begun setting up a fund that is going to be investing in the industry and also we have been very involved in strategy with a number of different companies. We look for the best of breed and the businesses that have the best teams and employ best practices in various verticals within the industry and we’ve been creating an eco system within our relationships of those businesses and that’s currently where we are today.

Matthew: How has the cannabis market evolved in Nevada over the last twelve or eighteen months?

Leslie: Now it is starting to really hit the what would I call the aggressive ramp up. We’re now seeing new dispensaries open every week or every couple of weeks. I think we’ve got to be at around twelve to fifteen of them in southern Nevada currently and we will probably be at about forty to forty-five within the next two to three months. They are doing business. The reciprocity aspect of it has really been fantastic. We’re told by some of the dispensaries that some seventy to eighty percent of their business comes from out of state patients.

Matthew: Wow.

Leslie: And we’re now also in the middle of our Ballot Initiative Campaign where we’re going to be voting on adult use in the ballot box this November which we are working aggressively to see pass and so to sum up the industry has started to really take on some momentum right now. Cultivations are coming online. Product diversity is starting to exist in the dispensaries and the dispensaries are starting to do a substantial amount of business. It’s really an exciting time here in Nevada.

Matthew: The reciprocity you mentioned. How big a factor is California in that reciprocity? Is it nearly all or what would you guess?

Leslie: I would say it’s a very big factor in it. I’m told that on any Friday or Saturday night one third of the people in Clark County are from southern California and so with over one million medical marijuana cardholders in Nevada; I’m sorry California it is no surprise that a lot of the patients that are coming to the dispensaries are from California. That being said I know there are people that have come here from Michigan, from Washington, from Colorado, from Oregon, from Holland, from Israel, and from other jurisdictions, Canada that are using their medical marijuana recommendations when they’re in Nevada because every one of them is recognized.

Matthew: How likely do you think recreational use will pass? Is that a high probability you think or where we at on that?

Leslie: So it’s a great question Matt and I think that we’re at a very key point and I am trying to do what I can to inspire everybody that can make a difference. Getting out every vote, getting every person registered to vote. It is critical. It’s currently polling at sixty percent. That’s incredibly good.

Matthew: Good.

Leslie: The other side of that is the poll that released that data was arranged by Sheldon Adelson and I’m told that Sheldon Adelson is already raising money and getting people committed to fight the ballot initiative and so obviously being one of the wealthiest people in the world and being here in Las Vegas and this being his backyard and being the person who contributed five million dollars to the campaign against medical marijuana in Florida two years ago that was also a contribution to help Governor Rick Scott elected. We believe that it’s a fight and we really need to be prepared for a fight and so we are cautiously optimistic and really rolling up our sleeves to get involved in the battle that is coming.

Matthew: How have you seen the type of investor and entrepreneur that’s coming into the cannabis space change or evolve since you got in?

Leslie: Matt since I got involved in 2012 things have changed very dramatically and incrementally and consistently. Every ArcView meeting that I go to we’re seeing the level of sophistication, the level of due diligence, the quality of the teams and the diversity of the teams that are being assembled, the granularity in terms of detail for business model, the intellectual property protections, the planning for the future, looking out to the future has all been improving constantly from ArcView meeting to ArcView meeting and every other type of conference that I’ve been too. So the answer is we’re seeing the changes take place primarily at this point in the form of two major areas.

One the level of preparation, due diligence, and detail going into the businesses plans. The entrepreneurs plans has increased fairly dramatically and two the diversity and depth of the bench. The breadth and depth of the bench that the different projects have in terms of their team members has been increasing fairly dramatically. Whereas when I first came into the industry people like myself and others who came out of other industries with levels of previous success were much more limited. It was much more of an industry specific type of group at that time. Meaning everybody who was involved was really cannabis industry professionals. Now we’re seeing people come out of science, medicine, coming out of marketing, come out of the creative side of it, distribution, logistics.

I was recently speaking with a group that specialized in logistics that came out of United Parcel Service and other shipping companies and now they’re looking at how their particular areas of experience, knowledge, and relationships would be applicable in the cannabis industry. So the answer to your question is we’re seeing a marked change and the biggest single changes are once again the detail and the level that people are putting into their preparation for their businesses and the breadth and depth of the team members that they have to execute those businesses.

Matthew: That’s great to hear. It really is. So there are some markets in the U.S. that are not totally functional. Illinois pops into mind right away. What do you think about these markets that have legalized medical and they just don’t give their participants the tools they need to succeed? Is that a trend we’re seeing or how do you feel about that in general?

Leslie: That is a trend. That is a positive trend because we want to put it in context of when that happened. So Illinois is really a legacy of four years ago. New Jersey is really a legacy of four to five years ago. New York is really a legacy of two years ago. Connecticut is a legacy of three to four years ago. Minnesota three to four years ago. Those are some of the markets that are most restrictive. Florida is something that has been going on for two to three years now in terms of these very restricted markets. What we’re seeing is a mirror of what happened in Nevada, Oregon, Colorado, Washington, and Alaska where markets get established.

So let’s look at Nevada as an example. Nevada first passed medical marijuana in 2001 and it was a very limited program. It wasn’t until 2013 that SB347 went through the legislature and expanded the market into being what is now regarded as the most well regulated market in the world with the best regulatory framework. That took time for that to happen. Colorado first established medical marijuana and then it went into adult use and there’s been a lot of maturity there, same thing in Oregon and Washington and Alaska and now look at Florida. Florida is likely going to pass a ballot initiative for an expansion of the existing very limited CBD only primarily; five licenses given out. A framework and so there’s going to be an expansion there.

So I say that all of those markets like Illinois and the others that are very restrictive and off to a slow start it’s a good step in the right direction and we need to keep in mind it’s only a step in the right direction. It’s not an end goal but it’s just one of the stops along the way to getting where we want to get too which is adult use where it’s well regulated. Where the medical marijuana market is well regulated, where it’s available to all the people that need it for compassionate use in all of the different conditions from PTSD to Seizure Syndromes, to Cancer patients, to the people with chronic pain, and more and so we see these expansions happen in fits and starts and we can get lost in the weeds when we look at what happens in Illinois not realizing that it’s really just part of a much larger arc of the evolution of the drop of prohibition on cannabis in that jurisdiction. Did that make sense?

Matthew: That makes total sense. It’s a stepping stone.

Leslie: Yeah.

Matthew: So don’t be discouraged. I like that.

Leslie: Yes.

Matthew: So you mentioned that Nevada is very business friendly and I agree. Do you see business owners, entrepreneurs, investors just checking out of California? Today as we speak the governor of California just signed into law a higher minimum wage but that’s just one of the more let’s say one more thing that just adds friction for businesses in California. Do you see any sort of exodus at all into a market like Nevada from California or not so much?

Leslie: We have seen hundreds of millions of dollars of investment in the Nevada market a lot of that which came from California or was California/Colorado businesses. I would not say I’ve seen an exodus in California. I would say that the California market is going to experience a tremendous evolution as we see the opportunities there equaling nothing else we’ve seen yet in the industry and that’s going to be as the regulatory framework that was passed into law last year and signed into law by Jerry Brown becomes implemented we are going to see California turn into the largest legal cannabis market in the world and the opportunity for investment and for establishing businesses in that market will be extraordinary.

So in fact I think that California is at a plateau right now where there have been many California businesses investing into other markets and now they’re starting to get ready and look at their local market which is mirrored by the news announcement from Harbor Side today that they’re cancelling all of their national expansion to focus exclusively on the California market and that is going to be something we’ll see more of as well let me speak to the fifteen dollar minimum wage. I believe that if people start to look at the employment opportunities that a cannabis industry brings the fifteen dollar minimum wage would be less of a conversation at least in that context. In the context of looking at the cannabis industry as an employment opportunity because it’s easy for people in the cannabis industry to look at a fifteen dollar minimum wage because it turns out that many businesses in cannabis spend more than that on their employees are paid better than that.

There is a major player in California that I won’t use their name because this is old data but I was told that one of the biggest dispensaries in California a few years ago by the operator they told me that their average hourly pay across their entire spectrum was over forty dollars an hour.

Matthew: Wow.

Leslie: And so we now are looking at a way to get people employed that need gainful employment. The cannabis industry presents the best opportunity the United States has to offer in a growing industry that can pay well and provide real; can provide real opportunity to them and that is what we’re seeing now. So this is just sort of an add on to your comment about the fifteen dollar minimum wage. I don’t think that it’s going to be much of an issue for the cannabis industry because the cannabis industry pays that generally speaking and more.

Matthew: Right, right. I meant more as a general comment on business and economy. I mean I keep on reading that the fast food restaurants and such are doing to do more automation and creating robots and things like this. So it actually has the reverse effect in many cases that the well intention politicians would like to see of hey let’s give people more of a working wage but the drivers and the incentives change for the businesses that actually make those decisions.

Leslie: That’s a very big conversation and we could go really deep on that.

Matthew: It is.

Leslie: And I think that it also is very much dependent upon the geography and the individual economy on a localized basis. For example a fifteen dollar minimum wage makes a lot more sense in New York than it does in even Las Vegas and so Las Vegas it’s easier to have a very high standard of living making less money in Las Vegas than you might in New York or San Francisco where fifteen dollar minimum wage would make a lot of sense. That being said I happen to think that the recent interview of Asher Edelman on CNBC talking about the velocity of money and economic policy speaks to issues like this in a very long view and I believe that ultimately raising the minimum wage for many people or raising the earning potential of people on the lower end of the employment spectrum creates much more disposable or much more consumer demand.

The people that are on the lower end of the spectrum tend to spend 100 to a 110 percent of the money they earn versus the people in the higher end of the spectrum that only tend to spend 5 or 8 percent of the money they bring in. So the more money we see going to people at that end the higher, the more money we’re going to see going into the economy.

Matthew: Great points and there’s certainly more than one variable to be looked at here. It’s a very dynamic situation and regional as well so. You’re known for asking hard questions of entrepreneurs and having acumen for the due diligence process. For entrepreneurs and even investors listening that want to get prepared to present themselves what should they do? What answers should they be ready to have right on hand and what paperwork should they have? They show that they’re prepared. They show that they’ve thought through what your care abouts might be and they have intelligent answers.

Leslie: So Matt I’m actually writing a book that’s going to be getting published very soon that deals with these specific issues.

Matthew: Oh good.

Leslie: I’m trying to provide something to investors and entrepreneurs that can assist them in making their proposition more effective. I want entrepreneurs to be able to get a leg up on getting their businesses up and running and succeeding. Knowing what the key issues they have to hit are. Investors knowing what the key issues they need to hit are to be able to be more successful as an investor and so for an entrepreneur the things that I think need to be focused on are a little bit of what I mentioned earlier and the first thing I’d say is team. You want to make sure you assemble an absolutely stellar team. The best you can bring together.

You want people that have had previous success in areas that are related to the enterprise you’re currently executing. So if you are going to be in retail you would like to have people that have had previous retail experience even if it’s not specifically in cannabis. They want to have success. You want to if you’re going to be raising money from investors you want to be able to show that you have taken in capital before and gotten to liquidity for investors and yourself previously. You want other team members to have that experience as well. You want to make sure that the breath of your team is ample and the depth of experience of the team members are ample. I often say I’d rather bet on an A team with a C project than a B team with an A project because I believe team makes 90 percent of the difference.

Then you want to make sure that other 10 percent or whatever it might be that a value proposition is solid and it is extremely well documented. You want to be able to look at the assumptions that you’re basing your value proposition on. You want to be able to parse them out separately and look at each individual assumption and you want to make sure that none of them go unnoticed. Every assumption for what your business is based on needs to be documented, segregated, and supported with research and information that’s available from other credible sources to show that it’s not just your instincts but there’s data supporting your assumptions and so you want your value proposition to be very well articulated with a lot of supporting documentation in an appendix if you have a business plan to show that you’ve done your research and you have checked to make sure that your assumptions make sense and here are the people and here are the research reports that support it.

You want to make sure that you have taken a good look at the competition in the market and that you understand there is competition. What the competition has that they offer and what you’re going to do to be able to answer their competitive approach and to be able to succeed and prevail regardless of it. You want to have knowledge of the competition and you want to have something that gives you a secret sauce and defensibility, intellectual property, market, etc. or first to market whatever it might be. You want to then make sure you’re understanding of the overall market opportunity. Once again parsing out all the assumptions and the data about the market and showing that you’ve done the research that gives you that knowledge.

And then last you want to make sure that you’re taking a look from exit backwards. What is your ultimate end goal? Are you building a business that is going to be so profitable that it’s going to be giving distributions to all of the participants, all of the shareholders in it? Are you going to be building something that one day will be a perfect acquisition candidate or are you building something that one day will look to the public markets for liquidity? You’ve got to be focused on where you’re going to get with this and what the end result is going to be because no investor is going to want to get involved unless they know where they’re going to go. They want to make sure that there is going to be an end game where they’re going to see their capital back, they’re going to see appreciation, they’re going to see eventual liquidity and return. So those are the five major points that I like to hit on from the entrepreneurs perspective.

From the investors perspective it’s about evaluating those things and then also making sure that the research you can do is deep. I would recommend that if you’re contemplating making a substantial investment in any business in the cannabis space you should be interviewing the operators if it’s a substantial investment. You should be asking to speak to their vendors. The people that sell to them whatever it might be. Provide services whether it’s attorney, accountants, or actual the seller of goods. Speak to their vendors and see what the relationship is like. Talk to their customers and their clients. Talk to the people that actually do business with them. Get hands on. Roll your sleeves up and get that knowledge because those little bits of information that you’re going to get can make the difference between pulling the trigger and making the investment or deciding not too and they can make the difference between success and losing your capital.

And so the five points that I hit as well from an investors perspective I’d say roll your sleeves up get in there, do the due diligence, become knowledgeable, and make sure you’re spending the time to really give yourself the edge. I encourage investors to look to professional investors to see what they do and try to emulate that the best that you can. If you can’t do it by yourself put together small networks of people where you can have different group members evaluate the different aspects of the investment and you can invest as a team.

Matthew: How do you feel about valuations in general since you’ve gotten into the industry? How have you seen valuations change and for entrepreneurs out there who are trying to come up with evaluation for their company? Any suggestions there?

Leslie: Research, research, research. You want to make sure that you’re going out there and you’re looking for comparables. It’s just like selling a home. If you want to sell your house you look at the neighborhood, you look at the nearby neighborhoods, you look at neighborhoods that are similar to yours and you look at what the comparable transactions have been and what people are looking to get out of their properties at this particular time; once again comparable transactions that have closed. The same thing here you have to look for business that are similar to yours both in the cannabis industry and outside of the cannabis industry. Look to the public markets for evaluations and you can start to get some idea of what a reasonable evaluation might be.

Keeping in mind that evaluations are also extremely fluid and the market will bear what the market will bear. That being said I would say that evaluations overall right now are very negotiable. There is a lot of opportunity to invest in the industry and there’s a lot of capital looking to invest in the industry. The velocity of it has not been so high that the evaluations are unreasonable. I think that if you look around you can still see incredible opportunities to get in at early stages with things that you can see substantial, substantial returns on in fairly short periods of time.

Why is that Matt? The reason for that is that the legal cannabis industry presents a unique opportunity we have never seen in the world of finance and investing before and that is taking a market that has been a grey or black market but enormous in size. According to RanCorp study of 2010 it was 42 billion dollars a year just for the illegal rec market; the adult use market in the United States. To give context if you were to look at the NFL, NHL, Major League Baseball, and NBA that same year they were under 35 billion a year combined. So the illegal adult use market was bigger than all essential major league sports in the United States combined.

So when you take a market that’s that enormous and you start migrating it to a regulated market as well you’re taking market where the prices have been kept very high because of it being a black market. The risks involved in the black market are incarceration, arrest, asset seizure, and more and so people have to keep the prices very high in the black market to accommodate all of those risks. Well when it migrates from a black market to a regulated market the prices don’t come down immediately especially in the United States where the federal legality makes each state be rampant to be like its own market and what I mean by that and this all goes back to the same point and when you look at somewhere like Oregon and Washington the wholesale prices can be very different in each one even though they’re right next to each other because there’s no Interstate Commerce.

That tends to create an environment where the migration allows for businesses to become profitable very quickly and the evaluations that happen because of that tend to expand very quickly. So you can get in at early stage businesses where the evaluations are low and you can see them explode within a year or two because of the large margins that allow for profitability to happen very quickly. One fact that I’ll reference according to the MJ Business Daily fact book from a year ago 80+ percent of businesses started in the legal cannabis industry were break even or profitable within the first year. That’s never existed in any other industry in the history of the world on this scale and so evaluation shifts are very fast when you see that type of rapid profitability. So you can get good evaluations at the early stage and you can see substantial evaluation shifts very quickly.

Matthew: Looking at the whole cannabis eco system is there any particular business type or category that gets you most excited right now?

Leslie: Hemp.

Matthew: Hemp.

Leslie: I am very interested in industrial hemp. I think that hemp is the less exciting cousin of cannabis and so the hemp industry I believe is going to encompass hemp paper, hemp textiles, hemp plastics, biofuel, food products, and industrial chemicals, construction materials, and more and it will be massive in size. It will provide real relief to industries that are currently toxic pulp paper mills; mills cutting down old growth timber to product paper. Cotton farming which uses 25 percent more water I’m told than hemp and in the processing of the cotton is substantially more toxic in terms of what it produces in runoff to our environment. So I believe hemp is going to be one of the most exciting and most rapidly growing areas of the cannabis and related markets.

Matthew: Great point. Yeah hemp is not as sexy of a headline as cannabis so I’m glad you mentioned that. Where do you see the legal cannabis market in the next three to five years?

Leslie: I am hopeful that by 2021 we will see federal prohibition dropped and we will see the market approaching its ultimate zenith in the U.S. so probably about 200 billion dollars a year nationally in revenue and that’s including adult use, medical use, pharmaceutical products being developed on it, nutraceutical and supplement products being developed on it, industrial hemp, the ancillary markets both for B to B and B to C, and veterinary and so I think over the next three to five years we’re going to see the growth to all of those different areas being created

This year we have California, Nevada, Arizona, Massachusetts, hopefully Maine all with adult use initiatives. We have Vermont likely to legislatively be the first state to pass adult use. We have a number of other states that may have ballot initiatives or legislative initiatives to establish adult use markets. We have Ohio and Florida with ballot initiatives. Florida already certified for medical marijuana, Ohio getting these signatures right now for medical marijuana. We may see legislative action in Pennsylvania for medical marijuana and so that’s going to be a major series of steps over the next nine months that are going to result at the end of 2016 having a very different market than we do currently today.

There will then be a period of a back and fill as we sort of take those expansions and people start working those expansions and the next level of states to look at expansions of medical marijuana, establishment of adult use, and legislative and ballot initiative mechanisms to achieve them and so I see this sort of major year in 2016. 2017 will be a year of market establishment and expansion. 2018 we’ll see some other probably attempts and then in 2020 four years out we’re probably going to see another ten states with ballot initiatives for adult use or medical as well and so I see major activity in the next few years and the investing activity that’s going to be taking place as a result is going to eclipse everything we’ve seen up until this point combined after we see this year’s election.

It’s just going to be enormous the amount of money that’s going to be coming into the market to invest in it, the opportunities in it, the establishment of these markets, and what it’s going to mean for our economy because it’s touching so many different areas not just adult use but as I said pharmaceuticals, industrial hemp, nutraceuticals, and then the ancillary markets. So I see a couple of major things along the way that ultimately result in what we hope will be the drop of federal prohibition on the national basis 2021, 2022 by a descheduling of cannabis and having it be treated the way we treat tobacco and alcohol.

Matthew: Let’s pivot to a more personal and personal development type question Leslie. Looking back over your life is there a book or two that stands out that you would recommend to listeners?

Leslie: Unexpected question Matt but great question. A couple of personal favorites. There is a book called “Seeking Wisdom” from Darwin to Munger. That’s an extraordinary book. The author interviewed Charlie Munger who has been Warren Buffett’s right hand man for a long time and that is a book I would recommend. I would also recommend some books by and about (33:37 unclear) who was largely responsible for bringing yoga to the west in the early part of the twentieth century. I would recommend “Jonathan Livingston Seagull” by Richard Bach and I’m a science fiction fan myself so books by Isaac Asimov and others are always very interesting to me.

Matthew: Wonderful. Thanks for those suggestions. Leslie how can listeners learn more about Electrum Partners and find you online?

Leslie: Well one of the things that I think is probably useful to many of them that are useful in the cannabis industry is to find me on Twitter. Leslie Bocskor on Twitter. L-e-s-l-i-e-B-o-c-s-k-n-e-r. I probably review an average of about between myself and my team we probably look at a couple hundred articles a day that are about the cannabis industry and about cannabis in general. From those couple of hundred we try to distill down to the fifty that we think or thirty that we think are most relevant and then from that thirty to fifty we try and find the fifteen or twenty that are the ones that you have to read and then those will go out on my Twitter feed. I would say that the website www.electrumpartners.com is definitely worth looking into and we’re going to be looking at a launch of a new site taking the existing site and going to Electrum Parners 3.0 in terms of the website within the near future.

And then you can often find me at ArcView and I’m happy to speak to anybody and I look forward to meeting people at the various conferences as well as the NCIA National Conference in Oakland in June. The primary way though is through our website and through Twitter.

Matthew: Leslie thank you so much for coming on CannaInsider today. We really appreciate it.

Leslie: Matt is was really my pleasure. I always enjoy the interviews with you. You do a great job pulling out great data from the people that you interview.

Matthew: : If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher or whatever app you might be using to listen to the show. Every five star review helps us to bring the best guests to you. Learn more at www(dot)cannainsider(dot)com/itunes. What are the five major trends that will impact the cannabis industry in the next five years? Find out with your free report at www(dot)cannainsider(dot)com/trends. Have a suggestion for an awesome guest on www(dot)cannainsider(dot)com, simply send us an email at feedback(at)cannainsider(dot)com. We would love to hear from you.


Leslie Bocskor is the President at Electrum Partners and founding chairman of the Nevada Cannabis Industry Association. Leslie gives us context about the rapidly changing landscape of challenges and opportunities facing cannabis entrepreneurs and investors.

Important Update:
What are the five trends that will disrupt the cannabis market in the next five years? Find out with your free guide at: http://www.cannainsider.com/trends

Key Takeaways:
[1:28] – Leslie’s Background
[3:08] – Evolving cannabis market in Nevada
[5:31] – Well recreational use pass
[6:53] – How the investors have changed since he got in the industry
[9:48] – Leslie discusses Illinois’ emerging medical marijuana market
[12:58] – Friction in the California small business market
[18:15] – Leslie gives advice to entrepreneurs pitching to investors
[24:07] – Leslie talks about how valuations have changed
[28:14] – Leslie’s take on the hemp industry
[29:41] – The legal cannabis market in three to five years
[33:02] – Leslie’s favorite personal development books
[34:11] – Contact information for Electrum Partners

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The Five Disruptive Trends Shaping The Cannabis Industry Now

The Opportunities and Burdens in California’s New Cannabis Regulations

Khurshid Khoja

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Matthew: Hi, I’m Matthew Kind. Every Monday and Wednesday look for a fresh episode where I’ll take you behind the scenes and interview the leaders of the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Do you know that feeling when you sense opportunity, when you see something before most people and you just know it will be successful, then you're ready. Ready for CannaInsider Consulting. Learn more at www(dot)canninsider(dot)com/consulting. Now here's your program.

By itself California is the eighth largest economy in the world. However there are other reasons besides its size that people in the cannabis eco system need to watch what is happening in California very closely. California has a huge influencing impact on other states and countries around the world. So in a sense California can be seen as the future of cannabis in a microcosm. Other reasons to look at California closely is that the state has a strong tradition of investing in and adopting technology rapidly as well as a strong tradition of agriculture. All of these reasons mean that California will most likely be the very clear vanguard pushing the cannabis limits of what is adopted by governments and businesses around the world for years to come. To help us sort through what is happening with cannabis in California is Khurshid Khoja the principle and founder of Greenbridge Corporate Counsel. A business law firm representing clients in California, Washington, and Hawaii. Welcome to CannaInsider Khurshid.

Khurshid: Well thank you. I appreciate the opportunity to be on Matt. Happy to join many of my clients who’ve been on your show before and excited about the opportunity to speak with you.

Matthew: Well to give us a sense of geography can you tell us where you are in the world today?

Khurshid: Sure. So today I’m speaking to you from sunny Sacramento and the capital of the largest state cannabis market in the country and specifically today I’m at the California Cannabis Industry Association’s Policy Conference where I’ll be speaking later today.

Matthew: Okay great and before we dive into what’s happening in California specifically can you give us some more background on yourself and how you got into this cannabis business and into the start of Greenbridge?

Khurshid: Sure. So I’m the principle and founder of Greenbridge Corporate Counsel. A business law firm representing clients in California, Washington, and Hawaii from a cross sectors in the legal cannabis industry so we represent nonprofit advocacy organizations, medical marijuana collectives, consulting firms, publishing companies, consumer electronic manufacturers, infused product producers, software companies, trade associations, and a host of others including as I mentioned several guests that have been on your show before. At Greenbridge we focus on transactional and business law matters and answer questions that relate broadly to who can participate in lawful cannabis industry and under what circumstances.

Matthew: Khurshid can you give us a little color around your background in the industry and how you got started and then how it’s evolved to where you are now?

Khurshid: Sure. So I started my cannabis industry practice at the San Francisco office of a large multi-national law firm as a corporate lawyer with transactional practice that was focused on renewable energy. In 2011 I was actually terminated while hosting the very first ArcView Pitch Conference at my office. The cited reason was insubordination to firm management for my persistent efforts to try to build a cannabis industry practice inside the firm, but it was clear to me that hosting ArcView was the last straw and that I’d really pushed the envelope past the breaking point.

But I was willing to push the envelope here to get my former employer to embrace a cannabis industry practice. To me it was a very risky act of civil disobedience against the federal drug war for me to leverage my expertise as a business lawyer to help seed and protect legal cannabis businesses and one that I would’ve preferred to do so behind the professional cover of a big law firm and without a massive pay cut, but that wasn’t to be and there weren’t any other takers from among the larger law firms. So I set up shop as Greenbridge Corporate Counsel with what was left of my severance payment from that firm.

Matthew: Well that’s a great origin story from the ashes of a termination rises Greenbridge.

Khurshid: Absolutely and it’s given me a lot of opportunity and a lot of freedom as well to serve in the industry and in the movement. So early on I had the opportunity to serve as the first general counsel of the ArcView Group helping CEO and founder Troy Dayton establish the ArcView Investor Network. I also co-founded and served as the pro bono general counsel to the Emerald Grower’s Association. Since then I’ve been able to grow Greenbridge to eight lawyers and we represent clients in three states now. Currently I’m serving as the general counsel of the California Cannabis Industry Association in addition to being on its board and I’m also a board member and pro bono counsel to the National Cannabis Association and Students for Sensible Drug Policy.

The other interesting thing that I’ve been able to do since moving to Sacramento is I’ve also become a registered state lobbyist for both the ArcView Group and I’ve also joined as part of CCIA’s lobbying team in Sacramento. So that’s given me a lot of insight into how the sausage is made if you will and how we can affect change in the industry through legislative action.

Matthew: I’m curious now that you know how the sausage is made is it different than what your perception of how it is made at the state level legislature.

Khurshid: Absolutely. I mean it’s given me.. when I think about the differences between the MRSA and the AUMA the so-called Parker Initiative that is going to make the ballot in November. I think about the effect of the various stakeholders in the legislature right. So you’ve got labor, you’ve got the cities and counties, you’ve got law enforcement, you’ve got the cannabis industry, and a number of other stakeholders who are all involved in negotiating and passing the MRSA, and as a result there are a lot of things in the MRSA that industry is not wild about. I mentioned the mandatory distribution system.

Those types of features however are absent from the AUMA because here we didn’t have to deal with the various stakeholders who hold sway in the state capitol. You’re just dealing with the voters, and so you’ve got different priorities and as a result I think the AUMA ended up being a much stronger ballot initiative. And to me the adult use system is going to be far preferable to operate in California as opposed to the medical system which is hampered by different restrictions on ownership and vertical integration and again those are all part and parcel of that sausage making process where you’ve got so many cooks in the kitchen saying I want to add this, I want to add that and you don’t always get your way as a stakeholder in industry. And with ballot initiative you’re dealing with the voters you’ve got a completely different set of options. It’s a different universe of choices.

Matthew: To give us a really high level overview of what’s happening in California can you summarize the Medical Marijuana Regulation and Safety Act? When that took place and became law and what’s most important about it?

Khurshid: Sure. So the Medical Marijuana Regulation and Safety Act was signed into law last year making California a Cole Memo compliant regulated state medical marijuana market. So previous to the passage of, we call it the MRSA for short, previous to the passage of the MRSA we had a patchwork in California of local jurisdictions that were regulating cannabis at the county and city level but there was no comprehensive state regulation or state licensing of businesses in California. And so the passage of the MRSA was a big landmark not only for California but also for the industry movement as a whole given the size of this market and its position as a leader in the industry.

So the first state licenses will be issued in California in 2018 after the six regulating agencies have adopted rules implementing the act. There will be 17 different types of licenses for cultivators, manufacturers, retailers, testing labs, distributors, and transporters. Also I’d say a dual licensing system meaning that the state will not grant licenses to any businesses that don’t already have a local permit license or other authorization sorry to operate in that local jurisdiction.

Matthew: Now when you say Cole Memo compliant can you just give a little overview of what the Cole Memo is so listeners can understand what that means?

Khurshid: Sure. So the Cole Memo is guidance provided by the U.S. Department of Justice back in August 2013 and what the Cole Memo does is basically it’s a policy statement. It’s not a statement of law but a policy statement from the executive agency, executive branch of the government saying these are the conditions under which we are going to allow these various state experiments that are going on with legalization of medical and adult use cannabis. These are the conditions under which we are going to let that experiment move forward and not interfere by trying to enforce the Controlled Substances Act against compliant actors who are trying to follow their state and local law on that subject.

Matthew: And when you’re phone rings from clients in California and they’re trying to interpret and pivot and comply with the Medical Marijuana Regulation and Safety Act as much as possible are there any questions or concerns that come up over and over again?

Khurshid: Sure. So there are a number of issues that clients raise over and over again. The chief question is of course how do I get myself ready? How do I get my business ready for MRSA compliance? How do I get my business situated so that I can get a license under the state act when those licenses are available. And so that kind of opens up a whole myriad of other questions and they’re affected by things like the ownership rules that are set forth in the MRSA as well as local licensing as well. A lot of the most impactful legislation is being deliberated by California’s counties and cities because again MRSA has a dual licensing system. So while the act doesn’t impose strict numerical limits on most of the license classes authorized under MRSA these localities will De facto determine how many state licensees will ultimately be in the system by admitting or denying legitimate access to new and existing businesses.

So after an initial rush to ban many of the jurisdictions have taken a closer look at establishing local licensing and permitting schemes which are complimentary to the states scheme under the act. So a lot of the questions that I get are where should we be located that is optimal for our business and the answer is still in flux because a lot of jurisdictions have heretofore not had any kind of comprehensive regulatory scheme or a licensing scheme for these businesses. Some jurisdictions have licensed cultivation, others have limited licensing for retail outlets for dispensaries, but very few and certainly prior to the passage of MRSA very few had any rules on say manufacturing right. We know that the Vape pen market, the market for concentrates and extracts is huge and yet we have no guidance essentially at the local level on what’s permissible, what’s not, how to get the license, how to operate in compliance. And so these types of questions are being posed over and over again by various clients who want to be well situated to gain not only local licensure but also be eligible to gain state licenses when the time comes.

Matthew: Okay and now what about investors? Investors in California and out of state is there any changes or what’s it like there for people that are outside of California that want to invest in the California cannabis business?

Khurshid: Well fortunately under MRSA there isn’t a residency requirement. Under the ballot initiative that is hopefully going to be on our ballot in November the AUMA (Adult Use of Marijuana Act) that does have residency requirements but the MRSA does not so for the time being opportunities to invest in California are still open to folks who are not residents or who live outside the state. That said I mentioned the ownership rules and those are fairly complex because the ownership rules also tie into restrictions on vertical integration and what happens essentially is that you are allowed to be an applicant or an owner of a certain number of licenses.

There are various restrictions in the MRSA on what combination of licenses you can hold. And if you violate those provisions, then you are not going to be able to hold all the licenses that you want, and you may also potentially complicate the lives of other partners that you have in that venture because they may not be able to get the licenses that they need, the combination of licenses that they need. So the definition of owner in the MRSA will ultimately determine who will have the opportunity to participate in this new market. So access to investment opportunities, access to operating and expansion capital as well as the ability to employ human and financial capital across industry sectors and the ability to get your products to market. These are all going to be dependent on that question of who is an owner?

So the way MRSA currently defines an owner is problematic because it presumes an ownership interest in the licensee even where a party may only have an ownership interest in property being used by the licensee in its facility or its operations. And so this is serious implications for anyone wishing to apply for multiple state licenses along different points of the supply chain as the ability to operate a vertically integrated enterprise is again heavily restricted. It also complicates an investor’s life because diversification is very difficult to achieve in that context.

Matthew: Great points. Now you mentioned that there are seventeen different licensing opportunities. With so many categories and with new categories do you see opportunities for new types of businesses that didn’t exist in the California cannabis market before?

Khurshid: Sure. So for the first time anywhere in California there are distribution licenses and transport licenses in addition to all of the other points along the supply chain those are separately licensed classes of activity, classes of commercial cannabis activity. And so we are seeing folks interested in distribution licenses to help producers get their products to the retail market. Not everyone is quite thrilled to see these new licenses because again with the restrictions on vertical integration you can’t hold a distributor’s license and have a dispensary license or have a cultivator’s license or manufacturer’s license for that matter. So you’re basically dealing with a mandatory distribution system but other owners from along the; other licensees from along the supply chain are not actually allowed to have any kind of interest in that distributors license.

So while there are opportunities and certainly there are operators who would welcome having a distributor handle distribution of their products that they can focus on what they do best. Not everyone is wild about the mandatory nature of the distribution system in California.

Matthew: Just because it allows them less options is there a concern of fiefdoms being created or cartels or something?

Khurshid: Yeah there’s concern about smaller producers not being able to have their products reach the market because they don’t have the kind of leverage when they’re dealing with a very large distributor that is dealing with dozens and dozens of producers and so there is a concern about will my products actually be acceptable? Will I have to modify my products or my business itself in order to get to market because of the leverage that the distributors are going to have? There’s also concerns among the testing labs where again what happens if the testing labs reject too much of the product that the distributors are trying to distribute? Will there be some backlash there? Is it going to be harder for the labs to operate and for them to guarantee the integrity of products reaching the market if they’re dealing with a few very large distributors and those are the only outlets for their services and the only ways to get products to the retail market?

Matthew: Can you explain what BMMR is or BMMR what that acronym means and why people in the California cannabis community should be interested in it?

Khurshid: Sure. So BMMR, B-M-M-R is the Bureau of Medical Marijuana Regulation which was created by the MRSA under the Department of Consumer Affairs to oversee general administration and enforcement of MRSA through multiple; well they are the lead agency. However there are number of other agencies, state agencies that are going to be taking a prominent role and problem getting regulations to implement the act. So BMMR is the agency that is going to oversee all of this but ultimately there are going to be six plus agencies that are involved in the implementation of the MRSA. That being said the success of BMMR is going to require interagency cooperation of all these agencies all of which are new to regulating cannabis.

None of the regulating agencies have actually formally begun the rule making process. These agencies have been in the process of meeting with stakeholders so BMMR is still kind of in formation if you will. I just heard from the new head of BMMR, Lori Ajax at our conference this morning and they are quickly staffing up. They have three permanent staff right now. Again they’ve just started and they’re going to be looking for legal counsel to help them with the rule making that’s coming up and as I mentioned there are six plus agencies including Department of Food and Ag, Public Health, Consumer Affairs, Pesticide Regulation, Fish and Wildlife, and the State Water Resources Control Board.

Matthew: Wow. That’s a lot of government.

Khurshid: Yeah it’s alphabet soup.

Matthew: Yeah. Are there any deadlines that listeners should be aware of or anything coming up on the horizon that’s important that they should make note of?

Khurshid: Absolutely. So I mentioned the rule making proceedings that have not begun yet but they do have to be concluded within one year. And so the agencies have and BMMR specifically has said we want to be in a position to be able to grant licenses by January 1st, 2018 which means that they’re going to have to get the rule making proceedings done well before then. The rule making timeline is a year long. So the rule makings have to be concluded within a year and we can expect that these proceedings will probably begin no later than the end of this year, although some agencies like DFA the Department of Food and Ag anticipate being done by summer of 2017 and others are a little bit less saying when but the Bureau is committed to making sure that all of this is done by the time January 1st, 2018 rolls around. That’s the date when they can start granting state licenses.

Matthew: We see established cannabis businesses in California such as MedWest get raided and continuing raids going on. How is this possible that a legal cannabis business gets raided? In this case I think was a local jurisdiction in southern California partially funded with federal funds from Homeland Security. Can you tell us a little bit about your thoughts around that? Why raids continue and where we’re at in this process?

Khurshid: So the MedWest raid was very unfortunate. I’m good friends with James Sladdock and others at MedWest and really sad to hear about that raid. What I know of it is that while there was some federal funding likely involved in the agencies that were participating in the raid it wasn’t actually a federal raid. It was a local police action taken by the city on the grounds that MedWest was not complying with zoning requirements and so that seems to be the impotence for that raid and so we know from earlier in the year there was; we had the Robocker Farm renewed and that is a provision in the Federal Budget Act that says that federal officials are not allowed to spend any federal money on enforcing the Controlled Substances Act in states that have legalized medical or adult use cannabis and so they have been barred from participating in those raids. Federal officials have been barred by federal courts from participating in those raids and so what we’re seeing now is local action and some local level carnage that may not be over yet.

There are a number of folks, businesses who are trying their damnest to comply with state law and be good actors but a lot of these folks are still operating in a irregulatory void at the local level and there has to be more evolution of these local ordinances on licensing before that is going to come to an end. By and large though I think we’ve seen local jurisdictions that have recognized the fact that they’ve got thriving businesses in their jurisdiction and they don’t want to make them criminals. They want to bring them above ground and they do want to collect that tax revenue. That being said there are dozens and dozens of jurisdictions that have actually banned activity as well. And so if there is any commercial cannabis activity in those jurisdictions certainly there you’re going to see more enforcement actions against these businesses as time progresses but again at the local level not so much the federal.

Matthew: Civil asset forfeiture seems to be a tool in the toolbelts put authorities in these raids. Can you talk a little bit about how that was used if you know anything about it?

Khurshid: Well I know that in the MedWest raid it’s actually not a federal asset forfeiture action. There is a state corollary to that so there are state asset forfeiture laws that apply and I believe that’s what’s being used here in the MedWest case. I don’t know enough about it to really comment on the substance of the allegations that the city has brought but presumably if they have invoked the state asset forfeiture proceedings then they are alleging that there has been some unlawful action and that is largely due to the fact that in these jurisdictions local businesses cannot rely upon the affirmative defenses that are currently available to them under California Medical Marijuana laws and so where they can’t rely on these affirmative defenses in these jurisdictions that have been unfriendly they are going to be subject to prosecution under the criminal cannabis laws that apply to everybody else outside the patient community and so that is going to be the underlying premise of any state forfeiture action. Again I hope that they are able to resolve and settle this matter with the city before it gets to that point but it’s very scary for any business owner to be facing that.

Matthew: Right and what I understood from the video that James Sladdock and MedWest put out is that his financial assets not just his but his wife and his children’s were all frozen immediately. So you’re essentially barred from having any resources to creating your own defense. It’s kind of like saying hey to a boxer hey get in the ring with me but I’ve created a technicality where you can’t even get in the ring and begin to fight because I make up the rules.

Khurshid: Yeah.

Matthew: I mean it seems like such a backward Draconian system we have here. Is this pretty common that assets are frozen in such a way that you can’t even defend yourself?

Khurshid:: I’ve heard that over and over again from other operators who’ve had to face this type of a proceeding that they freeze all the assets including your family assets and yeah it’s very difficult for you to fight back. I look at the asset forfeiture laws generally as a license for law enforcement to steal. And so given that the law is set up that way I’m not surprised to hear that they would try to hobble anyone from fighting back. It takes a long, long time to fight back and to actually reclaim your property and your business. So asset forfeiture that I would like to see as an area of reform not only in California but at the federal level as well. Like I said I think it’s a license to steal and it doesn’t conform with our constitutional privileges that we have under the U.S. Constitution in my opinion.

Matthew: Agreed. Well moving outside of California what issues are top of mind for you right now at the national level?

Khurshid: Sure so banking access is one area that really needs massive improvement. We don’t have; although we do have guidance from the Department of Treasury and FinCEN the Financial Crimes Enforcement Network both executive federal agencies. They’ve provided guidance on how businesses and banks can work together. How banks can actually offer their services to state lawful cannabis businesses the number of banks actually doing so is still very small. You don’t see a lot of big national publicly traded banks for example wanting to jump into this consumer base. They are very hesitant because right now as it stands the guidance that they’ve been given really imposes a lot of additional duties on the banks that really are not appropriate for the banks to carry out; more appropriate for law enforcement and the state to carry out and so you don’t see a lot of takers among the banks and that’s going to have to change if we are going to actually have a mature industry and one that is able to grow and hopefully grow at some point federally nationwide as well. Until that happens we’re not going to be able to scale those operations and not going to be able to protect public safety in the process as well.

When we don’t have banking access there’s a lot of cash flowing and even the simple matter of going to pay your taxes can be a pretty stressful experience if you’ve got a hundred thousand dollars in your backpack and you’re walking in without any kind of guard and so that’s a problem and so states have tried to solve this issue. In California there is a lot of interest in trying to start a state bank. I’m not so sure that that is going to be a workable alternative. First of all it takes a lot of capital, a lot of time, and a lot of effort to actually set up a financial institution like that and even if you were successful in doing so the FDIC is the regulator of last resort for banks that aren’t part of a Federal Reserve System which is what a state chartered bank would be and the FDIC itself has not shown itself to be very enlightened. They’ve denied deposit insurance to other banking institutions who were attempting to comply with FinCEN and Treasury guidelines and tried to join in the Fed system.

So I’m not so sure that the FDIC is going to welcome the advent of state chartered banks who are specializing in cannabis accounts. I think what we really need is to have a federal solution and we really need to impress upon our decision makers and Congress and any executive agencies that we need to address this situation and we need to do it on public safety grounds and so what we need is to have our state and local tax authorities talk to them about what this problem is doing on their end and how important this is for it to be resolved. The writing is on the wall. The genie is not going back into the bottle so if Congress does not address this situation they are letting a public safety issue escalate and get worse.

Matthew: And it really doesn’t need to be this way. We could look at Canada and they really have totally untangled this knot. It’s illegal to do any kind of banking around cannabis in Canada from what I understand and there’s just not any of these issues.

Khurshid: Yeah.

Matthew: And I realize we’re a different country but it’s not that hard to envision when our neighbors to the north already have a totally functional system so it’s just like hey can we have that? It’s not like we’re trying to sell them on a unicorn from another plain or something.

Khurshid: Yeah, yeah. What every operator in this industry wants is just to be treated like any other business. We want to pay our taxes. We want to follow the law. We want to create jobs and we want a fair and reasonable profit as well and so those are not unreasonable things to want if you are trying to play by the rules. Canada not only has banking but they’ve got publicly traded cannabis companies on their exchanges and what we’ve got is markedly different. Most of our companies that are publicly traded are on the pink sheets and the OTC and investors don’t get the benefit of the investor protections that they do in Canada where this is all federally legal and legitimate for them to list their stocks on the national exchanges and invite investment.

Matthew: What about pesticides at a national level? What do you think can be done there?

Khurshid: So that’s another very interesting issue. We keep seeing headlines about massive recalls in Colorado and elsewhere due to the presence of certain pesticides that are not authorized for use on cannabis and this all stems from the fact that the EPA has been largely silent on this issue. They did issue some guidance several months back to Colorado about which pesticides would be permissible potentially but they’re not taking a stance and that’s because cannabis is not defined as an agricultural crop under federal law and under federal law all pesticides have to have the parameters of their use listed on the label and anything that is used differently from what’s prescribed on the label is called off label use and that is implicitly unlawful and so the problem is that there are no pesticides really that say that this is for use on cannabis right.

There may be some pesticides that say on the label that they are generally safe to use on food crops or generally safe to use on different types of agricultural crops and those may be okay to use arguably but there are a number of pesticides that cultivators use to keep their crop safe that are not listed but are presumed to be safe but there’s no guidance from the federal government on that and so they continue to be unlawful to use and so it creates quite quandary when these recalls happen because they’re not based on federal law they’re based on a sort of state law principles that are hobbled together from EPA guidance and from what limited power the states have to regulate pesticides.

Matthew: Khurshid before we close I’d like to ask a question about a book that’s been pivotal or transformative in your life. Is there any book that you look back over the arc of time in your life and you think hey this was really a transformational book for me that really gave me new insight or different lens to view my life?

Khurshid: Sure. So when I first started my cannabis industry practice I had read “The New Jim Crow” by Michelle Alexander who is a law professor and I think currently at the ACLU and “The New Jim Crow” is a book about how the drug war essentially has created a huge prison industrial complex and massive rights of incarceration especially of people of color. When I started off; cannabis isn’t my first activist foray and so when I kind of started my career if you will as an activist I started in high school with the Anti-Apartheid Movement; the International Anti-Apartheid Movement and reading “The New Jim Crow” kind of brought things full circle for me as an activist. One of the facts that she cited was that the U.S. incarcerates a higher proportion of its black population than Apartheid era South Africa did during the height of opposition to Apartheid when they were fighting armed insurgents.

They were locking away fewer black people than we were and to me that really hit home and made me decide that this is what I’m going to do. I don’t have a choice. This is what I have to do and I’ve seen the drug war through a civil rights lens ever since and it’s definitely been transformative not only for me but for several other activists and entrepreneurs who I know were personally touched by that book. So I can’t recommend Michelle Alexander’s book enough.

Matthew: That’s an excellent suggestion. One piece of news that came out this week was about how the Richard Nixon administration used a lot of the war on drugs as a way to target minorities and protestors that were essentially giving him a hard time. What’s a reason we can come up with to go after these people the public will stomach.

Khurshid: Yeah.

Matthew: So there’s a lot of consequences we don’t; unattended consequences of legislation we don’t see sometimes and the human faces behind them so thanks again for that suggestion.

Khurshid: Sure.

Matthew: In closing how can listeners learn more about Greenbridge and the services you offer?

Khurshid: So we’ve got a website. It’s www.greenbridgelaw.com. Our bios are up there as well as our firms mission statement. We are a firm with a mission. Our mission is to help end prohibition and we’re going to do that by building a regulated taxpaying above ground economy and so we encourage folks to check out our website. Check out our mission statement and certainly contact us if they need any help.

Matthew: Khurshid thanks so much for coming on CannaInsider today. I really appreciate it.

Khurshid: Sure my pleasure, thank you Matt.

Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher or whatever app you might be using to listen to the show. Every five star review helps us to bring the best guests to you. Learn more at www(dot)cannainsider(dot)com/itunes. What are the five major trends that will impact the cannabis industry in the next five years? Find out with your free report at www(dot)cannainsider(dot)com/trends. Have a suggestion for an awesome guest on www(dot)cannainsider(dot)com, simply send us an email at feedback(at)cannainsider(dot)com. We would love to hear from you.


Cannabis attorney Khurshid Khoja discusses both the opportunities and burdens in California’s new cannabis regulations.

Khurshid Khoja is the Principal and founder of Greenbridge Corporate Counsel, a business law firm representing clientele across sectors in the legal cannabis industry: non-profit advocacy organizations, medical marijuana collectives, consulting firms, publishing companies, consumer electronics manufacturers, infused products producers, agricultural equipment manufacturers, software companies, trade associations, and others.

Khurshid brings a wealth of experience from representing and consulting with companies in the legal cannabis industry. In addition to pioneering the Cannabis & Hemp Industry practice at Greenbridge, Khurshid was a Founding Board Member of both the California Cannabis Industry Association (CCIA) and the Illinois Cannabis Industry Association (ILCIA). He continues to serve on the CCIA Board and as its pro bono General Counsel, and was recently elected to the National Cannabis Industry Association (NCIA) Board.

Key Takeaways:
[2:27] – Why Khurshid starting Greenbridge
[6:17] – Khurshid’s take on legislative actions
[8:22] – What is the Medical Marijuana Regulation and Safety Act
[10:05] – Khurshid explains the Cole Memo
[11:10] – Khurshid talks about common questions and concerns from clients
[14:01] – Out of state investors that want to invest in the CA cannabis market
[16:44] – Opportunities for new types of business
[20:01] – Khurshid talks about BMMR
[22:04] – Licensing deadlines
[23:41] – Why do raids continue
[30:15] – Khurshid talks about his top of mind issues
[35:40] – Pesticide regulation
[40:52] – Contact details for Greenbridge Law

Important Update:
What are the five trends that will disrupt the cannabis market in the next five year?Find out with your free guide at: http://www.cannainsider.com/trends

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The Five Disruptive Trends Shaping The Cannabis Industry Now

An Update on Vermont Cannabis Legalization

vermont cannabis legalization

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Matthew: Hi, I’m Matthew Kind. Every Monday and look for a fresh episode where I’ll take you behind the scenes and interview the leaders of the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Do you know that feeling when you sense opportunity, when you see something before most people and you just know it will be successful, then you're ready. Ready for CannaInsider Consulting. Learn more at www(dot)canninsider(dot)com/consulting. Now here's your program.

To give us an update on cannabis legalization in Vermont I’ve invited Eli Harrington, Editor and Co-Founder of Heady Vermont on CannaInsider today. Welcome Eli.

Eli: Thank you very much Matt. Great to talk to you today.

Matthew: Eli to give listeners a sense of geography can you tell us where in the world you are today?

Eli: I am in Burlington in the great state of Vermont on the shores of Lake Champlain.

Matthew: Oh great. Yes you know Burlington is very similar to Boulder in many ways where I live. The pedestrian walk I discovered is designed by the same person.

Eli: Right. Yeah, yeah I think your Pearl Street is our Church Street.

Matthew: Yes and I think very similar.

Eli: Yeah exactly. Well I’ve heard that too and the Vermont/Colorado comparison gets made a lot as far as us being a sort of smaller, weirder cousins.

Matthew: Right.

Eli: I’ve yet to go to Boulder so I’ll look forward to finding out for myself.

Matthew: Well tell us about your background. How did you get involved in the cannabis scene in Vermont?

Eli: Well for me personally it started out with I call him the “Godfather” and he’s a really close family friend. My uncle was dying of lung cancer when I was I think eleven or twelve and he was just in rough shape with the chemo and at the same time our family friend Mark Tucci had started his MS treatments and so Mark was really one of the original patients who helped my uncle out a lot and at a young age I came to understand cannabis as being a medicine. I went to college at Brandeis which is a very liberal place and very known for social justice.

I had experiences being around the plant myself but it was really when I saw this group and then saw the first event they had this past summer in July. I said if these people who are business people who have started Magic Hat Brewery, founded Jogbra, writers, Vermont secessionist’s, really just interesting eclectic group of people who are also very conventionally successful in this Vermont way and so I was really intrigued to see more about what that meant and at least participate however I could and understanding if this serious group of people are going to try to make it happen and the politics might line up this year this seems like a chance to get involved.

Matthew: So you’re saying there is a group of people in Vermont that want to secede from the United States kind of like Texas and do they have any traction at all? Do they feel like it’s possible?

Eli: I mean this is a; you should look it up The Second Vermont Republic is what they’re called. It’s a small group but one of their members Rob Williams is a writer and he’s part of the cannabis collaborative group; a really interesting guy. I think Bernie has probably brought a lot more attention to the Vermont Secession movement. I won’t speak for them. I love the ideas as an 8th generation Vermonter. I think it’s really cool to explore and think more about public policy but yeah don’t look for anybody in Vermont to take over any federal facilities any time soon or anything like that.

Matthew: It’s an interesting concept though. I mean just looking at the size of our country. It’s just Alaska, Hawaii, people in California being managed all the way from D.C. I mean just from a practical point of view is our country just too big and too diverse to be managed centrally? It’s something to think about.

Eli: Well it’s funny and cannabis really is one of those issues that shows there are a lot of I think social issues that show where those divisions can happen and Vermont is some place; Vermont was an independent republic for 14 years before it joined the U.S. and Ethan Allen kind of was a militia. The whole concept of Vermont was really a rugged individual taking self directed action with a small group of people who didn’t want that foreign control.

Matthew: Yeah.

Eli: So it’s funny. We’ve kind of come full circle in a lot of the mantra which now has almost run its course calling it the Vermont Way right which is such a cliché but it’s one that appeals to our sense of pride. It’s interesting to see how all of these paths intersect and what can we do here in Vermont that’s markedly different from other states? Having a small state, having a lot of access to our representatives through the legislative process it’s interesting to give people context. In Vermont we don’t have ballot initiatives. It’s forbidden from our constitution so we can’t just have a group of people get together or a couple groups of people get together, collect some money, and do a campaign. Part of the reason that it’s coming through the legislative process is that that’s really the best option we have. So it’s interesting because we are such a small place that we can be almost a political laboratory in different ways if you look at the GMO labeling laws.

Matthew: Yeah, yeah I’ve noticed that so that’s one of the reasons I wanted to have you on the show is that even though Vermont only has a population of like 600,000 range it has kind of an out size presence in terms of what it does and kind of being on the bow wave of change and I thought it was great how Vermont says hey we want to label GMO’s; just hey what’s wrong with just knowing if there’s GMO’s in our food and did the food industry kind of sued Vermont on this. Is that right?

Eli: Yeah, yeah. There is a whole back and forth and a lot of threats and I know when Monsanto sends you legal letters those are serious threats. So it took a lot of concerted effort and I really give the politicians at the local level; these discussions started a long time ago and it kind of speaks to the culture in Vermont as far as people being very conscious and also very involved. That we’ve gotten to the process of having our congressional delegates standing up and helping to make this happen and really hopefully it changes consciousness at the national level too.

So there are still 50 states with two senators each and ours do a great job Senator Leahy and Bernie Sanders. It’s quite the dream team but it really started from a long, long time ago and I think it is interesting. Like I said it’s kind of being this political laboratory and we’re pragmatic people. What’s wrong with knowing what’s in your food? What’s wrong with having a label that says if there are GMO’s? You can still choose to buy it or not buy it.

Matthew: Yeah. That’s when you really see the power of corporations come out and they want to suppress just having a simple labels thing if something is GMO or not. It’s a little scary. It also kind of dovetails on the topic of the DARK Act. Are you familiar with that?

Eli: No, no.

Matthew: The DARK Act was a bill at the federal level. I think it’s still floating around congress that would make it federally illegal to put on any food if any part of the food has a genetically modified organism in it.

Eli: Wow.

Matthew: And it’s shocking to see the number of representatives that would vote to literally keep us in the dark. I’ve come a long way around on this topic because I know this is a cannabis related show but at first I was.

Eli: No this is relative.

Matthew: Yeah.

Eli: And its important people caring about I think cannabis has had a big part too. You look at all the pesticide recalls. People are just generally more conscious about what’s going on and also about sort of what happens when they’re not directly involved as activists. The system as it is; the status quo does not favor the individual who might or might not be being harmed from a genetically modified organism that we don’t understand yet. And who can’t make that choice. It’s very (08:48 unclear).

Matthew: Eli for people unfamiliar with Vermont’s legalization status and efforts can you kind of frame where Vermont is right now especially relative to other states?

Eli: Yeah sure thing. So Vermont has had a very small medical program that started about a dozen years ago. It’s still very limited as far as the conditions. Chronic pain is one but mostly AIDS, Cancer, MS. So there are less than 3,000 patients in the state and only four dispensaries. There are caregivers allowed but it’s a one to one caregiver to patient relationship. So there is no recreational market or personal use market so the only people who are legally consuming cannabis in Vermont are the 3,000 registered patients.

Matthew: Okay.

Eli: Yeah so there’s a lot of room to grow here. The legislature is currently considering a bill that will allow for personal use starting in 2018.

Matthew: Okay.

Eli: That will not allow for edibles. Right now edibles and concentrates are only allowed for patients who are registered and the dispensaries that serve them. So this bill in 2018 right now would not allow for personal cultivation so there’s no home grow. It would allow for a limited number of cultivation licenses at different tiers. So under 2,500 square feet, under 5,000, and under 10,000 and I think over 25,000. Again so we’re looking at a very small scale for what would be allowed and that would be starting in 2018 so personal use for X amount of retail locations probably not more than 14 throughout the state and a limited number of cultivation licenses starting January 2018.

Matthew: Okay. I was going to ask you why is there so few patients? Is it just because the list of qualifying conditions is so tight or what’s the reason that there’s only a few thousand people?

Eli: Yeah I mean I think that’s a big part of it. The application process isn’t that onerous but you have to have a six month relationship with a physician and that most likely means that it’s your primary care physician right or a specialist.

Matthew: And then the physician prescribes it for you or what’s the connection between a physician and getting a card or the (11:17 unclear).

Eli: So the physician has to basically approve it in order for your application to be approved.

Matthew: Interesting, okay.

Eli: So you do need a physician and not just any physician. You can’t walk into any office of somebody who you know might be favorable. It really has to be a relationship of six plus months and even the qualifying list of conditions.

Matthew: Yeah let’s go through a couple of those. What are the qualifying lists? Is it pretty onerous in terms of its not many things that can get a wide swath people in the door?

Eli: Yeah that’s exactly it and I’ll give you an example but American’s for Safe Access gave Vermont I believe a D for our grade yeah and so the eligible conditions Cancer, HIV-AIDS, MS, Wasting Syndrome, severe pain, severe nausea, and seizures.

Matthew: Mm-hmm (affirmative). See your patent though is that sounds pretty general it’s not.

Eli: Right. That can be, that can be. Generally speaking though I think it’s been people have been hesitant to go through. One you do have to register with the state as a patient when you do it. Also I think within the medical community I’m not a doctor and there are a lot of physician’s here who have done a lot of great work in the cannabis world and brought a lot of education forward.

But I think it’s still the kind of thing that has been hard for people to want to make that ask and because the group has been small here in Vermont and the program has been conservative. Vermont marijuana is not really in the news unless it’s a bust except for this year to this level of detail which is too bad because there have been a lot of efforts to reform the medical and open up the conditions more and more which are being affected now that everybody’s having conversation. So I think everybody understands that medical will be reformed as part of this process and it’s a question of how. I think a lot of people would rather see more dispensaries, more caregivers, more patients, and try to break in.

Matthew: Tell us more about the caregiver model there and how that works as some people might not be familiar with what caregivers are and in Vermont specifically what the caregiver relationship is.

Eli: Yeah so in Vermont it’s a one to one relationship so one patient may assign one caregiver. Basically if you qualify as a patient you’ve got your application in, you pay your I think it’s fifty dollars for your annual fee, and then you get your card in the mail. You have three options. You can grow your own and the limit is seven mature plants and two immature. You can register for a dispensary and I say a dispensary because you can change it but it’s difficult otherwise you are locked into one dispensary. So you choose a dispensary and there are only four of them in the state and they’re all about an hour a part okay.

Matthew: Okay.

Eli: So there’s a map that I’d be happy to share and people can see on the Vermont; the state government medical marijuana page that shows the number of patients in each county. So those are your; you have those two options grow for yourself, choose a dispensary, or you can designate a caregiver. So a caregiver can grow your designation, your seven plants and two immature plants in a single indoor facility. The caregiver must also apply for a card and they have to be twenty-one years old and free of drug convictions.

Matthew: Okay.

Eli: So again it’s a very restrictive system and the caregiver area is a place that could probably grow more here in Vermont but it all starts with allowing more patients. I think streamlining the process a little bit more. Things like PTSD which people understand more and more. Even the qualifications for chronic pain and one thing that’s really, really significant that I can’t forget to mention the UVM College of Medicine is hosting the first medical marijuana class at the medical school level which is happening right now this semester. So I think that the medical community there’s some interesting medical research going on here. The Vermont Patient’s Alliance have some physicians involved who are doing some really cool research and I know that’s a big part of interest for us here in Vermont.

Our scale being what it is we’re not going to have the kind of volume and production that places out west are. I mean what’s the future of cannabis here in Vermont? I think it’s a lot of research and development. At least we hope there’s a high quality of life and it’s a place that young people and scientists are drawn to naturally and researchers.

Matthew: I need some infused maple syrup.

Eli: Oh my God I mean the food; unfortunately the edibles were the first thing to be compromised in the legislation.

Matthew: Yeah tell us about state of edibles because a lot of people listening are interested in edibles and infused products and concentrates so Vermont is (16:40 unclear).

Eli: Yeah I think everybody’s interested in those; everybody’s there.

Matthew: Those are forbidden in Vermont currently?

Eli: So right now the dispensaries are able to produce edibles for their patients.

Matthew: Okay.

Eli: There had been loopholes where patients could be making their own concentrates. Although I think we’ll see some of those be closed unfortunately the police have busted a few. They’ve called them clandestine labs. They’ve been really small, amateur, BHO operations. It’s weird. They only come out during the legislative sessions. Crazy.

Matthew: But you can’t; so you’re saying that only the dispensaries, these three or four dispensaries can make their own edibles, concentrates, and infused products and only for their patients is that right?

Eli: Well right and patients can produce their own if they’re growing for themselves.

Matthew: Okay.

Eli: But again there’s not a lot of that happening.

Matthew: People are just like hey I just want to get flower. Let’s cover that base before we get into anything more exotic.

Eli: Well and you know I don’t know what the dispensaries sort of sales look like. I would imagine edibles are extremely popular there and concentrates they’re really you can’t go in unless you have a; they’re very small low-key operations that really operate kind of more on demand for patients than in any kind of retail context.

Matthew: Do they grow there at the dispensary or how does that typically work? I mean is there sometimes you see a dispensary with its own grow facility attached to it. Is that typically how it’s done in Vermont or is it different?

Eli: No I’m not familiar with the specifics of each one but I know the one here in Burlington does not have; their cultivation is not here in Burlington.

Matthew: Okay.

Eli: And these places are all super discrete. Unless you know where they are, unless you’re a patient there’s no signage, there’s no walk-ins, there’s not even; usually it’s called by appointment.

Matthew: Okay.

Eli: For everything. So it’s really small low-key operation and to get back to the question of the edibles and the concentrates it’s really, really unfortunate that that was kind of the first political compromise that was put forward where edibles are something that will be right now in the proposed legislation even when flower is allowed to go on sale in 2018 edibles would not be. I think what everybody is thinking is that as there’s more comfort and familiarity with edibles that if there’s a personal use market there will be a personal use edible market probably pretty quickly. I think the market forces demand that there are edibles and it’s really just a question of let’s not even bother addressing that right now on the personal use side because there’s so much sort of set up in education. We’re really taking a lot of steps forward quickly here in as far as thinking about personal use and what the dispensaries and the home grow and the caregiver system has been.

Matthew: Right. That’s all medical. We’re talking about all medical marijuana and getting a card and so forth but what about in terms of recreational? You mentioned in 2018 is there a possibility for full recreational use coming out in the months or weeks ahead? Is there any talk about that?

Eli: Doubtful. We’ll see what the wrangling looks like in the house. That seems like kind of a no brainer right that once we pass a legalization that people shouldn’t be getting citations.

Matthew: Right. Is it decriminalized?

Eli: It is decriminalized in Vermont. So right now it’s a small civil fine.

Matthew: Oh good.

Eli: One or two hundred bucks which is nice and opponents have said look you have decriminalization already. The States Attorney here in Chittenden County will probably be our next Attorney General has said we have decriminalization that’s enough but really we know that there’s a huge demand from Vermonter’s already. We know that 80,000 people this is from the RAND Corp study that was commissioned last year; we know that 80,000 Vermonter’s are partaking illegally. They might all only be risking fines but they’re all technically criminals.

Matthew: Right.

Eli: And especially if you’re somebody who’s a parent or who is really worried about that and doesn’t want to access the underground and doesn’t want to have to be breaking the law or trying to seek out a drug dealer. It’s a huge concern. So the decriminalization really is not enough and even there are a lot of provisions in this law that leave a lot to be sort of demanded as far as the criminal penalties even as far as the home grow.

Matthew: Okay.

Eli: I mean frankly as someone who’s covered this recently for the last six months and been paying close attention the amount of enforcement has not gone down. There was a story that made kind of national news about a little kid talking about his stepdad being a magical farmer and this led to police finding a home grow operation. You can’t defend if the police walk in and there’s a bowl smoking in the living room in the same room as the kid nobody can defend that but it’s one of these campy stories that people kind of laugh at. There are real consequences here and again on the criminal reform part there’s a lot this legislation doesn’t address but one of the main things that is being proposed is having a control board.

Ideally not one that’s regulated by the Department of Public Safety. I think having the police be in charge of the medical program has not been a win for patients and potential patients. So I think that what I’ve at least thought and advocated for is that if we can start with a control board that’s got some transparency, that’s got some accountability, that’s got some expertise that’s not to biased or self interested that’s a start and that’s something where we understand that the political will is there. From our most recent poll 55% of Vermonter’s according to Vermont Public Radio support reform and that number has been pretty steady for the last three or four years.

So the political will is there. How clunky it is at the beginning and how it looks on paper and how it unfolds if you look at it on paper right now what the bill is, what it allows for, and sort of how it lays out with even nothing happening until 2018 there are a lot of people who aren’t satisfied with that.

Matthew: Yeah. 2018 is a long time to wait.

Eli: It is a long time and I mean looking at the regional politics right like New England is a small place. There are 100 million plus people within a one day drive of Vermont and there is a lot of I think enthusiasm to be the first personal use market in New England and serve all of these people and in Vermont it makes sense. You come here to drink our amazing craft beer. We’re called Heady Vermont. Everybody’s probably heard of Heady Topper. We’re not affiliated; we’re fans but people come here to drink our beer and ski and look at the leaves and stare at the trees anyways right. So I think in New England there are definitely some people who are thinking of it as a race to be the first market.

Matthew: Yeah.

Eli: There’s going to be a huge one and people will definitely drive from Boston to here or from Boston to Portland, Maine or maybe to Montreal.

Matthew: Yeah.

Eli: That might happen before anything here. So that’s been a big part of the conversation too is well if Massachusetts does this we’re going to be affected so we should be proactive and think about our own context here in Vermont and I think that’s something that’s really been a net positive for people all over the northeast and people all over the country. I mean look at the Supreme Court ruling coming out of Colorado thinking about what neighboring states how they can and can affect your cannabis policy.

Matthew: Yeah that was just thrown up I think what yesterday?

Eli: Yeah, yeah exactly.

Matthew: Yeah so the other states Nebraska and; was it Nebraska? Well two states that complained.

Eli: Yeah it was Nebraska and Oklahoma.

Matthew: Yeah they complained about Colorado saying hey this is affecting us. We have to have more police presence and so forth but the Supreme Court threw that out so that’s pretty cool.

Eli: Yeah it’s amazing and I think here in New England it’s even that much more relevant because everything is so much closer together. I mean 3 ½ hours for you guys out there is nothing. That’s like a commute to work for some people. For me I’m in Boston in downtown at the Celtics.

Matthew: Yeah.

Eli: Or I’m at Fenway so with that much mobility I think that New England as a region is going to come along very quickly and it’s really worth people paying attention to how it unfolds because there’s cronyism everywhere, there’s protectionism everywhere, there are people who have interests in keeping the status quo in every different state. So whatever your end game is whether you’re somebody who wants to be in the business, whether you’re a patient, whether you’re just somebody who cares about public policy and your politicians and how they act. It’s really worth paying attention to how this shakes out especially as we learn more and more about the financial consequences.

Matthew: Sure.

Eli: I mean the numbers that are coming out of the news of how big the market is I don’t think there is surprise to people who have seen it operating or are paying attention but those are big numbers and I think that’s also driving a lot of the mainstream discussion and be naive to think it’s not.

Matthew: Yeah.

Eli: So I say that I want Vermont to be first not because of the money and not because I think we’re the smartest, crunchiest people to do this but because I think everything is a process and there’s so much infrastructure to build here in New England as far as the education, as far as the political structures, as far as the everything, the regulation, testing, all of this stuff. So I think it’s great that the conversation is happening more and more and frankly I’m sitting here looking at a Bernie Sander’s poster in my living room and that’s one great thing that now I say Vermont and people at least say Bernie Sanders. Ben and Jerry’s and maple syrup are cool too.

Matthew: And fish right?

Eli: Yeah, yeah and fish exactly.

Matthew: Yeah.

Eli: So between all these things how could we not.

Matthew: Well this has been very enlightening Eli. There’s not a lot of huge news coming out but it’s good to get an understanding. I think for business owners it’s probably potentially too early to do anything but start a dispensary.

Eli: Well there’s a lot of other activity here and one thing that we’d really be remised not to mention is Vermont has really, really loose hemp laws.

Matthew: Yeah let’s talk about it. What’s going on with the hemp?

Eli: Yeah well there’s a lot of really interesting stuff going on with hemp here. We have like Kentucky very loose state laws. Our Hemp Program is monitored by the Department of Agriculture and basically at the state level anyone who submits an application fee with I think it’s twenty-five dollars to the Department of Agriculture and shares the details about where they’re growing and how much they’re growing is allowed to grow hemp here by Vermont State Law.

Matthew: That’s interesting.

Eli: So there have been people who have been growing hemp here in the past on really a small scale. Again with everything in Vermont the scale is small and people really kind of have to realize that even when it comes to our agriculture. So there have been people. I was just talking earlier with JT Bedard who’s the founder of the Vermont Hemp Company. They’re doing research with the University of Vermont which is really neat. He’s actually got some hemp seed in a beer up here. It’s called Saisanja. It’s made by Stone Corral up here. So there’s some cool activity there and because of the CBD laws at the federal level there is an opportunity that I think more people are looking at for getting involved in hemp here in Vermont and probably even involved in CBD specific extractions.

Matthew: Yeah. Well the CBD front looks a little uncertain. It sounds like the FDA is starting to step in and trying to put the cabash on CBD’s probably to protect the drug lobby.

Eli: Right but it’s one of these things. It’s such a nuance this year right and when you have physicians talking about we believe that these CBD specific strains that are really, really valuable and then we have physicians who say that a lot of the stuff marketed to that market actually needs to have either the entourage or the ensemble effect however you want to call it. So yeah it’s really one of these issues that as somebody who covers it and tries to interpret this to a larger audience and try to inform people and engage them explaining the CBD paradigm is really tough and seeing how it’s going to shape out.

One thing that’s cool up here there’s hemp being grown for; one thing these guys are looking at is the hemp for soil remediation and trying to help prevent agricultural runoff into our lake which is a huge issue with a lot of agricultural states. So I think long term industrial hemp is where it’s at and I think it’s really, really exciting. So I’m really proud that Vermont has those kinds of hemp laws and that we have kind of the energy that’s moving forward on that front whether it gets directed towards a CBD therapeutic/medical market, whether it gets directed towards seeds for beer or other things, or whether its fibers and building materials. I think that’s really, really a great effect of this and similarly whatever happens with the political process people being more aware of the challenge of patients. And in the medical program and I think that if hemp and medical and patients and farmers and researchers in those fields benefit from this process ultimately we’ll find our way along.

Matthew: Well Eli in closing can you tell listeners how they can find you online and follow the progress of Vermont’s cannabis legalization?

Eli: Yeah absolutely. So our website is called www.headyvermont.com. So it’s www.headyvermont.com. I have a personal blog called Vermontijuana and just do some stuff on social media with that but generally speaking yeah at Heady Vermont we’re really being inspired by outfits like The Cannabist. Some of the other more mainstream blogs. I mean obviously the (32:40 unclear) High Times. I’ve been in touch with people from the Emerald and all over the country. Really seeing when people try to bring a journalism experience really I’m not, you’re recording this, being inspired by publications like that and blogs like these I think has really helped the amount of awareness.

Even I saw High Times being reposted on Mashable today. All of these publications and all these activists and all these journalists who have brought more attention really inspired us and hopefully we can follow their sort of lead and get people engaged more here in Vermont and in New England generally but yeah Heady Vermont we’re locals. Monica Donivan is our publisher, my co-founder a really talented photographer and publisher. She’s been great. So we’re going to keep working with this. We are looking for contributing writers. We want to host expertise from across the country. We have medical hemp in business sections in addition to the New England one’s and then eventually we’re going to hopefully get into events. I mean we really want to; my tag line has been #elevatethestate.

So that’s really the ideas that by sharing more information, by getting more people involved we can eventually start hosting more events really just bringing the level of knowledge, education, and engagement up. So I love to have people reach out to us. You can reach me at news@headyvermont.com and find us online easily on Facebook or Twitter.

Matthew: Well Eli thanks so much for coming CannaInsider today. We really appreciate it.

Eli: Matt thank you very much. Like I said before I’ve been listening to the podcast for a long time and it’s really been a huge source of education for me and also inspired me to really get on the stick and get out there myself so thank you very much and I look forward to talking to you again in the future.

Matthew: Thanks Eli.

Eli: Alright cheers from Vermont.

Matthew: : If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher or whatever app you might be using to listen to the show. Every five star review helps us to bring the best guests to you. Learn more at www(dot)cannainsider(dot)com/itunes. What are the five major trends that will impact the cannabis industry in the next five years? Find out with your free report at www(dot)cannainsider(dot)com/trends. Have a suggestion for an awesome guest on www(dot)cannainsider(dot)com, simply send us an email at feedback(at)cannainsider(dot)com. We would love to hear from you.


Eli Harrington of Headyvermont.com gives an update on legalization in Vermont.

Key Takeaways:
[1:39] – Eli talks about how he got involved in the cannabis industry
[4:13] – Eli talks about social issues in our country
[6:20] – Eli discusses the food industry suing Vermont
[9:00] – Vermont’s legalization status
[11:48] – Eli talks about what conditions a medical marijuana user has to have
[13:47] – What is the caregiver relationship in Vermont
[18:19] – Eli talks about how the grow facilities work in Vermont
[20:15] – Possible recreational use for Vermont
[28:27] – Eli talks about Vermont’s hemp industry
[32:13] – Eli’s contact details

Important Update:
What are the five trends that will disrupt the cannabis market?
Find out with your free guide at: http://www.cannainsider.com/trends

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The Five Disruptive Trends Shaping The Cannabis Industry Now

Handling Cash and Outsourcing Cannabis Employees

stephen sullivan ms mary staffing

Read Full Transcript

Matthew: Hi, I’m Matthew Kind. Every Monday and Wednesday look for a fresh new episode where I’ll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Are you looking for a fulfilling and lucrative career in the cannabis industry? Visit www(dot)cannainsider(dot)com/careers. That’s www(dot)cannainsider(dot)com/careers. Now here’s your program.

If you’re looking to break in to the cannabis industry or you’re an employer struggling with finding the right people to help your business grow, you’re really going to enjoy today’s interview with Stephen Sullivan of Ms. Mary Staffing. Welcome to CannaInsider Stephen.

Stephen: Thanks for having me Matt.

Matthew: Stephen before we jump in can you tell us what Ms. Mary Staffing is and how you serve clients?

Stephen: Sure. So we are a full service HR agency. We do payroll processing, recruitment, HR consulting and we’re serving the cannabis industry.

Matthew: And what were you doing before Ms. Mary Staffing? How did you get into this business?

Stephen: Well I was working staffing and engineering in IT. Then I wanted to bring the typical staffing model to the cannabis industry.

Matthew: Okay. Now many people listening may not understand that the cannabis businesses that touch the plant have a very difficult time paying employees and doing a lot of the things that normal businesses take for granted. Can you tell us about the cash issues dispensaries face and how you help your clients overcome those cash issues?

Stephen: Yeah it’s definitely difficult to run a business without a bank account, especially when you’re talking about payroll. So what we’ve done is we’ve implemented a PEO model that co-employment model where we step in and we hire dispensaries or cultivation facilities’ employees and we become liable for employment taxes, worker’s compensation and the client just pays us and we are able to accept cash. We work with a number of transportation companies like Blue Line Protection Group, NPS International. We’ve worked with both of those companies.

Matthew: Now Stephen, the PEO concept might be a little bit foreign to a lot of people listening, but it has a tremendous value for certain industries. First what does that acronym PEO mean?

Stephen: It’s Professional Employer Organization.

Matthew: Okay and so how does a Professional Employer Organization partner with an employer and how does that help them?

Stephen: So we step in and we go into what’s called a co-employment agreement with the dispensaries to where their employees now become our employees and we handle benefit administration, unemployment claims, we basically become the business owner’s HR department.

Matthew: This is really valuable for people listening. The problem is here is that most dispensaries don’t have a bank account. All they have is cash. So when they enter into an agreement with a PEO company like Stephen’s then Stephen can then accept that cash and pay the employees of the dispensary in direct deposit and he can also go to the state and federal level and pay those taxes on the dispensary’s behalf. And also this avoids the cash penalty. Now what is the cash penalty Stephen?

Stephen: Well the cash penalty is a 10% fee that the IRS charges if you pay your employment taxes in cash.

Matthew: So what other ways do PEOs help businesses besides just payroll?

Stephen: Well we become the full HR department for the business owner. So we do benefit administration, recruitment, making sure that the business owner is compliant with employment law, we also have employee handbooks. Basically anything HR related we can handle for the business owner.

Matthew: What are the type of things that you’re doing in compliance from an HR level because there’s weird little things I know in the HR world like if you don’t have a poster up or if you’re not doing things right, there’s like all these little pitfalls that you don’t know about that can kind of jump up and slap you. Can you tell us about one or two of those?

Stephen: Well you mentioned a couple ones. So when we first start working with a client we do what we call a free audit where we go in and we make sure that the business owner has those posters and has their employee handbooks and everything in order. Employment laws are constantly changing so that’s something that business owners have to stay on top of.

Matthew: What kind of staffing, what kind of positions do you help with staffing? Typical or what are your most popular?

Stephen: Our most popular, as you can imagine, are bud tenders, retail managers, trimmers, growers and everything in between kind of your harvest or your assistant growers.

Matthew: Now I’m really interested in attrition because there’s a lot of people trying to get into the cannabis industry, but from your point of view when you come on or what you hear back from employers when they let someone go, what are the typical reasons that someone leaves the cannabis industry or the positions that you see that kind of fall into the biggest bucket so we can understand why people leave.

Stephen: Well if you’re talking about employees quitting, usually it’s to move to a different… I see a lot of transitions between businesses within the cannabis industry. People come in and they get skills at a particular dispensary and then they move to another one.

Matthew: Okay. Is there anything where it’s involuntary where they’re leaving and you see…

Stephen: I have seen some cases where they were let go. Some employees were caught stealing product or stealing cash. I have seen cases of that.

Matthew: Yes. Pretty common I hear with trimming is kind of rampant with theft because you’re sitting around and you have huge amounts of cannabis and it’s something that happens when you have that valuable of commodity. Now I know this is a strange question, but do employers require drug tests and if so, what kind of drug tests?

Stephen: We’ve actually never had a request from any of our clients to do drug tests. We have the capability, just have never had anybody ask to do so.

Matthew: Yeah, that would be a funny kind of Candid Camera if we said we want to see if you test positive for cannabis and just watch their reaction. Now can you give us some examples of intermediate or executive positions that you’re starting to see more employers ask for?

Stephen: Intermediate I would say kind of your assistant retail manager, even some managers I would place in that category. Executive positions more of your facility managers, of course partners within the business. Maybe a consultant partner as well.

Matthew: Okay, now let’s say you just took on a new client and they’re a pretty average client in that they don’t have everything just perfect yet. What are the mistakes you see that most dispensaries have in common or maybe not mistakes but things they can do better?

Stephen: Employee handbooks are definitely something that we notice a lot with our clients, with new clients, that they don’t have proper handbooks. A lot of times, as you mentioned earlier, the posters that they’re supposed to have up aren’t up which is why we offer a free audit to any of our new PEO clients.

Matthew: Now from when you started this business to where we are now and where do you think we’re going in the next couple of years, how have the staffing and employer related needs evolved and how are they evolving?

Stephen: Well it’s constantly, rapidly evolving especially with regulations that business owners have to stay on top of as well as employment laws that are constantly changing and then now the new healthcare, Affordable Healthcare Act which requires employers to stay on top of benefits for their employees which can be a challenge for small business owners.

Matthew: Yeah and there’s some kind of magic number where if you’re over a certain employee count, the Affordable Healthcare Act behaves one way and if you’re under it, it behaves another way. What’s that number? Do you know?

Stephen: Fifty, fifty employees.

Matthew: Okay so after 50 what happens?

Stephen: You are required to offer health benefits to your employees, full time and part time.

Matthew: So I imagine that there’s going to be a lot of employers that magically start changing behaviors at the 49 number, somewhere around there, unintended consequences. Okay. Now what about employees from non-cannabis industries transition to the cannabis industry? How is that done successfully because there’s a lot of people listening that are not in the cannabis industry but they want to be in it. So how can they make that transition?

Stephen: I would say look at your past experience and your skills and really figure out what you want to do in this industry. If you have good customer service or retail experience, you’re most likely going to be better going the retail, bud tender route. If you kind of have a green thumb, maybe cultivation. It really depends on what you enjoy doing.

Matthew: So I want to circle back to this PEO concept for people, and again it stands for Professional Employent Organization. Is that right?

Stephen: Yes, Professional Employer Organization.

Matthew: Because it’s kind of a new concept still but it’s very very powerful in that if you’re an employer, you just write one check to Ms. Mary Staffing or whoever your PEO is and they take care of everything and it’s a great way of outsourcing the stuff you’re not great at. And in terms of cost is there any kind of ballpark figure of what this costs a dispensary owner for your services?

Stephen: It depends on how many employees and how frequently payroll is. We base it off of that and then it’s a percentage of gross payroll.

Matthew: Okay got it. So if you do a monthly payroll, it’s cheaper than if you do it every couple weeks?

Stephen: Right yeah, if you do it compared to a weekly.

Matthew: Now is there any other tips or information that you think would be valuable for people trying to get into the cannabis industry to make sure they stand out in one way or another?

Stephen: Well there’s several resources out there now. If you don’t have knowledge of strains, definitely tap into those resources to learn about the actual product before you try to get into this industry. That’s something that I see a lot. People don’t know much about marijuana but they want to jump into this industry.

Matthew: Okay. Very cool. Now Stephen if people want to learn more about Ms. Mary Staffing, how can they do that and tell us what state you’re in as well.

Stephen: Well we’re in Colorado, Washington State and Oregon at the moment and we’re rolling things out in Nevada here within the next month or two.

Matthew: Stephen is there anything strange in Washington’s law where it would prevent an employer from working with a PEO?

Stephen: Yeah the way Washington State has their marijuana laws set up it makes it very difficult for PEOs to operate, even staffing agencies to operate. So we just work under what’s called a direct placement staffing model.

Matthew: What does that mean exactly, direct placement?

Stephen: We still help with the recruitment, but instead of paying payroll through us we just charge a percentage of the annual salary as say a one time direct placement fee. Kind of like paying a consultant.

Matthew: Got it, that makes sense. Now Stephen can you give out your website for listeners?

Stephen: Sure it is www.msmarystaffing.com.

Matthew: Okay great. Well Stephen thanks so much for being on CannaInsider today. We really appreciate it.

Stephen: Yeah thanks for having me.

Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher or whatever app you might be using to listen to the show. Every five star review helps us to bring the best guest to you. Learn more at www(dot)cannainsider(dot)com/itunes. What are the five major trends that will impact the cannabis industry in the next five years? Find out with your free report at www(dot)cannainsider(dot)com/trends. Have a suggestion for an awesome guest on CannaInsider, simply send us an email at feedback(at)cannainsider(dot)com. We would love to hear from you.


Stephen Sullivan of Ms Mary Staffing (a cannabis staffing company) explains why it is often a way better deal to outsource your staff to his company. He also talks about how your cannabis company can legally handle cash.

Key Takeaways:
[0:57] – What is Ms. Mary Staffing
[1:42] – Stephen talks about the cash issues dispensaries face
[2:39] – Stephen explains how a Prof. Employer Organization helps employers
[4:51] – Stephen talks about the staffing aspect of Ms. Mary Staffing
[5:28] – Why do people leave the cannabis industry
[6:55] – Stephen talks about intermediate and executive positions
[7:29] – What can dispensaries do better from an employer perspective
[9:15] – How can someone make the transition into the cannabis industry
[11:11] – Contact details for Ms. Mary Staffing

Learn More:
http://msmarystaffing.com/

Important Update:
What are the five trends that will disrupt the cannabis market in the next five year?Find out with your free guide at: http://www.cannainsider.com/trends

Join CannaInsider For FREE & Receive
The Five Disruptive Trends Shaping The Cannabis Industry Now

Innovations in Hemp Science with New West Genetics

Wendy Mosher & John McKay

Read Full Transcript

Matthew: Hi, I’m Matthew Kind. Every Monday look for a fresh new episode where I’ll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Are you an accredited investor looking to get access to the best cannabis investing opportunities? Join me at the next ArcView Group event. The ArcView Group is the premier angel investor network focused exclusively on the cannabis industry. There is simply no other place where you can find this quality and diversity of cannabis industry investment opportunities months or even years before the general public. If that’s not enough, you will also be networking with the top investors, entrepreneurs and thought leaders in the cannabis space. I have personally made many of my best connections and lifelong friendships at ArcView events. If you are an accredited investor and would like to join me as an ArcView member, please email me at feedback(at)cannainsider(dot)com to get started. Now here’s your program.

There’s so much news coverage of recreational and medicinal consumption of cannabis that we often forget about the massive impact the legalization of hemp will have on society as prohibition ends. I’ve invited Wendy Mosher and John McKay of New West Genetics to help us understand the promise and technology of hemp right now. Wendy, John welcome to CannaInsider.

Wendy: Thank you Matt.

John: Thank you Matt.

Matthew: To give listeners a sense of geography, can you tell us where you are in the world today?

Wendy: Sure we are in beautiful Fort Collins, Colorado.

Matthew: Great. Home of Colorado State University.

Wendy: That’s right.

Matthew: Okay. Wendy can you tell us a little bit about your and John’s background and how you came to get into the hemp genetics business?

Wendy: Sure. So John McKay is a professor at Colorado State University in Plant Genetics. John and I are married. We’ve been together for almost 20 years now. My background is a lot more varied than his. I have degrees in both art and in education. So in our early years together, like the first eight years, I would try to plug my ears and black out all of the science and the genetic speak. I found it a bit too boring. That was against my will. I somehow absorbed it, at least the big ideas. So I’m decent at interpreting between scientists and non scientists which leads me to New West Genetics.

So when Amendment 64 passed we got excited. We thought oh this could be a really cool opportunity to use the skills that both John and our partner Rich, Dr. Richard Fletcher, who was John’s former grad students. So he’s our third partner. We thought this is a great opportunity to use those skills that both of them had been developing over the 15 to 20 years of their study and hence New West was born.

Matthew: Great and what specifically does New West do for a layperson to help them understand?

Wendy: Sure, so New West Genetics combines modern genomics with traditional breeding to create industrial hemp varieties that are adapted to the U.S. So we kind of intersect three large industries; agriculture, bio tech and cannabis. So we’re not only breeding into the seed desirable market traits like specific cannabinoid profiles, but we’re also breeding in desirable ag traits. So formity, good germination, high yield, etc. so that we can make this a scalable crop that can compete with the likes of corn and soy.

Matthew: John in your mind do you see a distinction between hemp and cannabis? I know a lot of people get very emotional when it’s the same plant and then other people say they’re the same and you shouldn’t have these distinctions. As a scientist, where do you weigh in on this?

John: Yes, I think there’s a distinction. It’s a manmade distinction but I think it makes sense. So the 2014 U.S. Farm Bill for the first time defines hemp in the U.S. as cannabis sativa having less than 0.3% THC. As you know, THC is the abbreviation for tetrahydrocannabidiol and that’s the psychoactive substance in cannabis. So 0.3% is a very low number. If you go into some of the dispensaries in Colorado, some of the marijuana they’re selling is labeled as being near 30% THC, so 100 times more potent than hemp. So cannabis plants have a large number of current and potential uses, and I think having this legal category of hemp that has no drug value and no recreational value allows us to take advantage of hemp and develop hemp without concerns that people might have about Reefer Madness or whatever you want to call it.

Matthew: Yeah good point, and that still exists. I travel around the country, I see the Reefer Madness. What a successful propaganda campaign that was. It still to this day lingers.

John: Yeah it’s pretty impressive, and yeah when you leave… after being in Colorado just a little while, when you go somewhere else you kind of notice that the stigma still exists in other places. So back in the 1950s or earlier, I don’t think there really was much of a distinction between hemp and higher THC varieties. Cannabis was used for robes, paper, fabric and some of it was also high in cannabinoids and had been used sort of recreationally for thousands of years. And then in the 1960s the Israeli scientists isolated tetrahydrocannabidiol and demonstrated that it is the psychoactive component. It wasn’t until then that we could actually use science or chemistry to sort the two types.

Matthew: Wendy, what kind of license do you need to grow hemp?

Wendy: In Colorado hemp is governed by the Department of AG. It’s very simple. You must apply to them for a permit to grow. You provide them with the GPS locations of all your crops. You agree to submit to random testing of the THC levels by them and you provide them planting and harvest reports. It’s a fairly straightforward system that has been working very well.

Matthew: Would you say it’s a functional market? How would you describe the market to somebody that’s not familiar with it?

Wendy: This is the $100 million question. Hemp Industries Association, their most recent data is from 2014 and they estimated that about $620 million were sold of retail sales of hemp products. So what is unclear is whether they’re tracking imported CBD and there’s not a lot of data to track that market because it’s so emerging. So there’s three main markets. There’s hemp for cannabinoid extraction. There’s the grain market for consumption and fiber use and of those three I would say that fiber is in its greatest infancy in the U.S. There’s people were having some really innovative applications but they still need to be maybe commercializing and if they are commercializing, they need to be made a little more competitive. There is a market for CBD from hemp and other cannabinoids and it’s sort of growing in fits and starts.

One of our major pains in the U.S. is that we have to compete with foreign imports. I can tell you over 2015 I saw prices between $1,000 a pound and $25 a pound. So I would classify that market as slightly volatile. The grain market is a little more stable and better studied of course. Canada has been growing hemp for grain for a while. And the majority of the hemp grain products that we consume come from Canada. We import 90% of what they grow there. They’ve been steadily increasing their acreage to meet the demand and the majority of that is for human consumption. What’s interesting is that we’ve had here in Colorado surprising success in the grain for animal feed market. So there are new markets opening as we speak and as people become more and more aware of the benefits of hemp and as regulation looses up. So I just like to plug the Hemp Business Journal out of Canopy and Boulder. They’re actively working on tightening up the data for this market so keep an ongoing eye out for their reports.

Matthew: John looking at the imports from Canada, why is the seed sterilized? I’ve heard that it is but is that true and why is it?

John: That is true or that’s at least what the law requires. So we’ll go back again now to the 1960s. So as I mentioned in 1964 THC was discovered. Just before that there was something called the Single Convention on Narcotic Drugs that was implemented through the United Nations. It listed cannabis sativa as being an illegal narcotic but allowed in Article 28 for the production of hemp for industrial purposes and this is where you start seeing this industrial hemp term come. So you could still grow cannabis for fiber and seed, but then the U.S. rolled out Controlled Substances Act which lists as a Schedule I drug the species name Cannabis Sativa which is rather unusual. There’s not other species listed there, usually just extracted compounds such as opium and heroin.

So this caused basically hemp, THC free hemp plants to be in the same controlled category as heroin. Over time there rules were relaxed to allow imports of hemp fiber and grain for animal feed. And then up in 2001 the DEA published a news release saying that they had changed the rules, effective immediately, and that hemp seeds were not back as a Schedule I drug. This hemp industry’s association, which was spearheaded by the companies Nutiva and Dr. Brawner’s Soap sued the DEA and won and since that was settled in 2004 and since then they’ve been importing sterilized grain or extracted protein and oil and selling them largely as human foods in places like Whole Foods. So it’s kind of a complicated story but that’s why the hemp has to be sterilized to enter this country still.

Matthew: Interesting. John what’s it like on the university setting there at Colorado State University? Is the university helpful in your research and study? What’s the relationship like?

John: So I’m a professor in the College of Agriculture at Colorado State University. I have a 75% or 9 month appointment there. I’ll say the university is helpful. I work there so I’m not going to complain about them on the air. But part of the reason that we started New West Genetics is that the university is risk adverse and was slow to come into research on hemp even after the farm bill was passed. In addition universities mostly do the research part of R&D and not much on the development side. For example, my colleagues at the university here do very detailed studies of diesel engines and can actually visualize the combustion inside the engine, but they don’t make new engines and sell them.

So it’s a similar thing on the plant genetics side. Eventually, with regard to CSU, the lawyers did investigate all of the details, consult with various agencies and decided it was not a major risk for us to pursue research in industrial hemp. And all along it was clear that there were interesting research opportunities in hemp for many different types of researches at the university from the College of Ag all the way to Engineering and Textiles.

Matthew: John when you’re looking at the study of hemp at a high level what gets you most excited? Where do you see the biggest opportunities?

John: Well I’m a geneticist so genetics gets me most excite. This species has a lot of unique traits such as cannabinoids, but it also shares a lot of core processes with other plants. And so we can then investigate what’s similar and different about the genome and the genetics of this species. A few years ago our Canadian colleagues published a draft genome. This was largely of the Purple Kush strain of marijuana. That’s a great start and gives us a glimpse of what’s in there. That genome is highly fragmented and we still don’t know what genes are in that DNA sequence. So there’s a lot of work to be done in just characterizing the genome and how much that varies within the species. But then as we do with other crop species, once we have all of that we can take this genomic approach to predict what particular genes and/or which particular varieties or genotypes of the species might have traits that would make it most suited for a particular market segment be that grain or fiber, etc.

Matthew: Okay that makes sense. Wendy, what customers is New West serving now and what customers do you hope to serve in the future?

Wendy: So we’ve had great success, as I said before, in the animal feed market and the food market in general actually. There are some novel uses coming out over the next couple of years that I think are going to be surprising and exciting for consumers. I can’t talk about them yet as we’re under NDAs with our collaborators, but that’s going to be some fun development. And of course we’re also active in the cannabinoid extraction market. We have both raw flower and extracted cannabinoids. Remember those are sort of short term goals for us. Our main goal is to create seed cultivars for sale to the Ag community who would then sell their crop to those end use markets that I just referred to because it’s a nascent market, we need to set up and foster that value chain and have those end use processors ready for our farmers so they see the reason to grow.

So we’re initially greasing those wheels, but our ultimate product will be seed genetics and other intellectual property. We see our customers for that as either larger Ag companies or even more recently we’re seeing some larger cannabis companies that are interested in looking at intellectual property acquisitions. And by the way we are entering Colorado Department of Ag’s hemp certified seed trials this year, and if that goes well our first variety will be available for our foundation seed growers for the 2017 season.

Matthew: And what’s their primary motivation, Wendy? Are the cannabis growers looking or hemp growers looking for better yields, less pests? When they’re coming to you they’re saying I need to solve a problem or I just want to have a better yield or is it both?

Wendy: So you mean farmers? Is that what you’re asking?

Matthew: Yes.

Wendy: So farmers are looking for an additional crop option actually in Colorado. So we’re working with more conventional farmers in both conventional crops and organic crops, but they’re looking for another Ag option. The prices and the commodities market is out of their control and a lot of times those prices are not enough to sustain unless you’re a gigantic farm. So it would be very helpful for them to have another option to turn to when wheat prices are down or corn is down.

Matthew: Yeah a little more speculative though in that there’s no futures market to hedge hemp currently.

Wendy: Sure.

Matthew: But maybe that’s an opportunity at the same then.

Wendy: Yeah someone not so risk adverse, yeah.

Matthew: John do you see any way that plants respond differently from the inside, being grown inside versus outside and what are some of those differences?

John: In terms of the plants themselves, there would be some differences. There’s a lot less light inside no matter how hard you try. If you buy the most expensive, high intensity lights, you might approach about 40% of the radiation of sunlight. So the plants will be overall probably branchier and less dense in the form that they grow in. But really there’s not going to be giant differences depending on at least between those two categories of inside and outside because there will be variation depending on how you grow them outside and how you grow them inside.

I think the biggest difference in terms of production is just the sustainability of it. So hemp can be grown outside. It can be bred to be locally adapted to the local conditions so you eliminate the need to have greenhouses, heating, cooling, lights and all of these other imports that make the carbon footprint and economics of indoor growing very costly. In addition, because people invest so much in indoor production, the one big advantage of indoor production is that you can do year-round production. And so once you make that investment, people do back to back production resulting in a resident population of insects and diseases that are only a problem in the greenhouse setting. So these are organisms that can’t survive outside in Colorado. For indoor production you end up, you have this venin environment year-round where you start building up some of these pests and diseases that you hear about in marijuana production and then people end up trying to save their crops by using dangerous pesticides in some cases. I think that’s not a sustainable approach and I think that almost all goes away when you move to an outdoor production system.

Matthew: John can cover what crop uniformity is and why it’s important in your mind and why perhaps maybe farmers or others should be considering it?

John: Sure, yeah so for a given plot of a given crop species, say you’re growing corn or wheat or soy beans on your farm, uniformity is almost all advantageous. So if all of the plants in a plot are at the same height and at the same level of maturity, then you can go in and mechanically harvest that. You’ve set your cutting bar, are the plants are the same height and you can efficiently harvest all of that grain or whatever you’re trying and in the end that’s an economic efficiency that translates into economic efficiency for the consumer.

So at the scale of the farmer, say with multiple plots, then uniformity and the ability or the availability of seed that produces a uniform crop allows a farmer to predict how much yield they’re going to get from a given acre. So they have so many acres to produce on every given year. They’re small businesses with a single shot at production a year. So farmers spend a great deal of time considering what to plant. So hemp if they know there’s a variety that produces X pounds per acre and they know the cost of the inputs and the value of that crop, then they can make the best economic decisions for their given farm for that year. If you have a non-uniform crop, you can’t make those predictions.

Matthew: Okay.

John: Just to be thorough, you want uniformity at the local scale in a given year but you also want to maintain crop diversity. So over year after year you need to be rotating different crops in there and similarly it’s necessary to have a diversity of genotypes of a given crop species. So for corn for example, each growing region has different locally adapted cultivars. In addition, as acreage increases, the insects and pathogens will adapt to whatever resistance mechanisms the plants have. And so it’s necessary to have a diversity of genotypes out there that slows down the evolution of resistance.

Matthew: John I know that some of the combines get kind of gunked up with the hemp resin oil. Is that a problem you hear about often and what do farmers do with that?

John: I think at the combine level the resin isn’t a problem. The fiber can be more of a problem for these European fiber types that are three or four meters tall in some cases. Hemp is famous for its long, strong fibers. Those are not particularly friendly to pieces of harvesting equipment. As far as the resin if you cut up some floral tissue off of hemp, you’ll get resin on the scissors for example, but if you think about the whole plant; leaves, stem, seeds and the floral tissue, it’s only a few percent cannabinoids when you take it as a whole. And so in Canada and Europe they are using combines and other mechanical harvesting approaches for hemp. Some of those are engineering designs around the morphatype or the shape of the plants, the genotypes that they have. And then the solution we’re working on is to actually breed the plant so that it’s in a form that is most optimal for existing harvesting equipment.

Matthew: John you mentioned the difference between hemp and cannabis is a manmade distinctions. However, there’s people that still say well I want CBD oil from hemp or I want CBD oil from a cannabis flower. Why do you think there’s some of that persistent conflict? Is it because there’s more refinement needed when it comes from hemp or to get like a clear oil? What is that exactly? Why is there some tension between those two communities at times?

John: That’s an excellent questions maybe for a philosopher. Some people don’t believe in evolution or that manmade greenhouse gas emissions accelerate global warming. I was looking at… I saw a recent article in the Washington Post that about 30% of Americans think Barak Obama is Muslim. So it’s hard to know why people say things that usually doesn’t necessarily have anything to do with facts. There might be some motivation to distinguish the two markets because of competition, but the fact is cannabidiol is a molecule with a defined structure. So if it has that molecular structure, it’s cannabidiol. So all the same cannabinoids exist in hemp and marijuana and it’s just the amount of THC that distinguishes them. The forms of the molecules are identical in both forms of the species.

Matthew: Okay. And John what are some of the most innovative uses you see with hemp right now? I know I’ve heard about I think it’s Mercedes or some German auto maker using hemp resin to make fibers or some sort of composite for a door panel or something like that. Do you hear about things like that and what’s exciting you the most right now?

John: Yeah so I think there are a lot of innovative uses. Hemp has been used for a long time traditionally for rope, textiles, paper. It’s unique in that it has these very long, strong fibers that are resistant to rotting and organisms digesting it. So it was used for rope and sails because it lasted longer than any of the other natural fibers that people were using. There’s also been, and I think things will continue in the more high tech end of textiles. Colorado has a sort of high tech outdoor clothing industry that I think would be very amenable to incorporating the benefits of hemp textiles. There’s also cosmetics. Hemp oils have been used in cosmetics. I mentioned Dr. Brawner’s earlier. They’ve been sort of activists and advocates for hemp production but they use it in their soap products.

There’s a large existing market of food and feed of the grain for animals and humans. If you go into Costco you can find Nutiva Organic hemp heart type products, the crushed grain or the oil or protein and then as you mentioned moving forward there’s been more high tech stuff like composite materials where the fibers are molded with polymers. There’s interests for airplane wings and other types of uses to replace carbon fibers with hemp. There’s some industry in Europe in building materials. It’s added to concrete to make a light concrete or to use in insulation. So I think there’s a lot of emerging markets. Some of these are going to require a lot of research and development before the market develops. Some are really just about developing the consumer market with existing technology.

Wendy mentioned the cannabinoids. So obviously THC is the psychoactive one. There’s a lot of interest in non THC cannabinoids and it’s really wide open at this point. My first question is how many cannabinoids are there. We don’t actually really know that. Some of them are quite rare and haven’t been characterized at the molecular level. The next question is how do they effect humans. How do they interact with human physiology? We know some of the binding sites for THC and a little bit about binding sites for CBD, but we don’t really know how any of the rest of them interact with human physiology.

Matthew: Wendy, how do you see the intellectual property aspect of your hemp research evolving over the next few years? I should say the intellectual property around hemp in general. Do you see it changing or morphing or evolving in any ways?

Wendy: I see it becoming intellectual property will play the same role that I plays in any other crop. It’s going to bring clarity to who created what, who owns what. There won’t be any more arguments about who created Girl Scout Cookies, the likes of that, which in turn brings some stability to markets. There’s numerous opportunities, not only on the breeding side which we’re on, but in engineering in general. We just talked about all those applications and products and just plant discovery in general. I think Hemp Industry says that there’s a potential 25,000 uses for hemp.

So I think the cool thing is that we have so much technology to improve at right now. It’s not like those other big crops in the latter half of the last century where they had to improve slowly as technology advanced along with them. We have incredible technology available to us now and because of prohibition we couldn’t use it on cannabis. So over the next few years I predict we’re going to see an explosion of discovery in intellectual property activity. I think that’s exciting.

Matthew: I hear that hemp is being used quite effectively for insulation in housing and building too. That’s really a promising development I think.

Wendy: Yeah, construction in general. Places like Hawaii are very vested in creating their own construction materials on site because it’s so expensive to get them there. So they have a very active hemp program and they’re looking at those applications. Things like Hempcrete and also replacing drywall with some kind of hemp composites. So yeah.

Matthew: Now Wendy you recently pitched at ArcView. Can you tell us about that experience, what it was like?

Wendy: Sure. In general ArcView was fun. It was a very fun conference. There was a lot of energy. It was a little bit younger of a crowd than other pitch events we had participated in. So throughout 2015, we fundraise in a variety of ways, not just with ArcView. We worked with Rockies’ Ventures Club with our advisors at the Innosphere and we worked a deal through Rocky Mountain Hemp Association which is now National Hemp Association. Fund raising in general takes time. You have to kiss a lot of frogs as people say, and nobody was awful. Just in some cases, in many cases it wasn’t the right match. So we chose carefully. People are kind of aligned with our culture. Every single one of those avenues was unique and interesting and certainly a tremendous learning experience. If anybody out there is thinking about fundraising, I would highly recommend utilizing your local accelerator whether it’s the Innosphere. If you’re in Denver, Rockies’ Venture Club. They were just invaluable in getting us pitch ready and I give them a lot of credit for our fundraising success.

Matthew: Are you open to new investors Wendy?

Wendy: We are not actively fundraising right now.

Matthew: Okay, and in closing, how can listeners learn more about New West Wendy and follow what you’re doing?

Wendy: Please go to our website www.newwestgenetics.com. That’s www.newwestgenetics.com and hopefully if this airs before we’ll see some listeners at the Northern Colorado Hemp Expo in Loveland, Colorado on April 1st and 2nd.

Matthew: Great, well Wendy and John thanks so much for being on CannaInsider. We really appreciate it.

Wendy: Thank you for having us Matt. That was fun.

John: Yeah, nice to talk to you.

Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher or whatever app you might be using to listen to the show. Every five star review helps us to bring the best guests to you. Learn more at www(dot)cannainsider(dot)com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at www(dot)cannainsider(dot)com/trends. Have a suggestion for an awesome guest on www(dot)cannainsider(dot)com, simply send us an email at feedback(at)cannainsider(dot)com. We would love to hear from you.

Some quick disclosures and disclaimers, me your host works with the ArcView Group and promotional consideration may or may not be given to CannaInsider for the ads placed in the show. Also please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Lastly the host or guests on CannaInsider may or may not invest in the companies or entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions.


Wendy Mosher and John McKay PhD are the founders of New West Genetics.
New West is leading some interesting innovation in the hemp arena.
http://www.newwestgenetics.com

Important Update:
What are the five trends that will disrupt the cannabis market in the next five year?
Find out with your free guide at: http://www.cannainsider.com/trends

Key Takeaways:
[1:51] – Wendy and John’s background
[3:01] – What is New West Genetics
[3:50] – John talks about his opinion on cannabis and hemp plant distinction
[6:13] – Wendy talks about the licensing to grow hemp
[8:47] – John talks about the seed sterilization
[11:24] – John discusses the support he gets from the University of Colorado
[13:05] – Biggest hemp opportunities
[14:37] – Who is New West’s customer base
[17:09] – John talks about the differences between inside and outside grown hemp
[19:48] – John discusses crop uniformity
[24:25] – Differences in CBD oil from hemp and from cannabis flower
[25:55] – Innovative uses for hemp
[29:15] – Wendy talks about intellectual property’s future evolvement
[32:19] – Contact details for New West Genetics

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The Five Disruptive Trends Shaping The Cannabis Industry Now
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