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cannabis compliance

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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.

One aspect of the cannabis that is growing leaps and bounds is compliance and for good reason. Cannabis is perhaps the most regulated industry in North America and the cost of fines and penalties can be large, but the cost of having to stop business temporarily can be much greater. To help us understand the hot topics around cannabis compliance I’ve invited Steve Owens of Adherence Compliance on the show today. Steve, welcome to CannaInsider.

Steve: Thank you Matt.

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

Steve: I’m located in Denver, Colorado today.

Matthew: Great. And how did you get into the cannabis industry? What’s your background?

Steve: I have a few friends that are in the industry and my background is a Bachelor of Science in Finance and International MBA. I’ve got about 15 years of experience in management consulting and enterprise software delivery. And then most of my experience is in telecommunications with companies like Verizon, AT&T and satellite providers as well implementing large scale enterprise software systems. So I had a couple friends come to me in industry and they said how would you take care of compliance and they basically put the manuals in front of me, and then I evaluated basically the regulations, came up with a codification model if you will and then went through and pulled out all the regulations and came up with a prioritized checklist of everything to go through. And in the end we came up with some, about 300 questions per auto type. So we have medical dispensaries, medical cultivation, medical MIPs, and then also the retail side as well with the stores, cultivation centers and MIPs.

Matthew: Yeah it’s a funny thing, you know, looking at business in terms of offense and defense, you know, everybody is so focused on the offense piece of sales and rightly so. I mean we need sales. It’s the oxygen and blood of a business, but defense is so important too, and it can just as easily derail you and derail your revenue. So it’s something I feel like it’s not as much emphasis on but you know if you integrate it into your business, you know, it’s a healthy thing to do and it’s something that a lot of your competitors aren’t doing. So you know you could do that, it could be a value proposition for your business.

Steve: Yeah. I definitely agree with that.

Matthew: Steve, give us an overview. What is Adherence Compliance?

Steve: We are a software and data company that’s focused in the regulatory and financial compliance in the cannabis industry. We offer software as a service and we also do specialize consulting services and develop specialized consulting programs for our partners. Our clients are license owners, banking partners, certified resellers, insurance providers, investors, things of that nature. And then we have a couple of different programs with our compliance app. Our Score Compliance App as we call it. We have a reseller program where we will sell a compliance business in a box if you will, and we’ll ship an iPad for a designated state be it Oregon, Washington, Colorado, what have you, and then they can basically start doing compliance audits in that state.

So it’s a way for a resellers once they’re certified and they go through our training process or for consultative businesses that are already out in the industry that want to add an additional line of revenue to their practice. We also do custom programs. So we’ve developed compliance programs for our banking partners going through AML, Banking Secrecy Act and what have you there with FinCEN requirements. And then also with insurance providers we work with them as well and develop custom programs to do stuff like on-site underwriting for cannabis businesses. And they utilize our software and our customized checklist to basically go through and do that.

And then finally compliance data. We’ve got a couple of exciting partnerships coming up in the beginning of January which we’ll be doing a couple of press releases on, but this is where we feel the focus of our company is is with the data because at the end of the day, after 326 or 328 now, audits we’ve provided in Colorado, we’ve got a lot of statistical information, more than 120,000 data points on compliance data for Colorado. So statistically we know where these businesses fail, and we know where they need to focus their time, efforts and revenue to get within compliance. So overall that’s what we do, and then we’re expanding into various states, all states that serve medical and retail licenses.

Matthew: Yeah there’s a big data component to this and we’re going to touch upon that later. But before we jump into that and the statistics you have, can you tell us a little bit about the white paper that you wrote addressed to the Colorado Marijuana Enforcement Division? What are some bullet points from that that we should know about?

Steve: Yeah the Marijuana Enforcement Division is part of the Department of Revenue and they’re the licensing and program administration authority for the State of Colorado. And they have a stated goal of 100% auditing these businesses within the next three years. There’s approximately 2,800 or more licenses in Colorado, but only about 35% or so have actually had licensed premise inspections by MED officers. So you’re looking at 65% or some 1,700 licenses that have never been visited by the state regulatory authority, and I think it’s because the process is very manual, very paper driven, and so essentially to go ahead and audit these businesses effectively, they need to automate the process, standardize it and then come up with a automated solution if you will on how to basically go through and audit these businesses effectively, gather the information they need and then to use the information to make the compliance call turn Colorado better.

Matthew: So Steve what are the top compliance infractions you see regularly? The things you see day in and day out?

Steve: That’s a great question Matt. I think the most frequent one we have now is labeling packing and product safety. So what we see in the industry is you have large scale MIP providers, and these guys produce edibles, concentrates, what have you, but they will ship product to a store or dispensary. And when they ship that product it is the store’s responsibility or the dispensary’s responsibility to make sure that that packaging and labeling is compliant. So they have their required statements as needed, like the ethicacy statement, the pregnancy statement. You know driving while impaired statement, so there’s required statements that we need to have on these products here in Colorado for medical and the retail sense.

So essentially these MIP providers aren’t following the compliance regulations. Either the font size is too small. It’s 1/32 vs. 1/16. They’re missing the required statements on there. They don’t have the unlawful for the use outside of Colorado statement. So they’ll ship these products to these stores and dispensaries and they do it via transport manifest. Once that store or dispensary accepts that, transport manifest is intake in the METRIC system, and collects it on their side, then they assume that liability and they assume that risk. So there is not a client that we have right now in a store or a dispensary that passes labeling and packing and product safety. Every single client we have right now gets an infraction because they carry some of the largest MIP providers out there that are missing these things. And we’re trying to do our best to educate these large MIP providers and let them know that you know they’re transferring liability and they’re transferring risk to these other licensees, and then we want to make sure that public health and safety is hugely important in the industry and that’s a foundation of labeling, packaging and product safety.

Matthew: Wow that seems pretty basic for 100% failure rate, just having the wrong font size on a container, a MIP. If you’re hearing MIP for the first time, that’s a Marijuana Infused Product. So what happens if someone gets caught with one of these infractions? Is there a; during an audit is there a financial penalty or what happens?

Steve: There can be. There can be. One of the things with the Marijuana Enforcement Division, they will come in and you may have an MED officer that will let you know it’s not compliant that you need to correct it or you could have an MED officer that would actually write up a violation and then they would basically provide you a notice of a violation. You would have to do a response to the violation and then you could go down the show cause hearing process that’s currently backlogged. We can talk about that in a little bit, but that’s the process that you would go down and then you would be looking at a fine and a penalty and perhaps you know a meeting or a hearing with the attorney general or the assistant attorney general for the State of Colorado.

So that is some of the issues that you run in when you transfer these, and then if they find multiple infractions, and then they add labeling and packaging to it as well, I mean at the end of the day it’s public health and safety. So I mean you have a citation level, a violation level and then public health and safety. And public health and safety is what we try to avoid here in Colorado to make sure that you know the health and safety of the public is indeed in place.

Matthew: In terms of cultivators, do you see something that cultivators typically do, not moving away from the MIPs companies, is there a lot of ways that the cultivators are typically out of the compliance that you see regularly?

Steve: For cultivation yes. A lot of them on the rec side we see holes or missing areas in their standard operating procedures. They won’t have the required information on the detailed application log. Every time they do an application of chemicals or pesticides to the plant itself they have to fill out this detailed log and it’s very specific on the components of the information that it requires. If you look at it, it needs to cover Department of Agriculture, EPA and State of Colorado requirements, and you have to make sure all of that stuffs there, all the way down to the applicator number, you know, the EPA registered applicator number and things like that.

So we see that as a huge infraction and then also tagging plants in METRIC is another issue that we see a lot as well. Here in Colorado once a plant is bigger than 2” X 2” in the pot or the bucket that it’s growing in and once it’s taller than 8 inches tall it’s technically out of the clone stage and then into the veg stage. And then you have to affix the RF ID tag to the plant itself and then mandate it’s state tracking. And we see a lot of this happening where you’ll go into a room that is early veg and the plants aren’t tagged yet just because they’re falling behind in processes and things like that, but if the MED were to visit they would put all of that plant matter on administrative hold and then more than likely you would have to destroy it. So we see that across the board at cultivation centers here that if anything runs afoul or the testing results aren’t correct or if you failed contaminant testing which is occurring more and more often here with the product recalls in Colorado, then they basically do administrative hold on plant and then you have to go through the whole destruction process, video it and do the entire process.

Matthew: For listeners that are in other states that are wondering, you know, how much similarity there is between let’s say Washington or Oregon or now Nevada is coming online, I mean, is there a certain amount of overlap in best practices between the states in general?

Steve: No that’s a great question. What we’ve seen and we’ve probably codified about six states now, each state is a silo. Even the vocabulary is different when you go from state to state to state. I mean seed to sale is something that is common, but we see about 20% that is applicable here in Colorado that would be applicable in California, that would be applicable in Washington, that would be applicable in Oregon. It’s also the different regulatory agencies that you have. Here in Colorado we have the Marijuana Enforcement Division which is part of the Department of Revenue. Up in Oregon we have the Liquor and Control Commission which manages the cannabis industry. Washington is 502I, and then also you have the Liquor Control Board in Arizona that runs it. And then it’s the Department of Health and Public Safety I believe in Nevada that runs the Marijuana Enforcement Division if you will or the regulatory authority.

So not only is it despaired or disjointed in each state as a silo if you will when it comes to compliance regulations, they’re run by different groups within the state as well. So that’s something that we see that you know unfortunately we can’t have a common standard set of regulations because each state is evolving at their own pace. And some states like Maryland come in to Colorado to review what we’re doing here to get a better idea of what’s worked and what hasn’t worked, and those people are doing a great job. Oregon is doing a wonderful job with their inspections upfront before the stores open and things like that and also business readiness checklists. I think they’ve really learned on some of the mistakes that have been made previously in a couple of the other states, but yeah unfortunately it’s very disjointed and then each state is a silo.

Matthew: When you go in and do an audit for the first time for a MIPs company or a cultivator or some cannabis company where do the scores kind of; what’s the Bell Curve of scores? What’s the average score? Where do most people fail and what’s the reaction to how they’re graded by you?

Steve: You know that’s a great question. We’ve recently went through, as I said before, we’ve done about 328 audits here in Colorado. On those we’ve done 78 audits for medical dispensaries, 106 for medical cultivation, 18 medical producers which are MIPs, 44 retail stores, 69 retail cultivation and then 11 retail producers or MIPs. Of that there’s been over 4,000 infractions. We know the average infraction per audit is right around 14 to 15 infractions per audit and then the average score is right around 84% when we look at that. And then on top of that each audit section we have we’ve broken it up in to logical sections across all states.

So if you look at it you have licensing, the license premise. You’ve got specific questions related to the audit type itself. So if it’s a retail producer, you’re going to have very specific questions to that audit type. Transport to warehousing, marijuana testing, business records, labeling and packaging, product safety, enforcement and discipline. So we also look at previous enforcement actions and discipline history because if you have been in trouble before in a license capacity, you’re more likely to get another audit or inspection or have more frequent audits or inspection because of your previous history. So that actually counts against you in our format that we have.

We also look at local procedural federal agencies which high level IRS things like 280 structuring, anti-money laundering questions and things like that. We also look at detailed inventory, OSHA requirements, Department of Agriculture. It’s a pretty holistic process. I mean going through and doing about say 280 compliance points for a medical dispensary. It gives you a really good snapshot of what the compliance culture is and then for an MED officer, regulatory authority, when they walk in, you know if everything is upfront and the person or the business is; has their facility binder with all the required information in and they have their standard operating procedures and everything is right there ready for review for the investigators, it makes the compliance and the audit process so much easier. But if you are not organized and you’re not ready when they come in, then they roll up their sleeves. They call their counterparts at the regulatory authority and then they do a more thorough and deeper audit.

So we’ve gotten a lot of information. We know the top labeling and packaging, product safety. I talked about that. There’s missing statements. So that would be the number one thing there. We know with licensing it’s undocumented financial ownership interest. So essentially some of the businesses have loans or they’ll have a percentage ownership with somebody that’s outside of the state of Colorado and at this point right now in Colorado that’s technically not legal. So it would not be a compliant thing. Same thing with business records, missing required business records, on and offsite. There’s different requirements there as well. So we really have a lot of information and a lot of data on this and statistically we can tell these businesses where they’re going to fail and then for us banking partners, insurance partners and also investors now you want to know what you’re buying. You want to know what you’re buying for the license itself, and then we also have our score which replicates across to a value.

So if you score in the 90s or higher, you have good degraded compliance. If you score in the 80s, we couldn’t refer you for a bank account. We couldn’t refer you to one of our insurance partners. If you score in the 70s, that’s medium to aggressive closure risk. So we kind of have a classification model too for investors that will value a business based on their score because at the end of the day a license is a privilege to sell, cultivate or manufacture marijuana, and if you’re not a compliant business, the value of your business significantly lowered.

Matthew: You mentioned you statistically know where a business is going to fail just because you have so many data points now for all these different cannabis companies. Can you give that information to us in an easy to digest format so we can understand where most businesses do fail or where they’re failing or what the risks are?

Steve: One of them, the biggest area and most businesses I would say about 80% have issues. But if you look at inventory, and we’ll just take Colorado as an example, you’ve got your physical inventory which is your on-premise inventory. You’ve got your inventory in a point of sale system and let’s just use Biotrack as the example. And then you also have METRIC which is on the company, it’s fairing well but it’s the state mandated inventory tracking system for chain of custody here in Colorado, and then you’ve got your accounting system which could be QuickBooks or Xero, but those are four disparate systems that I need to keep reconciled every day. Every single day I have to make sure that physical matches point of sale, point of sale uploads correctly into METRIC and then the METRIC information obviously I want to make sure I have that in my accounting records so I can pay my taxes, excise tax, etc.

So if you take Colorado, that’s a challenge for any business to manage four despaired systems. So one thing we see here in Colorado is inventory is probably the most challenging thing. You know the inventory system METRIC can go negative. So a package could go down to 0g and then enter into negative grams if you don’t use first in/first out accounting. So things like that can happen where the inventory gets. And as you can imagine as time progresses you’re moving further and further away from compliance, acceptable compliance limits. So you’re deviating further and further and further away from being compliant.

And then for your inventory it’s your revenue, revenues, deposits, deposits, taxes, everything is all wrapped up in your inventory. So at the end of the day the inventory is the most critical thing and then it’s chain of custody in Colorado. So if you’re missing more than 3g for this, you have to notify METRIC and do an adjustment and etc. So it’s a very detailed process that you have to go through, but that’s one of the areas we see where businesses need to really invest in a full time inventory manager and make sure that they’re inventory is spotless because of the regulatory implications of it.

The other thing too, transport and warehousing. We see common issues in basically the transporting of products. Sometimes we’ll see a car that doesn’t have Colorado plates. Well it’s got to have Colorado plates because it has to be registered with the Colorado DMV. So they will be doing transports that have an out of state license plate, that’s technically non-compliant. So we know that transport and manifesting we have to make sure that things are appropriate there. For marijuana testing, do you have all the required batch testing for that as well. So we can kind of go through it and we have some areas with signage and advertising. These businesses do really well. They don’t really have a lot of problems there. Local procedural, we don’t see many issues there, however you will see a city and county piggy backing on a fine that the state might give. So the state might give a $10,000 fine for some occurrence or some infraction and then the city/county can go out and duplicate that as well.

So for these businesses out there that are operating you have to be proactive, you have to have a proactive mindset and have a company like us come in and really evaluate everything that you’re doing and then provide you a list that you can use to correct those infractions immediately. And then it also shows when you get auditing accomplished by a third party entity such as us, you know, that’s not owned by a dispensary. We’re not involved in any licenses or anything like that. We’re an independent third party, but once you bring us in and we start doing these things for you it also speaks volumes that you’re acting within good faith of your license which is a requirement of a license itself. So that’s some of the things that we see overall.

Matthew: Would you say there is a effective enforcement by the MED right now?

Steve: That’s a great question. I would say they have significant challenges. If they want to; if the MED wants to audit the remaining 60%+ of these businesses that are out there, I mean they’re in disparate locations. They’re spread out geographically all throughout the state. There’s 2,800 licenses and growing daily. There’s new areas like Parachute, Colorado that are just opening up and things like that. I don’t see them catching up unless they use some type of automated solution where they can go out there and statistically evaluate everything on a common level.

So until they can; with the process they have right now they would have to probably triple their staff and I don’t know if they have the budget for that, and then on top of that you have to train the staff, and then the regulations are growing every six months. So we’ve got about two hundred pages or so each for medical and rec. So it’s not something that’s easy where you can send out a criminal investigator to one of these marijuana businesses and they know what they’re looking for right. They need some type of whole training and process and everything to go through.

So I see the challenges they have ahead of them is huge but you know it’s not something they can’t overcome if they look at this programmatically and understand at the end they really just want to collect the evidentiary data, store it and then go through and do these audits as fast as they can. And then on top of the regulatory component, so here in Colorado we have three levels of audits. And you have a level one that will incur on application and licensing and it also occurs when the folks at the MED go through and do a remote check of your inventory for METRIC and they look for certain flags, you know, for any adjustments, repeated adjustments, destruction of plants, burning of tags. You know they look for common things like that, and that’s a level one audit that they do actually off-site.

A level two audit is when the MED officer, criminal investigator would show up and then do a license compliant audit at your license premise, and then level three is where they bring in the Department of Revenue. And then the Department of Revenue will go through your books as well to make sure that you’re properly doing everything as per Colorado requirements. So there’s different levels of audits that the MED has to do, and then they’re doing I think a good job on the level one audits and working with METRIC and getting statistics because there’s a lot of information that METRIC has. We just don’t hear a lot about it. But working with them to get the level one audits done, those throw up the red flags. They do the level twos and the level threes, but as you can tell, I mean 60% or more haven’t been visited by licensed investigators So it’s challenging for them unless they address it and go after it from a programmatic fashion.

Matthew: When I met with you recently you were carrying around a tablet that helps you to create your compliance reports for your clients. Can you tell us about that, what you’re doing with the tablet and then what your clients receive in terms of where they’re in compliance and out of compliance?

Steve: Sure. So we use iPads and that houses our SCORE app. Our SCORE app is; it stands for Statistical Compliance Risk Evaluator, but essentially our SCORE app, depending on the audit type. So if I go in and I show up at a cultivation or a retail cultivation center I will have a retail cultivation audit. Then when I go through and do them I would answer all the questions inside the iPad. It takes notes and photos as well. What we’ve really developed, and we’ve been in business since June of 2014 when we first launched, but we really developed the first statistical risk assessment of a cannabis license from a regulatory so the first risk score for the industry if you will, and that’s basically what these scores are.

So when we go through and answer the questions, you know, it’s obviously yes or no for the questions that we’re going through. If it is an infraction, if we find a plant without an RF ID tag, something like that, we can take a photo of it and we can also enter in notes. So if you have a specific infractions from a MIP provider, we can put the name of that MIP provider into the note and that comes through on the report. And then the report that we deliver, it’s basically set up in the categories that I talked about a little bit earlier with licensing, license premise, labeling and packaging, but we’ve got those 13 different subsections and then all of the infractions would fall within there.

We prioritize and rank those and then make sure that when you’re starting on the top one, you’re obviously going after the one that’s the most prioritized which probably would be public health and safety. So anything that interfaces with public health and safety is against licensing would have obviously a really heavy weight to it vs. seeing the size of a sign. The size of the sign wasn’t 12 X 12, it was 8 X 11, that’s technically not compliant, but you’re probably not going to get a fine or a notice of a violation for that.

So we go through and assess that, we provide the detailed compliance reports and then again they can utilize us to come in there and help them to improve their compliance or the list itself, the detailed compliance report that we provide. It gives them a list of everything they need to focus on, and then a lot of our clients will have us come in three to six months later again and do another audit or if there’s new updates, the regulations which we’ve just recently had, we’ll go through our clients and do another audit as well.

Matthew: It’s not all bad new with clients and scary audits. Do you have any examples of clients that were somewhat out of compliance and then turned it around and made it a strength for their business?

Steve: Yes. We’ve had a client essentially they were going to lose their license because of over 24 months of METRIC violations in their software system and the inventory tracking system. We were able to intervene and then put an action plan in place and review that with the MED and then the MED gave us a stay, so we were able to; oh god, it took about ten days of work, but we were able to get so much progress on the correction of inventory and reconciliation of inventory which here in Colorado is required on a daily basis, that we were able to put a plan in action in place that would help this client come out of where they were at. And then in this case, in a lot of cases for these businesses out there, a shutdown is almost the death penalty because they don’t; they don’t have a lot of cash to basically continue on and do operations when they’re closed. So they’ve got to keep the doors open, they’ve got to keep product moving and stay compliant as possible.

So we’ve saved a couple of licenses out there definitely in this industry which is great. And then for a lot of our clients a lowest score we’ve ever seen is a 41.6. This would have been immediately shut down if it was visited by MED regulator, but fortunately we were called in first and we were able to get them on a path to compliance, and they are much better for it. They’re operating really well. They score in the high 80s on that which is a considerable improvement. They almost doubled their score at least. So we’re out there making I think a difference out there and we’re trying to legitimize the industry as best we can and then we also have baking partners.

These are banking providers that will accept a cannabis business, and they enter in the proper SIC code and all that information, but so what we can do is if one of these businesses scores in the 90 or if you have a business or licenses that score in the 90s, we’re able to refer you to one of our banking partners to set you up with a bank account so you can start doing everything legitimately because you know the banking industry and everything else that’s going on now, it’s moving forward at a snail’s pace. There’s small banks, really really small banks that are dipping their toe into it right now.

The large banks are staying away because of the federal mandates that are out there. But for the small, smart banks they’re putting in compliance programs where they do their due diligence upfront. Because obviously if a cannabis business is doing money laundering or something like that, then the bank could be held liable. The bank could face criminal action. So there’re very very intelligent banks that are stepping into the market to kind of develop these compliance programs and perhaps set up five to ten initial accounts and then they enter suspicious activity reports as needed you know on these things as far as their banking requirements. We’re able to kind of make a difference there and try to legitimizing the industry as best we can.

Matthew: Now we talked about the big data component a little bit. Is there anything else in that area that interests you or think people would want to hear about in terms of understanding how big data and these cannabis statistics you have connect?

Steve: Sure. So if we look at an audit event that we have and let’s just say we’re looking at a dispensary and we know the dispensary had seven infractions and they scored an 87.6, we go through and look at the various categories and we see that it had one infraction in licensing, one infraction in license premise, but it had two in labeling and packaging and one in business requirements. We’re able to kind of go through and for a business that essentially has any issues for business records required it’s very specific on the documentation that you need to have onsite for six months and then three years offsite for businesses like that.

So what we can do, across when we look at our data we know that 17% of the infractions come from a licensed premise. We know that about 11 to 12 percent of the infractions come from inventory and inventory issues. We know now that with labeling and packaging pretty much they’re not failing the entire section of label and packaging, but they are getting infractions and they are getting public health and safety infractions which are a little bit more weighted than the other questions that we have as per MED guidelines. So we definitely have information like that, and then the average scores as well. Going into a business and scoring it in the 70s, we can statistically say that yes, if the MED officer came in, you’re probably looking at least $40,000 to $50,000 in fines. And right now when we go through that as well as when we go through these questions we know that from METRIC reconciliation, if you don’t reconcile METRIC at the close of business every day here in Colorado, you have, you’re subject up to $10,000 a day per occurrence that you don’t do it.

So if you didn’t update METRIC on one license for say five business days and the MED came in and audited you and found out that information, technically they could give you a fine of up to $50,000. Now would you pay that, not necessarily, you might be able to go in front of the attorney general, plea down to get it to a certain level and then they’ll put you on like a six to twelve month, probably twelve month probationary period where you’re not able to get in trouble. You can’t have any more infractions, you know, and things like that. But if you have an open dumpster in the back of your facility that doesn’t have the lock on it and there’s marijuana fan leaf or marijuana product in the dumpster, that’s a public health and safety issue where they can shut your facility down, and then that will cause you grievance there, and possibly you will have a show cause hearing. You will have to go through that entire process. That’s going to be more impactful, you know, shutting your operations down for a significant amount of time.

So we’re able to go through and if any of these infractions, if they have specific infractions that we know about we know that those are do not do right. And then if you’re on probation here in Colorado and you have more infractions you can get what they call the death penalty where you’re ban from the industry up to eight years. So yes, so statistically knowing what we know and knowing where the biggest infractions are for each specific section that we do track, you know, we’re able to help these businesses statistically improve.

Matthew: Steve in closing I know Adherence Compliance is growing rapidly, are you seeking any outside investors at all?

Steve: We are. We’re basically going through the process right now with investors, also equity partners and investment banks. So yeah there is significant interest. We’re doing, as I said, the preliminary rounds. So if anyone is interested in learning more, they can always reach out to us and we’d be glad to provide a review of; a detailed review of kind of what we do, our investor deck and things like that.

Matthew: And how can listeners reach you? How do they find out more about Adherence Compliance and then if they want to reach out to you as an investor, how can they do that?

Steve: Sure. You can open up Bing or Google and type in Marijuana Compliance or Marijuana Audit and I believe we show up first in the top one or two in the search rankings. Our website is and if they want to reach us 720-616-3900 is our business line.

Matthew: Steve, thanks so much for coming on CannaInsider today we really appreciate it.

Steve: Thank 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 CannaInsider, 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.

Steve Owens is the founder Adherence Compliance. He has audited hundreds of cannabis companies and not one has had a perfect score. Hear detailed information about all the ways your cannabis business can be out of compliance and what you can do now to bring your business back into compliance and limit your exposure to harsh penalties or even closure of your business.

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:

Key Takeaways:
[1:49] – Steve’s background and how he got into the cannabis industry
[3:32] – What is Adherence Compliance
[5:53] – Steve talks about the white paper he wrote
[7:01] – Steve discusses the top compliance infractions he sees the most
[10:30] – Steve talks about cultivation infractions
[12:34] – Are there common best practices between states
[14:41] – Steve talks about reactions and scores to compliance audits
[18:52] – Steve gives some data points on where most businesses are failing
[22:31] – Is there effective enforcement by the MED
[25:39] – Steve talks about the compliance reports a client receives after an audit
[31:24] – Steve talks about big data and cannabis
[35:22] – Contact details for Adherence Compliance

Are There Sommeliers for Cannabis? Interview with Max Montrose

Max Montrose

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Just as a sommelier helps wine enthusiasts understand the most optimal way to experience wine, a master of interpening has studied the art and science of cannabis to helps their clients make the best choices for their needs.

Max Montrose, founder of the Trichome Institute walks us through how to take your knowledge to the next level.

Key Takeaways:
[3:43] – What is the Trichome Institute
[4:31] – The ROI of educated budtenders
[8:56] – Max talks about customer engagement
[11:00] – Max discusses the textbook used by the Trichome Institute
[14:33] – Max talks about light bulb moments for students in the classroom
[17:14] – Adding oils to vape pens
[22:26] – Max talks about interpening
[27:53] – What is nutrient lock
[30:50] – Max talks about the second interpening class
[36:46] – Misconceptions in the cannabis industry
[40:25] – Max discusses live resin
[49:33] – Max says all Indica and Sativa edibles are fake
[54:30] – Different strains for different individuals
[59:17] – Max’s advice to people looking to get in the industry


Click Here to Read Full Transcript

Get your coupon code for 10% off all Trichome Institute Online courses and certifications. Interpening tools, courses, responsible vendor and more

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 atwww(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.

The cannabis education space is red hot with many students wanting or needing to develop their insight and understanding of cannabis in order to keep pace with the industry. To help further our education I’ve invited Max Montrose of the Trichome Institute back to the show. To give us a brief on not only cannabis education but some interesting trends that are emerging right now. Max welcome back to CannaInsider.

Max: Matt thank you so much for having me back.

Matthew: Max you’ve been a guest in the past but for new listeners can you remind us where you are in the world?

Max: Sure. I am born and raised in Denver, Colorado and I’m still here because it’s...

Matthew: Yeah.

Max: Yeah why would you be anywhere else I love it here.

Matthew: You’re like a; that’s a rarity. You’re like a Sasquatch or some endangered creature. There’s not many left.

Max: Well it’s true and when I tell people I’m from Denver the next thing they ask me is where are you really from? I have to defend myself and explain the streets I was born on and where I grew up actually in the city of Denver yeah so. It’s cool.

Matthew: They say Denver is becoming the next Austin would you agree with that or do you like to draw no parallels to your home city?

Max: Well I tell you what a few years ago one of the sayings that was definitely true was you could get anywhere in the city of Denver in ten minutes or less and Denver is a huge city. That is no longer true. The fact that we have I think they said something like 4,000 people are moving to Colorado a month right now. It is just; it’s absurd and so I’m now dealing with LA style traffic on my regular Denver streets and things have just definitely changed and construction is going up left and right everywhere. The economy is booming. People are happy. You can be gay and walk down the street holding your partners’ hands and no one cares the same way you can smoke a joint walking down the street. Everyone just lets everyone be who they want to be in Denver so it’s really cool.

Matthew: That’s great. I think a suggestion for you might be a jetpack to get where you want to go from A to B would you consider that?

Max: Well not only would I consider that but I’ll tell you that the guys who are doing the jetpacks are in Boulder and they’re predicting that you can jetpack from Denver to Boulder in within six or seven years; have that technology available so that would be totally cool.

Matthew: That’s the next thing I’m going to do immediately after this interview is learn more about jetpacks but switching gears let’s talk about Trichome Institute. Can you tell us what that is again for people that aren’t familiar with it?

Max: Sure. The Trichome Institute is a cannabis education company that is designed to help other cannabis education companies. So what we do is we build a variety of different types of education and curriculum for the public, industry members, governments, and even physicians within hospitals.

Matthew: Okay. Now I’ve had the experience of going to a dispensary and working with very knowledgeable bud tenders and then going to other dispensaries and working with some pretty new or unskilled bud tenders. In your opinion how can someone that has gone through cannabis education impact the customer’s experience in the dispensary? How they feel, how they walk away? What are your thoughts there?

Max: I mean to answer that it’s really night and day to get the difference of the experience of working with a bud tender who really understands cannabis from not just a personal perspective but a more in-depth scientific and medical perspective as well so that they can actually help their customers. And so what we try to do is we try to inform bud tenders that sometimes the best product to give a customer isn’t your favorite product. What you need to do is evaluate who your customer is and what their needs are and what they are trying to avoid. And so what we do is we really breakdown cannabis. Not in a way that’s too complicated to understand, but we definitely teach bud tenders how to evaluate people’s tolerance and needs and then equip them with the education and the vocabulary to explain why it is that these variety types, terpenes, and cannabinoids will affect them in these certain ways. What to avoid and what to look for.

Matthew: Yeah and there’s a huge variable I mean there’s many variables but just one is thinking about how people metabolize cannabis differently. Some people are fast metabolizers, some are slow metabolizers. Five milligrams could put them on the floor and it’s just so I mean that’s why you start low and go slow, but what other kind of things are you thinking about if you’re behind the retail counter that you want to make sure you give an optimal experience to a customer in a dispensary?

Max: Sure and so what I heard you just say was words five milligrams and start slow and what I think you’re referring to was edibles.

Matthew: Yeah.

Max: And the variable difference and so I tell people who I teach that edibles and smoked flower are too different drugs.

Matthew: Yes.

Max: The reason why I say that is because it’s true. When you metabolize Delta-9 THC because it’s not water soluble and your body’s goal is to make it water soluble so that you can excrete it out, your liver metabolizes it by changing the molecular structure from Delta-9 to 11-Hydroxy THC which is a different, slightly different but different molecular structure that affects you in a different way and it can affect you 2 to 6 times stronger and the effects can last 2 to 6 times longer than smoked flower and what’s really interesting is there is some people in the world whose bodies cannot actually receive 11-Hydroxy for whatever reason.

It’s not psychoactive to them the way it is to other people, and so it is actually true that some people cannot feel edibles and that all of our systems are different; our GI tracts and so yes we’re going to metabolize them differently and we’re going to get different experiences from that, but explaining to bud tenders why it is that you’re going to experience something different allows them to explain to the customers why you need to go slow. It’s actually possible that you could serve a customer an edible and they won’t feel the effects for up to four hours, not two hours and so it’s really important to teach people the specific type of information.

Matthew: Yes. It is amazing how much difference there is from person to person where it can take hours and then they start to take more because they say it’s not working. I’ve seen that trap over and over and then when it does hit they’ve strapped themselves to a rocket ship so that’s definitely something to pay attention too so back to the dispensary. Dispensary owners and operators certainly see the point of sale; see the sales figures coming in every day and they’re wondering what can I do to increase engagement. We talked a little bit about how bud tenders can create an optimal experience but do you feel like there’s a disconnect from just a business owner that’s looking at their point of sales figures and thinking they’re doing good or doing bad. I mean it’s not really measuring engagement in any way or how customers walk away and how they feel.

Max: Right. So I think what you have to look at is the culture of the specific dispensary and so in Colorado we have a thousand dispensaries. We still have more cannabis stores than public schools, Starbucks, and McDonald’s combined. And so there are tons of different types of cultures in the cannabis industry. There are a range; from gangster to hippy people engage in cannabis, and so there are the unbelievable dispensaries that are just like your caring mother who just wants to know you and help you and see that you’re doing well and know your name and develop a relationship with you as a patient.

Those dispensaries exist and unfortunately there’s also dispensaries who see this as nothing but a moneymaking opportunity and don’t necessarily care who you are or if you’re enjoying your products or not. They’re just concerned how much they’re selling to you. And so you can’t really generalize the situation. You just have to understand that there are different types of situations out there but between the two types of cultures of those types of dispensaries that I kind of outlined both the staff members still need more education. They still need to understand more about the product and understand how to evaluate a customer; either a retail customer or a patient.

You have to explain to bud tenders that people who come in to get some relief from there PTSD you really have to start to stay away from Sativas at first, but because people are so different it’s possible that Sativa might be the thing that really helps this PTSD patient which is why it’s so crucial to have the experimentation phase which is something we go over in our textbook and within our curriculum.

Matthew: Let’s talk about your textbook a little bit. What’s the name of it?

Max: So it’s the National Cannabis Industry Textbook and what the Trichome Institute has done is instead of running around trying as hard as possible to fill our classes in the past year and a half, we’ve dedicated all of our time in curriculum development. And so where the Trichome Institute differs from most other cannabis schools is the difference between education and curriculum. And so education is information given to you and whether you absorb that information or not is really depending on are you a good listener, are you a good note taker. For me I’m not a good listener and I’m also not the best note taker and so.

Matthew: What good are you Max?

Max: I know right and so instead of lecturing at you and telling you cannabis information, we’ve taken a textbook and insured that there’s no misinformation by having it reviewed by some of the authorities of cannabis in law, science, and medicine as well as my personal expertise over a decade of working with this plant and then we work with curriculum developers to create workbooks for students that they work in with the teacher while they’re in class and get to take home with them and keep so that they maintain the information. And so we are really trying to bring academia to the cannabis industry.

The reason why I started the Trichome Institute is because of my unbelievable frustration with the lack of cannabis education that exists, and the education that does exist is just unbelievable the amount of misinformation that’s in there and how many cannabis schools that exist that have never verified the information that they’re certifying you in. I would almost go so far to say that there is a hefty amount of cannabis education that currently exists in the country that I would consider criminal based on the idea that it is really expensive and what you’re paying for you could easily Google, and that there are people who are teaching bud tender certifications who have never bud tended before.

There are people who are getting into the cannabis education realm because they can see its potential, but they’ve never used cannabis or grown it or sold it. And so it is something that does take an element of experience across the board. And so what we do is we really put the experience of what it means to be a bud tender in a patient, in a caregiver, in a grower and all of these complicated cannabis products with an element of science and medicine and law and review.

Matthew: That’s great. Now you mentioned it; before we started the interview you mentioned you were lecturing yesterday and giving a class. When you’re in a classroom setting or going over the textbook with students I’m sure there’s a lot of light bulb moments, but is there any specific moment you see over and over again where things kind of seem to come together and make sense for students?

Max: Totally. We see the light bulb go off on a variety of topics. When I explain to bud tenders that edibles and smoked flower are two different drugs it’s like the aha moment. Oh that’s why it feels so different and that’s why it works that way, and then you explain to bud tenders things about dabbing concentrates. I hate to break it to you bud tenders, but the majority of types of dabbing that exist is really dangerous. The product that you’re smoking is dangerous and the way in which you’re making the product is dangerous and the way you’re using the product is dangerous but does it have to be? No.

There are actually safe ways to make concentrates, concentrates that are clean and not dirty, and there are safer ways to dab then other methods out there. And when I explain to bud tenders that what wax is is it’s literally wax from the plant cutin which is the waxy outer layer of plants that protect them from UV lighting, and it’s just a mixture of cannabinoids and actual wax. And if you were to winterize and separate the wax what you would get is literally wax you could make a candle out of. So if you’re someone who dabs wax multiple times a day just imagine dripping hot wet candle wax onto your bowl and just smoking that every day you’re smoking.

You’re getting wax into your lungs and it’s not okay and the thing is is that there’s no science about this. There’s no research about this and people in legislation don’t understand what dabbing is. They don’t even know what’s going on. And so there’s a lot of aha moments where we can explain to people the pros and the cons. We don’t just say everything is terrible because it’s not, I mean sometimes I take a dab when I need to go to sleep at two o’clock in the morning, but how am I dabbing and what am I dabbing and why do you need to know that and why do you need to relate that to your customers to keep people safe. So yeah there’s a variety of aha moments.

Matthew: There’s kind of; there’s a broad spectrum of opinion on the vape pens and what is being used to cut the cannabis oil into a viscus medium that can be used I mean vape pens have a lot of advantages. They are discrete, they’re portable, people like the effects, but there’s a lot of difference of opinion on what should be in this oil when it’s vaped. How do you weigh in here? What do you think about adding certain oils I mean propylene glycol or coconut oil or some other natural oil?

Max: So you definitely don’t want to smoke coconut oil and polyethylene glycol is just confusing because some people say it’s in what do you call that antifreeze or windshield wiper fluid or whatever but at the low levels that it’s in the cannabis it’s acceptable to smoke but the FDA hasn’t really confirmed that. At the end of the day vape pens are very convenient and you can pretty much use them anywhere and you can get a desired intoxication from them. Unfortunately you can’t get high or stoned from them because of the lack of the terpenes that are working synergistically with the cannabinoids. That would be the ‘entourage effect’ which is what makes cannabis variety types unique from each other in the first place.

And so if you take away the uniqueness of the cannabis and just strip it down to its basic psychoactive molecule THC oil which is what these vape pens are you’re intoxicated but you’re not stoned and you’re not high. And so what you’re seeing is a lot of these vape pen technology companies understanding that where the difference in the highs come from is the terpenes and because terpenes are an oil why the hell don’t you just mix the oil in with the THC oil to make it more viscous. You don’t have to have coconut oil. You don’t have to have polyethylene glycol. You can use terpenes and the terpenes will help the high. And so I think what you’ll see in the future is an evolution of vape pens becoming more strain specific and healthier to use.

Matthew: That’s a great idea for a way to evolve the vap pen. I vote yes. Great thought there Max.

Max: Yeah well here let me just give a bunch of startup companies some multimillion dollar ideas. Mersen helps THC Delta-9 specifically cross the blood brain barrier. It’s a lubricant and so if you’re vape pen is 20% THC and there is 0 Mersen in there, maybe you’re only getting 13% of the available THC and then by the way your THC is 50% of what you paid for because the other 50% of the vape pen is polyethylene glycol which literally costs a penny. And so adding Mersen and maybe a little bit of D-Limonene would product an effect that would gauge a stronger high that would be more uplifting and elevating instead of this boring run of the mill THC high and that’s why Marinol is boring and why patients who say that they take yes prescribed medical marijuana. I know that sounds crazy because it’s illegal but for over twenty years we have had Dronabinol (Marinol) on the market, medical marijuana, pharmaceutically prescribed by the FDA. It’s boring because it’s just THC. It’s not; it doesn’t help patients alleviate symptoms the way that raw flower does.

Matthew: So do you use a vape pen ever just even out of convenience or it’s a vanilla to you, you can’t get your desired outcome?

Max: Well you know most vape pens that I try to use they just really scratch my throat and people who know me well; especially my business partner he just looks at me cockeyed. He’s like how the hell do you smoke spliffs full of tobacco and raw flower and you don’t cough once and you hit one little vape pen and you just can’t stop coughing, and I look at him and I’m like dude I don’t know. It’s weird. They really scratch the back of my throat and dry it out and I think it’s just these weird chemicals that are in it and so I really don’t like them.

But I have found a little I guess what you’d call a hole in the wall producer of new vape pen technologies that is utilizing terpenes in a proper way; not in an improper way and using organic flower that has had no pesticides on it because you know remember when you run these plants through these intense CO2 systems that it’s also concentrating whatever pesticides and fungicides you sprayed on the plant and you are ingesting that too, and that when they’re concentrated at those levels they typically become higher than what’s legally acceptable when you just spray them on the plant. You’re allowed to spray chemicals on the plant at this ratio of PPM but there’s been no oversight of what’s to happen when you collect all the plants in the room and condense it into grams of oil and those toxins are also combined and so there’s still a lot of work to be done.

Matthew: Well let’s talk a little bit about Interpening. That’s a word that you’ve coined. Can you describe what that means?

Max: Yeah so Interpening means to interpret terpenes along with the biological bud structure based on original geography. And so through cannabis genomics where we are using DNA to research where cannabis comes from around the world through its massive hybridization in the black market over decades. What I do is I teach people to forget the strain name because they’re either made up, mixed matched, or whatever you’re reading online that informs you about what the strain is is not going to be what you’re going to find in the dispensary due to cannabis morphology and the differences between where you grow it.

There’s a million different reasons why strain names don’t work, and if you pick up a copy of The Hemp Connoisseur a THC magazine which goes nationwide soon. Currently in Colorado in every dispensary. I’ve got a four page spread in the middle of it detailing the history of strain names and solving the problem, and so a wine expert is a sommelier and a beer expert is a cicerone. A cheese expert is a monger and a coffee expert is a cupper and you have tobaccoers and chocolatiers. You have all of this expertise; experts in these fields but there’s no such thing as a cannabis expert and what does being a cannabis expert mean?

Something very fun that I get to deal with on a daily basis is the fact that everyone in Colorado is a cannabis expert. It’s true. They really are; all are. But what we’ve done is we’ve taken the approach of what being a sommelier is and how you evaluate and assess wine by assessing it visually and then you assess the odor and then you assess the taste. And what sommeliers can do is believe it or not these people can take one sip of wine from tens of thousands of bottles you could put their way and they can tell you what zip code on planet Earth it grew and what the weather pattern was that year and probably history about the family who grew that specific grape without even looking at a label.

And what we do is we have classes where we teach people how to interpret terpenes. The things that you can smell that you know gauge a certain effect based on the pharmacology of the specific terpene ratios that are strong. In conjunction with breaking down the structure of the cola to see where it comes from because the landrace genetics are very distinct from each other. And so we look at the most distinct features and then we try to slowly bring them together to see the pattern of hybridization somewhere in the middle.

And so within my classes we have live cannabis samples full of botrytis, powdery mildew, jar rots, spider mites, fungus gnats, unflushed bud, chemical burn, nutrient lock. I mean if there is something wrong with cannabis that could be sold to you on the black market or in a dispensary, we put it in your hands and let you experience what that is while we’re teaching it to you. And then once we’re done with all the gross stuff we move onto the more delectable cannabis that’s sold and we breakdown how to assess the difference between cannabis variety types.

And so what this means is if someone puts information about Golden Goat online and what that strain is, and they’re putting this information online from California, and then you’re accessing Golden Goat in Colorado, it might not be the same plant and chances are it’s not the same, and if it is the same, the phenotypes will change drastically due to the different environments that they’re grown in because environment does affect the plants. It’s evolution. Cannabis evolves like light speed depending on where you put it.

So this is something that people are really starting to appreciate and dispensaries are starting to line up and send their bud tenders to this course which is actually something that surprised me. I thought the public would be more into this than bud tenders, but I think dispensary owners are really seeing the value of what happens when their staff takes a course that really just teaches them so much more about cannabis flower and how to explain it and break that down to the customers. It becomes impressive. When you walk into these dispensaries where every bud tender knows what terpenes and cannabinoids are and they can tell you what they do and how you should utilize them, that’s the difference between the night and day dispensary of people who know what they’re doing and people who don’t.

Matthew: Great point. It’s the trusted advisor role. Do they know something more than you that can help you and that’s a huge advantage and that does translate for the business owner as well. People come back, they have a positive experience, and everybody wins.

Max: Correct.

Matthew: Now there’s one thing you mentioned nutrient lock which is something that I haven’t heard before could you just talk a little bit about what that means?

Max: Yeah so within nutrient lock. So Matt dude have you ever walked into a hydroponic store?

Matthew: You mean while all the supplies are available and lights and things like that?

Max: Yeah.

Matthew: Yeah.

Max: Okay. I mean how many hundreds of different types of chemicals did you see for sale?

Matthew: There was a ton.

Max: It’s just unbelievable.

Matthew: Yeah.

Max: And what these people’s job is is to sell you as much of that stuff as they can. And so when you go into a hydroponic store the guy behind the counter’s job is to make sure that you walk out with six or seven different bottles of nutrients. What’s interesting is a lot of people will look at the N-P-K value, the nitrogen, potassium, and phosphorus on the front of the bottle but they don’t really turn the bottle around and look at the percentage of a inert ingredients and what you will find is a lot of these places sell bottles of water; 99% water for a $100 and you just don’t catch it if you don’t read the fine print.

And then another thing is is they’ll tell you to combine all of these nutrient lines together and they’ll sell you some $700 pack of an eight bottle something with a PPM chart and all this stuff, but a lot of people who grow either in their basements and unfortunately in the professional industry don’t really take the time to understand the chemistry and what you have to understand is is these are different properties. Different salts and different molecules that are interacting with each other, and I’m not kidding when I say I’ve actually seen people mix all of their nutrients together outside of water and then pour water into this toxic soup that they’ve just poured all of these different chemicals into to and then they feed their plants this.

And so what happens is is that the salts interact with each other in a negative way and they lock themselves together and when the plant tries to drink this it locks within the plant and it kind of blocks the plants ability to absorb good nutrients and water and all of these other things, and then of course if you don’t flush these salts out of the plants system, it’s just unbelievably salty and that’s the kind of cannabis when you smoke it it hurts and you cough really hard. And so nutrient lock just comes down to the order of operations in which you place your nutrients in the water at the proper temperature pH and part per million before you feed it to your plants.

Matthew: We talked a little bit about your entry level interpreting class and I notice I said it correctly this time Max, not interpening sorry.

Max: Hey thanks man.

Matthew: So what about the second level interpreting class?

Max: Yeah so like cicerones and like sommeliers there are multiple levels of achievement. And so level I and level II education is basically the same. Within level II education you get to work with me a little bit more in-depth and we go over the different molds and properties together more than we would in just a general information of what interpreting is which is kind of level I. And then what we do is we pass out a test and it’s ten jars of cannabis flower and you have to get eight out of ten correct before we’ll consider you a level II interprener and for a lot of people this is really hard and the reason why it’s hard is because interpening just by itself is not easy.

What you’re looking for are very, very tiny differences. You’re looking for not bud that is just absolutely covered in powdery mildew but a flare of PM on a side of the bud or the smell specifically of Botrytis and then being able to pick out the difference between and Indica, Indica hybrid, 50/50 hybrid, Sativa hybrid and a Sativa. And so there’s five quality jars of those variety types and there are five negative qualities and you have to pick them out in the correct order during the test and like I said eight out of ten passes.

People who have been growing for years and years do really well on this test and it’s because they’ve been looking for Botrytis and powdery mildew and bugs and understand the strains and the variety types more than some bud tenders who have been in the industry for three or four years and really know quite a bit about cannabis but haven’t experienced necessarily all of the negative qualities that we teach. And so there is a level III Interpening and we are definitely considering what a level IV would be like and that would basically be an extreme cannabis expert similar to how a level III master sommelier is looked at.

And so these different levels of achievement just basically inform the world that you understand more about cannabis flower than most people do because I haven’t seen any cannabis school out of more than fifty that I’ve researched that provide this level of education or even bring live flower into class and let their students interact with it in the way we do, and we have microscopes out and flashlights and it’s really cool. When you go to our blog and our website at you can see some videos of what class looks like and how this all pans out, but within Colorado there’s the Colorado THC Cup. And the THC Cup I’ll just say that I prefer over other Cups because it’s very legitimate in terms of how they go about evaluating the cannabis and it’s very even in terms of many other things.

But within the THC Cup starting this year the connoisseur judges all must be level II certified interpeners or higher. And so there are the People’s Choice Awards where the public can judge the buds. The public knows quite a bit especially here in Denver, but there are really connoisseur’s in the industry who stand out. And so there are connoisseur judges whose judging has a little bit more weight to it when it comes down to the final answer. And so now you need to be trained and certified in dissecting cannabis flower before you’re allowed to say you know what dissecting cannabis flower is and looks like to make cannabis judging more legitimate.

Matthew: Interesting. So by attending one of your level I or level II classes then do they satisfy the requirements for this type of judge; to be a judge in this type of thing like the THC Cup?

Max: So everyone passed level II. So not everyone gets eight out of ten jars correct on the test but if you don’t, you’re still a Level I Certified Interpener, but because you didn’t prove that you can see and smell the difference between cannabis variety types and detect faulty structures to buds you are not at the level to be a connoisseur judge. We do have people, many people who have passed level II and some people who get ten out of ten jars correct, and those are usually growers who have grown for twenty years but still tell us at the end of the interpening education that we have blown their minds with that much more information we’ve given them than they’ve ever known before and that some of them look at cannabis in a little bit of a new way even though it’s been a part of their life for so long.

So yeah the level II; people who pass the level II test they are eligible. And what we do is we offer people to the cannabis, sorry to the THC Cup who are typically people who pass ten out of ten. But yeah I’m really excited that Interpening is taking off and people are taking cannabis education and judging more seriously and bringing more elements of science and understanding to it.

Matthew: There are a lot of cannabis enthusiast business owners and inspiring entrepreneurs and investors listening right now and by and large they’re much better versed in cannabis ideas than the average person on the street, but are there any stubborn misconceptions among this group that still persists you think that surprises you?

Max: Oh absolutely all day long and that’s why I made the fly comment that everyone is a cannabis expert and it’s just; it’s unbelievable how many people you’ll run into who really believe they know what they’re talking about, and people who have attended two or three cannabis conferences and really feel like they truly get it but have never spent time in a grow room actually growing and understanding how complicated the growing procedure is, and how complicated the curing procedure is, and how complicated the legal aspect is, and how complicated informing patients is with all the cannabis misinformation that’s out there. I still run into people who are even OGs and what I mean by that is some of the original gangsters who’ve been doing this stuff way before it was legal, who have been growing for twenty years and because they figured out a method that worked real well for them twenty years ago they’ve just kept to it and have refused to be open-minded about new information and new sciences and new practices and new technologies that are really helping the industry flourish.

And so anybody who says that they are an expert and that they know everything that there is to know about cannabis, and that they’re the best grower, and they produce the best product those are the people who I don’t trust upfront. I trust growers who are honest about the fact that they’ve grown for a while and there is never a point in the world of cannabis where you can stop learning something new because it’s true and that’s why I love cannabis and why I love educating people about cannabis is because I don’t stop learning new things, and I dedicate two hours a week to studying something new about cannabis and I have; you should see my list of things to research and catch up on. It is pages long.

Matthew: Yeah.

Max: There’s so much more that I need to know. And so people need to really be open-minded and also open-minded to the fact that people in the black market generally have a better understanding of cannabis then some people who have graduated with honors from some Horticulture school. Studied how to grow tomatoes but have never grown cannabis.

Matthew: Right.

Max: And so what you need to do is understand that the kid in dreadlocks with the Bob Marley t-shirt might know way more about growing and curing cannabis flower then the prestigious academic kid who just graduated from some Horticulture school. And so there need to be a blend of those two. Those two people need to hang out with each other and learn from each other and teach other so that we can move cannabis forward because there is still so many in’s and out’s and particular things that people need to know but can only know from experience alone. And so if you’re new to the cannabis industry it is very important that you partner up with someone who has experience or you access quality cannabis education and information from people who have that experience so that they can share it with you so that you can really understand it fully.

Matthew: Now let’s switch gears and talk about live resin. What is live resin and why is it captivating the cannabis community right now?

Max: So the theory of live resin is captivating the cannabis community because the theory has been proven true and there is a lot of product out there that’s called live resin and maybe at one point in time was live resin. But when I go shopping and I ask to see their live resin almost eight out of ten times what I’m looking at I wouldn’t consider to be supreme quality live resin. And so there are lots of terms to try to describe something similar; live sap or holy water typically in an extraction process because terpenes are such fragile volatile compounds they get obliterated almost instantly during the extraction process which is why you don’t really have vape pens that are strain specific.

And so what live resin is it is the science of understanding how to preserve your terpenes within your concentrate. And so wax is nothing but cutin, paraffin, and cannabinoids, and a slab of shatter is literally nothing but cannabinoids and what live resin is is it is the cannabinoids plus all of the specific terpenes captured from the cannabis flower that was extracted with the cannabinoids. It’s not a reintroduction of chemical terpenes like one or two or three of them in with the cannabinoids it’s not that. It’s a whole extraction process and the whole process is done freezing and that’s because terpenes are the most sensitive to heat.

And so the term live resin means that the resin from the Trichome glands is alive. And so a plant starts to decay into necrosis within four hours of being separated from the root system. And so under a four hour period, most likely under a one hour period the plants, the buds, and the sugar trim are all packed into freezers. It’s not flash frozen because it’s not liquid nitrogen. It’s not cryogenically frozen because it’s not a $100,000 cryogenic freezer. It’s freshly frozen. This plant was cut and it was put in the freezer in a fresh state and those Trichomes are frozen and then the extraction process using Butane is done completely freezing and when it’s decarboxylated, not decarboxylated, when it’s purged at the end from the Butane the purging process is done at an extremely low temperature to preserve the terpenes and is also why it’s not decarboxylated.

And so what you get at the end result when you smell a healthy splat of live resin is this sneaky smile creeps across my face with excitement because I feel like I’m smelling the bud right off the bud. The fresh plant as it’s wet and fresh and sticky which is a much different smell than when it’s cured. And so when I smell this live resin it’s kind of like this holy shit experience and you smoke it and it’s just unbelievable. It’s so, so good because it is the whole cannabis flower with all of the entourage effect happening simultaneously in a concentrated extract form. It’s really incredible. Unfortunately as I said when you walk in the dispensaries and they say here’s my live resin, when I look at it and I say I wouldn’t buy that what I mean is the majority of live resin that I see is nucleated. And so most people don’t understand nucleation but it’s not hard to understand I guess once I explain it. And so what nucleation is is it’s a chemical process where moisture strives to bond to a cooler surface in an attempt to condense as a liquid. This is what we call condensation. It’s the same chemical process.

And so if you keep your live resin in the fridge to preserve it which you should and then you take it out and put it on a counter to share with a customer, moisture in the air will naturally attach itself to the surface and when this occurs the water molecules will attach to the residual butane molecules and create a fractured bond within the oil itself kind of holding all the terpenes in and will fracture it into a crystalline state and this is actually the science behind “auto buttering”. And so a lot of dispensaries sell butter and what butter is is it’s basically shatter or resin that has been fractured from either particulates that have destabilized the oils causing the bond to kind of erase. And when I say the bond imagine a cup of water where you fill it up to the point where it should be spilling over and you can obviously tell that the water is above the lip but why does the water not spill over the lip? And it’s because the water molecules are holding on to each other because they want to be bonded.

Matthew: Surface tension right?

Max: Surface tension correct and so when you extract these terpenes which are an oil with the cannabinoids it creates this surface tension in the same way. And what that does is it actually keeps the terpenes plugged into the extract. It maintains it. When water hits the butane and starts to break up that oil bond and it starts to crystalline and that crystal pattern starts to spread throughout the product the auto buttering phase what’s happening is that bond becomes extremely porous and when that happens all of the terpenes are now escaping out of the porous crystal structure rendering the product more cannabinoid than terpene totally defeating the whole purpose of live resin.

And so if you walk into a store looking for that fantastic live resin that I described to you earlier and what they show you is just this gritty, crystalline amber color looking product if you smoke will it get you high? Absolutely and it will probably taste much better than anything else you’ve tried, but if it was in the consistency of honey and more sap like than in a crystalline state it would be better.

Matthew: And so if you’re a business owner somewhere in the cannabis spectrum right now listening and you’re saying hey what Max is saying about live resin is really interesting. I want to do it the right way. How should they think about incorporating live resin into their business I mean what’s the right way to do this?

Max: Well the right way to do it is to understand how to set up the extraction process the correct way because that’s really the key. I mean there are so many operations around the country. I mean more than dozens, hundreds of operations who have multi hundred thousand dollar extraction systems whether they are CO2, Butane, Hexing, Propane but they’re just not set up in a way to product live resin. But they could be and so what that comes down to is working with someone who knows what they’re talking about and that all just kind of comes down to connections and availability for consultations. I am not an extract expert myself, but I know a couple. And so it’s all about kind of who you know and who can help you figure out some of the newer technologies that come onboard. And what’s really fun to watch in the cannabis industry is the race to the next technology. The next cool thing or making the last cool technology better in the first place. And so it’s just fun man I love this industry.

Matthew: You recently told me that all Indica and Sativa edibles are fake. What does that mean?

Max: That means I’m going to piss off a lot of edible companies. That’s what that means. And so it’s the same idea Matt as I described to you about why vape pens kind of suck in the sense that they’re not strain specific due to the extraction process that kind of obliterates fragile terpenes which is what causes strain specificity. And so you’re not only extracting your cannabis oil in a violent way, I mean violent. These freezing, pressurized extraction chambers that just splat the oil it’s an extremely violent process which is why live resin is so unique and it’s very delicate.

And so you’re basically destroying all the terpenes while you’re extracting it and then let’s go one step further and bake them into cookies and throw them in the oven at over 100 degrees Fahrenheit. By the time you get to a temperature that decarboxylizes Delta-9 in the first place you’ve already burned away all your terpenes. And so if you have Golden Goat in its let’s say a term pure Sativa although that’s arguable, but let’s just say it’s pure Sativa and then let’s say you have a pure Indica like a Bubba Kush and they’re both exactly 20% THC. If you smoke them why does one make you high and the other makes you stoned? If it has the same ratio of CBD, THC, CBN all that and the difference is the terpenes like I keep saying.

And so the idea that you can extract these oils in such a violent way and then throw it in an oven to remove some of the toxic properties purging it and then throwing it in another oven to cook a baked good or a gummy or something like that, there’s really no room left for terpenes. They’re gone, and so what you have is you have Delta-9 THC in whatever milligram percentage you have and then that gets converted into a new molecular structure anyways, 11-Hydroxy, after your liver processes it so that it becomes water soluble. So at the end of the day when I say edibles are a different drug I really mean it. I mean it is a different molecular structure. It doesn’t have the entourage effect on it. Someone in one of my classes said well they eat a Sativa edible and they feel like it’s a Sativa. And I’m like well it’s possible I guess if you only harvested Sativas and if you extracted it in a really gentle way and cooked it in a gentle way and purged it in a gentle way to get more of a Sativa dominant effect that might carry through with the 11-Hydroxy.

That’s possible, but I’ve visited and have worked in lots of extract facilities and edible making facilities where they don’t just harvest Indicas or Sativas to make extractions from. They purchase, trim, wholesale from hundreds of dispensaries across the state and combine hundreds and hundreds and hundreds of cannabis variety types into a mixed blend that they then extract from. It is so hybridized. But before they even extract that like when they say its strain specific by the time it’s wrapped and packaged and on the shelf it’s to me kind of just a marketing thing. I don’t feel like it’s legitimate.

If someone could help me understand how I’m wrong in this idea I’d love to learn why but just kind of thinking about it generally and thinking about how the chemistry works; thinking about how the extraction process works and then thinking about my own personal experience to me I think you have a better chance of tricking yourself into thinking that there is a strain specific edible because that’s what you believe you’re taking in. And so yeah I don’t really believe that there are strain specific edibles at least not any that I’ve seen yet.

Matthew: If you were to walk into your favorite dispensary with a listener that has never been in a dispensary before and help them find a strain that’s a fit for them what questions would you ask them and then as they evaluated the strains visually and in terms of fragrance what would you encourage them to look for and notice?

Max: So one of the coolest things about the human body is how the nose knows and I have no idea how the nose knows, but I know that it does. And so it’s this really just unbelievable thing that our body can do where you could blindfold a person and let’s say you put up to their nose feces or vomit or a dead animal carcass. The reaction of the human body will be to jerk backwards, to get away from it and it’s a physical chemical response that tells your entire system that alarms will go off that this is something that you need to stay away from. That’s incredible. It is it’s really cool and then you think about things like fruit that just smell so sweet and so luscious and they’re so good for you. And so when I work with patients in the dispensary I explain to them that your nose knows what your body needs and wants, but everyone is different and the most absolute thing in the cannabis industry is there’s no such thing as an absolute.

And so every class that I teach I ask who here has coffee make them tired and one person will always raise their hand in the room, and I say who here experiences Benadryl makes you hyper and one other person will always raise their hand. I haven’t had it not happen yet. And so what that means is that everyone is different, and so generally Sativa is for the morning, generally Hybrid is for the afternoon, and generally Indica is at night. Generally Indica is for people with PTSD and maybe Sativa is for people with MS, but because you’re different and I don’t know who you are and you’re not that experienced with cannabis here’s what we’re going to do. I’m going to utilize my interpening skills and help you guarantee that you’re going to get an Indica, a Hybrid, and a Sativa variety for you to go home and experiment with so that you can gauge for yourself what works best for you. I don’t want to tell you what works best for me. I want to help you find out for yourself what works best for you and then make sure that you keep getting what you want. And so that would be my approach in the dispensary setting.

Matthew: That’s great information. Now are there any particular strains you’re enjoying right now and please if there’s any dispensaries you like there’s a lot of people visiting Denver. What are some that you go to and what strains would you pick up if you were going out today to get something?

Max: Unfortunately as a trainer between so many dispensaries and training people in interpening and being a Cannabis Cup judge and advising people in the cannabis industry I’ve made it a rule for myself to not tell people where I find cannabis to be utterly disgusting and where I find cannabis to be fantastic and delicious and I wish I could explain to people where those things are but I just won’t and so sorry but hopefully we’re actually designing some technologies that will help people understand out of the one thousand dispensaries in Colorado which ones should you go to and why. We’re having interpeners visit some spaces and breaking down some of these dispensaries to help out of towners figures that kind of stuff out. Within strain names; within the theory of interpening strain names aren’t real but within the cannabis community and the OG community strain names are very real.

Matthew: Right.

Max: They do have lineage and they do have history and they do come from specific breeders who deserve credit for the amazing work that they’ve produced and given to the world and so within the very small OG community I respect strains and strain names completely and so therefore some of the Face/Off OG and the Raskal OG that I’ve been experiencing has just been unbelievable and I just cannot get away from my favorite Sativas in the Durban Poison, Golden Goat, and Island Sweet Skunk category. I truly love the more luscious, organic, and smaller garden grows that I find around Denver, Colorado.

Matthew: One of the questions I get multiple times a day is how do I get into the cannabis industry. Do you have any suggestions or advice for listeners looking to break into the industry?

Max: Dude I get that question every day too, all the time. And what I tell people is first of all understand that the cannabis industry isn’t a hundred percent cannabis. Every dispensary that exists needs a lawyer, needs a doctor, needs a professional plumber for the grow and professional electricians and H-VAC and marketing and packaging and advertising and human relations and training staff and I mean it just goes on and on. And the reason why Colorado is booming from the cannabis industry is not the cannabis itself. It’s really all of the people who are finding jobs supporting other jobs and other businesses and other pop-up businesses and picks and shovels businesses and side businesses. It’s unbelievable how much opportunity there is if you’re creative enough to see how to plug yourself into the equation and utilize skills that you have.

And so a lot of times when I explain that to people a light bulb goes off and they’re like oh shit well I’m a marketer and there’s marketing to be done in a brand new industry and it’s like yeah man get to it. There’s so much to do and then there’s other people who are like no, no it’s the cannabis that I really want to do. I want to be a grower or a bud tender or I want to manage a shop or start my own or start my very own cannabis school.

Matthew: Right.

Max: And what I have to say to that is cool. If you don’t have the experience, cannabis is way more complicated than a lot of people think, and so it really does require experience. And so that being said getting legitimate training, legitimate education with legitimate certifications is what matters. The responsible vendor certification that the Trichome Institute provides is certified by the Marijuana Enforcement Division in the Colorado Department of Public Health and Environment who is reviewed. It’s the government that has reviewed our education that we already had previously reviewed by lawyers, doctors, and scientists. That comes with a healthy amount of experience. And so that is what I mean by serious education. Do not be fooled by getting a bud tender certification online or from a cannabis education road show or a cannabis school that looks good on paper, online, or sounds good but doesn’t really provide you with the information that you really should have or need or paid for.

And so getting trained, getting educated, getting connected and immersing yourself in the industry is really the best way how to do it. Owners, managers of dispensaries will favor bud tenders who come in with the Responsible Vendor Certification, a bud tender certification, an Interpening certification and if you’re a cannabis school out there who’s listening the education and the curriculum that the Trichome Institute has been designing is designed to be turnkey for you to re-educate other people with. If you want to start your very own cannabis school in whatever state you’re in we have done all of the hard work in preparing the curriculum and the education and building these textbooks so that we can help the whole country limit cannabis misinformation by providing this quality type of information and helping to educate more people so that people do get into the industry.

It’s also important to educate doctors. Doctors are terrified to recommend cannabis because they’ve never done it before. They’ve never studied cannabis before. I’m still baffled beyond words that most really intelligent physicians that I know have never heard of the endocannabinoid system. The part of the body that balances all of your health and well being in complete homeostasis I mean the amount of education for the legal system, for legislators, for doctors, scientists are just getting into it is just as crucial as it is for any budtender and so if you want to get into the cannabis industry be serious about it. This is no longer a stoner operation like it was back in 2009 where we were literally buying pounds out of people’s basements and retailing it to patients.

This is a professional industry and it’s being treated as professional and it’s becoming corporate and so there is a lot of room for intelligent, dedicated people who take their job seriously and want to be a part of a flourishing new industry and I think it’s a really great thing and the Trichome Institute can definitely help you get there. You can go to and follow us on our Facebook and Instagram and pretty soon in the next month or so I will be releasing really fun two minute educational videos where I walk around the neighborhood and explain where from earth does powdery mildew just appear from and why or how many other plant species have Trichomes and are they active and what do they do.

And so if you’re interested in getting constant updated free cannabis information sent directly to your inbox please sign up at under our contact page to be updated with more education that’s coming out and when we travel around to different states and provide certifications; all that good stuff.

Matthew: Max thanks so much for coming on CannaInsider and educating us today. This was very, very helpful and I learned a lot.

Max: Cool. Well Matt I can’t thank you enough for having me back on the show. I love your show. I think it’s one of the most; if not the most professional cannabis show, radio show that there is so thank you so much for doing what you do and helping so many people understand cannabis better.

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.

The Induction Vaporizer That is Revolutionizing Vaping

evoke vaporizer

The Evoke vaporizer from LotoLabs raised over 220K in its Indie Go Go crowdfunding campaign.

The reason for Evoke’s popularity centers around its groundbreaking new technology. LotoLab’s patented Induction allows for an entirely new and improved form of vaping. Listen in as Matthew Kind and Neeraj Bhardwaj (co-founder and CEO) of Loto Labs go over why this vaporizer is capturing the imagination of the cannabis community.

Learn more at:

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:

Cannabis Price Surprises and Volatility in 2015 and 2016

Jennifer Beck discusses cannabis prices

Jennifer Beck is the co-founder and CEO of CannaBase, a wholesale cannabis marketplace. Jennifer walks us through surprises in wholesale cannabis prices in 2015 and what to expect in 2016. Learn more at:

Click Here to 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 have been surprises in the price of cannabis this year and in how wholesaler cannabis growers and retailers are engaging in the cannabis marketplace. To help us understand the market dynamics I’ve invited Jennifer Beck CEO of CannaBase on CannaInsider today. Welcome back to CannaInsider Jennifer.

Jennifer: Thank you for having me.

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

Jennifer: Denver, Colorado.

Matthew: Okay and you were on the show last and a lot has changed since then, but before we dive into everything that is going on can you remind us what CannaBase does?

Jennifer: Absolutely. CannaBase is a private online wholesale marijuana marketplace that connects licensed business so commercial cultivators and marijuana infused product manufacturers with licensed dispensaries, so licensed retailers. It’s completely free to join and use. Our goal is to create a safe, compliant and transparent open market that allows owners and operators to take control of their cannabis business from seed to sale.

Matthew: Yes, I hear an emphasis on licensed there. How many license holders are currently on the CannaBase platform?

Jennifer: Over 300 entities which represent over 1500 licenses.

Matthew: Can remind us what vertical integration is and why it’s important for listeners to understand how it ended and what we should think about it?

Jennifer: Absolutely. Mandatory vertical integration was in place for both pneumatical and recreational markets until October 2014. At that time vertical integration was no longer mandatory for recreational businesses. It still is for medical product. Basically before this date like medical cultivations and dispensaries, recreational business were required to be vertically integrated. So they had to have both a cultivation and a retailer license and they had to supply 70% of their own product to their retail center or dispensary. This helped keep the market small and manageable in its early years and it decreased chances of product diverting to the black market which is a huge priority for the state and community.

Vertical integration, however, makes the burden of business ownership very high for cannabis business owners. Some would prefer to be specialists and focus on just a retail center or just a cultivation, but not be required to run both which are very different businesses. So this year, since October 2014, we’ve had our wave of first decoupled licenses so business owners that just own a recreational cultivation or just a recreation dispensary. And so far this evolution has seemed to be very healthy for the industry as a whole. Obviously with the end of vertical integration the main concern was that some standalone cultivations would begin over producing and could hurt the supply side of the market if they began undercutting prices at large.

Matthew: Right. Now a lot of people might be thinking why would you not want to have your own dispensary if you cultivate your own cannabis, but there’s a lot of reasons why that might be true. What do you often see or what type of personalities tend to gravitate to maybe just being a cultivator or maybe just having a dispensary or maybe just being a processor. I mean is there anything, any color you can give us around that in terms of why people don’t want to do it all?

Jennifer: Absolutely. These are really three very different businesses, and they’re all changing rapidly as more mainstream money begins to enter the industry. So everything is in a high state of flux, but running a cultivation it can be either indoor or outdoors and we have a lot of people who are very experienced cultivators who have been doing this for many years you know in their basement, and they’re passionate about growing the product. They’re passionate about types of strains. They’re passionate about the grow process. They’re passionate about cultivation and it really is an art. It’s a specialty and it’s an art.

On the flip side running a retail center is an entirely different deal. You’re dealing with how to reach consumer in a largely underground consumer base. You know most people that smoke pot are so pretty quiet about it, at least to their family and friends and wherever they work. So you’re working on how to identify a target market, what kind of strains you should be carrying, how to stay well stocked, predicting the tourist season, when you’re going to need more inventory, managing a retail center it’s a retail job. I mean it’s seven days a week and it has its own set of trials and tribulations. And then if you’re running a marijuana infused product company, you’re manufacturing edibles or you’re producing wax. You’re extracting the THC and the cannabinoids from the trim, the leftover trim of the whole plant and you’re using that to make a variety of consumable goods or product that can be vaporized or eaten.

These are all very different businesses. We tend to see the marijuana infused product companies, the ones that create edibles have the most brand recognition across different retail centers. It’s harder as a cultivator to always get credit for your product when it bought wholesale because a lot of times the retailers want to maintain brand control over the product that they sell. So it depends what’s important to you. If you really want your brand to be recognized and you want to be in a variety of retail centers, I would recommend starting a MIP. If you’re really passionate about selling to consumers, providing patient care, the extension of that old caregiver model, then you need to probably be a retail. But if it’s so important to you exactly what goes into the product and you consider yourself a connoisseur, you’re going to want a different level of control over that cultivation process.

Matthew: Great, that’s very good color. Now diving into Colorado a little bit, what happened to the price of cannabis in 2015. And for people listening you know we are talking about Colorado, but Colorado in a sense is a micro chasm of what we’ll see in other states as they liberalize cannabis laws. So just keep that in perspective. I mean every state its own fiefdom, but Colorado is a good one to look at to see the future. So with that being said, Jenn, what happened to the price of cannabis in 2015 in Colorado?

Jennifer: It’s been wild. It’s been a wild ride. It has fluctuated greatly. So it’s ranged from an average price of just under about $1,600 to shortages, seasonal shortages that led to any product getting listed flying off the shelves upwards of $3,000 a pound. So you know doubling in price. At its lowest “Low Shelf Product” that once in a while you can find for the $1,000 to $1,200 range, although that’s largely medical product. But yeah at its highest the product was going for over $3,000, $3,300 a pound.

Matthew: Wow, you know I was dead wrong about what would happen in 2015. I felt like hey all these competitive forces are coming into the state of Colorado. There’s a lot of licenses here. I really thought the price would drop and stay below $1,000 a pound. I mean there was some kind of regulations around pesticides and testing and things like that. Do you think that really affected it upwards a lot?

Jennifer: You nailed it. I mean everyone was concerned about a, I mean, we heard it called a bloodbath price crash because of the influx of new cultivators and this decoupling of licenses, the fact that you were now allowed to grow more than you had to sell. Everyone thought that prices would crash. And what we saw was that prices were much more tied to seasonal trends in terms of tourism and then regulatory changes. The influence of microbial testing and pesticide testing was huge. At first because people were growing using mechanisms that were no longer allowed so old product had to be thrown away, but then also because there were only a certain number of labs that were certified to test for those problems or certified to test for those components of the product. So there was a lot of bottlenecking.

We saw in mid-Fall around August, September into October a shortage unlike anything we’ve ever seen. And we account for it first there being a shortage in Colorado Springs where a lot of Denver’s wholesale product was bought. Denver and Colorado Springs are the two largest markets so we think that had played a role. And then we had the pesticide testing, microbial testing. September we had a tax-free holiday. All of these components worked together and we had the least amount of product we’ve ever seen listed, and like I said, something would be listed for $3,000 a pound and there would be bidding wars within an hour.

Matthew: That is crazy. That is nuts. What kind of comments or anecdotal type of information did you receive from growers and dispensary owners as you talk to them, as you chat with them online, did you see any kind of trends or things that you were hearing over and over again where you’re thinking wow I did not expect this or this is interesting that the market is turning this way, any frustrations they aired.

Jennifer: Absolutely. Well you know in addition to CannaBase I’m also the Vice Chair of the Colorado Cannabis Chamber of Commerce. So we’re really always watching the regulatory issues and the macro and the micro issues that are facing the cultivators and the dispensaries on a day-to-day basis. And the truth of the matter is it’s very hard to survive in this industry that is so tightly regulated, is taxed so heavily, our margins are very very tight and it’s very unpredictable. When you are waiting for something to happen the way that pesticide testing and microbial testing could happen with such a vengeance and it could take so many businesses by surprise and so many were sitting on huge amounts of inventory. It makes it really really difficult to survive, very difficult to predict long term, very difficult to even predict the larger seasonal changes. So we’re lacking some of that data, the structure and the predictability that help make margins and prices manageable in the long term. So business owners are often just flying by the seat of their pants trying to keep up, do what’s right, predict the best, you know, list their product for the best price possible and stay afloat. I mean it’s a really difficult industry still to survive in and thrive in.

Matthew: And you mentioned the now microbial and pesticide testing regulations are tightening, and from a consumer perspective that’s great. We don’t want any e-coli in our cannabis or any Eagle 20 although some people debate that there are still safe ways to use that. But I’m wondering what…do you see different cultivators responding to these tighter regulations around microbial and pesticide testing in different ways because my sense is that there’re some that kind of him and haw about it and they complain and they do the minimum and others just like this is what we have to do. We’re going to make sure we as a team understand the requirements and execute in a five star way to make sure we do. They kind of turn this pain in the butt into an asset for themselves by executing and understanding it so well. Is there anything you can comment around that?

Jennifer: Absolutely. I mean I truly believe, and we spend a lot of time with the licensed business community and with the cultivators and with the retailers that by in large this is an enormously ethical passionate user base of business owners who want nothing but the best, if not only for the health of their businesses, but for the long-term health of the industry. We want safety and regulation as much if not more than everyone else and there’s… I don’t think anyone wants anything harmful in the product.

The biggest problem is around clarity. You know when we change the rules or when we start to tighten up on the rules there are financial realities. If a company’s been using something that was alright for them to use yesterday and now they’re sitting one or two or three hundred pounds of product that they’re not allowed to sell, whether or not they’ll be able to stay in business. And so I would like to believe and evidence has shown that when a company has the resources to change their ways and make better decisions as the evidence and as the regulations steer us in those directions, everyone seems to rise to the challenge and want what’s best. It’s just a matter of economic feasibility and being able to do it quickly and then hoping that their license isn’t at risk. You know hoping that maybe they sourced some trim, and what’s happening with a lot of these edibles companies is that they’re going through these recalls from trim that was sourced long before these mandates went into effect or these regulations were tightened up on, and now they’re facing huge recalls and public scrutiny over their brand. Which not that it’s unwarranted but can be incredibly destructive for a very well meaning business.

So I don’t think that anyone, yeah, so I don’t think anybody doesn’t want to rise to the challenge. It’s about having the resources and the time to rise to the challenge and clarity you know from the local government in terms of what exactly is allowed. What is the list of what is allowed, you know, at what date is that allowed. A lot of times there’s a lot of murkiness and things get lost in translation, and when you have a cultivation that’s running 24/7 you need a little bit of time. These are plants. You need time to implement these changes and rise to the challenge.

Matthew: Now focusing in on CannaBase specifically let’s say that I need to purchase some trim or some cannabis flower and I get on CannaBase for the first time, walk us through what’s that like. How do I evaluate someone I would want to do business with whether I would want to sell to them or buy from them as a licensed cultivator? Is it like a Yelp-like platform? How do I know that they’re a trustworthy or so on and so forth?

Jennifer: Absolutely. So everything on CannaBase is done on an entity level. So you’re able to tell really quickly whether a listing or a request has been put up by which business. So you’re not looking at individual user names and trying to manage between employees. You’re really seeing the credibility of that business. On every listing we have the number of connections, their number of friends. We have how many people have viewed that listing. We integrate lab data. So we try and give the buyer as many tools as possible to ascertain whether or not this product is right for them.

I think the real power of CannaBase is in its breadth. It’s in the fact that we have worked enormously hard as a team and as a company to keep the marketplace free and open for people to use because to us that’s the only way that we’re going to begin to eliminate some of this price volatility and that we can have a truly authentic market if everyone can be there and everybody has access to the listings and requests. We’re not just blocking it as brokers. So that’s been incredibly important to us. You can see how one buyer/seller stacks up in terms of the greater market in terms of their pricing. They’re allowed to promote their product however they deem fit. And then you’re allowed to just establish connections either over a listing or a request saying I’m interested in this, it opens up in-app instant messaging. You can add employees. You can add group chat. And then we even have negotiation dashboards that allow you to go back and forth on price and set up delivery logistics.

Matthew: Jenn, in terms of what the participants in CannaBase are looking for is it primarily an immediate type of marketplace where people say I want to buy or sell right now or do you see some interest in more of the commodities type market that allows for future transactions to occur and locking in price and quantity and things like this?

Jennifer: Currently it’s very short term. Eventually we think that it’s inevitable that we’ll reach a point where cannabis can be traded more like a commodity. And this will have the potential to drastically change the dynamics of the industry, but I think we’re a ways from reaching that point. The industry is still experimenting with a variety of cultivation techniques. The homogeneity of strains and product quality still very significantly. What we’re really passionate about in order to create a more long term marketplace where businesses can buy product in greater quantities that they’ll feel confident about later on is the establishment of standards.

Matthew: Yes it’s the standardization. So what I’m calling certain cultivation or my flower is not the same as the next guy even though we’re calling them the same things. I guess it probably is going to need to be at a certain scale. You know we look at things like corn and soybeans and pork bellies and there is a very dialed in standard even though the way that those animals are raised and so forth can be very different and those plants I raise can be very different. There is still some sort of agreement at a high level of what the minimal standard is and I guess until we get to a certain threshold I don’t know if that will be maybe tens of billions or something where that is a necessity where this is where we’re at. And people are kind of doing more of a one on one thing instead of a secondary market of futures and options on commodities. So that makes sense. I think it will be… that would be great though if that did exist because you know we see a cultivator who might be a little gun shy about you know planting a certain number of plants, but if he could lock in a price now and know he would make a certain amount of profit that would relieve him and he could bring that flower to market in a way that benefits everybody hopefully and hedges risk.

Jennifer: Absolutely. And that will also just rely on the price being less volatile. You know right now prices are changing so drastically that it’s tempting for cultivators to hold on to product until it can sell for quite a bit more, and I don’t know if that level, that risk is able to be mitigated right now as much as the benefit of holding the product and selling when there’s a sudden shortage. I think that draw is probably a little bit stronger still.

Matthew: So let’s say you’re looking over the shoulder of two people that are currently on CannaBase and they’re coming to some agreement, what does that look like? Walk us through after they decide on what they want to transact, what happens next?

Jennifer: Absolutely. Once they decide on what the sale will look like, how much they’re looking to buy, which strains, etc, there’s a lot of paperwork that needs to be handled. So for product to be transferred there needs to be a manifest and that manifest states a lot of the license information of each party as well as information required by law of the courier who will be delivering the product. Everything from their badge number to their car license plate number to the exact route that they’ll be taking when they deliver the product from point A to point B. So the logistics is still quite a bit of hassle. And then of course we have the cash element. So most of these transactions are still done via check or cash, and so that adds another element to the planning of both the drive and the route and how everything will be delivered in a timely manner.

Matthew: Jenn if there are any aspiring entrepreneurs listening, looking to get their edibles or infused products into a dispensary or if they’re already in a couple of dispensaries but want to grow their footprint is there any suggestions you would offer them?

Jennifer: Well I don’t want to just toot our own horn here, but this is what CannaBase was made for. We have phenomenal tools for edibles companies to promote their inventory to retailers statewide. We represent over 70% of the retailers in the state on our platform, and they’re able to not only list their products but create deals for just the businesses to see. They’re able to create surveys. They’re able to gather reviews and they’re able to really create that credibility that will help other retailers carry their product. Additionally for cultivators that are entering the market and looking to meet retailers I’d say the same thing.

We have two different features; listings and requests. And so it’s easy for them to create a listing that will be published in the marketplace for all of the different retailers to see and connect over. But potentially even more powerfully we have requests. And requests are a tool so that when a business is short on a type of product, either bud, trim, extract, edibles, seeds or clones, they can post a request to the market with their price range, their location, desired strains, etc. And it’s a really easy way for new market entrants to find hungry buyers, message them directly and get the process started. Additionally I think for anyone entering the market I don’t know how they do it without a place like CannaBase because it’s really important to stay on top of what the prices are at that moment. And there’s really no other way without making a lot of phone calls to know that you’re pricing your product appropriately or that you’re getting the best price for your product because it’s changing so rapidly. Price trends in the marketplace change literally week to week.

And so businesses that do stay locked up in long term contracts with trusted partners, potentially that works for their margins and that’s awesome, but if they get excess inventory they should absolutely hop on to the marketplace and be tracking when there are times that they can get a premium for that same product because it happens sporadically and it happens often.

Matthew: You mentioned seeds and clones there and that’s something I want to address. What is the marketplace at CannaBase currently look like now? I mean in terms of what people are most interested in. I’m guessing but I could be totally wrong. Is it flower, then trim, I mean how does it stack rank what people are most interesting and transacting.

Jennifer: Great question. It’s always bud. We have a lot of bud and we get a lot of bud posted the most frequently. So I’d say bud is the cornerstone of our inventory. Trim is the most desired. We’re always looking for more trim. A lot of businesses have their trim tied up in long term contracts. So for instance some business do trim for trade where they will work with an extractor, a designated extractor and they’ll give them all their trim for free and let them keep a portion if they’ll do the work of converting it into extract for that company. So it’s really hard to get trim back on to the open market, but everyone’s hungry for it. There is a huge market for wax and for extracts, especially with the rise of vaporizers and you know other distribution methods of the product besides smoking. And then for all of the edibles manufacturers. Some edibles manufacturers grow their own trim, but some purchase it exclusively through wholesale. The price of trim can be very volatile, go everywhere from a couple hundred dollars a pound to $700, $600-$700 a pound and it can be very hard to find.

Besides that we tend to have static inventory of edibles that seems to be the most traditional product that we carry. And then seeds and clones are up and own. CannaBase has some really interesting tools with seeds where you can put in the key metrics about its yield and its timing and it will create a yield projection calculator and calendar on the listing itself and so that’s really interesting when businesses play with that. And then we see clones haphazardly. Currently we actually have a lot of clones listed but I haven’t seen that for a while. So those tend to just more come and go depending on the active users at the time.

Matthew: Now I’ve talked to some people that grow cannabis and they grow it with the intention of trading their flower or buds for trim. And the first time you hear that you’re thinking wow that doesn’t seem to make any sense. Can you explain why someone might do that?

Jennifer: Why they would grow the bud for the trim?

Matthew: No they grow the bud with the intention of trading it for trim. You know they want more trim than they do the flower.

Jennifer: I actually haven’t heard about that. I mean I would imagine that if you were an edibles manufacturer you don’t need the bud itself. So you could theoretically trim the product and use the trim for your edibles and then that bud would be very valuable in exchange for trim. So if trim is going for $500 and the bud is $2,000 a pound, you could get for, you could trade it with a dispensary that’s perhaps running short and that has extra trim on hand. That could be a more effective channel to supply your trim inventory. Like I said trim is really really hard to get in bulk and to get enough of to supply the market’s needs. So I would imagine that if you were a MIP with your own grow you would be using all the bud at your disposal to try and lock down more trim.

Matthew: And that is the instance I’m… It’s MIPs that have their own grows that I’m referring to. And it’s something that just doesn’t, you know, you hear that and you’re thinking wow why would you ever want to get rid of flower for trim, but that is the reason why. It makes sense and it’s crazy that trim is such a hot commodity but I guess you know you can use it for so many things. There’s so many applications for it that that’s why it’s becoming so valuable.

Jennifer: Exactly. There are so many applications for it, and a lot of times businesses will just hold on to their trim. Like I said they’ll get it extracted and they’ll carry their own wax or they’ll carry their own extract. So if you need a way to secure a line of additional trim from another grow, you know, offering them perhaps a discount on the bud that you’re producing that you’re not going to use is a phenomenal win/win to just secure that distribution channel because it is really hard to keep a consistent source of trim coming in. So that makes a lot of sense.

Matthew: Turning to 2016, we’re recording here on the last couple of days in December 2015, but turning our view to 2016 what do you think will happen with the price of cannabis in the largest markets, I mean Colorado, but then do you have any thoughts about anywhere else in the country that anecdotally that you think what’s going to happen?

Jennifer: Absolutely. In Colorado like I mentioned before we’re seeing larger financing tackling the larger scale cultivations. So if these are able to get up and running successfully, the general concern is that they’ll be able to flood the market with cheap product and undercut the existing cultivators. There’s a host of potential regulatory issues with the execution of the strategy. So it’s all a matter of if they’re able to get up and running and into the market successfully, but this again goes back to my point that most importantly we need a set of qualifiers that allow us to commoditize the product better so that if this cheaper product is coming to the market then perhaps boutique cultivators can stay competitive and can prove why their product warrants a higher price.

So our only defense against these large scale cultivations is going to be a better understanding of different cultivations across the state and what they can bring to the table in a way that’s objective and standard and scalable. Around the country Washington, unlike Colorado, has a cap on the total amount of product that can be produced statewide. So that should prevent this potential problem or any unforeseen price crashes. The Oregon market has historically had the lowest prices in the nation largely because they have a lot of caregivers involved in their wholesale economy. So there’s just a larger amount of product at any given time. But with the number of licensed dispensaries and cultivators continuing to climb prices are expected to remain below those for Colorado and Washington. And then our biggest wildcard that the state we’re all watching is going to be California.

The legal adult use market is poised for a lot of growth after the 2016 elections, but the effect this will have on wholesale pricing is unclear and especially because we don’t know the time it will take to get these regulatory changes into effect and into the market, but I think that’s going to of course be a really interesting state to watch. Currently I think it’s incredibly interesting. California has been able to maintain wholesale prices similar to those we see in Colorado, and when you look at the fact that Colorado’s prices are so heavily impacted by taxes, regulations, packaging restrictions, you wonder why a market that has so many fewer regulations is able to maintain prices so high. And the reasons we’ve heard from that are because since the market is so loosely regulated that extra product is more easily able to be diverted into the black market. So you know that you’re going to get a return on that investment. It’s easier to maintain the high price of the product. With a more tightly regulated market the question is if the prices will just stay status quo that well be a tightening up of the distribution channels but an increase on regulations or if they’ll change one way or another. So I think that’s going to be really interesting and will become like Colorado a major indicator for the rest of the country.

Matthew: I have been so wrong about estimating pricing that I’m going to stop doing it and throw out all of my assumptions because right now I hear about huge grow operations getting started in Pueblo, Colorado which is about an hour and a half south of Denver, very sunny place so you can do some maybe greenhouse grows and things like that and when I hear about the size of these grows I’m just, I’m in awe (A) and (B) I think wow this is obviously going to really dampen the price of cannabis, and then at the same time there’s all these people, tourists and other people that are growing the market. People that are cannibalizing perhaps the alcohol market turning to cannabis because they’re curious or they like the effect. So that market is not just the cannabis enthusiasts, it’s these new cannabis enthusiasts coming online. So what’s the balance between all this new cannabis coming online and all these new consumers coming online, it’s really hard to project, but are you hearing some of the same things about these massive grows maybe in Pueblo or other parts of the state and curious about how that might affect wholesale prices at all.

Jennifer: Absolutely. I mean I think if these major grows in Pueblo that are look like, I mean they can be, that they’re going to be absolutely massive. If they’re able to produce low price product and we’re not able to objectively demonstrate that that quality is lower than what perhaps more specialized boutiques are carrying in other parts of the state, then just by the very nature of supply and demand it has to have a major effect on prices. It has to really pull down the wholesale market with it. One piece that I always, that I keep coming back to though is that what is currently driven the price volatility has been less correlated with the number of licenses or the number of active cultivations in the market and for more correlated with these regulatory seasonal changes with all of sudden pesticides are in effect or we’re clamping down on pesticides.

The idea that one of these larger grows would not be… they’ll be as susceptible to these changes as everyone else. So the question is if they’ll also be able to couple these lower prices and these increased distribution with perhaps better foresight of some of these vulnerabilities. And then additionally something that isn’t talked about much but that I think is a really interesting angle of the industry is couriers and transport. So when this product is sold on a wholesale level it then has to be transported across the state to the retailers who are going to carry it. And that’s an interesting, almost underground part of the market that isn’t too tightly regulated in terms of who’s managing those companies and they range in price from I mean $40 a trip for some of the cheaper couriers that will take a product to the mountains for $40 and then others that will you know will charge a more potentially reasonable $400 a piece because they’re better insured or they’re more secure.

So one thing that I’m really curious about is how the courier landscape will develop because if greater mandates and restrictions are put on who’s allowed to transport the product and how well insured they have to be, how much they’re allowed to carry at any one time is being more closely watched. You know we see that some of these lower price companies are stacking the roots a bit more than maybe manifest should be allowing them to do, then if the cost of the couriers comes up then it’s going to change the types of sales that these cultivators down in Pueblo are making on a regular basis. So if retailers are forced to pay more of a premium for perhaps safer and more compliant courier services, then are they going to be as likely to source a smaller purchase, like five or six pounds, from these cultivators down in Pueblo, or are they going to stay with their local network. So there’s a lot of pieces of the greater infrastructure that still need to be worked out, and they really all work in tandem. It’s an ecosystem.

In terms of the consumer to me that is the greatest thing that’s changing with 2016. It’s that people are really coming out of the woodworks, and it’s not just about having greater consumer demand, having more people experimenting and perhaps even more people becoming regular consumers, but what I think is most exciting is the idea that consumers will become more transparent about who they are and what they’re buying so that we can continue to develop more targeted products and strains towards those consumers. When we talk about wholesale pricing everything is a feedback loop. If we can establish that a product grown a certain way with a certain type of ingredients is “Organic” and then we can have consumers recognize “organic” certification or badge and we can demonstrate that consumers will pay more for it. Now we’re developing tiers in terms of product quality and tiers of pricing, and this is where businesses will really begin to differentiate themselves. Right now that’s done through branding. Someone says we’re a top notch brand, but with standardization, with transparency with consumers and with a more mature market in terms of the infrastructure surrounding the entire wholesale ecosystem we’re going to have a lot of changes ahead of us, a lot of consolidation, a lot of small businesses going out of business, and the prices will as I always hope, begin to stabilize because that shows that we know what’s coming and we’re comfortable making longer term purchases.

Matthew: Now a question about being an entrepreneur. Oftentimes you know we hear someone that’s an entrepreneur and we think they’re a fearless person and they came out of the womb and they were operating a business with no doubts and now setbacks. What’s it like running CannaBase day to day? What are some of the challenges and opportunities that maybe get glossed over in all the excitement about this new huge industry?

Jennifer: Oh there, I mean, I think we’re definitely an adventurous group. You have to be to hop into this industry and to tackle it, but it is all challenges. Everything is changing so rapidly that to stay relevant, to continue to build a product that people want to use, to stay in tuned with the community and to keep growing is a constant challenge and it’s a full time job. I mean we work absolutely around the clock, but it’s enormously exciting and it’s enormously fulfilling. I really couldn’t say much about it besides the fact that it’s very difficult. I mean you really have to figure out every day where is the best place to put my time and in this industry especially you’re building in the moment, but the future is happening rapidly. I mean the future is unfolding constantly. And I think the real movement in this industry with so many new market entrants and how quickly it’s going to transform over the next couple of years will be our ability as entrepreneurs to work together to create really seamless solutions.

I mean a lot of the things we talked about today are about how can we create that feedback loop? How are these different components of the industry working together because it’s way too much for one company to handle. So we’re always meeting new partners, seeing who’s getting into the market, learning about their philosophies and trying to find people with the same goals and the same passions we do, standards partners, courier partners, data partners, anyone that we can work together with to create better solutions that will help insure that the industry thrives for a long time to come.

Matthew: Jenn in closing how can listeners learn more about CannaBase?

Jennifer: Absolutely. So you can visit CannaBase online at and there are links to our blog to learn all about our different services and then if you’re a licensed business, there are links to sign up for a free account.

Matthew: Jenn thanks so much for coming on CannaInsider and educating us. I wish you a very happy New Year.

Jennifer: Thank you so much. You too 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 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.

Key Takeaways:
[1:44] – What is CannaBase
[2:34] – Jennifer talks about vertical integration
[4:37] – Why do people not like the idea of vertical integration
[7:41] – Jennifer talks about the prices of cannabis in Colorado in 2015
[10:44] – Trends and frustrations expressed by growers and dispensary owners
[13:14] – Reactions to the stricter microbial and pesticide regulations
[16:26] – How do you rate users on CannaBase
[21:21] – What do transactions look like on CannaBase
[22:31] – How to get your product into dispensaries
[24:58] – Most popular products on CannaBase
[29:36] – Jennifer talks about her predictions for 2016
[33:58] – Jennifer talks about massive grows affecting prices
[39:15] – Jennifer talks about running CannaBase day to day
[41:17] – CannaBase contact details

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:

A Look at California’s 2016 Cannabis Regulations and Deadlines

Katie Podein

Katie Podein from California Cannabis Law Group joins us to share how California plans to make sweeping changes to the state’s cannabis laws and regulations in 2016 and the deadlines you need to know right now. Very important if you need to understand packaging, labeling and testing requirements.

Click Here to 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.

California by itself is the eight largest economy in the world when measured by its $2.3 trillion of GDP that come from the state. With 39 million residents, abundant capital, technical resources and a strong tradition of agriculture there is arguably no place better positioned to help the cannabis industry grow. However, recent laws and regulation changes made in the state capital of Sacramento are introducing new challenges and opportunities that business owners should be aware of. To help us sort through the new regulatory changes in California I have asked attorney Katie Podein from California Cannabis Law Group on the show today. Welcome to CannaInsider Katie.

Katie: Hey Matthew. Thanks for having me. You know I’m a big fan of the show and I just want to thank you for what you’re doing to illuminate the stars of the cannabis industry.

Matthew: Oh thank you. Katie, to give us a sense of geography can you tell us where you are in the world today?

Katie: Yes I am currently sitting in my law office in well not so sunny Los Angeles, California right now. You know it’s raining a little bit out and in Southern California when it rains everyone runs around both fascinated and terrified by this weather.

Matthew: Yeah you all definitely need rain out there for sure.

Katie: Mm-hmm.

Matthew: So tell us a little bit about your background. How did you get into the cannabis industry?

Katie: Well eventually my job was actually you could say to help suppress the industry. I was originally working for (2.42 unclear) a law firm, and for about 10 years our firm had been working with cities and counties to help create local regulations for the medical marijuana business. That meant providing legal advice on regulation of medical marijuana, drafting ordinances and zoning codes to even ban them out of the cities. But one day my partner’s wife was diagnosed with Stage IV ovarian cancer and he confided in me that she used edibles to ease her nausea and pain during chemotherapy. Around the same time our firm was getting approached by dispensary owners asking us as city attorneys for our guidance on how to be compliant on a local level. So at some point I just took a step back and realized all the signs were pointing in a different direction, and I wanted to create a specialized legal practice that would bridge the gap between the cannabis business and local and state agencies.

Matthew: Okay and what is the California Cannabis Law Group?

Katie: Well on a basic level I would say the California Cannabis Law Group helps the cannabis business owners come out of the closet. I find many players in the industry are afraid to come into the light in California because of the lack of state regulation and that it’s still illegal on a federal level. So our firm helps to provide guidance to clients to become and stay compliant with local and the state laws. So in short we provide clients with legal services for everything they need from seed to sale really.

Matthew: Let’s set the stage here. There’s some big legal changes in how cannabis is treated for a lot of different parties, but how is cannabis regulated and treated by officials prior to this year’s legislative change and how is it different now?

Katie: Well before this current legislation California has been nicknamed “The Wild West” and that’s only for a reason. The laws governing medical marijuana, that’s Prop 215 and that’s State 420 has giving the industry a little to no guidance on a state level. And then on top of that some cities and counties have nothing in their municipal codes either way about regulation of medical marijuana, either allowing it or prohibiting it. So it’s been a very laissez-faire approach and as a result of the somewhat lawless environment the cannabis industry has really taken an opportunity to come up with some pretty creative business models.

You know, I know you interviewed the founders of Weed Maps on a previous show and that was founded in California in 2008. These delivery services, excuse me, Speed Weed. I believe you interviewed Speed Weed.

Matthew: Right Speed Weed. We both got that wrong. Right okay. Speed Weed.

Katie: Okay so Speed Weed is a delivery service and they got started in California in 2008. You know usually these delivery services have no storefront dispensary. Sometimes they’re even operating out of the personal residence and have become very popular throughout all of Los Angeles and the most of Southern California, even with celebrities and soccer moms alike. Another business model that has been created as a result of this is the Gorilla Grows up north with the cultivators. You know this isn’t always a good thing. This is the legal cultivation sites that usually divert water from other crops or agricultural sites, use heavy pesticides and even I’ve heard using rat poison to put on the crops.

Additionally this lawlessness of the land has left extractions and manufacturing really up to the business itself and that can lead to some detrimental consequences. For example, if people aren’t well-versed in using volatile solvents, there can be a lot of injuries if you can imagine; blown off hands, fingers, etc.

Matthew: So truly the Wild, Wild West. Not much guidance and a huge market. So that makes for; it’s nice not to have regulatory strings in some capacity, but not everybody’s playing with; it’s not a level playing field necessarily either. So from that, from the Wild, Wild West what have we transitioned to? What is the new legislation that went through Sacramento this year and how has it changed the landscape?

Katie: Well the new legislation is the State’s attempt to tame the Wild West. That’s the Medical Marijuana Regulation and Safety Act, also known as MMRSA, and that was signed into the law by Governor Jerry Brown on October 9, 2015 and it becomes effective in January, so coming up soon.

Matthew: What an unfortunate acronym that is. Isn’t MMRSA like some sort of medical problem you get when you’re wrestling in the gym or something?

Katie: Oh yeah yeah, and on top of that the bureau that was established under MMRSA is the Bureau of Medical Marijuana Regulation. The nickname as you can imagine the BMMR is also known as Bummer.

Matthew: Oh boy.

Katie: So it has been interesting in the acronyms that they have chosen to regulate the medical marijuana industry, but nonetheless the MMRSA is comprised of three bills that provide regulations for all different areas in medical marijuana industry and provides a comprehensive system of control. And the BMMR has been tasked with the responsibility of developing and implementing the rules necessary to enforce these laws including oversight state licensing and regulation of the industry.

Matthew: So if I’m a business owner listening to the show right now or I’m someone considering getting into the cannabis industry, what’s the most important in your mind changes here that really should be kept top of mind if you’re in the cannabis business?

Katie: By far the most important thing is the local license and the state license you will need to operate. You know, you need local approval, and then once you receive local approval whether it by a license, it depends on each locality how they approve you for a business. Then you have to bring that to the state and say you know my city or county approved of my business, can I have my state license please. Now there’s 17 different types of licenses under this new law.

Matthew: Wow.

Katie: Yeah it’s a lot of different licenses and there may be even more coming. The focus is on cultivation, really trying to prohibit or regulate certain large scale cultivation sites, and you can see that there’s more flexibility for smaller scale cultivation sites.

Matthew: Sorry to interrupt, but did you mean it’s going to be maybe less burdensome to be a smaller grower and as you go up the scale there’s more hurdles you have to jump through?

Katie: It appears so because one thing that MMRSA also allows is a bit of vertical integration for small cultivators. So if you have certain; if you grow under certain sizes, the state will also grant you a license for manufacturing and/or owning a dispensary as well. So it seems that they are favoring the smaller business models which will help the small growers and those mom and pop shops stay open under this new licensing scheme.

Matthew: Interesting. Go ahead. I’m sorry to interrupt.

Katie: Some other, I just wanted to point out some other important changes. There’s three other things that are really important for people to keep in mind. That’s the testing of all medical marijuana. That means all cultivators will have to have their medical marijuana tested before it goes to a dispensary. Now in addition to this testing of the medical marijuana, there’s the role of distributors. And the state has created a role of distributors and they are the ones to take the medical marijuana from the cultivators to the lab, to the lab to either the manufacturer or to the dispensary owner. And on top of all that they’re implementing a track and trace program similar to the one you see in Colorado now.

Matthew: God it would be great if they could just turn into Silicon Valley right there to make that instead of coming up with some sort of crazy bureaucratic system that’s not user friendly when you’ve got such great technical there. I hope they outsource that in some capacity.

Katie: Yeah I hope so too because you know I think this year is going to be a bit of growing pains for the entire industry under these new laws.

Matthew: Are any of the regulations seem like; is there certain things that seem the most financially onerous? I mean going to your local municipality or town and saying hey please recognize me as having a cannabis license might sound like it takes a little but not necessarily expensive. Is there anything that really strikes you as adding cost to the whole supply chain?

Katie: I really think it’s going to start with the cultivators. They are the ones responsible for implementing the track and trace program. Additionally, they have state agencies that will be imposing regulations and standards on their grow sites. Just to name a few it’s going to be the Department of Food and Agriculture, the Department of Pesticide Regulation, the Department of Fish and Wildlife, the State Water Resources Control Board and the Department of Public Health, all with their standards that they must meet to grow medical marijuana. And I think that’s just going to drive the cost of medical marijuana up.

Matthew: Oh my god, this sounds like a lot of regulatory burden. This really does.

Katie: And not to mention that the cultivators also pay for the testing of their medical marijuana. You know it’s a great time to be a distributor or a lab tester in this upcoming year.

Matthew: Okay. Wow, so a lot of us in the cannabis industry have gotten comfortable, set in our ways a little bit, maybe in California used to being on one side of the spectrum of really having no regulation now. They’ve got all these three letter agencies that are going to be swarming them. So what do you think is going to be the most painful? Is it just having to create whole new process, maybe adding staff just to manage the compliance burden?

Katie: Yeah you know I think it is going to be a lot of standards of that that the industry is going to have to be educated on if they want to continue to play. You know it’s great these laws are allowing the cannabis industry to become for profit entities now. You know they no longer need to stay nonprofit. So that allows a little more flexibility and control over your personal cannabis business, but you have to play by the rules now and that is going to be quite a burden on the industry.

Matthew: Okay. Are there any bright spots, anything we should feel good about here? I mean the fact that regulation is coming in that it’s going to make it a more robust industry that maybe the public sees or recognizes as more trustworthy.

Katie: Yeah you know I don’t want to sound too pessimistic about these new laws. I think that like I mentioned you’re allowed to transition from a nonprofit to a for profit business. So that allows greater flexibility, increase revenue and yield for your company. Also people can start investing in the cannabis industry. So we will see a lot, you know, this market is projected in California to be; I mean it’s a wide range that they project, but anywhere between the $2 and $4 billion industry. Also organic standards are going to be coming out for medical marijuana and testing standards that will be imposed will also mean that we know what’s going in to our product. And as a consumer you know I would imagine most consumers want to know the breakdown of their product and whether; have the choice of whether it’s organic or not.

Matthew: Okay.

Katie: And all the new regulations on cultivators it does mean for a more environmentally friendly cultivation practices. You know I know it can appear to be burdensome, but it’s also to preserve the environment and that wildlife in California that we all cherish here.

Matthew: Katie, what about personal cultivation? What’s allowed there or what’s changed?

Katie: Patients are exempt from the state permitting process. So they don’t need a license if you are cultivating for yourself so long as it’s under 100 square feet for personal medical use. Primary care givers that five or fewer patients are allowed up to 500 square feet. There is some troubling legislation that AB243 says that it does not prevent a local government from further restricting or banning the cultivation of medical cannabis by individual patients or caregivers in its jurisdiction. Personally I hope that cities aren’t starting to ban or restrict cultivation for individual patients or caregivers, but we’ve yet to really see how that will play out.

Matthew: Switching gears to labeling requirements, what can we expect in terms of changes in labeling requirements?

Katie: So in the laws stated right now it says that the Department of Public Health is to develop standards for producing and labeling all edible medical cannabis products. Also the Department of Public Health will be in charge of regulating edible potencies as well, but no specific labeling standards have come up yet. I imagine that you know once this all this becomes effective and the departments start to develop standards it will look something like Colorado’s too. You know specific warning labels, a list of nonorganic pesticides, fungicides, herbicides, maybe a list of solvents and chemicals used to extract the marijuana etc.

Matthew: Okay. So we have some deadlines rapidly approaching here. Can you summarize those?

Katie: Well so far we already have had one deadline pass. That’s July 1, 2015 and that was the date by those cannabis business to claim vertical integration and to be able to operate as a vertically integrated business under these new laws. Now again vertically integrated means that your business does the cultivating, the manufacturing or extracting and the dispensing of medical marijuana. If a city allows vertical integration and you’re vertically integrated before this July 1, 2015 date, then you’re allowed to continue for some time under the new laws. The next one coming up is January 1, 2016. That’s the date in which MMRSA will become effective. That’s also when priority licensing will begin to roll out and those eligible can apply for that priority licensing.

Now there’s one deadline that’s caused a bit of controversy in California in the past week or so. That’s the March 1, 2016 deadline. That deadline is a deadline for local cities or counties to impose regulations or ordinances prohibiting the cultivation in their locality. This has caused controversy because in the past probably two/three weeks we’ve seen city councils quickly banning, doing everything they can to ban cultivation in their city, their city council meetings. Now Assembly Member Wood helped with, developed the laws for MMRSA said that this was a mistake, this deadline. He said that it was a mistake and that there will be no deadline for local jurisdictions to enact their own regulations governing medical marijuana cultivation.

Me personally I don’t know how much of that was a mistake. It is you know on paper, in the laws and the damage is done. Cities have already been banning cultivation. So you know Assembly Member Wood said that once the legislature reconvenes in January he plans to pass the urgency legislation striking this deadline, but I’m not too sure it’s going to have any effect since cities have already acted.

Matthew: This is a crazy thing here.

Katie: Yeah this has been the problem we’ve seen in California is that cities appear to be scrambling to really ban cultivators and dispensary owners in their cities and counties. And I know that I’ve been at some meetings where small grows and even local dispensary owners are wondering where are they going to go with their business.

Matthew: Yeah.

Katie: Like I said, there is going to be some growing pains in this upcoming year for sure.

Matthew: What about do these local municipalities now have the ability then to tax so I would think that some of these revenue starved municipalities in California would jump at the chance to possibly get some more taxes.

Katie: You’d think they would and you’re right, but there are a lot of cities that could use the revenue with medical marijuana, but it seems when you’re sitting at city council meetings that the fear, you know, it’s that cliché fear of robberies or violence or even just increased traffic going through cities is what is keeping them from creating some type of comprehensive regulations in their cities rather than just stop banning them.

Matthew: Right. God it’s amazing the education that still needs to be done. I literally have some relatives in the East Coast that know (22.39 unclear) think that everybody in Colorado sits around and gets high all day, everybody, 100% of the state. So I mean it’s a persistent stigma and I hope; I think a lot of people would be surprised at what cannabis is being grown in their municipality already. If they knew that, maybe they wouldn’t freak out so much.

Katie: Yeah, yeah, exactly.

Matthew: Okay so we talked a little bit about the deadlines; January and March. Anything else on the horizon maybe that’s not set in stone but looks like the way the regulatory boat is turning that we should be aware of?

Katie: Well you know a lot of people are scared by this January 1st deadline that are in the industry, but I assure them that licensing really won’t affect them until 2018. You know government moves slow and I don’t think it’s going to be any exception here. The exciting thing we get to look forward to in 2016 is legalization of marijuana; adult use or recreational use, however you want to call it. That is on the November 2016 ballot. We have a couple of initiatives that are all competing for that vote.

Matthew: Wow that is exciting. That would be big. Now the Napster guy, I can’t remember his name, Shawn?

Katie: Shawn Parker.

Matthew: Yeah okay. So Shawn Parker what’s he have going there because I know he has an initiative that he’s pushing really hard. What is he doing?

Katie: Okay Shawn Parker is a Napster cofounder and former Facebook president. He has gotten behind and backed the Adult Use of Marijuana Act, AUMA. This is the big act that, the big ballot initiative that everyone is focusing on. There’s been you know a little bit of controversy about this act. When you speak to small small growers and dispensary owners they feel that this promotes big business. And for a little while there was another ballot initiative competing with the AUMA, but Shawn Parker has actually come out and said that he will match dollar for dollar all the donations given to support this initiative. Now I don’t know if that’s necessarily true or not. It would be interesting to take him up on his word.

Matthew: Right.

Katie: But recently in the past week or so there’s been some amendments to the AUMA to help rally more people around this act. I think one worry with people in the industry is that there’s so many initiatives out there that the votes are going to all be spread and then again just like in 2010 we’re not going to have legalization. So this time I believe that the AUMA is acting more as a working document right now that can be amended so that we can really; it can be all inclusive for everyone in the industry.

Matthew: One thing that I forgot to ask is that currently if you’re not from California and you’re visiting you can get a medical marijuana card. Is anything changing there with this new; the new regulations and legislation at all?

Katie: Well right now it is very easy to get a medical marijuana recommendation. The environment is very friendly. Now the rule states that you need a California, a valid California ID or a driver’s license and you can get that at the DMV showing that you have a local residency and your medical marijuana recommendation takes all of about 15 minutes to obtain from a doctor. I’ve even heard stories that doctors who are licensed in California can recommend medical marijuana over Skype and you can get it that way.

Matthew: Yeah I’ve heard that too. I’ve also heard from people from out of state coming in and getting recommendations somehow. I don’t know if that’s true.

Katie: You know I would not doubt that especially if they’re going down to Venice to get it.

Matthew: Yeah on Venice Beach it’s like every other shop there is like $50 for a recommendation.

Katie: Oh yes you’ll see them and you can identify them because they’re in doctor scrubs I think with marijuana leaves printed all over it. Very legitimate looking you know. But under the MMRSA that’s all set to change so they say. I don’t know how it will actually be in practice but the state will now be examining and investigating doctors that overly prescribe medical marijuana or recommend it.

Matthew: What does overly mean? Does that mean that they have like if they have 100% recommendation right now they have to lower it to something so they’re rejecting some people?

Katie: Well of course they haven’t given that specific standards but I think what that means is they’re going to be looking at doctors who have patients that come in maybe once a year, one time only you know it’s that revolving door of patients unlike a primary caregiver or a primary physician who you see regularly once a year or you know for specific ailments. You can point them out here in Los Angeles. There are certain centers where you know the doctor all he does all day is recommend medical marijuana. So they will be the subject of investigation by the state. And they’re going to start cracking down. So that may mean that doctors are less likely to hand out recommendations which thus in turn means less people getting their recommendation especially since you have to renew your recommendation each year.

Matthew: Okay. Anything else we should be aware of for 2016, I mean the implications of rec are huge. Does it sound like adult use is going to pass in 2016?

Katie: You know what I mean I personally think that adult use will pass. I think California we were the first one in the nation to allow medical marijuana and now we’ve taken a back seat while states like Colorado, Washington, Oregon have really run with recreational use and I think we’re ready to get in the game and start playing with those states. And I think that the Adult Use of Marijuana Act, the AUMA will likely be the one that will legalize marijuana for us.

Matthew: Katie in closing how can listeners learn more about California Cannabis Law Group and connect with you?

Katie: The best way would be to just email us. Any questions you have about our firm and what it can do for you, you can email us at .

Matthew: Great. Well Katie thanks so much for coming on CannaInsider today. We really appreciate it.

Katie: Thank you so much Matthew and hope you have a very happy holidays and a great new year.

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.

Key Takeaways:
[2:31] – Katie’s background and how she got into the cannabis industry
[3:51] – Katie talks about the California Cannabis Law Group
[4:42] – Katie discusses how cannabis is regulated and treated by officials
[7:40] – New legislation that has passed in 2015
[9:20] – Most important legislative changes for people in the cannabis space
[12:39] – Added costs to the supply chain
[14:10] – Katie talks about the compliance burden
[15:03] – The upside to the new regulations
[16:36] – Katie discusses personal cultivation in California
[17:37] – Changes in labeling requirements
[18:29] – Katie talks about deadlines
[23:12] – New bills on the horizon
[26:06] – Can travelers still get a medical marijuana card in California
[28:59] – Katie gives her prediction for adult use
[29:46] – Contact details for California Cannabis Law Group

Important Update:

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