The impact of the Corona virus will affect all industries, especially cannabis & hemp, but Eighth will make sure you stay informed.
Quarantine Marketing
As people struggle to cope with the shift from physical to virtual, companies are trying their best to maintain their customer base and continue to take part in engaging dialogue. Find out the three ways we’ve been seeing companies take action.
The impact of the Corona virus will affect all industries,
Some retailers are comparing the increase in sales volume due to consumers stocking up for social distancing to the sales volumes seen during 4/20 and Black Friday. Caliva CEO reports seeing less foot traffic, but a 70% increase in web traffic, a 109% increase in delivery, and a 600% increase in new customers….
As we get closer to federal legalization, 2021 will contain the building blocks for a successful national cannabinoid industry. Here, we break down what we’ve heard, what we’ve read,and what we hypothesize will happen in the upcoming year.
2021 is the year of M&As.
With the varying regulations across stateliness and the challenges that come with them, domestic brands have yet to claim a dominant share of the national market. As industry titans like Columbia Care, Curaleaf, and Trulieve watch the states get closer to federal legalization, they’ve doubled down on their efforts to properly position themselves in the market, develop a greater degree of product consistency, and push for more widespread brand recognition. This is being done through M&As. In late November, the Subversive Capital Acquisition Corp. announced that they were in the process of purchasing Caliva and Left Coast Ventures and that the deal would be completed by January 2021. This is simply the first of many to come. Expect to see MSOs paying premium prices to scoop up businesses that have sizable and hard-won brand recognition and loyalty.
Prepare for Amazon and national brands.
This future widening of the distribution network brings up another point: national brands. Right now, can you think of the #1 brand that dominates the market share nationwide? Trick question – it’s impossible! Each state has its own most popular brand, but none are nationwide premier brands. 2021 will change this and we have a few ideas on who this will be and why.
Nielsen predicted that Amazon will be entering the market soon and we believe them. The massive logistics company can help alleviate the current distribution challenges, but whenever outside kingpins enter the space, it’s likely they’ll bring in some other game-changing pros and cons.
CBD products become normalized.
Between Lord Jones’ success in global beauty store, Sephora, and Nielsen’s recent prediction that conglomerate Amazon will enter the CBD space, it’s clear that major established names will continue to enter the cannabinoid space. The billion dollar predictions and growing number of CBD regulations has created an environment that more established retailers feel safe entering into, so in 2021, expect to see your favorite companies dipping a toe into the cannabinoid pond.
Stigma no more.
With many states and cities hurting as the true economic impact of COVID begins to hit, government officials will call for financial reform. In comes the cannabinoid industry, a potential goldmine of tax revenue, job opportunities, and unfettered economic growth. In 2021, cannabis (and, by extension, cannabinoids) will shed the last of their remaining stigma and be embraced as a viable, safe industry.
2021 will be a major year for regulations.
US MSOs will have to transition to the same GMP and food safe regulations imposed on Canadian LPs. Be proactive and start working toward these now. It takes a sizable amount of resources to ensure that you’re meeting these standards and when (not if) this is mandatory, it will be a mad dash to the finish line. Avoid the rush and start as soon as possible.
Influencer Partnerships will emerge.
Equity partnerships with influencers is the best growth hacker, especially in an industry where traditional advertising has been barred. Big brands like Cholula, Fitness Performance Tech, and Body Armor have always been on the hunt for the next best partnership opportunities, and as athletes begin to open their own dispensaries and cannabinoid brands, the public will start to see synergistic marketing efforts between the two. Expect this to be a common occurrence in the space as regulations continue to soften and the big industry players duke it out to see who will be the top dog.
Pricing Will Start Trending Down.
The increase in clone pricing could be a sign that companies are turning to indoor hemp cultivation for smokable flower where the main method for cultivation relies on clones instead of seeds. Furthermore, the decrease in overall licensed and planted acres of hemp could be another signal that indoor cultivation is providing a viable product for the market. As such, prices are significantly down when compared to a year ago.
CBD isolate prices also continue to trend down, and this could potentially open opportunities for new consumer adoption. Lower COGS means lower consumer prices which means a new pricing tier, and this will allow a larger number of people to try CBD products.
*DISCLAIMER: We are not public accountants and are only providing our opinion as it relates to the tax code. We strongly recommend you conduct your own research and always seek the advice of a certified public accountant (CPA) to file your personal or business taxes.
The cannabis industry’s allure lies at the end of its prohibition, but it’s important to remember that the prohibition has not yet been federally ended. This means that those operating in the space, especially those that “touch the plant”, face several unique business obstacles including opening a bank account, handling payroll, and taking out loans. Perhaps the biggest hurdles of all, though, are managing cash and filing taxes.
While accepting and paying in cash is legal, the issue for those in the cannabis industry often lies in the value of the product that’s being traded in cash. Cannabis is currently the highest value ‘agricultural commodity’ with prices hovering around $1500 / lbs. for high THC biomass and around $250 / lbs. for high CBD biomass. This elevated price tag equates to companies keeping hundreds of thousands of dollars in hard cash on hand in order to facilitate transactions. Unsurprisingly, this poses a significant security risk which results in higher operating costs to conduct normal business. The additional capital is deployed in the form of installing and maintaining numerous cameras to record every inch of the facility, fencing in the entire property, staffing professional security services, installing radio frequency identification device (RFID) door locks, employing resources to track people that enter the facility, and implementing state required track and trace software programs.
The other burden that wholesale businesses face with these cash-only sales is that, oftentimes, these businesses exceed the $10,000 IRS threshold for cash transactions. Above this threshold, the parties involved are required to use Form 8300 to report the transaction to the U.S. Treasury. It’s important to note that Form 8300 data is maintained by the Financial Crimes Enforcement Network (FinCEN), a branch of the U.S. Treasury. There’s a list of DOs and DON’Ts when filing Form 8300, and we encourage anyone interested to read up on the tax code prior to calling their lawyers and accounts. Here are a few good places to get started:
The amount of cash and the paperwork involved with it can burden many startup companies in the space, and we’ve personally witnessed the myriad of problems that can arise in these situations, from not being able to handle payroll to having personal accounts frozen.
In regard to opening a bank account, the best advice that we can provide is to meet with a highly skilled accounting firm and tax attorney prior to initiating conversations with banks. For payroll purposes, there are highly trusted operations companies like the Caputo Group that can help manage the licensed cannabis businesses’ cash so that payroll is handled like any other business. This work around also allows employees to receive sought-after benefits like workman’s compensation and insurance.
While on the topic of taxes, it’s important to understand their role in the cannabinoid industry and why they always tend to be intertwined into the topic of cash. This is mainly because cash businesses and transactions always carry with them the stigma of underreporting company revenue. The main issue, however, when it comes to cannabis and taxes is how to navigate ‘IRS Code Section 280E’. In short, Section 280E of the IRS Code states that businesses cannot write off normal expenses if the business engages in trafficking-controlled substances prohibited by federal law, i.e., cannabis and THC products.
To work against this, cultivators and producers often apply what is known as the “full absorption cost method of inventory costing”. We’ll leave the details for you and your accountant to cover, but this method utilizes the cost of goods sold (COGS) and other inventory management strategies to mitigate the burden that Section 280E applies to these businesses. For retailers and distributors, the most common strategy we’ve seen employed is the use of cost basis purchases. The end goal is the same as the full absorption cost method: to mitigate the burden that Section 280E places on startup companies.
Excitement around federal cannabis legalization in the US has never been higher, but until this happens, there will still be a minefield of paperwork and red tape that you need to wade through if you’re looking to enter the cannabis industry as a business owner. Though people’s enthusiasm is a good omen for the future success of the industry, this unbridled eagerness, combined with the space’s current lack of stability, has manifested itself as a ‘cannabis tax.’ This ‘cannabis tax’ equates to paying higher prices for standard services such as banking, accounting, payroll, and taxes.
It’s clear that the lack of standard regulations in the industry from state to state adds to the challenges of operating a cannabis business, but we’re confident that educating the companies’ leadership team on how to handle these cash-driven obstacles prior to starting will increase cannabis businesses’ chance of success.
**Please note this article is part of a larger series that was first released in the April 2021 Monthly Playbook. If you would like to receive the complete monthly playbook you can sign up here
Part 5: Cannabis Extraction Methods
The separation of the wide array of compounds in Cannabis sativa is becoming more important as regulations on cannabinoid-containing products become more stringent. There are a few common methodologies used for extraction in the cannabis industry.
Depending on the intended final product, incoming processing can include separation of the flower portions with the highest concentration of cannabinoids and terpenes. Then the extraction of the terpenes and the cannabinoids can begin. Though mechanical separation methods exist, this article will focus on the most common solvent-based extractions: hydrocarbon, ethanol and super-critical CO2. Solvent extraction methodologies have been around for millennia since the ancient Egyptians made tinctures by soaking herbs in ethanol. Tinctures are created by putting the herbs into a liquid, usually alcohol, to extract the flavors, healing components, etc.
The basic solvent extraction is based on historical methods, although we have made technological advances to help us control the processes over the centuries. Today, common organic solvents include ethanol [1], butane, and propane.[2] Water extraction will not be covered in this article due to its low yields of cannabinoids and terpenes.
Alcohol extraction uses ethanol and is one of the most common and efficient methods of extracting the cannabinoids. The initial step is to soak the raw material in ethanol to remove the trichomes. The polar end (-OH group) of the molecule helps dissolve the hydrophilic compounds, such as chlorophyll. The non-polar end (C2¬H5) helps to dissolve the hydrophobic compounds such as the plant waxes, oils, cannabinoids, and terpenes.
The process can be done in either warm or cold ethanol. In warm or room temperature ethanol, the cannabinoids dissolve quickly leading to a high yield of cannabinoids. However, the warm ethanol extraction process also dissolves plant lipids including the chlorophyll, which causes a strong bitter taste. By dropping the temperature of the ethanol to less than -30˚C (-22˚F), you decrease the solubility of all the compounds leading to a much slower dissolution of the products into the ethanol. However, it is also below the freezing point of many plant waxes which means that many of the compounds will be solids. The impurities separate from the cannabinoids and can be easily removed.
Hydrocarbon extraction generally uses either propane or butane. Propane and butane are small hydrocarbons, made only of carbon and hydrogen atoms, that are non-polar with low boiling points, (-44˚F and 32˚F, respectively) [3]. The initial extraction washes the raw material with the cold hydrocarbon.
The non-polarity of the molecules helps easily dissolve the cannabinoids, waxes, fats and lipids. Unlike ethanol, there is no polar end to help with the dissolution of certain undesired compounds such as chlorophyll. The terpenes are also easily dissolved in the hydrocarbons, though the flavonoids have limited solubility. The hydrocarbons with the products of interest can be separated by flowing the mixture into a separate area and raising the temperature.[4] With low boiling points, the hydrocarbons evaporate at -44˚F (Propane) and 32˚F (Butane) leaving behind the waxes, fats, lipids, cannabinoids, and terpenes.
After the separation of the hydrocarbons from the extract, the propane or butane can be recirculated though the biomass creating a closed-looped system. The result is an extract that is relatively free of inactive plant matter such as chlorophyll. Hydrocarbon extraction is losing popularity primarily due to regulations for handling propane/butane and stigma attached to a using a hazardous chemical for the extraction.
The final extraction method uses super-critical CO2. Outside the cannabinoid industry, supercritical extraction methods are used for the production of high-quality hempseed oil, extracting caffeine from coffee, removing pesticides from agriproducts, etc. [5] At standard temperatures and pressures (room temperature and sea-level atmospheric pressure), all molecules are in their natural state of matter: solid, liquid, gas, or plasma. One can change the state of matter by changing the temperature or the pressure or both. A good example of this would be creating ice cubes in your freezer. Without changing the pressure, you can turn the water into ice by lowering the temperature.
When modulating the temperature and pressure of a system, liquids and gases can hit a critical point where they exhibit characteristics of both liquid and gas. They take up the entire space (more compressible) like gases and have liquid-like densities. This is called a supercritical fluid.[7] Figure 2 shows the phase diagram of Carbon Dioxide (CO2). Using CO2 has several advantages, it is nonflammable, non-toxic, relatively inert, abundant and inexpensive. [8, 9]
The other main advantage is that at a temperature of 31˚C, you can maintain the supercritical liquid at 74 bar.[6, 7] The various components of cannabis have different solubilities at different temperatures and pressures, thus allowing a clean extraction of the target compounds. However, one study has shown that the concentrations of different products can be extracted at different rates, so the extract should be analyzed. [2, 8, 10]
References:
J. Plotka-Wasylka, M. Rutkowska, K. Owczwarek, M. Tobiszewski and J. Namiensnik, “Extraction with environmentally friendly solvents,” Trends in Analytical Chemistry, vol. 91, pp. 12-25, 2017.
M. May, “The Best Extraction Methods for Marijuan concentrates,” 3 May 2018. [Online]. Available: https://www.analyticalcannabis.com/articles/the-best-cannabis-extraction-methods-for-marijuana-concentrates-300434.
L. G. Wade, Organic Chemistry, 4th Edition, NJ: Prentice hall, 1999.
Marijuana Business Magazine, “Choosing the right cannabis extraction method: Experts weigh in on CO2, hydrocarbon & ethanol,” Marijuana Business Magazine, 2018.
Le Portail Des Fluides Supercritiques, “Applications,” Le Portail Des Fluides Supercritiques, [Online]. Available: http://www.supercriticalfluid.org/Applications.149.0.html.
M. Ollero and D. Touboul, “Lipidomics by Suprictical Fluid Chromotography,” International Journal of Molecular Science, vol. 16, no. 6, 2015.
P. Atkins and J. de Paula, Physical Chemistry, 7th Edition, Oxford Univerisity Press, 2002.
C. L. Ramirez, M. A. Fanovich and M. S. Churio, “Cannabinoids: Extraction, Methods, Analysis, and Physiochemical characterization,” Studies in Natural Products Chemistry, vol. 61, pp. 143-173, 2019.
Airgas, “Safety Data Sheet – Carbon Dioxide,” 12 February 2018. [Online]. Available: https://www.airgas.com/msds/001013.pdf.
A. Beadle, “Advances in Cannabis Extraction Techniques,” 25 June 2019. [Online]. Available: https://www.analyticalcannabis.com/articles/advances-in-cannabis-extraction-techniques-311772.
**Please note this article is part of a larger series that was first released in the March 2021 Monthly Playbook. If you would like to receive the complete monthly playbook you can sign up here
Cannabis Manufacturing for the 21st Century
Part 4: Chemical Difficulties of Real-time Cannabis Process Control
The general product types used to be bud, oil and tinctures. Today, they are further separated into flower, extract, ingestible, tinctures, edibles, sublinguals, and topicals. Flower is still the most-used format although extracts are expected to have the most growth over the next decade. Currently, cannabis is defined by the two most common active ingredients: tetrahydrocannabinol (THC, psychoactive) and cannabidiol (CBD, non-psychoactive). However, there is a plethora of other cannabinoids, the chemical compounds in cannabis, not to mention terpenes as well as flavinoids.
The decarboxylation of CBDA to CBA[4]
Problems can begin to arise since the science of understanding how the diverse array of cannabinoids interact, individually and in concert, with the body is still in its fledgling stages. As research continues to explode in this area, growers and manufacturers are looking for new ways to improve the efficiency of their processes while being able to control the various cannabinoids in the proper concentrations.
The cannabis plant has over 400 chemical molecules and at least 60 of those are cannabinoids, chemicals unique to the plant. [1] [2] [3]. In the plant, cannabinoids are synthesized (made) and stored as cannabinoid acids. When dried, stored, and heated, the acid group (-COOH) comes off and we get the compounds that we are used to thinking about: CBD and THC. (see Figure 1)
While drying and storing allows partial decarboxylation, heating allows full conversion rates. However, the cannabinoids and the terpenes begin to break down over 300˚F, which can be avoided if a lower heat is applied over time. Thus, most conversion happens over time in temperatures just over 200˚F. A list of several known major cannabinoids is shown below. [5]
There are also over 100 known naturally occurring non-cannabinoid terpenes, the aromatic components, in cannabis. [1] [2] [3]. Research has shown that cannabinoids and terpenes work together, though the mechanism is still not fully understood. Common terpenes in cannabis include myrcene (mango), limonene (lemon), pinene (pine tree), linalool (lavender), caryophyllene (black pepper and cinnamon), humulene (hops, basil, clove). Myrcene is the primary terpene in cannabis plants and is responsible for its distinctive aroma. [3]. However, pot-smelling canines are trained to detect β-caryophyllene. For many growers, they cultivate certain strains with known concentrations of various terpenes to create unique odors for their products. Many manufacturers buy custom blends made from botanically derived terpenes. [8]
By extracting and separating the various compounds, especially the CBD and THC, the manufacturers can use analytical methods, such as spectroscopy, to quantitatively measure their compounds and control the actual concentrations of the active compounds in their products, and the manufacturers can precisely control the concentrations of their products including oils, edibles, etc. A difficulty arises in spectroscopy as many of the compounds are similar and thus will give similar spectra. As mentioned previously, statistical models are used to help differentiate the compounds to help enable real-time spectroscopic monitoring of the compounds of interest.
References:
Z. Atakan, “Cannibis, a complex plant: different compounds and different effect on individuals,” Therapeutic Advanced in Psycopharmacology, vol. 2, no. 6, pp. 241-254, December 2012.
National Cannibis Prevention and Information Centre, “Cannabinoids,” Alcohol Drug & Abuse Center / University of Washington, 2013.
M. Jacobs, “The Difference Between Cannaboids and Terpenes,” February 2020 2019. [Online]. Available: https://www.analyticalcannabis.com/articles/the-difference-between-cannabinoids-and-terpenes-311502.
A. Beadle, “CBDA Vs CBD: What are the Differences?,” 18 October 2019. [Online]. Available: https://www. analyticalcannabis.com/articles/cbda-vs-cbd-what-are-the-differences-312019#:~:text=Once%20CBDA%20 has%20been%20formed,lose%20its%20acidic%20carboxyl%20group.
Way of Leaf, “top 10 Cannabinoids: What Are They and What Do They Do,” Way of Leaf, 28 january 2020. [Online]. Available: https://wayofleaf.com/education/top-cannabinoids-and-what-they-do.
K. Holland, “CBD vs. THC: What’s the Difference?,” 20 July 2020. [Online]. Available: https://www.healthline. com/health/cbd-vs-thc#medical-benefits.
M. Dingman, “Neuroscientfically Challenged,” 7 July 2017. [Online]. Available: https://www.neuroscientificallychallenged.com/.
E. Friedmann, Interviewee, Internal Company Cannabis Discussions. [Interview]. 8 September 2020.
**Please note this article is part of a larger series that was first released in the February 2021 Monthly Playbook. If you would like to receive the complete monthly playbook you can sign up here
Cannabis Manufacturing for the 21st Century
Part 3: Spectroscopy & Online Process Control for Cannabinoid Manufacturing
Spectroscopy is an analytical tool that started as a qualitative, identification method. However, it soon became apparent that the data can also provide quantitative insights.
Spectroscopy is the measurement of the interaction of electromagnetic (EM) radiation with matter. Visible (Vis) light and heat (infrared/IR light) are the most well-known forms of radiation, but it also includes gamma rays, x-rays, ultraviolet light, microwaves, and radio waves. Each of these types are differentiated by the amount of energy they possess. Ultraviolet light has more energy than visible light, which is one of the reasons it can cause sunburns, skin cancer, and eye damage. For the purposes of spectroscopy, the amount of energy is often denoted in units of wavelength.
A typical seeing person will qualitatively use spectroscopy everyday as they perceive the colors of different objects. Spectroscopic instrumentation allows a user to precisely quantify these observations. For example, branding colors such as Coca-Cola’s or Tiffany & Co.’s have exact colors that are created using specific mixtures of dyes. Online analysis can monitor the creation of the dye during its formulation and blending to ensure that not only is it the right color mixture every single time, but also at every location the dye is manufactured.
SPECTROSCOPY SCHEMATIC
Many spectroscopic instruments utilizes wide-spectrum light that has its broad range of wavelengths physically spread out by an optical component, such as how a prism creates a rainbow of colors. Once the different wavelengths are spaced out, you can place an array of detectors to quantitatively monitor the amount of light at each wavelength. When the light hits a molecule, the two can interact and the molecule can absorb some of the light. Most optical spectroscopies rely on the absorption or transmission of light by a sample and, in general, this absorption of UV, Vis, or IR is non-destructive. [1] The detectors monitor this change (See Figure 1).
With advances in technology, data can often be gathered in milliseconds. Quantitative information is possible because there is a strong proportional connection between the concentration of the chemicals of interest and the amount of light absorbed. The main advantages of spectroscopy is that it is a quick, cost effective, and passive technique that can provide both qualitative and quantitative analyses.
Process tank with an integrated spectroscopic Solution Process Tank
UV-Vis, near-IR, and mid-IR spectroscopies all rely on the transmission/absorption of light at certain wavelengths. UV-Vis spectroscopy works with the excitement of electrons. The spectra tend to have few features that can cover several hundred nanometers. Near-IR and mid-IR work with the excitation of the vibrations of the atoms within the molecule. The absorption of light in the near- and mid-IR ranges causes numerous features that are usually not as broad as UV-VIS spectral features. The combination of all the features are unique to the molecule. Thus, vibrational spectroscopy can be extraordinarily useful for identifications. [1]
A mix of chemical species can create a matrix with overlapping spectral features. Untangling the intertwined data often requires expertise and numerous hours to create a statistical model that can identify and quantify the product(s) of interest. Software uses the model to quickly covert raw data/spectra into useful information such as the identities of the chemicals in the matrix and their concentrations. Using this data, spectroscopy can be the analytical tool for both qualitative and quantitative checks. For example, a quick check of the amount of moisture in a sample. It can also check a reaction’s progress by monitoring the concentrations of the reactants, intermediates, and/or products.
In the real world, methods exist for incorporating these analytical tools directly into a reactor or pipeline to measure the “sample” directly in the process continuously and in real-time (see Figure 2). This saves both the time and necessity of physically taking samples, both of which can cost a chemical plant millions of dollars. It also allows real-time monitoring of a process where it can be immediately apparent if something unwanted is occurring so that corrective steps can be taken. Beyond the value of instant insight, advanced process sensors also give the benefit of big data aggregation, where additional efficiencies and optimizations can be gained over time.
Outside of the chemical industry, spectroscopy is used for a multitude of applications. An example is the aforementioned measurement of color. Spectroscopy is also widely used in the pharmaceutical industry to measure the various steps of the Active Pharmaceutical Ingredient (API) creation. In the world of forensics, spectroscopy is often used in tandem with other methods to help identify unknown compounds, allowing for a strong case file to be built. In the cannabis industry, spectroscopy has already been implemented to quickly determine the CBD and THC levels [2] as well as moisture % and water activity in dried flower [3].
In the next installment of this series, we will cover the chemical difficulties of cannabis.
References:
D. a. Skoog, F. J. Holler and T. A. Nieman, Principles of Instrumental Analysis, Orlando: Saunders College Publishing, 1998.
Purpl Scientific, “Validation of the Purple Pro for Flower Potency Measurement,” May 2019. [Online]. Available: https://www.purplscientific.com/validation-of-the-purpl-pro-for-flower-potency-measurement/.
Purpl Scientific, “Validation of the Purpl Pro + H2O Pack for Cannabis Water Measurement,” 2020 July. [Online]. Available: https://www.purplscientific.com/validation-of-the-purpl-pro-h2o-pack-for-cannabis-watermeasurement/.
