THOUGHTS

Arizona is one of the more attractive cannabis markets to recently allow adult use sales. What’s even more attractive is how quickly their legislators were able to implement regulations allowing for sales to commence. In order to determine which product categories have the most upside, we looked at several variables, such as the ideal temperature the product requires, and New Frontier’s historical sales data. Based on this information we believe the most promising product category is vape pens. The vape pen product category currently represents 32% of the total addressable market generating $352 million dollars. These margins, along with the fact that vape pens are optimal for warm environments like Arizona could mean that this product category may lead to fewer returns and higher customer satisfaction rates.

Addressable Arizona Cannabis Market by product sales from 2020

THOUGHTS

When comparing Arizona to an established market such as Washington, we can start to see differences in consumer preference based on geographic location. Washington and Arizona have populations above 7 million people with each cannabis market generating more than a billion dollars in sales in 2020. From a product sale standpoint Washington and Arizona product category sales distribution is much different. For example, in Washington vape pen sales only account for ~20% of the total addressable. The largest product category is flower generating $546 million dollars in 2020 alone. We speculate that the environment plays a major role in consumer purchasing. With the average temperature roughly 30 degrees lower in Washington than in Arizona, the chances the Vape pen doesn’t function

consistently increases. Colder temperatures tend to drive humans indoors more, where consuming flower is more functional and ingrained as a habit. Regardless of the true reason behind the difference in product preference, it is important to consider multiple variables before bringing a new product or brand to market in the cannabis industry.

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

The Uncertain Legal Status of Delta-8 THC in Texas

Goal: Discuss the current legal status of Delta 8 THC in Texas and review the complicated history of its legal status and user experience.

On Monday, November 8th, the Texas hemp industry scored a significant victory after state District Judge Jan Soifer granted a request for a temporary injunction against Texas’ ban on Delta-8, a request previously denied on October 25th. Delta-8 THC, also called Delta-8 tetrahydrocannabinol or Delta-8 THC, is found naturally in the Cannabis sativa plant and is viewed as a less potent alternative to Delta-9 THC. The injunction resulted from a suit filed by the cannabis company Hometown Hero, which argued that the Texas Department of State Health Services (DSHS) improperly revised its hemp policy to specifically prohibit products with more than trace amounts of THC isomers other than Delta-9, the most common psychoactive component of cannabis. Per the November 8th ruling, cannabis professionals are temporarily permitted to sell Delta-8 THC products in Texas, although it is highly likely that the state will appeal this decision. This ruling follows years of confusion regarding the legality of Delta-8 products, as well as the safety of Delta-8 itself. The FDA has warned that some Delta-8 THC products could pose health risks. The administration recently acknowledged adverse event reports in this past year involving 22 patients who reported side effects included vomiting, hallucinations, and other issues. The FDA also voiced concerns related to the production process of Delta-8, which can be synthetically produced by converting hemp-derived CBD and therefore may involve unsafe household chemicals depending on the manufacturer. Still, other anecdotal reports suggest a vastly different experience with Delta-8 products. The Texas plaintiffs and other consumers reportedly use Delta-8 products to treat anxiety, depression, insomnia, migraines, loss of appetite, chronic pain, and nausea. Access to these products, the signed November 8th ruling argues, ensures these individuals are not forced to “seek other dangerous alternatives, like opioids or street drugs.”

The ambiguity around Delta-8’s safety and health effects extends to its legal status, which stubbornly rests in a gray area. Confusion among both consumers and producers began with the 2018 Federal Farm Bill, which removed hemp from the list of federally recognized controlled substances. Delta-8 is derived from hemp, which is federally defined as cannabis with 0.3% or less of Delta-9 THC in it, whereas marijuana is cannabis that contains more than 0.3%. Because Delta-8 is not addressed in this bill nor in the 2019 House Bill 1325, legalizing production and sale of hemp products in Texas, the legality of the product was assumed. Yet according to TX state health press officer Lara Anton, HB 1325 did not legalize Delta-8 because hemp is legally defined as, containing 0.3% or less Delta-9 THC – not Delta-8. “At the request of hemp growers who said there was confusion in the industry, DSHS posted the clarification statement at the top of the Consumable Hemp webpage last month,” said Anton. Expectedly, this spiked confusion and frustration among Hometown Hero staff and other cannabis industry professionals. “How do you, as a state, take 10,000 people and make them (eligible) felons overnight?” asks Hometown Hero CEO, Lukas Gilkey Although DSHS insists that THC – and therefore Delta-8, as an isomer of THC – has been on Texas’ Schedule I Controlled Substances list since 1989, state troopers in TX have made no arrests concerning the sale or possession of Delta-8 products. As of now, the increasingly popular cannabis derivative can be sold legally in vape cartridges, tinctures, and candy at CBD stores across Texas. Yet industry professionals predict a long road ahead for sellers and consumers of Delta-8. More than likely, the ensuing battle will establish legal precedent that expands beyond state boundaries, prompting further research and discussion of the safety concerns, economic benefits, and health uses of Delta-8 and other isomers of THC.

Take-Aways:

• The recent November 8th ruling in Texas regarding Delta-8 THC grants temporary legal status to the isomer of THC, but industry professionals expect the state to appeal the decision.
• For now, cannabis professionals are free to sell products with Delta-8: an isomer of THC that exists in a legal gray area and has prompted safety concerns regarding its production and health benefits.
• Consumers, sellers, and producers have expressed frustration with unclear legal definitions of Delta-8 and other THC isomers, calling for increased legal clarity to ensure safe and reliable access to Delta-8 products.

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

“Maximum absorption of most CBD products is reached within the first 60-75 minutes and then quickly declines. Pure+Wisdom addresses this challenge by incorporating proprietary Extended-Release technology and micro-encapsulation to the CBD molecules (and to the CBG and CBN as well) in order to provide more extended and consistent absorption amounts for up to eight hours.”

Visit Pure Wisdom Foods at https://purewisdomfoods.com/

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

Regardless of the business you are starting, raising the funds you and your partners need to start and expand your business is always a challenge. Entrepreneurs in the cannabis space are no different. In fact, new cannabis businesses face additional obstacles in raising capital.

Plant touching businesses face 280E tax restrictions, banking obstacles, and regulatory barriers that can make raising capital more costly and complex. New entrepreneurs can find the world of fundraising daunting. Longtime successful legacy operators need to change their mindset and expand their skillset to compete in the new legal marketplace.

How do you set a valuation on a company that has no revenue? How much equity should you give to investors? Is a SAFE Note the right instrument for your SEED round? Do you need an investor deck and what should be in it?

Before investors will part with their cash to invest in a cannabis business, they are going to have tough questions. You need to understand the vocabulary and world of investors and venture capital if you are to open the doors to your new cannabis business and have enough runway to get to profitability or to raise another round.

Whether you are raising your seed round to open a dispensary in your local community or heading into your Series A for the seed to sale SAAS company you and your partners built from scratch on the weekends, knowing the ins and outs of fundraising is a must. Arcview and Oaksterdam University have teamed together to create an online collaborative experience to help guide you through the complexities of fundraising in the cannabis industry.

For more information check out Raising Funds for Cannabis Businesses at Oaksterdam

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.