Search Results for "280e"

Harborside Appeals Cannabis Tax Ruling in Federal Court

California cannabis company Harborside is continuing its legal challenge to federal tax code 280E but is taking a different approach to the case along with a new legal team, MJBizDaily reports. The company argues that 280E is unconstitutional, running afoul of the 16th Amendment, which allows for income taxes, but attorney James Mann of Greenspoon Marder says 280E, “results in a tax that’s not on income, it’s not an income tax, so therefore it’s unconstitutional.”

The arguments come in a May 26 appeal filed by Mann on behalf of Harborside. In short, 280E prevents standard business deductions by companies that deal federally illegal drugs, including cannabis even when state-approved. In 2018, the U.S. Tax Court ruled against Harborside calling the firm “a giant drug trafficker, unentitled to the usual deductions that legitimate businesses can claim” because cannabis remains federally illegal.

Mann told MJBizDaily that decision “is just wrong” and calls the determination by the Tax Court and the Internal Revenue Service that state-legal cannabis businesses aren’t afforded the same cost of goods sold deductions “crazy.”

Former IRS officer William Fowler, now a senior adviser with Nevium Intellectual Property Consultants, told MJBizDaily that Harborside is “dreaming” and “grasping at straws” and that the lawsuit risks further entrenching the IRS’s position on 280E.

“They’re really pushing the industry to have some really tight rulings on this. The IRS is preparing more guidance on this, so (Harborside) should have waited until they got that guidance. To me, those arguments are weak, and it’s not good for everybody else.” – Fowler to MJBizDaily

Mann argues that the legal issues in the case are ripe for appeal and that the 2018 opinion was “ill-considered.”

The case is in the U.S. Court of Appeals for the 9th Circuit in San Francisco and a decision on the matter could take years. The original lawsuit by Harborside was filed in 2016 and a decision wasn’t issued until 2018.

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California Cannabis Tax Revenues Pass $1 Billion

Cannabis-derived California tax revenues have reached $1 billion in just over two years since the launch of recreational sales, the Orange County Register reports. Most of the funds have been used to cover cannabis industry regulatory costs and those associated with the cleanup of public lands harmed by illegal grows, cannabis research, and childcare for low-income families.

Growth, however, has been lower than expected in the nation’s largest cannabis market; slowing in the fourth quarter to 1.5 percent down from 15.5 percent in previous quarters, according to Department of Tax and Fee Administration figures outlined by the Register. The first three months of legalized sales in the state brought in $72.6 million in tax revenues to the state, while the last three months of 2019 brought $172.7 million. California officials had expected to raise $1 billion a year from cannabis industry-derived taxes.

According to the report, 75 percent of cannabis sales in the state still happen illegally as prices at licensed dispensaries are 30 percent to 80 percent higher than prices in the illicit market. California’s tax structure includes a 15 percent excise tax, regular state sales taxes, a cultivation tax by weight, and municipal taxes which can be as high as 20 percent. On January 1, officials actually raised wholesale taxes on flower, leaf, and plants. Regulators said those tax hikes were in line with inflation.

Last October, Gov. Gavin Newsom (D) signed a bill that would override section 280E of the Internal Revenue Service Code allowing state-approved cannabusinesses to take normal business deductions. Lawmakers have introduced bills to eliminate the cultivation tax and temporarily lower the excise tax; however, similar bills have previously failed in previous sessions.

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Buffalo Law School Offering Cannabis Course

New York’s University of Buffalo School of Law this month offered its first legal cannabis industry bridge course –  “The Green Rush” – aimed at compliance and other legal issues in the cannabis space, according to a UBNow report.

The course is being co-taught by UB Law alumni Aleece Burgio, head of Barclay Damon’s multidisciplinary cannabis practice team, and Lee Williams corporate counsel at the Dent Neurologic Institute and supervisor of the Dent Cannabis Clinic’s legal and compliance program. According to the report, the Dent clinic has certified more than 10,000 medical cannabis patients in New York.

The course covers the history of the plant, the science, how it is regulated by federal, state and local governments, criminal law, social equity, CBD, Internal Revenue Service code 280E, real estate, elder law, employment, banking and finance, international law; and how medical cannabis programs have been managed.

“The war on drugs made it taboo to talk about marijuana. But now it’s a real business, it’s a career for a lot of lawyers, and it’s something that’s going to blossom. And in New York, we’re right on the edge.” – Burgio, to UBNow

Burgio, whose first job out of law school was for a boutique law firm in Portland, Oregon helping cannabis startups, said that a lot of employers are looking to build cannabis-focused practices and having the background in legal cannabis law issues gives newly-minted lawyers “a foothold.”

“If a young attorney offers to be the person who takes an interest in it, that really helps,” she said in the report. “There is opportunity for you to grow in New York as an attorney, and if you can stay on top of these ever-changing regulations, you can really do well.”

According to the university’s course catalog, the one-credit course had 38 of 40 students enrolled and ran through January.

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California Raises Wholesale Taxes on Cannabis Flower, Leaf, and Plants

California is raising its cannabis tax rates on flower, leaves, and plants effective January 1. The California Department of Tax and Fee Administration says the rate hikes “reflect an adjust for inflation” as required by the state’s Cannabis Tax Law.

The flower taxes per dry-weight ounce are being raised from $9.25 to $9.65, while leaf taxes per dry-weigh ounce move from $2.75 to $2.87, and the plant rates will increase from $1.29 to $1.35.

“The 15 percent cannabis excise tax is based on the average market price of the cannabis or cannabis products sold in a retail sale. The mark-up rate is used when calculating the average market price to determine the cannabis excise tax due in an arm’s length transaction. In an arm’s length transaction, the average market price is the retailer’s wholesale cost of the cannabis or cannabis products, plus the mark-up rate determined by the CDTFA. In a nonarm’s length transaction, the average market price is the cannabis retailer’s gross receipts from the retail sale of the cannabis or cannabis products.” — CDTFA, Cannabis Special Notice

In October, Gov. Gavin Newsome (D) signed a bill overriding Section 280E of the Internal Revenue Code which allows cannabusinesses to take normal business deductions when calculating their state taxes.

Critics have argued that California’s cannabis taxes are already too high, and a United Cannabis Business Association report in September suggests that unlicensed cannabis operators outnumber legal cannabis businesses in the state 3-to-1.

The state had anticipated cannabis tax revenues would be worth $355 million this year and $514 million in 2020, but in May those estimates were adjusted to $288 million this year and $359 million next year. In May, the Appropriations Committee rejected a bill to lower the state’s cannabis taxes. That measure would have reduced the excise tax from 15 percent to 11 percent and suspended the cultivation tax for three years.

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California Gov. Approves Cannabis Tax Overhauls

California Gov. Gavin Newsome (D) signed a bill into law on Saturday that will override the infamous Section 280E of the Internal Revenue Code, which has blocked cannabis businesses from taking advantage of the usual tax deductions afforded to other American businesses, Tom Angell reports for Forbes.

Despite the growing hype around the industry, cannabis businesses nationwide have long struggled to break even or stay afloat due to Section 280E. AB-37, proposed by Assemblymember Reggie Jones-Sawyer (D-Los Angeles), would relieve a significant amount of that pressure for California cannabis companies.

“This bill, for each taxable year beginning on or after January 1, 2020, and before January 1, 2025, would specifically provide in the Personal Income Tax Law for nonconformity to that federal law disallowing a deduction or credit for business expenses of a trade or business whose activities consist of trafficking specified controlled substances only for commercial cannabis activity…” — Excerpt from AB-37

AB-37 was approved alongside many other cannabis-related bills, including one bill instructing officials to create and submit an industrial hemp program satisfying the USDA’s requirements and another bill implementing cannabis compassion programs to benefit low-income medical cannabis patients.

The governor, however, chose to veto legislation that would have allowed the use of medical cannabis products in hospitals, saying the bill departed too far from federal laws and would risk losing federal Medicare and Medicaid funding. “It is inconceivable that the federal government continues to regard cannabis as having no medicinal value,” said Newsom.

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American Bar Association Urges Federal Cannabis Law Reforms

The American Bar Association has issued a resolution calling for the federal government to allow state-approved cannabis programs to operate without interference; the resolution also calls for broad federal law reforms. The organization said the “gap between state and federal law has created a regulatory quagmire that is counter-productive for all parties interested in marijuana policy.”

In their report, the ABA points out that, since the Controlled Substances Act was passed, public support for cannabis law reforms “has ballooned” while federal law “has remained essentially unchanged.” A 2018 Gallup poll found 66 percent of Americans supported federal legalization – 75 percent of Democrats and 53 percent of Republicans – which was up from 56 percent 10 years prior. In 1969, public support for legalization was just 12 percent.

The association points out that while lawmakers have included riders in spending bills to protect state-legal medical cannabis businesses and patients, those riders “do not shield anyone in compliance with any state’s adult-use marijuana laws.”

“Moreover, the protection afforded by such riders is only temporary. If a rider lapses, both medical and non-medical marijuana users and suppliers would be subject to arrest and prosecution by the DOJ, and not just for their conduct going forward. Those using and producing marijuana could also be prosecuted for violations of the Controlled Substances Act they committed while the riders were in effect (so long as the statute of limitations has not expired).” – American Bar Association, Criminal Justice Section, Report to the House of Delegates

The report notes that, despite the riders, cannabusinesses are subject to unusually high federal taxes – specifically 280E – and often cannot obtain financial services.

The ABA offers support for the Tenth Amendment Through Entrusting States Act (STATES Act), which includes protections for state-approved cannabis programs.

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Travis Howard: The Business of Normalizing Cannabis

Travis Howard is the founder and Chief Strategy Officer for Shift, a Colorado-based cannabis producer and product manufacturer.

Travis recently joined our podcast host TG Branfalt for a conversation about his experience as an attorney in the early days of Colorado’s cannabis market, his transition to entrepreneurship, and the journey of founding several cannabis companies. In this interview, Travis offers a candid look at the current state of cannabis, talks about the difference between the industry’s earliest entrepreneurs and the major corporate investments that are becoming more common, what he expects from the cannabis movement in the coming years, and more!

Tune in via the media player below, or scroll down to read a full transcript of this week’s Ganjapreneur.com podcast episode.


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Commercial: This episode of the Ganjapreneur Podcast is made possible by 420-friendly service providers in the Ganjapreneur business directory. If you need professional help with your business, from accounting to legal services to consulting, marketing, payment processing, or insurance, visit ganjapreneur.com/businesses to find service providers who specialize in helping cannabis entrepreneurs like you. Visit the Ganjapreneur business directory today at ganjapreneur.com/businesses.

TG Branfalt: Hey there. I’m your host, TG Branfalt, and thank you for listening to the Ganjapreneur.com Podcast where we try to bring you actionable information and normalize cannabis through the stories of ganjapreneurs, activists, and industry stakeholders. Today I’m joined by Travis Howard. He’s the founder of Shift, who also is an attorney, helped the first wave of cannabis companies in Colorado.

He founded Kind Reviews, now PotGuide, and Green Dream Cannabis in Boulder in 2009 and 2010, respectively. In addition to his consulting business, he took part in various ancillary startups, including patient education, staffing, physician services, and wholesale exchanges. A ton of hats in this space. How are you doing this afternoon, Travis?

Travis Howard: I’m doing well, Tim. Thanks for having me. Appreciate you.

TG Branfalt: Really, really delighted to have you on. You’ve a huge breadth of experience. But before we get into the details about what you’re doing now, tell me about yourself. How’d you end up in the cannabis space?

Travis Howard: Well, I like to say we learned our macro-economics and I’ve been a demand side cannabis guy for most of my life. In 2009, dispensaries started opening up and I was interested in getting in there. I’ve had neck and shoulder issues from various car accidents and football, and the rest of it, talked to a doctor, qualified as a patient, and started meeting some of these folks and wanted to help spread the word. Also, there were some that weren’t very reputable or good. That all led into Kind Reviews that I founded with my brother. One thing led to another. I saw what was happening and I wanted to participate and found some ways in and some folks to work with on all the various items that you had listed previously.

TG Branfalt: When you went to law school, was that your focus? Did you say, “Hey, I want to focus on cannabis, or the cannabis industry,” as it ended up?

Travis Howard: No, not at all. The cannabis industry, to me, it’s just another outcry of all entrepreneurial pursuits. I went to law school specifically to become a better entrepreneur and to become a business attorney that could help other people entrepreneur. I love cannabis, and I love the industry. I think there’s a lot of stuff that we still have to do, from getting people out of jail, to full normalization. But underneath that, I really am passionate about entrepreneurialism, and how if we create more entrepreneurs, we’re unplugging people from the corporate system. They’re no longer batteries, they’re their own machines. They’re making good decisions for their employees, for their communities, because they need those people to support their business.

I just think the more entrepreneurs we have, the better community stewards we have, the better communities we have for our kids to grow up in. I think it’s a more healthy economy, if people diversify their portfolios. I don’t think we should be running the size of our economy off of just Fortune 500s, and we’ve seen that move up in the scale. That was my drive in the middle 2000s. The early 2000s when I went into law school was, I wanted to empower myself and others through entrepreneurialism. That just bled into cannabis because when I was practicing law, I got out of law school, and I went and helped my wife and her parents’ company. I was working with special needs speech therapy, and they were going through some transitions. I went down there and did some director of operations internationally, and ended up co-CEOing on the business there.

When I came out of that and moved back to Colorado, I hung my shingle to do the business law and the people that were calling remember all the businesses were crashing, there weren’t a lot of people starting new stuff. This is 2008, 2009 and early 2009 to mid 2009, I started getting a lot of calls into my law office for people that wanted to come from the underground and black market into the, at that time, technically gray market, although it really was white under the Colorado constitution.

But they were looking for leases, partnership deals, operating agreements, and everything that you would want in a normal business. But most of the big business law firms weren’t touching that platform. The early activists attorneys that laid the groundwork for us … At that time, there was the Rob Cory’s in the war and Edsons, and many more that … My apologies to them for stating their names, but they … All those guys that were out there fighting for so many people, they were predominantly criminal lawyers, constitutional lawyers, lawyers that we needed in the space, but there weren’t a ton of business attorneys that were willing to step up.

Vicente Sederberg at this point is one of the more famous law firms. Christian Sederberg went to law school with me. He was a year before me, and he had been focused on business. There was just a couple of us at the time, and I started meeting all these folks that were frankly getting rooked. The irony here, Tim, is that at that time period, you had a lot of business people that were willing to take risks. The ones that I saw, were predominantly from the real estate, either brokers, developers, owners, that … You remember that the economy was tanking, so auto was down at the time, and real estate and development was down at the time, generally in the economy.

You had a lot of people, that had previously been in the real estate world, that were now looking to join forces or move their real estate property or some of the cash that they had saved that they were going to put into a development into cannabis. Well, these folks coming into the cannabis were still called black market or illicit. The people that the business community had been looking down their nose at.

But what I actually saw in 2009 and early 2010, was a whole lot of real estate sharks preying on good natured mom and pop people that wanted to come in, and that is where I actually stepped in for some of my clients. I don’t want to overstate what I did. I was just one small cog in the wheel. But for my clients, we worked on a lot of bringing them up to equal representation and an acumen for these new partnerships that they were forming.

TG Branfalt: You’re saying you hung your shingle, which is one of my favorite turns of phrases. How did people find out about Jimmy? Was it word of mouth? Was this something that you actively advertised and gave out your card to a cannabis business owners?

Travis Howard: I did. It was interesting because, at the same time I was doing that, my little brother had called me and said, “Listen.” He’s like, “I bought these domain names, I had Colorado marijuana reviews, and I have Kind Reviews.” He goes, “I was out in California visiting a friend, and somebody mentioned this website where you could check out if the weed was good.” I was like, “Wait, what?” I’d come out of tech earlier, and during law school I’d started a company called Dealers Link with a couple of my friends that was a software exchange in the auto industry.

Tim called me, and he said, “I know you on tech, can you help me do something here?” I looked it up, and I was like, “That would be awesome.” I’d already got my patient card, let’s go and review these things, start this as a business. As I was going in and meeting dispensary owners, and asking them, buying samples and telling them that I was going to review this stuff online, sometimes I did it blind, sometimes I let them know so that they could give me any background information. I always gave an honest review.

But that’s when they’re like, “Well, who are you? Why are you doing this?” “Well, I’m a business attorney here in the area, but I’m passionate about cannabis and this is something that I’m doing in my spare time.” Well, three, four times being in there, all of a sudden those individuals were calling me back, being like, “Hey, I know you mentioned you were an attorney, would you be willing to work with me? I can’t get anyone else to take the business.” Then word of mouth spread. This was a close knit community. This is back when dispensaries were open under zoning laws. You had a business license, or a sales tax license, and that was it.

The state of Colorado hadn’t written their regulations yet, and growers were growing in their basement with patient cards, and that was what we call the backpacker days, where they were packing in. They’d show up with their backpack with five pounds a weed, and go down Broadway, where we were calling Broadsterdam or The Green Mile at the time. “Hey, do you want to buy any of my wares?” It was traditional guerrilla marketing at the time. The word spread through those individuals that I was open for business and willing to do work.

Truthfully at that time, I probably could’ve served a lot more clients, but it was hard with conflict of interest because everybody knew each other, everybody was working together. We just needed more attorneys to come in, and luckily a lot of brave souls did come in, because back then the Bar Association had issued no information on whether they wanted you doing this, not doing this, whether you could be a patient, use cannabis of course. All that stuff, at this point, has been settled with the Supreme Court and the Essex rules and all that stuff.

But, I remember a time talking to my wife and rereading that oath of office I took when I became an attorney, and I was reading it and I was like, “I don’t know if I’m supposed to be doing this, but this oath tells me that where there is the need, it is our duty and responsibility.” I looked at my wife, Beth, and I said, “I can’t imagine, aside from a criminal death row case or life imprisonment which could result out of some of this trafficking, where an attorney would be needed more.”

There’s a conflict between state law and federal law. They don’t know what’s going on. I was like, “I think we have to do this.” I just followed my heart and my gut on that, and that oath that I took. Then luckily, the Bar Association eventually saw it the same way, and said, “Yeah, we do need attorneys in this industry. This is something that’s going to be important.”

TG Branfalt: Can you describe to me the learning curve in those early days when regulations are being released? Right? You were just having to learn on the fly. Can you just tell me how you managed that?

Travis Howard: Oh my goodness. I had three desks in my office with every piece of paper that came out of the Marijuana Enforcement Division, and that 2010 run up to that … In August 2010, is when everybody met down at the dog track, as we all called it. It was an old … the racing track where they had put their first offices and everyone got in line to submit their first applications. But the rules were coming out. You were reading the Senate bill, you were reading the House bill, HB1284. I’ll never forget those, that letter and number combination.

I lived and breathed it. But on top of that, you had all these local districts. I think what most of the attorneys did was focus on Denver and some on Boulder, because Boulder had its regulations, its first version, before the State had regulations, which caused a whole another slew of stuff in Boulder that we later had to clean up as a community. But it was difficult. We were highlighting stuff every day, you were checking the website to see if any new clarifications … I remember I had Dan Hartman at the time, Mr. Seckman, there were numerous people, the MED, that I had their cell phone in my cell phone on speed dial, and I was calling and asking questions.

Back then, they picked it up directly and answered questions for the attorneys because they knew if they gave the attorney the information, that it was better than taking … that I could talk to my 40 clients versus having all 40 call them directly. It was just a lot of working together. I know that over the years, some of the industries felt like the MEDs worked against them, some, for them, the rest of it.

But in those early days when none of us really knew exactly what was going on, I will say on the defense of the Department of Revenue, they were very open and willing to talk to us and walk through that stuff, because it was a series of landmines. A lot of people lost their businesses because of some false step that they thought that the rule said this and didn’t mean that, and this person was eligible but not. It was interesting at the time. That’s for sure. No dull moments.

TG Branfalt: Tell me about what you’re doing now about … with Shift.

Travis Howard: Shift, at this point, is a tried-and-true cannabis brand. I’ve run the gamut from doing consulting to business operation contracting. We’ve done staffing and such. But I think the industry … About a year ago, I set out to help normalize the plant. I felt like that happened, to some degree, with a lot of people. Other states coming down, I wanted to normalize the business and the respect for the industry, which is why I quit practicing and went ahead and grabbed the license so that the peer group couldn’t say, “Well, you’re just doing it as an attorney to make money. You don’t really believe in this.” They couldn’t say that. They had to look me dead in the eye and be like, “Wow. You really do believe that this is okay because now you’re an owner and you’re doing it.”

We went through all those processes about a year ago. I was like, “Look, there’s a ton of activists out there that are doing a great job. There are a lot of people that … from Steve DeAngelos and the rest of them, to the mom and pops that are in Colorado and the states around us.” Now there is this massive wave of, the last year or two years of the Canadian public companies, Wall Street, big money funds, all the rest of this stuff. Now that we’ve got both of those book ends, what do I believe in the most? What was I passionate about at the beginning, that I think that the industry still wants? That’s on the consumer side.

That’s when I really decided to push Shift with the tagline Genuine Cannabis into a CPG, a consumer good branded products that … I’ve got the same heart and the passion that any mom and pop that has been here. I mean I’ve been smoking weed since the early ’90s, I’ve been through the black market, the gray market, and now the white market. I’ve had my bank account shut down personally. You can’t get a 401(k), I can’t be do 529s because all the broker dealers can’t take me because my social security is on the black list, and all these other things.

On the flip side, being a business attorney and having worked at some bigger companies and seen the business side, I know that there’s the combination that really is going to prove valuable for customers in the long term, and that is all the heart and the love of a brand that you can trust for products that you trusted before this stuff was even in white market. For supply side, a stable business that runs like a machine, but with a heart. You can go and get a little bit of great cannabis from a bunch of different people, but can they supply your business all day, every day and take care of you, of what you need to grow your business?

On the flip side, we’ve got a bunch of these big businesses that are just throwing money and machines over the top of it, that don’t have the heart, the passion and the soul that consumers want. For me, that is genuine cannabis, that is Shift. That’s what I’m setting out to bring to the world, and we’re doing that right now in about 40 to 50 dispensaries in Colorado and we’ve got three dispensaries open in New Mexico. It’s not longterm.

We’re probably not a dispensary brand, even though we have those licenses down there. We’re really looking to be a brand that other retailers can count on, and probably if they own a dispensary, they’re passionate about the products and the use, and they want to know that they’re going to get something from people that care as much as them. That’s the promise I’m making to retailers and the customers both.

TG Branfalt: You mentioned that you’re also in New Mexico, and now that you’ve experienced these different markets, and in various formats, California, Colorado and New Mexico, Maryland, and handful more via application and regulation work, can you tell me about some of the key differences that the average consumer or the average citizen might not understand about how … the differences between the states?

Travis Howard: Yeah. I think the main difference is the constituent that the program is supposed to support and take care of. When you look at New Mexico, and certainly no offense to their Department of Health, they’ve busted their button, tried very hard to produce good results. It’s difficult as a business down there because it’s clear the program is set up for patients. Everything was set up for the medical side, for the medical patient, for their needs. That’s where the program stemmed from, and that’s the foundational work.

When you flash forward to some of the other states that we’ve worked in, especially East Coast and Midwest states, it is clear who the programs are built for regardless of anything they’re touting about the patients. This is the Department of Revenue. That is the constituent, that is who they are working for. It’s about generating tax revenue, it is about generating profits in the corporations, it’s about ensuring that the people that come in to start those businesses, that get awarded the licenses, have the deep capital pockets that acumen in the connections potentially to Wall Street. It really is for the business community.

Now, that’s not to take away and say. In some of those states, that program also dovetails and works really well for the patients or for the recreational consumers. But in some programs, you’d get online and Google unhappy medical patients, and you’ll find the states that the programs aren’t really working for the patients but are working really well for certain businesses. I think probably one of the shining examples of that is Florida, where you have a handful of people that have those early licenses.

Most of those licenses have flipped for 40, 50, $100 million to public companies, and there’s patients all over the state that don’t have, and for the longest time didn’t have, access to enough product because a lot of those licenses hadn’t even opened up and started producing, or opening up dispensaries across the board, when clearly there were a lot of other businesses that were willing and ready to open if they could get licenses, but no more were issued. It’s easy to throw stones in the industry. Everybody’s got somebody that they’re mad at, a scape goat, and I try not to do that. It’s nothing little less than I teach my kids, like, “Try to look at the other side, try to put yourself in their shoes.”

But I haven’t been a patient myself for many years. Thankfully, I’ve worked through some of my issues, but … I don’t know. It’s tough. But I think that’s the major discrepancy between states, is this about the patients or is this about the business community, a.k.a, the Department of Revenue, who’s collecting revenue. But at the same time, Tim, we all have to be honest even as activists and people who care about this. This country normalizes things through profits.

I knew it back in 2010, that it wasn’t going to be Shangri-La, it wasn’t going to be this perfect Kumbaya moment, that if we wanted to actually get what we really wanted, which was the world treating this as a plant, like anything else, and putting it out there, that we were going to have to step into the language that the world, that this western society normalizes things through, and that’s profitability. If the thing couldn’t produce profits, if it couldn’t produce results for Wall Street, that we weren’t going to get actual normalization.

It was sad, but I felt like it was true then, and I feel like it’s true now. That doesn’t mean that I love it, it doesn’t mean that I wanted it to go this way, but I was never confused about how I thought it was actually going to work out. If we were going to have 50 states with legal cannabis, I didn’t think it was going to be, well, grow it at home and just let it be. I just never thought that that was how it was going to make it to all 50 states, unfortunately.

TG Branfalt: It’s an honest and astute observation, man. Just today, the AP, the Associated Press, released this of investigation, noting that when recreational comes to medical states, that the medical programs just plummet the patient health plan — I mean, isn’t that to be expected, and what are the … what’s going to happen? What’s the negative … What negative things are going to happen as that progresses?

Travis Howard: I’m certainly not clairvoyant, but I think there’s a couple things that I’ve witnessed and what I feel like is going to continue to transpire. Certainly, we know that of the original patient populations, you’ve got really what I call the OTC market, which is people that … they are treating themselves, but they’re treating themselves for items that are probably less, on a grading scale, than what the program really thought of when they made the patient program.

Then you’ve got the patients that were clearly identified with the inception of the program, and then you’ve got more recreational users that have been able to talk to their doctors and the doctors are like, “You know what? I feel like this is a fairly benign substance. If this guy’s telling me that it helps him, I’m fine with it.” You’ve got these three groups. When recreational does show up in an area, of course that first group is probably going to be like, “Well, I don’t want to go through the rigmarole of going to the doctor if I don’t have to.” The OTC market might stay as a patient, they might not, because the recreational team is able to move forward.

But what I think, I’ve seen a lot, is that when the recreational comes in, the State obviously … It doesn’t look good to have a high tax and penalty on medical patients. You bring in children with afflictions, you bring in adults with cancer, these sorts of things, and you set them on the stand and then you put them on the news and the State is trying to tax them. That just doesn’t look right, right? It’s a bad look for politicians, they’re not going to push it. They’re going to push where they’re making their money on licenses, tax, excise, the rest of it over to the recreational world.

Well, these are communities that run on taxes, so they’re going to be incentivized to either make those licenses easier to get, the regulations easier to work with, the investors and access to capital is going to be easier, so on and so forth. If you’re a business investor and you’re coming in off the sidelines, and this wasn’t your passion project, but you wanted to see where things are going, you’re looking out there and you’re going, “Well, recreational is moving forward. I believe that’s going to look like alcohol on some level in the future. I know profits come out of there. What if the medical ends up going to the pharmaceutical companies longterm?”

Well, if you’re an investor with $1 million or $100 million, which pool are you going to put that investment in? I don’t want to fight Big Pharma, but I could be myself a new big alcohol. The capital comes into the recreational side. The advertising, the branding, the product development, and that’s not to say there’s not some really great companies out there developing on the medical side. But if you look overall on where that cash is coming in and where the people, the new workforce, is coming out of alcohol, tobacco, wine, food, and all these other things that are going on CPG side, that are coming in to do the marketing and the product development, they’re going to be in the recreational space as well, because this is where they get to build a brand.

You see all of those things. I do envision that long term, you’re going to see more investment and product offering, which is only going to encourage more OTC patients to not go get their medical license because they can get the same products or better products. Looking at Colorado as an example, well, the medical still was forcing you to be vertically integrated and doing the 70-30 rule and all of this stuff. Whereas when you’re on recreational, people that were good at retailing got to do all their retail stuff, people that were good at growing, you had the lab start to process, and you saw this division of people specializing.

Well, you go into a lot of dispensaries that had a medical side and a recreational side, and there were more products offered on the recreational side because they could buy from any of the vendors that they wanted. I see that pattern occurring across the country and I don’t think that that pattern is going to necessarily stop. I don’t know. I have a lot of hope for the people that started out in the medical world, that were willing to put their freedom on the line and come out and be that first wave of people that put their fingerprints and submitted their powers of attorney to the State of Colorado, and all that other stuff, to get those first licenses that were medical that might be stuck as mom and pops. I hope they don’t just get washed out with pharmaceuticals.

At the same time, if there is Big Pharma and they are making advancements and they can make better Alzheimer’s drugs and better cancer treatments with cannabis, why would I not want them to do that? I mean, my grandmother passed away from complications of Alzheimer’s, my father was diagnosed with Alzheimer’s. He passed away last summer. My other grandmother had Parkinson’s. I mean, these are things … My stepfather is living with cancer right now. I mean, that’s like everyone in my family. Right? If Merck or Bristol-Myers Squibb or one of these companies that we’d like to vilify as a society, is able to put 500 million into research and grow THC out of yeast and put it into a thing that helps these guys, I mean, passionate or not, who am I to stand in the way of that?

I’m not so self-righteous to say that those people shouldn’t benefit too. But I am also cognizant of the fact that a lot of people took those first steps and are going to just get mauled over when that wave comes, and they’re going to lose everything because they tied it all up. Those are the ones, frankly, they’re going to be stuck with all the 280E taxation once the Feds fix that, and then all the big companies are rolling into. It’s one of those ones where you ducked the first wave and then three waves hit you. The truth is that there’s going to be a lot of early entrepreneurs and movers that are just going to get buried and pinned to the bottom of that thing and never make it out, and that sucks. There’s no doubt, but it’s the truth of where we’re at.

TG Branfalt: Do you think that 280E, it is what has prevented maybe some of these multibillion dollar corporations, alcohol companies, things like that, from getting into some of these more mature-

Travis Howard: No.

TG Branfalt: … markets?

Travis Howard: No, I don’t think that 280E really weighs on them at all, for the amount of money that they would spend and put into that, verse the capital outlay, especially the valuations on the stocks at this point. I really don’t think that that is the issue. I think there’s probably a handful of issues. Some of them are worried about brand tainting, and what does their community, how much of their sales are in the Bible Belt, and if something comes out and they’re public and they need to be disclosing this stuff. I think there’s some banking and credit card and FinCEN type stuff that probably keeps them out.

But when you’re looking at Colorado, why aren’t the pub codes here? Well, it’s because Hickenlooper said, “No.” I mean, flat out. I mean, I understand why in 2010, when the regulators were talking to everybody, why they didn’t want outside and public money in that stuff because we are one of those first movers. But by the time two, three, four states had gone after us and they had allowed out-of-state investment and public company investment and such like that, and Colorado just stood the ground and said, “Nope, we can’t do it. It’s the federal government.” It was just a cop out, and I think it was a way for some people in power to try to keep the industry in Colorado under wraps and under their thumb.

But I think Mr. Polis is quite aware. Where things are going this November, I think you’ll see a giant wave. All right? It’s been a disservice to a lot of folks out there that, that we’re able to put in their first 50 or $100,000 and get a dispensary open, and there was only a certain amount of independently wealthy people in Colorado that had an appetite for cannabis, and those people invested in certain companies. You saw LivWell go through the roof, and you saw Native Roots go through the roof, and you saw other companies that were able to put in and have that kind of cash and capital.

But if you didn’t have access to that person, and once the appetite for Colorado got invested into other places, you watch these other states, the Johnny-come-latelys, be able to go to a fund that’s based out of San Francisco or New York or Delaware or Connecticut, and bring in $50 million. The folks in Colorado that had bootstrapped up to three, four dispensaries, they just didn’t have the ability to do that. I am very glad and hopeful that some of that capital will come in and reward some of those good, hardworking people that did make it through the fight.

On the flip side, I’m sure there’s plenty of people that would take issue with what I just said, that are longtime activists and being like, “Nope, they’re going to come in here and they’re going to steamroll everything.” Well, that’s the other side of the coin. Again, it’s back to what I said, “What’s the reality?” There are going to be some good people that are going to get screwed in this, and there are going to be some good people that are going to get their final saving graces and be able to compete and keep the heart of this industry, from 2009, 2010 in Colorado, alive. But, as with anything, you swallow some good, you get a little bad. I’m not the arbiter of that, but that’s what I see happening.

TG Branfalt: I mean, you’re a very well-spoken, very super intelligent guy. Tell me about moving from being a cannabis lawyer to becoming a CEO, and what some of those challenges were, and how having that legal experience and that legal mind give you a leg up.

Travis Howard: That’s a good question. I appreciate the compliments. I’m just a guy out here learning on the street with everybody else. I don’t think there’s anything special about me except that-

TG Branfalt: You have a law degree.

Travis Howard: … I care. Well, I went to law school. I was very lucky. My dad paid for my undergraduate degree. I didn’t have loans like a ton of other people did. I was able to take my loans and put them towards law school. Had I had full four years of student loans for undergrad, I’m not sure I would have been able to stomach taking more of that. I was blessed to be where I was at and for the things that came my way. CU accepted me, and I love learning. I’m good at school, probably better at school than I am at business, to be frankly.

At the end of the day, the difference for me, coming out of the law, is it was all about me. A long time ago, someone wise told me there are two types of people on earth. There are people who are the gift, and there are people who build and share the gift. Those are the two gift givers in the world. I think to be perfectly honest, I’m more situated on I’m the gift, and not to be conceited, that’s not what that means. What that means is, I like to be with people.

When I’m talking to somebody, standing up for them, inspiring them, asking them questions, getting them motivated, helping them get feelings into words and actions stuff, I feel like my cup is full. They are shining and bright, and filling my cup up. There’s just a lot of spark and fun and energy. That is very easy to do when you’re an attorney working with somebody, and it’s a one-on-one relationship, and it’s just a really brilliant time and moment. Most attorneys aren’t good attorneys if they don’t get off on that, and that they’re not somebody that really appreciates and understands that.

On the flip side, becoming a CEO, I needed to figure out how to both give that to each employee and partner that I worked with, which now was spreading me thin, and at the same time, give that to the entity itself, which was trying to build something of its own to give as a gift. For me to be able to manage my own personality and the things that made me feel good and make me want to wake up and do more and be a positive contributor and then to also keep my eyes on the prize of … But my company is making a promise to give the … one time it was consulting services, operational contracts and now an actual good, balancing that and hiring and finding people.

Ultimately replacing myself as the CEO of Shift, was a wonderful gentleman, Edwin Fowler, and moving myself to the chief strategy officer where I could go back to tribal building and product building and make sure that my brand promises were being met, because managing both of those things was very, very intense. In fact, I’ve thought about, once you have a JD, you can go back and teach, and it qualifies you from some things. Whenever this cannabis thing is said and done for me, at whatever stage that happens, I want to go back and teach future entrepreneurs about those lessons of what you have inside yourself and how to scale through that culture and the .. I have made so many mistakes, Tim.

I have had people that I love dearly work with me and for me, that I couldn’t make good on ideas that we shared together because there simply wasn’t enough of me. It was painful for them, and it was painful for me. Those are things that sometimes you have to cut ties and move forward, and do all of these things. It’s very hard to keep … You can’t have sacred cows, and you start with a roomful of sacred cows, and how do you navigate that? I’ll tell you what, there is no shortage of the need for mentors to walk that through, and I’ve had a good amount, for my time, help me and I’m learning every single day. I’m 41 years old, and I feel like I know nothing. That’s how I feel every morning I wake up.

TG Branfalt: It’s a very Einsteinian thing to say.

Travis Howard: I don’t know. But what I know is the truth. I mean, at the end of the day, my wife is such a wonderful person. She’s deadly honest with me. A very strong Jewish woman who just speaks her mind and runs my house and my family, and I am a cog in her world. Trust me on that. She is one of the brightest people in my life, but just a great mirror. I can tell you, for as many lessons that she still tries to teach me, I am certain that I don’t know much yet.

TG Branfalt: You talked about the contributions and the promise of your company. Tell me about the Safe Roots Foundation. What do you do there?

Travis Howard: Safe Roots is a couple of great guys. Ethan Zohn and Kirk Friedrich, these two guys, the cannabis community will hear plenty more about Ethan and some things that he’s doing. He was one of the gentleman’s that first … one of the first survivors and then ended up getting diagnosed with cancer and making it through. Just an absolute inspired life and person. These two gentlemen had played professional soccer, ended up playing together various places, but in Africa they saw what HIV was doing. They told me something ridiculous. While they were in … I don’t want to butcher the country, I can’t remember which country it was.

I want to say Ethiopia, but that might not be right. But I believe it was an eastern country. They said something like 30% of the adults that were living there, while they lived there, had funerals. Every weekend was just the whole town was … and they realized that it was taboo to talk to the kids about sex and condoms and this stuff. They’re just like, who do they trust? Of course, soccer, football over there was such a big thing. They put together this grassroots foundation that was helping coaches and teachers who … Some of the most influential people in my life were teaching me soccer and football and hockey as a kid in Colorado and Wyoming.

These guys did that and really made a huge impact, and they ended up working with the Bill and Melinda Gates Foundation and a lot of stuff. Well, they saw cannabis as a way to get into something that we don’t do a very good job of in the United States, which is being honest with our youth about drug addiction and harm reduction. As a parent for myself, I’ve got three kids, they all know the word cannabis. They know marijuana, they know the difference between medical cannabis, they know the difference between recreational cannabis.

They know what it smells like, they know what it looks like, they know what to do if they find it somewhere or if a friend brings it to them, just like they know with bleach, paint, power tools, knives, guns, anything else dangerous that is a tool and useful for one thing but not for children without supervision or whatever the circumstances are. With all of that stuff said, they said, “Geez, cannabis is a topic that is hot that people are talking about. There is a change in how we’re looking. We want to put some of our paradigm from this grassroots foundation and what we’ve learned, and we want to build Safe Roots which can start talking to teachers and coaches, and this sort of thing, for children.”

The reality is … and of course, that’s a 21+ market. The truth of the matter is, is I used cannabis before I was 21. I don’t want my children to drink or use cannabis or do anything. In fact, I hope they go their whole life as sober individuals. I don’t think that that’s reality. I’ve got three of them. Maybe one of them will choose to live a sober life. But I can tell you one thing, if they’re 17 or they’re 30 and they’re out in a situation and somebody is peer pressuring them to slug the fifth of whiskey, to try this line of cocaine, or to smoke the joint, I want them to know the lesser of those things. I want them to be educated on harm reduction, and what to do and how to do it.

When I talked to these two guys, they were just preaching to the choir, and I was like, “Guys, I am in love with what you’re talking about.” We’ve got a couple of things going on at Shift. We’ve looked at, one, going into New Mexico, where we’ve got the dispensaries. New Mexico, in general, has a depressed economy. It’s one of the poorest economies in the country. It’s got a lot of alcohol and hard drug, methamphetamines, glues, paints, that stuff going on. You’ve got some cultural clashes and issues going on in the State as well. Also Safe Roots … Kirk lives in Albuquerque. It looked like just one of those, “Oh man, no brainer. Let’s put these things together.”

That’s something that we’re working on together and trying to get more cannabis companies and other sponsors to get that up off the ground and going, in addition in Colorado. One of the things that Shift is going to support financially as well is, there’s a Communities That Care program that is about youth prevention and harm reduction. There is a Communities That Care chapter out in Ridgeway, Colorado, which is out by Telluride in the Durango area, where we have one of the companies that I own, is called Dalwhinnie. We’re building a luxury cannabis company on this beautiful ranch, and I can explain part of my normalization push there.

But that brand where we have cultivation, where people are working. There’s a thousand people live in Ridgeway, and we’re the second largest employer in the county. Once we have our greenhouse open, we’ll probably be the largest, even above the school district. We feel like it’s really important to be involved out there, so we’re looking at that. Kirk is coming up next week to talk to that group and see if this is one that Safe Roots can support and make grants for.

Ultimately, Safe Roots wants to be collecting nonprofit funds and distributing them back out into, some instances, its own sports education programs, and in other instances, other community programs that have similar missions that the money can work with, because … especially, some of the stuff that’s coming out over the next few months from Ethan, which will be a national PR push. We believe that Safe Roots will be able to attract donors at a level that a lot of these local community groups won’t be able to. That is certainly something that Shift believes in and wants to be behind.

TG Branfalt: You’re in Colorado, it’s a mature market. You have children. Do you think that the Department of Health there … I should ask, what is the Department of Health doing in terms of harm … Is it harm reduction or they’re doing more propaganda? What are they doing in this regard?

Travis Howard: Yeah. I mean, some in both. Again, it’s intentions versus executions, and I don’t want to belittle any of the efforts at all. I do think some people have made a mockery of the Good to Know program, and there are some interesting propaganda points that I see on some of the public buses, and I’m like, “I’m in the industry, I’ve known cannabis a long time. I don’t even know what that sign means.” There is some stuff there that I scratch my head and wonder why we’re spending our money on it.

But at the same time, there is also a lot of the good programs. I think the Good To Know started with some of those unfortunate and terrible tragic accidents that came off of eating high dose edibles for people that didn’t understand. I know that whole wave that went through in 2014 and 2015 that was very sad for some very specific individuals. I think that was a good part of the program. But there are pieces of that program that is semi propaganda but is also very functional and useful across the board.

But what I see is a lot more of the local side. Sitting on the Boulder Marijuana Advisory Panel for the last few years, rewriting regulations, there were only three constituents from the industry on that inaugural panel, and they had somebody from Boulder Valley School district, they had two parents and community members, they had Boulder County Health on there. We had to balance the advertising. You can go in most of the states, and you can do giveaways of stickers, not in Boulder County. You can’t in the City of Boulder. I can’t give stickers away at a dispensary, I can’t do a buy one and get one for free. You can’t give schwag out for free. You have to sell it at cost.

They don’t want a proliferation of cannabis advertising going out to the youth, and they feel like stickers are a youthful movement. Of course, one of the things this is, is you’ve got this giant university sitting here, and three out of the four years at university in the undergraduate, you’re probably too young to be a participant in the recreational program. There’s been a lot of push in that regard, which has been probably good for the community, but it’s been tough for businesses because the competitors get to do that.

It’s also frustrating when you walk into a bar. I mean, I frequent Avery brewery. It’s by my house, it’s here in Boulder, and I walk in there, and they’ve got two month old onesies with Avery logos all over it. I’m like, “You can dress your kid up in beer outfits all day long and take your kid to Coors Field, but I can’t hand out stickers.” Yeah, it’s asinine. But at the same time, it’s really hard pressed when you look those people … This gentleman, Heath Harman, one of the best guys I know. We both have diabolically different views of what we want out of the cannabis industry.

However, sitting at that table, we’ve become good friends, and we respect each other. The truth is, in a community, back to my point about entrepreneurialism, you can’t just do it’s all for me. You have to be thinking about your community. When you see a guy like Heath that’s talking about real statistics, that really cares about the youth in his community, and he’s making bonafide statements, I can’t hold him accountable for the alcohol industry. I can’t hold him and blame him for some other laws that are hypocritical. I have to take him at face value, and say, “You’re right. You are making something. You’re making a statement that is logical to me, that makes sense, that we should consider these things.”

I recommend for, as many people as they can, to become a part of these political committees where you’re forced to work with, not just politicians but stakeholders in the community, that see things differently than you. One of the most unique parts about the Boulder Marijuana Advisory Panel is that when the city council gave it authority, they didn’t say that we had to come back unanimous. But we determined, in our very first meeting, that we were not going to put forward any recommendations to that council that weren’t unanimous.

To this day, that advisory panel has never taken a vote. If it’s not unanimous, we haven’t moved forward. We figured out how to come to a consensus and then make our recommendations. That process in itself would be great for our society. Forget cannabis, forget anything else. In today’s spectator sport, I mean, when did politics stop being something that you do yourself and becomes a spectator sport, like you’re rooting for your local football team?

TG Branfalt: I could sit here and talk to you for another hour, but we are running a bit long. Before we go, I want to get your advice for other entrepreneurs interested in joining the cannabis space.

Travis Howard: Well, I’ll tell you right now, the biggest piece of advice that I would give is the piece that I would go back 10 years and give myself, which is, with anything … They always says, “Well, when opportunity knocks.” That is horse shit. You are going to have so many opportunities knocking all day long. It is about weighing those opportunities and staying focused. Cannabis is just a microcosm of that, and a lens that has magnified that to a degree that you could quite easily build a business plan that makes you doing everything, being everything for everyone.

It would be so easy in cannabis to get caught in that trap, and what I would say today when, especially in Colorado and the new states that are allowing you to specialize, is take your 10th draft of your business plan and cut that in half. One simple specific thing and just go at it wholeheartedly. Even if you’ve got opportunities thrown at you every day, all day, for the next five years, stay laser focused. That’s my best advice right now in the cannabis industry for a newcomer.

TG Branfalt: Really great conversation. Could you tell us where we could find out more about you and Shift?

Travis Howard: Yeah. You can go to shiftcannabis.com, or Shift.Cannabis at Instagram. I got a lot of pages up there for all of our so called Shift mates. We’ve got phone numbers on there for the sales team. There’s 40 or 50 dispensaries around the metro area and the mountain area where you could find our products. But feel free to send us an Email, info@shiftcannabis. It comes to my desk. I respond to every single one or I put it in touch with the right people. We’re not shy, we’re here to talk, we’re here to help. We want to be a part of the solution in the future.

TG Branfalt: Travis Howard’s the founder of Shift, a serial entrepreneur, a really great guest. Thank you so much for coming on the show, Travis.

Travis Howard: Well, it’s my pleasure. I’m honored. Thank you for having me on here, and for giving us all a platform to share. Appreciate you.

TG Branfalt: Thank you. You can find more episodes of the Ganjapreneur.com Podcast in the podcast section of ganjapreneur.com, and in the Apple iTunes Store. On the Ganjapreneur.com website, you will find the latest cannabis news and cannabis jobs updated daily along with transcripts of this podcast. You can also download the Ganjapreneur.com app in iTunes and Google Play. This episode was engineered by Trim at Media House. I’ve been your host, TG Branfalt.

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LC Solutions Michigan: Turn-Key Accounting for Cannabis Entrepreneurs

LC Solutions Michigan PLLC is a turn-key accounting agency for all official and ancillary participants in Michigan’s medical and upcoming adult-use cannabis industries.

Under the adult-use legalization initiative approved by voters last year, Michigan regulators are set to begin accepting adult-use business license applications by December 2019. Accordingly, the state released emergency draft rules for the industry in July, and businesses looking to get in on the ground floor of Michigan’s new adult-use industry are already scrambling to position for licensing and ensure regulatory compliance.

LC Solutions Michigan PLLC — the state’s only CPA firm that is dedicated exclusively to the cannabis industry — is prepared to help cannabis entrepreneurs formalize their business plans, ensure regulatory compliance, and deftly maneuver cannabis’ complicated financial accounting and tax landscape.

According to Kareyna L. Miller CPA, founder of LC Solutions Michigan, cannabis entrepreneurs are usually most concerned with filing taxes, but there are a lot of other frequently overlooked obligations to maintaining a successful and compliant cannabis operation.

“We work one-on-one with businesses,” Miller said. “The amount of financial accounting compliance this space requires can be very difficult to get through, especially for businesses who are transitioning from the unregulated market.”

LC Solutions experts can help with:

  • Starting a cannabis business and putting your business plan to work,
  • Strategic consulting, including payroll and financial projection preparations,
  • Compliance-minded bookkeeping and financial record keeping,
  • Cannabis tax preparation, including navigating Section 280E and more.

Michigan’s adult-use emergency regulations have been finalized and, with the state’s future cannabis license holders positioning themselves for the new market’s launch, the time for smart preparation is now.

As the state’s first woman- and patient-owned cannabis industry CPA firm, the team at LC Solutions Michigan PLLC boasts talented individuals with up to 30 years of accounting experience, as well as deep connections with the industry and a first-hand understanding of the regulatory requirements for operating in the cannabis space. The firm’s CPAs are uniquely positioned to help entrepreneurs prepare an intelligent and strategic entrance to the budding cannabis industry, whether they are coming into the space as a former caregiver or as an ancillary service that will work alongside licensed cannabis companies.

Visit LCSolutionsMichigan.com to learn more and schedule a consultation.

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Lindsey Mintz: Combining Cannabis Education & Retail

Lindsey Mintz is the owner and managing partner of Smokin’ Gun Apothecary, a prohibition-themed and self-described “late-night” cannabis dispensary located in Glendale, Colorado. Lindsey is also a co-founder of Arcanum, a hemp CBD company that focuses on creating approachable CBD products for athletes, including unique offerings like CBD-infused kinesiology tape.

In this Ganjapreneur.com podcast episode, Lindsey and our host TG Branfalt dive into a discussion of Colorado’s retail cannabis industry and the day-to-day operations of running a cannabis dispensary. We hear about the Smokin’ Gun Apothecary’s brand mission to spread cannabis education and Lindsey shares some of her experiences as both a cannabis business operator and current city council member for her local community.

Note: we experienced some audio issues during a segment of this interview, starting at 20:40 in the recording.

Tune in to the full interview via the media player below! Keep scrolling down to read along with a full transcript of the podcast.


Listen to the podcast:


Read the transcript:

Commercial: This episode of the Ganjapreneur Podcast is made possible by 420 friendly service providers in the Ganjapreneur Business Directory. If you need professional help with your business, from accounting to legal services to consulting, marketing, payment processing, or insurance, visit Ganjapreneur.com/businesses to find service providers who specialize in helping cannabis entrepreneurs like you. Visit the Ganjapreneur business directory today at Ganjapreneur.com/businesses.

TG Branfalt: Hey there, I’m your host TG Branfalt, and thank you for listening to the Ganjapreneur.com Podcast where we try to bring you actionable information and normalize cannabis through the stories of Ganjapreneurs, activists, and industry stakeholders.

Today I’m joined by Lindsey Mintz. She’s the owner and managing partner for Glendale, Colorado’s Smokin’ Gun Apothecary. It’s a female-owned, late night, vertically integrated dispensary, and the first in the state to be built from the ground up rather than repurposing an existing space.

How you doing this afternoon, Lindsey?

Lindsey Mintz: That was quite the introduction. Thank you. I’m doing great.

TG Branfalt: You have a lot going on. I’m really excited. You have a very interesting space. So before we sort of get into the details of that, tell me about yourself. How’d you end up in the cannabis space in Glendale, Colorado?

Lindsey Mintz: Sure. So I actually ended up in this space… It was the new, we call it the green rush. But it was really the new gold rush here in Colorado. We knew vertical integration was going away, and one thing about our family is I think it’s really important as a business person to know what you don’t know. And we don’t know growing, but we know business. We know regulation with some of the other things we’re involved in, and it just made so much sense. It was so exciting. So we decided to go.

TG Branfalt: So you mentioned sort of what else your family has going on. You have quite the history there in Glendale. Why don’t you tell us about that.

Lindsey Mintz: Sure. So it’s actually my mother-in-law. Her name is Debbie Dunafon. She started or actually, not started but took over Shotgun Willie’s, which is a gentleman’s club over 35 years ago here in Glendale. So one of the only female operators. Maybe at this point and time she is the only female operator of a gentleman’s club in the nation. And that woman is just absolutely incredible. She knows regulation like no other, and really knows how to work with businesses that are marginalized.

TG Branfalt: And sort of risky.

Lindsey Mintz: Yeah. Definitely risky. She has been… People have tried to put her out of business many times throughout the years. She’s been featured on programs like Dateline. Started the actual first Tea Party, the Glendale Tea Party is what we called it when people were trying to put her out of business. And really our mentality as a family and also as a city of Glendale, it’s about liberty. If you’re not doing anything to hurt anyone, there’s no need to add extra regulations.

TG Branfalt: So you mentioned sort of this idea of liberty, and before we get into sort of the regs and sort of some… At your dispensary, you guys include a prohibition museum, right? You’re featuring the exact opposite of liberty. What made you decide to include this museum as part of your shop?

Lindsey Mintz: This is really one of the reasons that led us to open Smokin’ Gun too, is we really feel like we have a responsibility to share the story. It’s the story of prohibition and what it’s done to us. If you actually walk into Smokin’ Gun, a really neat piece inside the dispensary is this bank teller window. It’s from the 1870s, the Bank of Hibernia. And that was actually five years before the first drug laws were passed in 1875. So it’s this idea of walking into… When you walk into the waiting room, it’s walking into this land of prohibition where we’ve spent trillions of dollars and lost millions of lives. Then you can walk into this dispensary and essentially take a step back, right? Before we had some of these laws, like back in the 1870s. And then we actually have a sign when you’re walking out where we talk about this fact that we’ve spent trillions of dollars on this drug war, lost thousands of lives, and you’re reentering this land of contradiction and prohibition. And believe it or not, the addiction rate is almost the exact same. In the 1870s, it was about 1.5% and trillions of dollars later, we’re still at about 1.5%.

TG Branfalt: So whose idea was this? I mean, who’s the historian that…

Lindsey Mintz: That would be Debbie’s husband, Mike. He is a completely visionary. He’s actually the mayor of Glendale as well, and really he’s run for governor. So if I could for a second tell you a little bit about Mike. He was the only mayor in the metro mayor’s caucus that was in support of Amendment 64. So he actually single-handedly prevented the mayors from coming out in opposition to Amendment 64.

TG Branfalt: No way.

Lindsey Mintz: Yeah. Actually filmed… You can look this up. It’s called The Trap. But he actually filmed a… This is a country boy, right? His father was one of the original Marlboro men.

TG Branfalt: No way.

Lindsey Mintz: He did a rap video with Wyclef. It’s there. It’s called The Trap. So you can look at it.

TG Branfalt: Unbelievable.

Lindsey Mintz: And really he’s done some stuff with Snoop Dogg, but as working from the political side, to really talk about… There is no need for us to have prohibition on something like this.

TG Branfalt: So let me ask you, how do you find the items to exhibit for this thing? Is it easy for you guys to find this sort of stuff, or do you really have to go searching for it?

Lindsey Mintz: Believe it or not, it was Mike and… Or actually, I believe it was our CFO that was at an antique store up in Idaho Springs, which is on your way up I-70 as you’re going to the mountains, and they actually came… It was either our CFO or Deb and Mike, but they found this actual teller window in this little antique store. It was a complete coincidence, but we were just like, “Oh my gosh. We have to have this.”

TG Branfalt: So you mentioned the window. Tell me about the unique design of the building, and then tell me who came up with it and sort of give me the low down on that.

Lindsey Mintz: So if you actually look at the shop from Google Earth, it’s shaped like a MAC 10 pistol. And that kind of playing on this Smokin’ Gun idea. We had this plan to possibly have the building smoke, actually like be a smoking gun. That could still definitely happen one day, but we haven’t done it yet. So it’s starts really from Google Earth that you can actually see that our shop is shaped like this. Then when you walk in, we walk you into that land of prohibition with that prohibition museum. We have a live feed from Law Enforcement Against Prohibition, and it’s actually really neat because a lot of people… You walk in, and we’ve made the door into the dispensary a speakeasy. So a lot of people actually walk… They start walking into the bathroom because they don’t see the door.

So it’s this whole idea of walking into this speakeasy, and then once you get into the shop, we really… One thing when we were looking at some of the dispensaries that were already around in Colorado that were vertically integrated, one thing we really didn’t like was this idea of it was very rushed. It felt like a lot of pressure. It was you one on one with a bud tender. I didn’t feel like as somebody who wasn’t a consumer, I didn’t really feel like… I didn’t feel comfortable. I didn’t feel like I could ask my questions. There were other people waiting, and I didn’t want to be that person spending 15 minutes.

So what we decided to do was really take this… Make our shop like a supermarket and let capitalism take over where the best products are really going to win.

TG Branfalt: So you’re obviously put a lot of thought into everything from the design to the layout, right? You got to build this from the ground up. But tell me about sort of your promotions, the ones that you have with the gentleman’s club and how important are sort of promotions in general in this space, especially in Colorado, which has this far more mature market than most others.

Lindsey Mintz: Not only does Colorado have a very mature market, but we actually have more dispensaries than we have Starbucks. And that is a true fact. So I think it’s incredibly important, and I think it’s really important to find a need, fill a need, and be really passionate about your unique differences. For us, one of the things we really play to is our relationship with our sister company, which is Shotgun Willie’s. We do on Thursday nights, we actually have go-go dancers. So not entertainers. But we use the girls from next door. They come over, and they do go-go dancing. We’ve got live DJ’s, and that’s one of the benefits that we have to being a late night dispensary. Our late night crowd is obviously very different than our daytime crowd where we do see a lot of working professionals, the soccer moms that might not be as comfortable with a promotion like that. That is one thing we do. And then we also have the Prohibition Pass.

TG Branfalt: Tell me about this Prohibition Pass. Talk about how it drives revenue at Smokin’ Gun.

Lindsey Mintz: I think one of the things that has been difficult in this industry in Colorado is customer loyalty. Because this is essentially a commodity, right? So people are I think a lot of times are still walking that line of business versus somebody that really comes in with a passion for the plant. So what we’ve done is try to create this Prohibition Pass to fight against the people that say, “I want med card pricing.” So the Prohibition Pass is a monthly membership fee, but with that, it has everything from $89 ounces to we’ve got phenomenal flower discounts and concentrate discounts. So it’s essentially giving our customer base not only med card pricing but also inviting them to some special events that T Bar does or Shotgun Willie’s does or maybe giving them swag bags from our vendors that have t-shirts, stickers, all that kind of stuff that people like. So it’s this idea of creating this culture and group of loyalty in Smokin’ Gun.

TG Branfalt: So one of the other things that you’ve sort of done, you decided against opening multiple locations and going the route of vertical integration, which goes against the general grain of the industry. Why did you decide to take that route?

Lindsey Mintz: We are not opposed to opening more locations. That’s definitely one thing I’ll say. We are actually actively looking at this idea of possibly franchising or licensing because of the message that we’re trying to put out there, right? Like it’s more than just a pot shop. We’re really trying to tell the story of prohibition, where we’ve come from, and where we are now. So that is something we are open to. I kind of touched on the idea of why we’re not doing the grow side right now. I think it’s incredibly competitive here. I mean you’ve got people that are phenomenal at what they do and it’s just not something that… We feel like we can offer the best retail experience. Could we offer that from the growing side? I’m sure we could down the road, but I don’t think we can compete with the amazing things that companies like, you know, Binske and Cheeba Chew and Mary’s Medicinals are doing. I just don’t, I don’t think we can.

TG Branfalt: Another super interesting part of your business, I think, is that you guys are a late night dispensary. And since the launch of every industry, right, the sort of debate that happens beforehand is that, you know, they’re going to be dangerous, they’re going to bring in more crime. And you know a late night dispensary, you know you think about sort of a late night convenience store, right? They’ve sort of been magnets for crime in some areas. What’s the late night experience been for you and your staff with regard to safety?

Lindsey Mintz: I really think a lot of the credit for the fact that we have had zero issues at Smokin’ Gun really goes to two groups. Number one is the City of Glendale. I think they do a phenomenal job of just really making sure people are safe. They’re always out and about. We’re a very, very small town so they can be there in a minute’s… I mean we’re smack dab in the middle of Denver. But they could be there literally within 90 seconds actually. Their response time is absolutely ridiculous. So a lot of the credit goes to them.

But what we also do is we do have… It is an armed guard, but not in full on like tactical gear really making people feel uncomfortable. So Scott is absolutely amazing. He knows most of our Prohibition Pass members and our customers. He knows them by name. And not only does he make our staff feel more comfortable, but I really think he makes our customers feel more comfortable. So that’s why people choose Smokin’ Gun as their late night stop.

TG Branfalt: I mean, shout out to Scott.

So you mentioned the City of Glendale and you’re also on the city council. Can you just tell me about sort of the process when you guys were deciding to open the dispensary? I know that in many places, you know, the city council sort of the buck stops here, we’re not going to allow dispensaries. What are the opinions of the local officials regarding cannabis businesses?

Lindsey Mintz: We kind of, we like to joke around about this. So Mike will call Glendale the Luxembourg of Liberty. And he’s been quoted as saying, “If I could have just one law on the books it would be don’t be a jackass.” So you know it’s really taking that mentality… I don’t think you could look at anybody on our city council and say they’re a Republican, they’re a Democrat. I think you’d look at us and say like, “These people really want what’s best for us.” And you know we look at this idea of personal liberty and personal freedom. So as far as that goes, as long as it’s not restricted by any type of zoning, you know obviously the owner of the buildings doesn’t have any issues with it. There are some things that are still within our charter that we have to make sure we’re following, but we’re not going to tell somebody, whether it’s a dispensary or it’s a gentlemen’s club, or you know who knows they legalize mushrooms one day. It’s not our job to tell people what kind of businesses they can and can’t have as long as it falls within our charter.

TG Branfalt: Well and something else that’s happening in Colorado is they’re considering allowing social use and you know Denver’s opened a couple shops already because they have that sort of local initiative. Is that something that Glendale officials would be open to if it were to pass at state level?

Lindsey Mintz: Definitely. So that’s one thing that we listen to what our constituents want. And that’s why we do… We poll for any new business that comes in and we really get the opinions of the people that live in Glendale. Another neat fact about Smokin’ Gun is it’s actually a two story building and we have a rooftop that is live loaded. We have considered this idea of a consumption area just for us from the business side of it. It’s really a matter of can… does it make sense from the financial side, right? Like how do you make money from this venture. And that’s really what we are still trying to figure out.

TG Branfalt: So let’s sort of switch gears here a little bit and I want to ask you, what were the barriers for entry, or were there any, for you getting into this space? And what do you think other women, or what do you know other women in this space are dealing with with regard to barriers to entry?

Lindsey Mintz: I really think this… One thing Debbie has been quoted as saying is this idea where it’s the first gold rush where women could participate as equals. And I really think it’s been a phenomenal space for females to get into. You see an exceptional amount of very successful businesses too that are female owned. And I think that it’s just, not only do you have groups of women that have gotten together and we support each other within this space, but I just think the space as a whole has been phenomenal to treat everyone as equals and we’re just super welcoming.

TG Branfalt: You have another project company that you work, that you founded, right? Arcanum?

Lindsey Mintz: Yep.

TG Branfalt: Can you tell me about that and the role of CBD from full spectrum hemp plays in sort of fitness?

Lindsey Mintz: Of course. So the way we got into Arcanum, I will be the first to tell you that I have… Building Smokin’ Gun and testing out products, I definitely tried it. And THC is just, in marijuana, it isn’t my thing. Which more power to everybody that likes it. I just, it wasn’t something that really struck a chord with me. And then I got really sick. I actually developed breast implant illness. Had one of the most severe cases that’s been seen, actually to the point where I couldn’t get properly diagnosed. I was on everything from PICC lines to steroids to I think I was developing resistant staph infections. It was a really dark time. And I had a bud tender and she saw me. And she was like, “Lindsey will you please just try something really high in CBD.” And I’m like, “You know I just don’t want the psychoactive. I own multiple businesses I can’t have that, I have to be functioning on all cylinders.” And she’s like, “Please just try it.”

So I ended up trying a very high CBD to THC tincture. And within about six months, this wasn’t an overnight thing, it wasn’t rainbows and unicorns. But I was actually able to get off all of my pharmaceuticals with the help of, it was marijuana at this point. But it was very high in that CBD.

So that transition led to… I’m a former professional athlete. My father-in-law played football for the Denver Broncos, my husband played rugby for the United States, so we’re very athletic. And at this point there wasn’t a single company that was willing to ditch this hippy dippy stoner mentality associated with hemp and take the risk and be like, “Hey we’re going to go after the active individual.” Whether that’s professional athletes or it’s, you know, the mom who gets tendonitis from holding her kiddo, or it’s the weekend warrior, I just feel like there was such, there’s such a barrier to entry for hemp.

And this was back in 2017. We don’t need to make it more difficult by having cannabis and hemp leaves all over everything and rainbows. So we started Arcanum. And flash forward two years later we’ve got first to market products like a water-soluble CBD electrolyte, we’ve got CBD infused kinesiology tape, and about I think 12 different products now. First company to sponsor a professional sports team. And it’s just been an amazing ride.

TG Branfalt: Which team are you sponsoring?

Lindsey Mintz: We actually sponsored… So major league rugby started, this is the second year of major league rugby and we sponsored two teams last year. And that was the Seattle Sea Wolves and the Glendale Raptors.

TG Branfalt: So what’s been the response? I mean you have these sort of ties to you know rugby players, you have the ties to the NFL. What’s been the response from these sort of high-level athletes when you introduce them to your CBD products?

Lindsey Mintz: It is definitely, there’s a lot of questions. And one thing that’s been really neat to watch is how the climate changes literally month by month. So if you were to ask me that question in January of 2018 versus talking to me about it now, it is literally night and day. I think I really hit on the idea of third party testing. The fact that, I think last time I checked the statistic it was 126 deaths per day from opioid overdose. And a lot of that really, I mean how many stories have you heard of college football players, professional football players that get an injury and get addicted to opioids and end up overdosing? Like there’s this chain that needs to be broken. So for us and Arcanum it’s really trying to break that stigma and tell people that there is a better way, there is an alternative. To not sacrifice your internal health to be able to do what you love.

TG Branfalt: And it also, I mean some sort of early studies have found that CBD, high CBD products are probably helpful for CTE related symptoms. Which are very much associated with both rugby and professional football. You know you mentioned something very interesting, you said you have kinetic tape?

Lindsey Mintz: The kinesiology tape.

TG Branfalt: Kinesiology tape. I obviously am not a sports guy. How did you come up with that product? That’s really unique, I’ve never heard of anything like that before.

Lindsey Mintz: So how the idea behind that… We obviously see a lot of use of kinesiology tape in the professional space. I think it was really made popular. You had athletes like Kerry Walsh who was using it on the beach volleyball circuit. And we’ve seen companies utilize technology in patches. So for us we were like, “You know what? This is a product that really stays true to our passion, which is this athletic sports channel. And let’s see if we can essentially take patch technology and infuse it into kinesiology tape.” So we actually, it lands… The finished product is going to start shipping out on this coming Monday. Which is I believe April 29th.

TG Branfalt: How long… I’m always really interested in how long a product takes to get to market. How long did the… what was the R&D like for this product?

Lindsey Mintz: It took 18 months. So yeah. And it was 18 months of, “Next month it’s coming, next month it’s coming!” But really it was making sure that… We were actually having the biggest issue with the adhesive. So our tape was too sticky, which is usually not a problem with kinesiology tape, but we were like this is just… it was leaving a little too much residue. So it was an 18 month process to bring this product to market.

TG Branfalt: That’s absolutely an incredible… It’s incredible that it’s finally coming out, congratulations on that.

You also have a charitable organization. Could you tell me about that? You know because of sort of the stigma that cannabis companies have, do you think that it’s sort of necessary that you do some sort of charitable work to try to win people over? Or you know is it just something that you do because you care about your community? I’m always curious about that.

Lindsey Mintz: Our foundation, it’s the Dunafon Family Foundation and underneath that we do have a couple branch offs of that. It is incredibly important to us and that we’ve been so blessed with the ability to be in business in all of these spaces that it is, it’s a no-brainer for us to give back to not only… And we really like to focus on our community, whether it’s Glendale or the state of Colorado. I think there’s so many great things that can be done, you know, nationally and worldwide. But for us it’s like let’s start on our home turf and really see what kind of difference we can make.

With that said, we have done things at Smokin’ Gun, like supported the flood efforts in Houston when that was going on, our foundation has… we donate a portion of every purchase from Arcanum to providing and funding alternative health options for veterans. We’ve helped put kids in fitness programs all throughout the kind of greater Denver area. So it is something that is definitely very close to our heart.

And to answer the second part of your question do I think it’s important, I definitely think it’s important because there’s such a stigma, especially on the marijuana side, to show people that like hey, yes this is you know hundreds of millions of dollars, it’s a billion dollar industry. But we’re really trying to do some good, too. And we’re not leaving it up to the government. So the government will say, “Oh we’re putting this marijuana tax money towards schools and towards this,” but it’s like hey let us show you that we’re taking it one step further.

TG Branfalt: So a lot of what you are doing is education. You’ve got the Prohibition Museum, you know is this something that you consciously set out to do, you know to say we want to teach people about this plant. I mean even with Arcanum, you know, you had to do a lot of outreach with skeptical sort of athletes. Is this part of your mission at this point?

Lindsey Mintz: 100 percent. It is a responsibility to us. And that’s how we view it. That we are so fortunate to be able to have this opportunity here in Colorado. We have a responsibility as a company, whether it’s Smokin’ Gun or Arcanum, to educate people.

TG Branfalt: And the last thing that I want to get from you here is give me some advice for people who are looking to enter this space. I mean you obviously have a long track record of success. What sort of thing would you tell somebody who comes to you and says, “Hey I want to open up a cannabis business?”

Lindsey Mintz: If you are in it just for the money, don’t do it. And that’s… It’s for a lot of reasons. I think we don’t need any people in this space that aren’t passionate about the education side and about all the amazing benefits of both marijuana and hemp with cannabis as a whole. All the amazing benefits that this plant offers. So I would say if that is your one goal, I mean you could go down the rabbit hole with 280E and taxes and all that, but. That would be my big don’t. I think as far as what you really need to look for is what… It’s such a vast space. So going back, and I mentioned this a little earlier, but finding that need, filling that need and being really passionate about what it is that makes you different.

So for Arcanum, for us, it’s you know we’re going after athletes or the active individual. For Smokin’ Gun we are so passionate about lighting the way to liberty. And we see this shop as our, as just one stepping stone towards really teaching people what liberty and freedom are.

TG Branfalt: I want to thank you so much for coming on the show. You know I don’t think we hear enough from people who are this passionate, especially about the education side of it. And I really look forward to seeing what comes out of Arcanum, the CBD side of it is new, it’s emerging. And I’m really happy that you took the time to come on the podcast. Thank you so much.

Lindsey Mintz: Yeah thank you. I’m really grateful to be able to come on it and help a little bit and share our story because I think it can hopefully point some people in the right direction. And if people are interested in learning more or maybe looking at some pictures of Smokin’ Gun you can go to smokingunapothecary.com and Arcanum is arcanumedge.com.

TG Branfalt: Well that’s Lindsey Mintz, she is the owner and managing partner for Glendale, Colorado’s Smokin’ Gun Apothecary. Thank you again, Lindsey.

Lindsey Mintz: Thank you so much TG.

TG Branfalt: You can find more episodes of the ganjaprenuer.com podcast in the podcast section of ganjaprenuer.com and in the Apple iTunes store. On the ganjapreneur.com website you will find the latest cannabis news and cannabis jobs updated daily, along with transcripts of this podcast. You can also download the ganjaprenuer.com app in iTunes and Google Play. This episode was engineered by True Media House, I’ve been your host, TG Branfalt.

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Peter Vogel: Connecting Cannabis Entrepreneurs and Investors

Peter Vogel is the CEO of Leafwire, a cannabis business-focused social media platform known commonly as “the LinkedIn of cannabis.”

Peter recently joined our podcast host TG Branfalt to talk about what separates Leafwire from other social media platforms, the importance of networking in the cannabis industry, how software and technology play an important role in the industry’s success, and more!

Check out this week’s Ganjapreneur.com podcast episode via the player below or scroll further down to read a full transcript of the interview.


Listen to the podcast:


Read the transcript:

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TG Branfalt: Hey, there. I’m your host TG Branfalt. You are listening to the Ganjapreneur.com podcast where we try to bring you actionable information and normalize cannabis through the stories of Ganjapreneurs, activists, and industry stakeholders. Today I’m joined by Peter Vogel. He’s the founder of Leafwire. He has nearly 20 or more than 20 years of tech industry experience. Leafwire, the LinkedIn of cannabis, is a social network aiming to link cannabusinesses with investors. How’re you doing this afternoon, Peter?

Peter Vogel: Doing great. Thanks for having me on.

TG Branfalt: Delighted to have you on, a lot to discuss. You’re a tech guy, so that’s always a great conversation to have. Before we get into that, tell me about yourself, man. How’d you end up in the cannabis space?

Peter Vogel: As you had said, I’ve been in the tech startup space for 20 years plus, so founded a variety of different online advertising, marketing and loyalty-type programs online. About a decade ago, I was CEO of a company called Plink, P-L-I-N-K, which was a Facebook credits loyalty program, which if you remember FarmVille and all those crazy games, we were basically giving social gamers the currency to play the games more, and ran that company for a while. While I was CEO of that company, I got to be buddies with Marion Mariathasan who is now CEO of Simplifya, a compliance company here in Denver. We got to be good friends and have been networking ever since. About a year and a half ago, we had a lunch, and he told me how he had transitioned into cannabis and how Simplifya was blowing it up. They raised a bunch of rounds and are scaling really big right now. Told me about Leafwire. Said they needed someone to run it and convinced me to jump in head first.

TG Branfalt: Tell me about Leafwire and what convinced you to jump in head first.

Peter Vogel: Well, one, the cannabis industry was very exciting to be in in the sense that, obviously, it still is, but a year and a half ago it was even a little more immature than it is now. Colorado, being one of the mature markets, but still, nationwide or worldwide it’s really an industry in its infancy. I saw an opportunity similar to what I saw in technology 25 years ago that there were very few companies that were mature or that had a lot of experience or growth yet that I just saw an industry that was ready to just blow up. It seemed like the place where I wanted to be five years from now, the cannabis industry is where I wanted to be firmly established versus the same kind of tech industry I’d been in for decades. So one, I saw it as a huge opportunity just because of the stage of the industry.

Two, I love the idea of Leafwire. Initially, we really talked about Leafwire more like an AngelList, connecting investors to cannabis, so we were connecting accredited investors to cannabis companies. We still are doing that, but it’s evolved a lot. As we’ve grown, we keep having more and more cannabis business people joining the platform, telling us what they’re looking for whether it’s jobs, business partners, advice, resources, news. They want to know about events. We realized there’s this huge need to be a business platform for everyone not just investors in cannabis. So that’s really what excited me is the demand that I saw that a solution like this was needed and there was nothing out there like it.

TG Branfalt: How many people are currently using the platform, and what are they doing on it? I mean you mentioned a lot of different things. What’s pushing its growth right now?

Peter Vogel: Some of those things I mentioned exist now, and some we’re in the process of building based on demand. But where we are in terms of members, just this month we’re crossing actually 10,000 members, and those are 10,000 members that are either cannabis professionals or investors. It tends to be about 90/10, so 90% cannabis professionals and then 10% accredited investors. These are all cannabis business people. These are not your typical consumers or stoners. These are people who work in the industry everything from law firms to dispensaries to grow facilities to advertising companies, but it’s all people. It’s all business. It’s 100% devoted to the business of cannabis. There are some other social networks that are more focused on consumers. We’ve tried very hard to stay away from that and be 100% focused on the business side of cannabis.

TG Branfalt: What are people doing most often right now? With everything now you have going on, what’s the more popular purpose?

Peter Vogel: For right now, our platform is really I would call it around news, awareness, and connection. So right now what we have is it’s very similar to a LinkedIn-type platform. You can come on, join, create a professional profile, which means you put your picture up, you put your professional experience, the city you’re in. You could put up your past jobs. You could put up a variety of other things. You could essentially put up as much or as little as you want. Some people create profiles. They can create a profile for their company as well, just like on LinkedIn. Then we have a newsfeed that’s their homepage. The newsfeed is 100% user generated, so our members post articles. They post open jobs. They promote events. A lot of people promote their own companies. People ask questions. There’s a lot of people that just post comments that they’re in Michigan. They just opened up a store and they’re super excited to be in the industry, and they want to know if anyone else is on the platform from Michigan. So it’s a big combination of just business people communicating, sharing news, promoting things, asking for help.

We also have the ability for people to like posts. You can comment on posts. We do get people who have an ongoing communication where they’re communicating about a certain topic. You can also connect with people. So in the top right corner of this site, we have a recommended connections module. That based on an algorithm of who we think you maybe interested in meeting and connecting with, you can hit the connect button, and that individual will get a message email to them saying, “John from The Green Solution wants to connect with you.” That person can accept the connection. Once people are connected, they can send messages back and forth on the platform. So that, right now, is what people are doing on a day-to-day basis. I can jump into, if you want, some of the other things we’re building as well.

TG Branfalt: Yeah, absolutely.

Peter Vogel: Sure. All this is based on demand. We get emails from people all day long asking for XYZ or suggesting we do something. One of them is jobs. Obviously, lots of people in cannabis are looking for jobs. Lots of companies are looking to hire people in cannabis. I always say that getting a job in cannabis is not something that happens by accident. You don’t just all of a sudden start working for a cannabis company. You go look for a job in the industry, and vice versa. If you’re a company, you are trying to find someone who actively wants to work in the cannabis industry not just any random person on a job platform. So we think once we launch this, the nichey aspect of the industry will be a big driver of people wanting to use our platform. It’s 100% safe for cannabis and hemp, and everyone on there is 100% focused on cannabis and hemp, so it makes a ton of sense to have jobs there.

We’re also launching a groups section. Just like LinkedIn has groups where people who want to talk about, say, “How do you advertise on Google with a cannabis company?” we’ll have a group where people can go on and talk, and there’ll be an ongoing thread where people can share information. Then there’s always information there that people can go access, and we can just act as a resource for people.

We’ll also be adding what we call marketplace. It’s kind of a Yellow Pages-type listing. We’re also adding that because of demand. We have people email us every day and ask if we know a lawyer who knows cannabis law in California or if we know an accountant who understands 280E. Multiple times a day people ask us about if we know banks or payment processors who will work with cannabis companies or CBD companies or even just ancillary companies. Even people that don’t touch the plant often have trouble getting companies to accept payments. Because people keep asking for that, we realized we need to have a static place where we can let companies post their offerings, and then other people can go find them. They can go search for what they need, and we can help them connect. All these things that I just mentioned, they’re all around connecting, helping each other and sharing information, and just providing people a platform to connect in whatever way they want whether it’s employment, business partners, or investment. We’re also all about connecting investors to cannabis companies who are fundraising.

TG Branfalt: This whole thing is being built in real time based on feedback. There’s got to be some learning curve there. What’s that been like from the time you’ve taken over until now?

Peter Vogel: I mean there’s definitely a learning curve. We’ve learned things about the user flow and how users are doing things. Some of the things we initially put up were clunky and didn’t work that well, and we found out really fast. Our users told us, “This is confusing. How do I create my company? This doesn’t make any sense.” Or this feature of messaging… For example, we had something up on messaging where anytime you hit return, it would send the message automatically. It was kind of an annoying thing that a lot of people complained about, so we actually just fixed that. I think that’s going to be live tomorrow or the next day. We’re slowly adding in features people want, and then we’re also learning some of the things that people don’t want, or don’t find user friendly we’re fixing, so there is definitely a learning curve. I don’t think that’ll change. I mean the industry’s growing so fast. I think we’re going to keep adapting as we go.

TG Branfalt: What about for you personally? What’s been the learning curve for you entering the space, and how have you adapted in your tenure thus far?

Peter Vogel: It’s been now about a year and a half. I’ll say one of the things that I’ve been pleasantly shocked by is how open and friendly everyone has been in terms of… I’ve done a lot of networking. Almost anyone I’ve reached out to to have lunch, have a phone call with, even CEOs of pretty successful companies, they’re all willing to talk. They’re all willing to answer questions. I think that’s kind of unique in cannabis where everyone still feels like they’re in this together. I think it was just a sense of there were so many years when people had to fight and band together just to get laws passed. Then once they passed, everyone had to work together just to figure out how to implement them. It was very confusing, and no one knew what to do or how it really worked. Everyone’s had to work together for so long; I think there’s still a really amazing sense of camaraderie in the industry. In general, people are much more open and helpful than almost any other industry I’ve been a part of.

TG Branfalt: One of the taglines on your site talks about this community building. It says that you want to help reduce the stigma for industry operators. While that does exist, I teach at a college and there’s definitely a cannabias in the discussions that we’re allowed to have, and I study the media and there’s definitely a cannabias there. How can your website, a specialty website, help reduce the stigma for industry operators?

Peter Vogel: I think that one thing we do is we provide a platform where that stigma doesn’t exist. So we provide a platform where people come on. You mentioned media advertising. Lots of platforms will sensor you. YouTube cancels video channels. Facebook cancels groups. It shuts down pages. We provide a platform where no one has to be afraid that’s going to happen to anything that they’re doing on the platform. They don’t have to be worried about announcing a new product line, a new opening.

I’ve had people tell me… I use LinkedIn every day, so I’m not negative towards LinkedIn. For me, I have a lot of connections I use every day. I post articles daily, just like I do on Leafwire, so I love using LinkedIn also. But a lot of people out there don’t want to necessarily be loud and proud on LinkedIn because they know they live in a state where maybe it’s not legal. They know half their family doesn’t approve. They know half the people they worked at their last banking job will look down on them or think strangely of them if they’re working at a cannabis company. Not everyone wants to go onto LinkedIn and say, “We just launched our third vape pen. Come check it out.” It’s kind of a weird…

There’s just so much on LinkedIn other than cannabis; it’s hard for people to be 100% open about what they’re doing. So one of the ways that we do help remove that stigma is just provide that safe community, that safe platform where people know they can hire people. They can promote events. They can just share news, and they can ask for help with whatever they need and not be judged or worried that they’re in a place where there’s millions of people who will look down on them for that.

TG Branfalt: Now, I don’t use LinkedIn personally. I haven’t since college when I was actually required to as a part of a class. I’m not really social media guy. Have they taken the steps that… You mentioned Facebook who does shut down groups but has recently said that they would be open to cannabusinesses advertising on their platform in legal states. Does LinkedIn have this cannabias that’s built in to some of the other more popular social networks?

Peter Vogel: Not as much. LinkedIn doesn’t do very much censoring. The cannabias that exists is not necessarily from LinkedIn. I think it’s more from the fact that society in general and the number of states where it’s not legal are still not necessarily open to cannabis. So it’s not LinkedIn as a company. I think that makes it a platform that’s not 100% open to cannabis. It’s really more the fact that societal norms are not 100% open to it. I don’t think that’ll even change even when things go 100% federally legal, say, in two or three years. We’re still going to have a condition where I think it’s going to be state by state. States are going legal with recreational or medical. That’s going to be slowed to adopt and slow to happen, so there’s still going to be the same X percent of the public who is not necessarily really approving of cannabis industry and cannabis businesses. So I don’t think that’s going to go away just because things are legal. I think that’s going to be another five or 10 years to get rid of that stigma and bias in general.

TG Branfalt: When it comes to Leafwire and your user population, are you seeing more growers and dispensaries, people who touch the plant, or are you seeing more ancillary businesses?

Peter Vogel: I’m pretty sure what we’ve been seeing pretty consistently is more ancillary businesses than plant-touching. I think that’s very simply a matter of numbers. I’ve been told there are probably… I don’t know what the numbers are this month, but I think there’s around 35,000 to 40,000 licenses in the US. You may have a better number than I do but somewhere in that ballpark. Let’s say 40,000, and those are licensed companies. They’re licensed by the state to either grow, transport, process, or sell in retail. The typical person outside the industry, if you say, “Cannabis company,” that’s what they think of. It’s someone that’s on a farm. It’s someone that’s in a dispensary, or it’s someone that’s extracting the oil.

TG Branfalt: Making candy.

Peter Vogel: Yeah, exactly. So that’s what almost everyone thinks cannabis companies are. There’s actually not a really solid list of these, but there’s probably three to four times as many ancillary companies that are depended upon the cannabis industry than there are plant-touching. So if there’s 40,000, there’s probably 120,000 to 160,000 ancillary companies out there. Those are everyone from security, lighting, fertilizer, PR companies, legal, accounting, real estate. I mean it’s a huge list.

What I usually tell people is think about if you’re a company like a store, you depend on 20 different companies to provide you with services. You depend on your POS system, maybe a loyalty program, maybe a compliance company, maybe HR, maybe advertising, maybe development, a creative company, someone to design your stores, someone to guard your store. So every single one of those companies probably has 15 to 20 service providers they rely on, and so it makes sense. There’s bound to be more of those companies than there are the licensed ones. Simply because of the numbers that there’s three to four times as many ancillary, we do see more ancillary than we do licensed companies, but I think that’s just the nature of the industry. That’s just the reality of what’s out there.

TG Branfalt: You had mentioned quite a variety of ancillary businesses that work with the cannabis industry. One of them I never really even thought of. You need somebody to design the store. Is there any other examples like that that stick out to you? That businesses don’t initially think, “Oh, yeah, we need this person,” that you’re seeing on the site people finding out, “Oh, we need this person.” Whereas they might not have thought about it initially, and then Leafwire helps them find that person.

Peter Vogel: That’s part of the site I talked about called marketplace, which is like Yellow Page listings. I think a lot of people don’t necessarily realize how important PR is in cannabis. Because advertising is so tough on Facebook and Google and some of these other places, PR’s a really big deal. There’s a bunch of companies out there that are really great, and we’ve worked with a bunch of different ones: Nison PR, Rosie Mattio, Powerplant. There’s a lot of these. There’s probably a dozen or more of these PR companies. AxisWire is another one that does PR. Most people don’t necessarily think about it immediately, but if you’re running a brand, it’s pretty important.

Another big part of the industry that people may not ever really think about is packaging. Packaging requirements are really stringent, and there’s a lot of companies that focus on eco-packaging. The biggest one, KushCo, that went public and then there’s companies like Sana Packaging and CRATIV Packaging. You go and buy your cannabis; you don’t necessarily think about what it’s in, but someone’s got to make that, and someone’s got to get it to the people who are processing the cannabis. So it’s all those parts around that people don’t think about.

TG Branfalt: And packaging’s a very highly regulated part of most cannabis programs, so it adds a whole other layer on. You’ve been in the tech industry for more than 20 years. Anytime I have conversations with somebody in the tech industry, I always tell them the same thing. When I talk to a lot of entrepreneurs entering the space, a lot of them make that comparison between the tech industry in the ’90s and the cannabis industry now. Can you compare those two being somebody who’s worked in both in those timeframes where they are really getting the ball rolling?

Peter Vogel: Yeah, for sure. I would describe it as a very similar level of excitement. Leafwire is a company… We’ve hosted a bunch pitch contests, like Shark Tank-type events. We did seven last year from Miami to LA to Denver to San Francisco all the way up to Vancouver. I can tell you that every single one of them we had a bunch of companies, a bunch of judges, 100 to 200 people, and the vibe in all of those people were so excited and jazzed to learn about new companies and to be there and meet each other and talk. The energy is really great right now in the sense of people being excited about growing businesses. That’s how it was back in the beginning of the tech boom.

The big difference, though, is the regulatory environment. Tech did not have that at all really. In tech, it was off to the races. Anyone could do anything they wanted. Whereas here, it can only grow state by state as governments pass laws, and even the things you can do in certain states whether… There are certain states that have medical, but you can only prescribe cannabis for one type of seizure disorder. It’s so limited. It’s almost impossible for companies to exist with such limitations. So the huge difference, I think, is the growth is a little bit slower and controlled, which is not necessarily an awful thing. Because everyone knows in the tech days, companies like pets.com and things like that would go spend $100 million on your Super Bowl ad. They blew everyone’s money, and half the companies went under in a year or two.

One thing I think the slower roll out is doing is it’s helping that slow down a little bit. I mean obviously in Canada right now we still have huge hype and a lot of people think that public companies are overvalued up there — depends who you ask — but you’re still seeing that a little bit in Canada. But in the US, it’s definitely more controlled and regulated. I’d say that’s the biggest difference between tech in the ’90s and cannabis now is just the regulatory environment has slowed things down a bit.

TG Branfalt: While we’re talking about tech, you’re a platform that connects people, but you also bill yourself as a social network. This is sort of broad, but what role do social networks have in protecting data? Are you being extra cautious since you’re dealing with cannabusinesses who operate in a highly regulatory environment and a lot of them operate with extreme caution?

Peter Vogel: Yeah, 100%. We do 100% respect that people’s data is private. It’s their own data. We don’t sell anyone’s data. We don’t give out any information about any members, any companies. The only we do is we communicate with our own members via email, but we never let anyone else have any data about any of our members, and we’re careful. We use top of the line, like Amazon Web Services and a bunch of other products that are designed to safeguard people’s data. So we’re 100% aware of all the stuff that’s going on especially that Facebook has done and other companies. We are not running our business model to have that be a part of anything we do.

TG Branfalt: How are you guys handling advertisements? You had mentioned it’s very hard to advertise, and very cannabis-centric sites such as yours, obviously, are going to allow these advertisements. Do you guys have any regulatory stuff that you have deal with? How are you handling advertisements?

Peter Vogel: We don’t. We’re allowed to post… I mean we’re our own platform. We don’t have rules about cannabis. We don’t ever post anything about selling directly to the consumer. We post things about brands. We post things about ancillary companies. We post things about services and advertisements, whatnot. We don’t ever, obviously, sell anything directly on our platform or promote the direct sale from one individual to another.

TG Branfalt: Interesting.

Peter Vogel: I mean we only work with established licensed companies who are advertising legitimate services.

TG Branfalt: I noticed some things from Cody who linked us up who does the editing on these podcasts. When he mentioned you, he was telling me that you had some CBD investments. You want to talk to me about those?

Peter Vogel: I’m a big believer in the industry in general, but recently I’ve gotten involved with some CBD companies. There’s some CBD companies here in Denver that have a physical location called Canvas Organics. I was approached by some people who wanted to open some more stores, so some friends and myself decided to be a part of it. We’re not operational in any sense. We’re just investors, but we are big supporters. We’re opening a couple actual physical stores, one over in Belmar and one in RiNo. They’re going to be called Canvas Organics. They’re run by this group of people out of New Mexico. They have a bunch of stores in New Mexico as well.

I really believe that just like you have gourmet pet food stores… I know CBD’s is going to be sold in CVS and Walgreens and all over the place. The fact is, though, there’s a lot of people out there who are very interested in CBD. They want to know how it works, what the different applications are, or how much they should take, what are recommended products, and they want to talk to someone educated. I believe that in a small, boutiquey-like store, you can have a much better experience than at Walgreens. That you’re not necessarily going to have every employee in there who’s actually trained to educate people.

Just like a pet food store, you can buy pet food on Amazon or on Chewy, which they just bought. You can go to a huge pet food store, or you can buy it at Walmart. But in almost every nice neighborhood, you still see a nice gourmet pet food store because people who love their pets, they care about them, they want to go ask questions. They want to get unique products. They want to get quality products, and they want to talk with somebody who’s knowledgeable. I believe for CBD that’s the future. Even though you will be able to buy it everywhere, people are going to want to go to stores that have 30 varieties and have the highest quality products and that have the most educated people who are working in the store that can help them.

TG Branfalt: So you bring up pet food store. I have a two-year-old Boxador. I’ve been giving him CBD since he was a tiny pupper. Still to this day, I give him not much. I’ve done a bit of research. I’ve talked to a few people. Had a conversation with my vet, with the person who runs the doggie daycare, and I’ve interviewed people who make CBD products for pets. What’s your take on CBD for pets? You like CBD. Obviously, you like animals, which we’ll get into that a little more in a minute. What’s your take on CBD for animals?

Peter Vogel: Well, so I have a dog who’s about five and who has some achy joints and aches and pains once in a while, and we’ve been giving our dog CBD for the last almost two years I think now. I take CBD every day. We buy a certain kind for pets. It’s essentially the same thing. They occasionally flavor it. Depending on your dog, some dogs don’t care. Some dogs will eat anything. They don’t care. I’m sure if you have a dog, you know.

TG Branfalt: Yes.

Peter Vogel: They flavor some of these. They flavor with them with bacon or salmon or something so they taste good to dogs. Mostly the only difference is it’s the amount of milligrams. If you know what you’re doing, you could give your… It’s CBD is CBD. You could give your dog any type of CBD as long as you give him the right milligrams and see. Obviously, they weigh a lot less than a human, so you give them less. We actually do buy the ones for pet. My wife likes to buy that. I think it’s a flavored kind, so we get that one. Theoretically, one, I think it works for pets. I’ve seen it work, so I believe in it. You can really give any kind. You just have to monitor. You could up online or look on… There’s a lot of resources. You can find out the appropriate dosage for the weight of the dog. That’s really the most important thing.

TG Branfalt: You said that your dog has achy joints. Have you noticed a significant difference?

Peter Vogel: Definitely. We once had her diagnosed as an early onset arthritis for dogs, so it’s just a little bit of aches and pains in the joints at an early age. The way that it displays is the dogs just chew constantly on their joints. They’re trying to alleviate it somehow. We do find that when we give CBD regularly, it minimizes that significantly so she doesn’t do the constant gnawing on her joints and elbows that we see otherwise. Yeah, we have seen a big difference.

TG Branfalt: The other thing that Cody was telling me about is that you have an animal rescue project. Can you tell me about that? Is it linked to the cannabis industry, and if so, how?

Peter Vogel: It’s not my project. It’s a project that I’m joining and throwing in my resources, trying to help as much as I can. It’s actually Davyd Smith over at Vangst. He’s the CTO of Vangst. He runs something called No Kill Colorado. It’s not a shelter. It’s an organization that teaches shelters how to change from being a kill shelter into being a either zero or almost zero kill shelter.

This is based on a book that someone wrote decades ago, and they’ve done this all over the world, in different cities and states. They have 12 different policies. If you enact these 12 policies, you can get your shelter to almost a zero kill shelter. Just to give two examples of this so it makes sense. One, when they go pick up a dog… Say a dog has been found. It’s a stray, and no one knows what to do with it. The shelter will go pick it up. Rather than just take it back to the shelter, they walk around in a three-block radius to every house and ask every single person if they know where the dog is from. I think it was something like 50% of the time they just find the owner of the dog by doing that.

TG Branfalt: Wow.

Peter Vogel: So they eliminate in bringing the dog in, which seems pretty obvious, but most of these shelters or pounds, they’re so busy. They just pick the dog up, take it back, put it in a cage, and forget about it. Another example of that is shelters often have people drive up with their dog and say, “I can’t afford this anymore. I have to give it up.” The shelters all get food donated from dog food companies. So another one of these principles is offer to give them a free month of food and tell them, “Take this. If you need more next month, just come back, and we’ll give you another one.” So rather than have someone give up their dog because of financial reasons, help them in a way that gives them a month at time so that they can, hopefully, get back on their feet and start to feed the dog on their own. Again, make it so you don’t even have to take the dog in. So there’s about 12 principles like that.

So what Davyd’s organization does is they go shelter by shelter in different cities. They go to them, and they pressure them to adopt these principles and work with the city, work with the county to pressure them to do it. They’ve gotten a bunch of shelters in Colorado to get to zero percent. Their goal is to get all of Colorado to zero percent kill shelters. No Kill Colorado, partly because Davyd’s the CTO for Vangst, obviously he’s a big believer in the industry, wants to bring in… That’s part of the reason I’m joining forces with him. We want to start to throw a lot of events, bring in cannabis companies to help support this cause and throw their resources, money behind it. Because one of the things that I didn’t really know that Davyd brought up is there’s a lot of people in the cannabis industry who want to donate money or time, and there’s a lot of charities that won’t take money from cannabis companies strictly because they’re cannabis companies.

TG Branfalt: Really?

Peter Vogel: Yeah. I didn’t realize that. Apparently the more traditional, conservative charities don’t want to be associated with cannabis still and they won’t accept — 

TG Branfalt: Unbelievable.

Peter Vogel: … money from cannabis companies. That’s what Davyd wants to do is really say, “Listen. Let’s show that the cannabis industry can work together and help save these animals.” The goal is to get to zero percent kill in Colorado. There’s other organizations that do the same thing in other states. So this is part of a national organization.

TG Branfalt: Super cool, man. I really appreciate you telling me all about that. Well, I’ve been covering this industry for several years, and there is a lot of charity that goes on. I had no idea that a lot of these traditional organizations won’t take cannabis industry money. You learn something new every single day of this industry. Where can people find out more about you, more about Leafwire?

Peter Vogel: Well first, we encourage everybody, obviously, to come join Leafwire. It’s 100% free. We will be adding some premium features, but right now it’s all free. Just come join. Create a profile. You can connect with me on Leafwire. Anyone that wants to shoot me an email or connect directly, you can also just go to peter@leafwire.com. I’m happy to chat, have coffee, meet with most anyone. I’ve been networking in cannabis very heavily ever since I started.

TG Branfalt: Well, Peter Vogel, thank you so much for coming on the show. Really a breath of fresh air in the industry, I think, especially for being new into it. I think you have a lot of really great ideas, and I’m excited to see how Leafwire grows. Definitely try to keep me updated on this No Kill Colorado campaign. I’m an animal guy, you know.

Peter Vogel: Well, I’ll chat with Davyd too. We should get him to get on with you, and he can tell you. He’s the guy. He started it here, so he can really tell you about it.

TG Branfalt: That’d be great, man. Again, I really appreciate you taking the time to come on the show.

Peter Vogel: All right, thank you Tim.

TG Branfalt: You can find more episodes of the Ganjapreneur.com podcast in the podcast section of Ganjapreneur.com and in the Apple iTunes store. On Ganjapreneur.com website, you’ll find the latest cannabis news and cannabis jobs updated along with transcripts of this podcast. You can also download the Ganjapreneur.com app in iTunes and Google Play. This episode was engineered by Trim Media House. Thanks for listening. I’ve been your host, TG Branfalt.

End


Morgan Fox: A Federal Cannabis Policy Update

Morgan Fox is the Media Relations Director for the National Cannabis Industry Association (NCIA), the largest cannabis trade organization in the U.S. Ganjapreneur is a Sponsoring Member of the NCIA and we encourage all businesses operating in the cannabis industry to join and support organizations that lobby for sensible cannabis policy.

Morgan recently joined our podcast host TG Branfalt for a wide-ranging interview covering recent cannabis reform progress in legislatures at both the state and U.S. federal level. In this interview, we hear about the work that the NCIA is doing to benefit cannabis entrepreneurs, what the NCIA’s top priorities are for 2019, what business owners and advocates can do to help support progress on these issues, and more!

Listen via the media player below, or scroll further down to read a full transcript of this podcast episode.


Listen to the interview:


Read the transcript:

Commercial: This episode of the Ganjapreneur Podcast is sponsored by Cova, the leading compliant point of sales sweep for cannabis retailers and delivery services. Cova was developed to address the needs of retail businesses in California, Colorado, Washington, and Canada. Cova integrates with state traceability systems such as Metrc and Leaf as well as a wide variety of other business tools such as Baker, Spring Big, and I Heart Jane. Cova also has built in compliance features, such as looping alerts when purchase limit has exceeded, automated sales tax, and instant age verification with ID scanning. Discover the next evolution of cannabis retail software today at covasoftware.com

TG Branfalt: Hey there, I’m your host TG Branfalt and you are listening to the Ganjapreneur.com Podcast where we try to bring you actionable information and normalize cannabis through the stories of ganjapreneurs, activists, and industry stakeholders. Today I’m joined by Morgan Fox, who is the media relations director for the National Cannabis Industry Association. How are you doing this afternoon, Morgan?

Morgan Fox: I’m doing well, thanks for having me.

TG Branfalt: Super stoked. I’ve actually been trying to get you guys on line for a while, but you’re doing a lot of stuff, so I know you’re busy today. So let’s get right down to it man. What’s your background and how’d you get involved in the cannabis space?

Morgan Fox: Well I actually started as an intern at Marijuana Policy Project back in 2008 shortly after I got out of college and I’ve been doing it ever since. I just fell in love with the urgency and the complexity of this issue and as a cannabis consumer myself, I was sick of seeing people be criminalized for using something that’s safer than alcohol. So I just dove in headfirst and I’ve been doing it ever since.

TG Branfalt: What’d you get a degree in?

Morgan Fox: Political science.

TG Branfalt: Oh, cool, man. Then you end up doing media relations. So what does the NCIA do? Give me sort of the broad overview of what you guys do over there.

Morgan Fox: The National Cannabis Industry Association is the country’s largest cannabis industry trade organization. We concentrate primarily on federal lobbying for fair treatment of cannabis businesses and the end of cannabis prohibition so that states can determine their own policies and open up their own legal markets. We also develop resources for people working in the industry and put on events in order for people to showcase their innovations and help network with other business professionals.

TG Branfalt: And what were some of the NCIA goals that you guys had in 2018, and what did you accomplish?

Morgan Fox: Beyond just moving the needle quite a bit on a number of these issues, we were able to help get the medical marijuana protections included in the base bill of the appropriations legislation this year, which was the first time that it happened and I think really goes to show that protecting state medical cannabis programs from federal interference is a non-issue in Congress now.

Beyond that, we were able to help push banking protections and 280E and increased veterans acts as an increased research a little bit farther along despite opposition from some key committees in Congress and from some old school obstructionists that we unfortunately still have to deal with some of.

Obviously the initiatives that have passed in the midterms, that was a huge deal. NCIA helped out to varying degrees in all of those campaigns and we’re very happy that they were successful. Even North Dakota, which lost really helped really move the needle there as well and we’re hopeful that state can make another go at it in 2020.

When it comes to Congressional issues, the midterms were huge for us as well and for cannabis policy reform generally. 46 out of the 56 congressional candidates that NCIA PAC donated to won their elections, which is gonna help us pave the way for serious progress in 2019 and the flip in the control of the House with the Democrats means that certain key committees, particularly House rules that blocked all of the cannabis reform amendments and legislation from being heard by the full House is now under Democratic control so we think we’re gonna have a much easier time of getting hearings in the coming Congress. In fact, one small perk of it is now that Democrats are in control of the Washington, DC appropriations committee, DC might finally be able to regulate it’s legal cannabis market.

TG Branfalt: Throughout your time working with NCIA, what has the evolution been? Have you seen a softening? Have you seen a softening from Congress in general or have you flipped the minds of anybody that you’re aware of?

Morgan Fox: Well I’ve only been with NCIA for a year but in the 10 years that I’ve been in the movement it’s obviously been a total sea change. When I started in this issue, I think there were maybe 11 medical cannabis states and no legal states. So we’ve definitely come a long way in the last decade, but just in the last year, I think that we’ve definitely made a lot of progress and the midterm elections were an excellent example of that with cannabis becoming an issue that is not only no longer dangerous for politicians, but actually gonna help people on both sides of the aisle. No matter what party you’re in, supporting legalized cannabis will guarantee to bump your polling a couple of points and that I think is a really big evolution that not only has that been happening, but that politicians are finally starting to realize it, so they’re less afraid of tackling the issue.

TG Branfalt: So let’s talk about your goals and objectives for 2019. What’s the NCIA trying to do for this coming year and this coming legislative session?

Morgan Fox: Well at the very least we’d like to get a hearing on some sort of a comprehensive legalization bill. Whether that takes the form of federal decriminalization or an outright regulation bill, just something that will allow states to determine their own policies without federal interference. It is going to be the major overarching goal. It’s questionable about whether we’ll actually be able to get a vote, but at the very least, we’re confident that we’ll be able to get a hearing, which will be the first time that’s happened in quite a few years. We’re also very confident that we’ll be able to make some progress if not finally pass something along the lines of the Safe Banking Act to allow banks to do business with the cannabis industry and at least push the 280E issue more to the front, and we’re also hoping that we can develop a much larger Cannabis Caucus in the coming years and I think that we’re already getting interest from a lot of people on the hill about this issue, so we’re very hopeful that things are gonna look good for the next Congress.

TG Branfalt: So you mentioned the banking issue and trying to push something through Congress. Are there any potential fixes save for federal changes to address this banking issue, which is a giant problem for every legal cannabis industry operator?

Morgan Fox: Not really. Right now it’s actually legal for banks to do business with the cannabis industry as long as they do a huge list of criteria with regular reporting of every transaction as well as a whole other list of restrictions that make it very difficult for banks to be able to justify it from a business perspective, but also scare away a lot of people in the cannabis industry because they don’t want to have to do regular federal reporting because if there’s a change in the winds in the Department of Justice, they’ll be front and center as a criminal organization doing all this business and all of their information will be right out there for the DOJ just to snap up and go after them. Now that’s very, very unlikely to happen but I can see why cannabis businesses would be nervous about that. But it is possible, but what we really need is a substantive change in the law that provides safe harbor to banks working with businesses that are in compliance with state law.

TG Branfalt: So you mentioned that you don’t anticipate a crack down, federal policy has so far not interfered much with existing programs. Jeff Sessions, he’s out. I know everyone was really nervous while he was head of the DOJ. Congress included hemp legalization in the federal farm bill and I know that that’s not legalized cannabis, but how much of an impact could the hemp legalization have on cannabis policy throughout the US going forward?

Morgan Fox: Hemp was only made illegal because of the reefer madness directed at cannabis and the fact that now the prohibition against hemp has been greatly lessened and stripped out of law and was supported so overwhelmingly by both parties, I think is a sign that reefer madness is starting to dissipate. It’s also really good because it’s sort of a stepping stone for a lot of politicians that might be a little bit nervous about the issue. I think it’s obviously a good sign. It’s also going to be great for innovation in terms of production when the individual states start applying for hemp licenses from the federal government and are able to start setting up farms and setting up production quotas and all these other structures that are necessary under the new farm bill. It’s good practice for the states and good practice for the federal government in developing regulative cannabis systems.

TG Branfalt: And a lot of the sort of headlines after McConnell signs this piece of legislation with his hemp made pen, sort of screened CBD will be legal, there’s a lot of questions. There’s a lot of people claim to have answers, no firm answers. I have sort of my own understanding. What is your understanding about what this federal legalization of hemp will do for CBD?

Morgan Fox: Well the bottom line is that CBD remains a Schedule 1 substance under the controlled substances act and is currently banned by the FDA. The farm bill specifically says that nothing in the bill interferes with the FDA’s ability to regulate CBD. The only carve out that the farm bill provides is that CBD is exempted from the controlled substances act in states with approved programs and that is it.

I’m sorry, I should elaborate on that. So even though it is exempted from the controlled substances act in those states with approved programs, it’s still subject to FDA regulation and the federal government could become involved if there are any sort of sales going on of CBD products. But that’s sort of the problem with any sort of legal cannabis or medical CBD state. It’s still federally illegal and at the whim of the federal government whether or not they want to start processing or investigating those things. Will they? That remains to be seen. But they can, so anybody that’s involved in the industry should definitely consult a lawyer and be very careful about knowing exactly what risks they’re taking.

TG Branfalt: These first couple of years of the Trump Administration, when he was elected, the industry was sort of screaming. It was sort of on edge. Is it surprising to you guys at all that there hasn’t been any sort of major interference in the Trump era?

Morgan Fox: Not really. On the campaign trail, Trump said that he was definitely supportive of medical cannabis and that he thought adult use should be left up to the states. He reiterated that once in office and it’s really not an issue that’s at the forefront of his mind. Very recently he’s said that he would support the States Act, so these are all good signs. I just think that anybody that’s worried about a Trump direct crack down probably shouldn’t worry about that because he’s voiced support, and it’s not a major issue for him.

TG Branfalt: So I want to switch gears a little bit and talk to you about the recent successes the states that are going online, which of the new markets excites you most? Massachusetts just started sales, Maine is inching closer. They’ve had some process problems. Michigan just legalized. So which one’s exciting you guys most?

Morgan Fox: Maine has obviously had a huge problem with implementation and getting the regulations passed and they seem to be inching closer to opening sales, but it’s already been two years. But hopefully they’ll be able to get something going soon. Massachusetts shows signs of being a wonderfully regulated system and is still working on fleshing it out. Michigan obviously hasn’t started regulating yet, but I think that in terms of outlook, Michigan is probably the most exciting for a couple of reason.

One, it’s the first state in the mid west to legalize cannabis for adult use, which is going to be a game changer, and especially in terms of public opinion in somewhat more socially conservative states. It allows for an unlimited number of micro business licenses which will allow hobby farmers and small mom and pop stores and other small businesses to be able to create a niche in the market without having to deal with any of the onerous regulatory licensing fees or having to compete with major businesses for a limited number of licenses. Also it’s just simple population. Michigan is the second most populous legal state behind California, and that’s just huge.

TG Branfalt: And sort of looking ahead to 2019, I know that you guys are more focused on federal policy. There’s been a lot of talk that Rhode Island is on the verge of passing a legislature approved legalization measure. In New Jersey, the legislature recently voted on legalizing cannabis in not a binding vote, but it was pretty overwhelming, and I live in New York and I can tell you that if New Jersey falls, New York is not far behind and lawmakers here along with Governor Cuomo are looking at their own legalization measures.

Have you guys sort of been internally discussing which is gonna be the next domino to fall?

Morgan Fox: A lot of states in the northeast seem to be on the verge. You mentioned New Jersey which has been having serious discussions about the issue. Connecticut and Delaware are also doing so and have been actually considering legislation for the last couple of years now and seem to be right on the cusp. I’ve been hearing a lot of things from Governor Cuomo in New York and a lot of New York legislators who are also very supportive and want to see this get done quickly. I think that New York might take a little bit while longer, but I think really the one to watch is Illinois.

Following the midterm elections and the election of J.B. Pritzker to governor, he is very supportive of legalization and has actually said he wants Illinois to beat Michigan to opening retail stores and has already put together a task force featuring members of the industry including the head of Cresco Labs, Chris Lindsey from the Marijuana Policy Project is on that task force. Things are definitely moving in the right direction. There’s a lot of supportive state legislators in that state as well and I think that with that kind of momentum and that kind of top down motivation to get this done, it might actually beat some of the states in the northeast.

But it’s anybody’s guess as to whether the states like New Jersey, Delaware, or Connecticut are going to go first, or maybe it’ll be something like Vermont actually deciding to regulate their market. Or New Hampshire deciding to take the advice of it’s educational task force and actually move forward with legalization as well. It’s really difficult to tell who’s going to be first, but the fact that all of these states are considering doing so at relatively the same time is indicative of how far this movement has come and how quickly this is becoming the new reality.

TG Branfalt: So we haven’t hit a critical mass by any means yet, and I just want to touch back on this banking issue because it is so important, how much more important is this banking issue becoming as states are going online?

Morgan Fox: It’s obviously an issue that affects every business that directly touches the plant, and as more and more of those businesses come online, it becomes a much bigger problem. It’s not just a problem for those businesses, it’s a problem for everybody involved in their finances and that includes the federal government and the IRS. So we’re already seeing increased interest from banking associations to address this issue. We’re seeing increased interest in Congress to address this issue and because it’s not directly related to cannabis policy in terms of what people are doing with the actual plans and with cannabis products, it’s just basically an economic issue, I think it’s a lot more palatable to a lot of members of Congress.

TG Branfalt: So save for full federal legalization, would you say that the banking issue is probably the sort of the potential game changer on a federal level at this point in the legalization process?

Morgan Fox: It’s definitely up there. It’s one of the two most important non-comprehensive issues that we deal with and would certainly allow banks to profit. It would allow businesses to profit and be able to use financial services much more cheaply than they do when they can do them at all. Just in terms of optics, it would normalize this industry in a way that I think that it hasn’t been up to this point at a federal level.

TG Branfalt: So you mentioned that’s one of your top two issues. What’s your second top issue?

Morgan Fox: Well we’re also working on 280E, which as you know prevents businesses from being able to deduct business expenses when they’re filing federal taxes and that can be incredibly expensive to the point where it makes many businesses nonviable.

TG Branfalt: How hard is that for people to comprehend when they’re entering the space? How many sort of new operators do you try to advise solely on this issue or talk to solely about this issue?

Morgan Fox: There’s so many cannabis focused accountant groups now that the services are there to make sure that people are very aware and one of the things that we do at NCIA is make sure that members are connected with people that provide such services and at least know of their existence so that if they choose, they can decide to, or go after their advice and take advantage of the expertise of people who have been working with cannabis businesses for years now.

I think that it’s pretty common knowledge that this is a problem and that the cannabis industry has been taxed unfairly, but we definitely would like to make sure that people know about the problems that this creates for businesses. Generally when people are becoming NCIA members, they are already involved in the industry, so they already probably know, but we just like to make sure that they know that there are resources out there to make sure that they are in compliance with those and then don’t get some huge bill from the IRS a couple years down the road and potentially have to go to prison over it.

TG Branfalt: You work very closely with a variety of operators in the space. What sort of trends have you seen in terms of during the last year, what business types do you see popping up in the space more so than others?

Morgan Fox: We’re seeing a lot of, just in terms of the actual cannabis market, we’re seeing a lot more people getting involved in extraction and making concentrates, edibles, and the professionalism that’s involved in that has just been exploding as well as the innovation, but the ancillary industries that are deciding to focus on cannabis are really what have been blowing up. I think that only about 40% of our membership actually touch the plant, are involved in the cultivation, extraction, processing and retail. The rest of them are all ancillary businesses that have for one reason or another decided to focus on the cannabis industry and that’s, as I mentioned, accountants, software programmers, security, transportation, everything from general contractors, real estate, even plumbers. People that produce lighting equipment, people that produce nutrients. All of these businesses are taking advantage of the rising tide of the cannabis industry.

TG Branfalt: So you mentioned such trades as plumbers. Are you seeing people who have been plumbing or doing a trade for a long time come into this space or are you seeing sort of younger folks who are just sort of learning or just learned that trade or just getting involved in that trade enter the space?

Morgan Fox: Just anecdotally, earlier this year I was talking to a guy who had a small plumbing business that he was in danger of going under three or four years ago and when the state that he lived in decided to legalize cannabis, he saw his business overnight just basically recover and then double and then triple in revenue to the point where he’s actually hiring people and creating jobs now. We’re hearing those sort of stories all over the place in a number of different ancillary industries.

TG Branfalt: So for someone like a plumber, this is fascinating to me, is it because more straight laced plumbers don’t want to go into these places or are they learning and working on treatment systems? I’m very curious as to what role.

Morgan Fox: We’re seeing traditional straight laced professionals and tradesmen come into this industry and realize what a boom it is. Sometimes it’s a majority of their clientele, sometimes it’s only a portion of their business, but the people that are willing to actively pursue working with cannabis businesses are seeing a real benefit.

TG Branfalt: That’s really, really fascinating stuff to me. I want to talk to you, again, you work with so many different businesses that sort of span the industry, what consumer trends are your members talking about that they’ve noticed in say the last year or so and do they expect those trends to continue into 2019 or what might shift?

Morgan Fox: From what I’ve been able to tell, it seems as if, and this has been happening for the last couple of years, but concentrates are increasingly becoming more popular. Flower is still king, but it’s market share is starting to lessen and I think that might be largely because of both the convenience and discretion and lack of smoke involved with a lot of vaporizable and edible products.

TG Branfalt: And is this something you think you’re gonna continue to see going forward or might it shift to where edibles gets more of a market share?

Morgan Fox: I think it’s really difficult to say, and it also depends a whole lot on consumer education. I think for many years people probably were very interested in edibles because, especially for new consumers, they weren’t comfortable with or weren’t familiar with smoking or they still had some sort of a hangup about it and they were maybe a little bit scared of vaporizers, but eating a brownie or a cookie seemed familiar to them. But then you have the opposite problem where people didn’t have enough education about dosing and things like that, so then they might have had a bad experience, it really does come down to people becoming more familiar with this product as well as by producers making sure that they are following the very strict guidelines laid out in terms of dosage and labeling.

TG Branfalt: So I just want to take another step back to this idea of traditional sort of trades people getting involved and I wonder about staffing. Are your members having any trouble finding qualified employees to work in this space?

Morgan Fox: I have heard that from some areas, but along with all these ancillary industries growing up, we’re also seeing tremendous growth in cannabis industry staffing companies like THC Staffing and Vangst. These are companies that are making sure that people know that just because you don’t necessarily have any experience with cannabis or in the cannabis industry that it is a growth industry and that you can take applicable skills from other areas and apply them in this industry and that’s becoming more and more popular.

TG Branfalt: So just to sort of sum up here, we’ve talked about a lot of different things. We’ve talked about banking, we’ve talked about 280E, are these the most pressing issues for the cannabis industry as a whole heading into 2019?

Morgan Fox: Well I think the most pressing issue is ending cannabis prohibition because that will make it much easier for states to open up new markets, but most importantly it will stop people from getting arrested for using this product. But aside from that I think that banking and 280E are probably the most important issues for the industry at this point.

TG Branfalt: And briefly, you mentioned the criminal justice aspects of it. The federal government, as you probably know, is working on a criminal justice reform bill that while it’s not going to release cannabis prisoners per se, on a federal level, it will make some changes, it will reduce some sentences, let some people out because the federal jails are overcrowded. Is this, to you guys, sort of a step in the right direction towards maybe a federal wipe of cannabis crimes? Is this possible?

Morgan Fox: Well because most cannabis arrests occur at the state level, I don’t think that it’s possible for the federal government to vacate or expunge those state criminal records. However I think that there could be a possibility for doing so at the federal level, which are mostly distribution charges and things like that. But it is a sign that people are actually starting to think about the issues of expungement and trying to undo some of the harms caused by prohibition.

Back when Colorado first was trying to legalize cannabis, the idea of retroactive amnesty or expungement was wildly unpopular, so people didn’t even consider putting it into the law and now as people have gotten more comfortable with legalization, the idea of not only undoing the harms of prohibition, but making sure that people who have been caught up in prohibition and it’s notoriously unfair enforcement still have the ability to work in the cannabis industry and expungement is a really big part of that.

So I think that the federal bill coming close to getting passed will be a big sign that states should start doing the same and we’re already seeing that in legal states such as California and Massachusetts where there is active efforts to expunge past criminal marijuana conviction. So it’s definitely good. Speaking of criminal justice bill, it’s very interesting that you said that it would affect cannabis because it actually might. Senator Cory Gardner is trying to insert language into that bill that would in effect allow states to determine their own cannabis policies and if he’s successful, then that will be a game changer.

TG Branfalt: I didn’t know that he was trying to do that, and Gardner, for people who might not know, was blocking judicial nominees basically asking for the Administration to promise that they wouldn’t enforce federal law. So he’s been sort of an ally. Just to sort of wrap up here, what advice would you have for individuals interested in entering the cannabis space?

Morgan Fox: Education, education, education. Look to the established national groups such as NCIA and learn what’s going on in your state. Do as much networking as possible and make sure that you know the difficulties associated with navigating this really complex regulatory environment. Another is to make sure that you have capital lined up because unfortunately there are still very high barriers of entry and it can be very difficult to get into the industry without access to them. That’s not to say that it’s impossible, but that’s one of the biggest challenges facing cannabis business, or prospective cannabis entrepreneurs right now. But really, yeah, it’s just making sure that you know the ins and outs and there are a number of services that are available to help out with those problems.

TG Branfalt: Well, Morgan, I really appreciate you coming on the show. This has been a great wide ranging conversation. I really appreciate the work that you guys do over there at the NCIA and I hope that we get to touch base again in 2019.

Morgan Fox: Absolutely. Thank you very much for having me.

TG Branfalt: You can find more episodes of the Ganjapreneur.com Podcast in the podcast section of ganjapreneur.com and the Apple iTunes store. On the Ganjapreneur.com website, you will find the latest cannabis news and cannabis jobs updated daily along with transcripts of this podcast. You can also download the Ganjapreneur.com app in iTunes and Google Play. This episode was engineered by Trim Media House. I’ve been your host, TG Branfalt.

End


Michael Brubeck: How to Identify a Winning Cannabis Investment

Michael Brubeck is the founder and CEO of Centuria Foods and author of Tipping the Scales, a book about cannabis industry financing that helps canna-curious investors identify characteristics of a successful venture.

For this Ganjapreneur.com podcast episode, Michael joined our host TG Branfalt for an interview that covers his early time in the industry — where he encountered the very real threat of federal enforcement and a lengthy prison sentence — to today, where he has grown his company into a multinational and powerhouse provider of high-quality CBD hemp oil. The two also talk about Tipping the Scales, seeking to clarify some of the book’s more controversial points.

You can listen to the interview in full below or scroll further down to read a complete transcript of this week’s Ganjapreneur.com podcast episode.


Listen to the podcast:


Read the transcript:

TG Branfalt: Hey there. I’m your host, TG Branfalt, and you’re listening to the Ganjapreneur.com Podcast, where we try to bring you actionable information and normalize cannabis through the stories of ganjapreneurs, activists, and industry stakeholders. Today I’m joined by Michael Brubeck, he’s the Founder of Centuria, and author of “Tipping The Scales.” A really, really great read. I had the opportunity, it was a quick read, too, which is great. You synthesize everything really well in that book. Congratulations, first of all, for actually publishing something. That’s an incredible accomplishment.

Michael Brubeck: Well, thank you, Tim.

TG Branfalt: Before we get into that book, though, I want to talk about you, get to know you a little bit, get our listeners to get to know you a little bit. What’s your background, my man? How’d you end up in this space?

Michael Brubeck: Well, I started actually in 2005. First walked in to a dispensary owned by a friend of mine in California. By 2006, I was helping him out with his own business, and a handful of other startups and turnarounds inside the industry, primarily retail locations.

By 2007 had spanned the entire state, and then fast forward to 2009 with the Ogden memo, which was when the Obama Administration stated they would not use federal funds to circumvent state laws, and made the pivot out of retail, and into manufacturing/cultivation.

TG Branfalt: So your first company was in the space, that was Delta Allied Growers?

Michael Brubeck: I think technically that was number 14 or 15.

TG Branfalt: When you’re talking 12 years, you get quite a few. But I want to talk to you about Delta Allied Growers. You go into detail about that company in the book. Why don’t you tell the listeners the story of Delta and how that transitioned into Centuria?

Michael Brubeck: Well, in 2009, as soon as the Ogden memo was released, that was the starting point for where I felt there was regulatory structure in which you could have an industrial scale cultivation facility in the United States. As the administration pointed out, as long as you were compliant with state law, then you are compliant with federal policy. So, I exited retail positions and really doubled down on a 44 acre nursery site in California.

TG Branfalt: What ultimately was the … What happened to that company?

Michael Brubeck: Well, it was the opinion of myself and my attorneys that we were clearly in compliance with state law. The Attorney General of California, Kamala Harris, came out in favor of our company, but the Department of Justice and the DEA didn’t quite feel the same way, so they sent us a cease and desist letter at the same time, in 2011, that about eight governors were passing cannabis legislation in their state were getting targeted.

TG Branfalt: At what point did you shut that down, and at what point did you transition to Centuria?

Michael Brubeck: Well, we shut that company down as soon as Ben Wagner, who’s the Regional Attorney General in California, told me that we were probably looking at … I was looking at 20 to life in prison for continuing operations. I met with my advisors shortly after and they said, “Michael, you can continue operating, but the only rule is that you cannot violate US federal law.” So, what we just naturally did was pivoted to outside the US and continued cultivating and operating where we had permits to do so.

TG Branfalt: How did you successfully turn the shutting down of Delta Allied Growers into a positive?

Michael Brubeck: I’m really glad you asked that question, ’cause I can tell you that April of 2011, that was hands down the worst day of my life. It was also the best day of my life. It was the worst day of my life, in that everything I’d worked for in my entire adult life was gone. Just vanished. Every plant that was grown was 35 feet underground, all the personnel that I’d hired were now out of a job. The capital I’d raised had gone also, so that was a pretty daunting moment in my life, but it was hands down the best day of my life, and without that closure, if all things happened perfectly over the last seven years, I’d still be stuck in that small town on 44 acres.

Whereas now, we’re in a handful of different countries, three different continents. We have access to over 13,000 acres in Europe, and over 100,000 acres in Canada, so much happier the way that things turned out this way.

TG Branfalt: And internationally, it’s a far better climate than here in the United States, especially right now. But I’ve got to talk to you about this book, man. Why’d you decide to write it and what’s been the feedback so far?

Michael Brubeck: I decided to write this book because I was getting three to five phone calls every single week from friends and friends of friends that were having questions about PPMs, private placement memorandums, or investment decks that they were getting. Every single person that called me was absolutely clueless.

I kept seeing the same features in every business model. That was that there was this common assumption that the consumer market is going to remain static and the current margins are sustainable, and those are simply not true.

TG Branfalt: What was the feedback when you sat down and you wrote it, and then you sent it off to publishers, and it gets published — did your friends all read it? Did you say, “I’m done answering your calls. Here’s the book, read it, and then we’ll talk?”

Michael Brubeck: That’s definitely something that I lead with now. I think everyone that was on my list of people to talk to about cannabis investments, I definitely gave them some chapters to read. I think the overall feedback has been very positive from investors, and very negative from people that are already operating in the industry for the most part.

TG Branfalt: So you bring up the negative. Let’s just start, let’s get it out of the way. Let’s talk about some of the more unpopular opinions in this book, the potential monopolies, and consolidation. There was one report out of Canada that you were going to see something like 70% consolidation in the nation within 10 years. You talk a lot about companies that are riding high on the hog now, but just can’t scale, potentially them going out of business because they can’t hit these price points.

So, what’s your first reaction when somebody comes to you and says, “Look, this isn’t what’s going to happen,” who challenges these unpopular opinions?

Michael Brubeck: My first thing that I say is some of these things in the book aren’t predictions. I’m not saying that companies are going to develop technology to manufacture cannabis for a penny a gram. Because my company broke that in 2016. Companies already have the technology to do it, and so I think that a lot of my economic predictions actually aren’t really an opinion at all, popular or unpopular.

But I think they’re very commonsensical for people that are outside of the echo chamber of the cannabis industry.

TG Branfalt: So you’re already seeing CannaRoyalty making some moves into California. You’re already starting to see these consolidations. What are you seeing on the ground as legalization‘s starting to make its way through the legislative process? Are you seeing more consolidations, deals, or are you seeing more companies pop up?

Michael Brubeck: We’re actually seeing both. Canada’s a great template for us to … We ask ourselves, “What’s going to happen in California? What’s Colorado going to be like in five years?” I think we look at a federalized market like Canada, the most recent RAND study came out, the potential 8.8 billion dollar market there, which is roughly the size of California.

It gives us a really great map on where this industry’s going. You have three companies that have raised over two and a half billion dollars in the last 24 months, and what are they doing with that money? They’re not investing it in R&D as much as I’d like to see. They’re actually using it to cannibalize smaller companies, and will we see that happen in the United States? Absolutely.

As soon as the chains are removed from Wall Street and the institutional investors, investing directly in cannabis cultivation/manufacturing, and sales, I think there’s going to be a massive consolidation happening very quickly.

TG Branfalt: So in your book, you talk a lot about the importance of research and development, and here in the United States, private companies are the only ones that really can do that in legal states. Federally, it’s almost impossible, and what they do do is ditch weed in Mississippi. So, why do you think that companies aren’t focusing as much on R&D?

Michael Brubeck: Well, the short answer to that is they don’t have to. You still have retail cannabis prices in California, Colorado, even Canada, astronomically high. 200, 300, $350 per ounce. So, at this point, there’s really no need for radical innovation. There’s no pressing need to identify how to first of all, increase your total output by 10x inside of six months, and there’s no need to bring your cost out by 10x or 100x inside any near term window. I think that it’s just invention’s the mother of necessity, I believe.

TG Branfalt: In your book, you also say that automation is king in this industry. You’re proving that with a penny a gram. That’s an insane figure, right? But at the same time, jobs are one of the side effects of legalization. Many activists tout this as one of the reasons that we need legalization, and in your book, you point to providing jobs to a job-starved region. So, what trends do you see in the industry with regard to jobs? What do these jobs become as automation becomes more prolific?

Michael Brubeck: I think a great example that we can look to is the agricultural revolution. You had 93% of the United States working in some form of agriculture, and now, it’s below 3%. I think if we look back at that movement happening, was that a good or a bad thing for the United States? It was absolutely a great thing. So, what does the cannabis revolution that we’re looking at in the next 5 or 10 years mean for this industry and for the consumer?

I think it’s a lot of positive things. I think for the consumer they’re looking at prices going down and quality going up. I think it’s a great thing, especially ’cause I feel that cannabis is far too expensive right now.

I think for cannabis businesses, you’re moving a lot of jobs that were currently done maybe South of the border, maybe somewhere around British Columbia if you know what I mean, and a lot of those jobs are now moving internally to taxable positions where people are getting benefits and pretty good quality of life. So, as this market increases state by state, inside the United States, I think it’s very positive for the industry as a whole.

TG Branfalt: I want to touch base with you a lot more about some of the points you make in your book. But before we do that, we’ve got to take a break. This is the Ganjapreneur.com Podcast, I’m TG Branfalt.


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TG Branfalt: Hey welcome back to the Ganjapreneur.com Podcast. I’m your host, TG Branfalt. I’m here with Michael Brubeck, Founder of Centuria, author of “Tipping The Scales.” We’re talking a lot about your book. Perhaps the boldest claim that I think that you make in the book is that 90% of investors are going to lose their cannabis industry investment, so in your opinion, where are those 10% of investments that won’t fail?

Michael Brubeck: The number one indicator that I look for is mechanization of processes. If you look at the average acre of canopy, how many hands do you have touching your plants? If someone comes back to me and says, “Hey, would you like to invest in a one acre, indoor nursery? We’re going to have 200 lights, and we’re going to have 135 employees,” I would consider that likely be a failure, simply due to being a top heavy organization with too much labor.

If someone says, “Well, we’ve developed a method of aquaponics that is highly automated and only requires four people an acre,” that’s something that I would love to get more into. I think it’s the companies that are doing things the old way that are very labor intensive, and they’re also not suitable for very large scale growth, that’s where the highest attrition rate is going to be.

Whereas, I think that people that are creating enterprises that are utilizing technology, using other areas of agriculture, or just new technology in general, inside this industry, are going to be the ones that can grow, grow rapidly, and they can be the easy companies to acquire market shares as interstate commerce opens up.

TG Branfalt: You also point out that small cottage producers, they’re going to have to change their business models due to their inability to scale, the presence of larger cultivators. Do you see a place for craft cannabis in a mature, legal cannabis market?

Michael Brubeck: Yeah, I think that’s like, I think we look at craft beer, we look at wine. We see a place where you’ve got these huge titans of manufacturing that are producing extremely large volumes of their products, and doing very well with their market segment. Then you have very small wineries or craft brewers that are also ultra successful based on their style of manufacturing. The same thing will exist in cannabis. You will see a polarization of I think large scale cultivation and small scale cultivation, but what small scale cultivators have to understand is that consumer pricing is going to be affected by those large scale cultivators.

TG Branfalt: So personally, right, I’m married to terpenes. I mean, my oil, my wax, my flower, that’s what I go for, right? The high is almost, the effect is almost secondary at this point. I’ve been consuming for 16 years or something like that. So, is that one of the ways that these smaller producers will be able to maintain a presence in this mature market?

Michael Brubeck: I think you pointed out a very great fact right there. The reason that you smoke cannabis is unique to you, and a lot of people have that same reason. A lot of different people have different reasons, and each market segment will gravitate to where they find the most value.

I think that the biggest advantage of small scale cultivators, or cottage cultivators, is they can pivot quickly. They understand the market better than any suit in a boardroom, three states away, can never understand. I think that’s going to be the major advantage moving forward for the next decade.

TG Branfalt: You mentioned a suit in a couple of states away. One of the things that you talk about in your book that I thought was really cool was how this industry has the ability to pull talent from non-cannabis industries. Can you tell me about your experience working with people from outside of the sector, and how you’ve built these relationships with these non-cannabis industry types?

Michael Brubeck: Well, ever since 2009 when I focused on manufacturing, the first person I hired was the Head of the Plant Science Department for UC Davis, which as you know, is the largest Plant Science Department in the United States. His specialty was in ornamental horticulture. Couldn’t have been a better fit. Getting that individual to sign on was very, very difficult. He was someone that felt he could be shunned academically for his participation with a marijuana company.

Whereas now, there’s probably monthly meetings at UC Davis about how that department is going to get involved in this industry, all inside of seven years.

TG Branfalt: What other industries are you seeing people coming from? On the podcast I see a lot of people coming from real estate, so what’s your experience as a CEO?

Michael Brubeck: I actually see people coming from every industry. I see people coming from pharmaceutical. I had a great conversation with someone from Genentech last week. I think one of the first California permits that were issued, that was issued to HERBL Distribution, a distributor in California. Well, the owner of that Michael Beaudry, he comes out of UNFI, which is a Fortune 500 company that he was the President of. You have a president of a company that did eight billion dollars last year, creating the same business model that UNFI has, which is about 27 distribution locations nationwide, and 36,000 skews.

His goal for next year is to have 5000 skews. Now, he’s going to be operating at roughly a 6% gross margin, and how does that affect the cannabis industry in California? Every middler that he is displacing, that’s used to maybe a 20% or a 30% margin for driving from the Emerald Circle down to Southern California now is getting edged out by some truck drivers that have a centralized processing facility in Northern California.

TG Branfalt: And so now you’re bringing up this idea that cannabis and you say this in the book, is going to, “Revolutionize every industry that it touches.” Man, what are some of those industries? We know that Scotts is buying up greenhouse and lighting companies, so big business is already recognizing some of the ancillary markets that are going to be revolutionized by the cannabis industry. What do you think some of these industries are going to be?

Michael Brubeck: Well, I think the big ones are intoxicants, so tobacco and alcohol are going to be adversely affected, as we saw in Colorado since we started collecting data after legalization in 2012, that yeah, alcohol consumption went down, nominally. I think if you look at the pharmaceutical industry, the moment that you reschedule cannabis from a Schedule 1 to a Schedule 3 substance, you’re going to see an explosion of new drugs hitting the market, roughly 7-10 years later.

I think that every cannabis consumer is very well aware of the myriad health benefits that each cannabinoid has, and the fact there’s so many cannabinoids that haven’t been isolated and even tested on the human body yet is mind blowing.

TG Branfalt: I want to talk to you about another big claim that you make in this book, but before you do that, we’ve got to take a break. This is Ganjapreneur.com Podcast.


At Ganjapreneur, we have heard from dozens of cannabis business owners who have encountered the issue of cannabis, which is when a mainstream business, whether a landlord, bank, or some other provider of vital business services refuses to do business with them simply because of their association with cannabis. We have even heard stories of businesses being unable to provide health and life insurance to their employees because the insurance providers were too afraid to work with them. We believe that this fear is totally unreasonable, and that cannabis business owners deserve access to the same services and resources that other businesses are afforded, that they should be able to hire consultation to help them follow the letter of the law in their business endeavors, and that they should be able to provide employee benefits without needing to compromise on the quality of coverage they can offer.

This is why we created the Ganjapreneur.com business service directory, a resource for cannabis professionals to find and connect with service providers who are cannabis friendly, and who are actively seeking cannabis industry clients. If you are considering hiring a business consultant, lawyer, accountant, web designer, or any other ancillary service for your business, go to Ganjapreneur.com/businesses, to browse hundreds of agencies, firms, and organizations who support cannabis legalization and who want to help you grow your business. With so many options to choose from in each service category, you will be able to browse company profiles and do research on multiple companies in advance, so you can find the provider who is the best fit for your particular need. Our business service directory is intended to be a useful and well-maintained resource which is why we individually vet each listing that is submitted.

If you are a business service provider who wants to work with cannabis clients, you may be a good fit for our service directory. Go to Ganjapreneur.com/businesses to create your profile and start connecting with cannabis entrepreneurs today.


TG Branfalt: Hey welcome back to the Ganjapreneur.com Podcast. I’m your host, TG Branfalt. I’m here with Michael Brubeck, the Founder of Centuria, author of “Tipping The Scales.” So, in your book, you say when regulation falls, free market reigns. That statement assumes that in the US it will be descheduled, not rescheduled, which would likely put it in the hands, cannabis in the hands of Big Pharma and Big Ag. Even in Canada, we are seeing state control, provincial control. The liquor board’s going to be running everything from distribution to sales.

In Uruguay, they only allow two products, no marketing, strict controls, fingerprints. This isn’t a free market. The legal cannabis industry in the United States isn’t a free market, Canada’s proposal isn’t a free market. Do you think the industry will get to that free market status? And by then, won’t the market already be cornered by monopolies which again, impedes the free market? I mean, I know it’s a very loaded thought here, but how do we say that regulation falls, free market reigns, but then we regulate the hell of it?

Michael Brubeck: Well, I think we’re definitely dipping a toe in the water with regulations. I think you saw the infighting amongst canopy sites in California. In Canada, as legalization comes this summer, I think that’s going to be one of the biggest tipping points we’ve probably seen in the history of this industry. With one of the major industrialized nations in the world, member of the United Nations, going against the single convention on narcotics, and legalizing cannabis for recreational use, I think we’re going to see a lot of interesting business models pop up in that country.

Then, I think the next step that the US is going to see, and I think a lot of it has to do with what’s happening in Canada, is that we should see state’s rights be recognized regarding both medical and recreational cannabis. Now, the next step after that is potentially for interstate commerce, and then for international imports to be allowed under the commerce clause.

So, if we’re talking about that all happening in three to five years, now you have Canadian companies that are very well funded, that are extremely efficient large scale, being able to export to distributors in California and Colorado, and a handful of other states. I think that you’re going to see US regulators see that US market share is getting eroded by foreign imports. So, what will that prompt the United States to do? It’s my belief that we’ll see an opening or a loosening of regulations.

TG Branfalt: So you’ve said a couple of times, three to five years. We’re edging in on 2018, so you think that we’ll see a significant policy change in the United States by 2021 to 2023?

Michael Brubeck: I think when you look at something as simple as 280E, I think we’re less than a year away from seeing that fall. That to me is an extremely significant change at the federal level. To get the IRS to recognize that businesses in these legal states should be able to write off legitimate expenses for operating their cannabis business is a huge first step. So, going from that to rescheduling, I think yes we are inside of 3-5 years.

TG Branfalt: So one of my concerns, honestly, with the US, is that they’re not going to deschedule, that they’re going to reschedule. If they reschedule, it’s likely going to put cannabis in the hands of Big Pharma and Big Ag. Are you concerned about that as well? Or am I just being paranoid, big government, 1984, big brother is watching us?

Michael Brubeck: Well, the biggest advantage to a rescheduling of cannabis is it removes the federal government’s ability, like our Attorney General right now I think is a bit frightening to some people in the business, but it removes their ability to put … Cannabis operators are following state laws and regulations, in jail for 5 to 20 years, and I think removing that is massive. I think removing … penalties for possessions or for possession of cannabis in general needs to be eliminated.

TG Branfalt: Does it worry you as an operator, the potential of the US government playing crony capitalism with this industry? Because they’re allowing on one hand, they’re allowing companies to … The FDA is allowing synthesized THC products, fast-tracking them, but on the other side, they’re threatening crackdowns. Is there a concern from you, who seems to have a pretty good finger on the pulse, that the government could just play crony capitalism with this, license just a bunch of their friends, and not allow small producers or independent producers into this industry?

Michael Brubeck: I don’t think you can put the genie back in the bottle. I mean, that’s the one problem the federal government would have if they tried to play out that scenario. Can you close the 2800 businesses in Colorado because three pharmaceutical companies now have the patent on specific classifications of cannabis or cannabis processing? I just don’t ever see that happening.

Do I see that pharmaceutical industries are going to have a much larger footprint with cannabis based products? Absolutely. Is that a bad thing for the cannabis industry? I don’t think so. The reason I’ve remained sane in the last 12-13 years in this business, is I really don’t try and speculate. I definitely look at very near term happenings inside the industry, both regionally and nationally. Not just the United States, but other countries. And then strategize accordingly for those changes that are about to occur.

TG Branfalt: So with all this being said, what advice do you have for entrepreneurs considering entering this space?

Michael Brubeck: If you currently aren’t operating a business inside the cannabis space, do not try and recreate something that someone else is already doing really well. Yeah, you may be an incredible chocolatier, but for you to go out and purchase let’s say trim or a base ingredient in oil, from a wholesaler, and then use that ingredient in creating your chocolates. If THC or cannabinoids are 65% of your product costs, you’re competing against every other individual in the marketplace, so do you have a competitive edge in that space? Absolutely not. You’re playing catch up with companies that are more experienced, that are better capitalized than you, so just don’t do it.

Same thing when I hear about growers that are trying to raise six million dollars for a 10,000 square foot indoor nursery in California. I think it’s an absurd thing to do. If you’re spending money on electricity to create photosynthetic activity in your plants, you’re missing the bigger picture here.

So, focus your resources, both time and money, on things that are going to be valuable in three to five years, that you may not be able to be profitable inside of two or three years. So, business models could be people that start building greenhouses and collectivizing indoor nurseries to pivot into greenhouse spaces. I think that’s going to be one of the biggest areas of growth for investors and business owners.

By coordinating collectivization efforts, by getting 10 growers or 20 growers in the same place, if that pays your rent as a cultivator yourself, that’s a smarter way to approach I think, entering as a cultivator, as a product manufacturer.

TG Branfalt: That’s really interesting, the idea that collectives of sorts are the model that you see as attractive. So, when you sent me this book, in the front cover you write, “I hope you learn something.” I definitely did. I think that people who are turned off by the book, as you said, are probably going to be current operators, but as somebody who covers this industry … I really appreciate the honesty that’s in the book. You go through your own journey as well as the journey of your companies, so where can people find out more about you, buy the book?

Michael Brubeck: Well, you can find the book on Amazon, both in paperback and Kindle format.

TG Branfalt: And where can they learn more about you and Centuria?

Michael Brubeck: You can go on our website, CenturiaFoods.com, to learn more about myself and the company.

TG Branfalt: Well, I want to thank you for being on the show. I hope you write another book, honestly, because it’s very succinct. It’s very well written. It’s an easy read and I think that if people pick it up and they can immerse themselves in it and really get some expert opinion.

Michael Brubeck: Well, thank you, Tim. I’m actually already starting on it, and it’s actually focusing on historical market consolidation in other industries, and how they historically affected companies inside those industries, and then how that correlates to the cannabis industry moving forward.

TG Branfalt: Well, I reckon that after you’re done with that, we’ll have to have another conversation, huh?

Michael Brubeck: Yeah, looking forward to it.

TG Branfalt: You can find more episodes of the Ganjapreneur.com Podcast in the podcast section of Ganjapreneur.com, and in the Apple iTunes Store. On the Ganjapreneur.com you will find the latest cannabis news and cannabis jobs, updated daily, along with transcripts of this podcast. You can also download the Ganjapreneur.com app in iTunes and Google Play. This episode was engineered by Trim Media House. I’ve been your host, TG Branfalt.

End


A stack of $100 bills on a flat, white surface.

Dirty Green Dollars: Cannabis Taxes and the Banking Predicament

In the U.S., legal cannabis — medical and recreational — is a multi billion dollar industry which deals almost exclusively in cash. In 2016, the industry generated approximately 7.9 billion dollars in revenue and is on pace to exceed that amount in 2017 — and that is not including the thousands of black market operators who don’t report their income.

The disconnect between states and the Fed regarding cannabis has made financial institutions trepidatious about serving cannabis-related businesses (“CRBs”). Their trepidation is fueled by fear of federal sanctions, the high of costs of due diligence, and the stigma of being a financial institution that works with CRBs. This legal disconnect affects how CRBs are taxed at the federal level, as well. CRBs are forced to pay a higher tax rate than most other small businesses because they are taxed on gross revenue rather than profit, and are forced to pay these taxes in cash. As long as Congress remains entrenched in its refusal to declassify cannabis, the taxation and banking issues affecting the cannabis industry will only continue to fester.

Banks operating on a patchwork of federal memoranda

Roughly 368 U.S. financial institutions, comprised of both credit unions, commercial banks and traditional payment processors, are currently serving CRBs. Compare this to 15 banking institutions who were the only ones serving CRBs nationwide in the beginning of 2014. This number represents approximately 35% of the total number of financial institutions nationwide – proving that it is possible to cut through the red tape.

But how can a federally-insured financial institution service a federally illegal industry? In 2013, the Department of Justice issued a memorandum (the “Cole Memo”), which offered guidance to federal prosecutors regarding cannabis enforcement priorities. Specifically, the Cole Memo created a policy that permitted CRBs to operate largely without federal interference.

In response to the Cole Memo, in 2014 the Financial Crimes Enforcement Network (“FinCEN”), a division of the Department of Treasury, published a written guidance saying that they would not charge a bank with federal crimes for accepting money from the cannabis industry if the financial institution first made sure that the business was obeying state laws. The FinCEN guidelines were intended to encourage banks to make financial services more available to CRBs and promote financial transparency within the cannabis industry. The guidelines also encouraged banks to conduct thorough investigations on any customer believed to be operating as a CRB. Another part of the FinCEN rules requires banks to file regular reports tracking activity with cannabis-related businesses. These reports are called suspicious activity reports and provide a clear picture of the industry’s banking activity.

This is interesting because it forces banks to be responsible for their clients’ compliance, which is unlike how banks would deal with say, breweries, where they would simply rely on normal state laws and regulators to ensure the brewery is compliant. In the state of Washington, there are about 12 known financial institutions that are working with CRBs and FinCEN has been working to encourage them to take cannabis cash. In Spokane alone, Numerica Credit Union has over 200 cannabis business accounts, with the board of directors citing ‘safety’ as a key issue according to spokesperson Kelli Hawkins.

Carmella Houston, spokesperson for Salal Credit Union, said they have opened over 300 cannabis business accounts since June of 2014, making up about 80 percent of the credit union’s net worth.

These credit unions have to monitor federal policy carefully and be prepared to cancel CRB accounts, releasing those assets if the ‘attitude’ behind Cole Memo were to change.

The canopy of cannabis plants inside of a licensed, commercial grow operation in Washington state. Photo Credit: Rory Savatgy

Death by taxes?

CRBs are subject to extremely high taxes at the federal level. Yes, the Fed still wants to collect the cannabis industry’s dirty, dirty “drug money.” The Fed will collect these taxes in cash at coordinated drop off points, mimicking the choreography of a black market drug deal. In the state of Washington, 95 percent of marijuana-excise-tax payments paid to the state come in a form other than cash, according to WSLCB., totaling roughly $20M in taxes each month since July of last year.

In cities like Denver and Seattle, the IRS has been so inundated with cash that it was forced to invest in resources that would allow it to process and store all of the excess cash. The federal tax code does not differentiate between income derived from legal or illegal sources, Uncle Sam just wants your money.

To determine how much illegal income is taxable, the Fed applies Section 280E of the tax code. Most businesses are taxed using a fairly simple formula: subtract the business expenses from gross income to calculate taxable income. CRBs pay taxes on gross income, and are prohibited from taking standard business deductions such as rent, payroll and advertising. Under 280E, CRBs are permitted to limited deductions for the cost of good sold (“COGS”) and, ironically, the cost of growing cannabis (the very commodity the Fed vilifies) is a permissible COGS deduction.

The only reason “illegal” businesses are permitted to take deductions for COGS is because of the founding fathers and the 16th Amendment, not the goodwill of Congress. Practically speaking, these limited deductions translate to a tax rate that can be as high as 90% for CRBs. This significant tax bill is a deterrent for those who seek to enter the legal cannabis industry.  

Working for change

Cannabis policy is primed for a change and the proliferation, wealth, and power of the industry has made its voice of reason hard to ignore. This influence has prompted the creation of a bipartisan Cannabis Caucus (the “Caucus”) comprised of House members from California, Oregon, Alaska and Colorado. The legislative agenda of the Caucus includes passing equitable banking and taxation laws for CRBs and prevent the federal government from interfering with CRBs if they are in compliance with state law. In addition, the aim to ensure that federal laws do not impede cannabis research and allow veterans to access products that they need.

This infectious Caucus has also drummed up support in the Senate, which introduced the Secure and Fair Enforcement (“SAFE”) Banking Act in Spring 2017 — a reintroduction of the Marijuana Businesses Access to Banking Act which was first introduced in 2013 and again in 2015. If enacted, SAFE would prevent federal banking regulators from prohibiting, penalizing or discouraging a financial institution from providing services to CRBs and from terminating or limiting a financial institution’s FDIC protections on the basis of the provision of these services. SAFE would be the first decisive step to wean the industry off of cash. 

In the House, the Caucus introduced two tax bills: 1) The Marijuana Revenue and Regulation Act which would amend the tax code by imposing a federal excise tax on all CRBs and an occupational tax on cultivation facilities and export warehouses, and also require CRBs to obtain a permit and bond to cover federal tax liability; and 2) The Small Tax Equity Act, which would create an exception to 280E and allow CRBs to take standard business tax deductions. The House also introduced the States’ Medical Marijuana Property Protection Act, which would exempt real property from civil forfeiture due to medical cannabis-related conduct authorized by state law.

Unfortunately, Republican lawmakers in the House Rules Committee this week blocked several cannabis-related amendments from receiving consideration by the full chamber, effectively pushing the chance of federal guidance and protections for the legal cannabis industry further out of reach — for now.

A bank teller counts out cash before handing it over to a customer. Photo Credit: MyFuture.com

Courts cannot aid and abet criminals

The federal judiciary has also been forced to confront the banking and taxation issues associated with CRBs. Earlier this year, the Court of Appeals for the 10th Circuit (which includes Colorado) considered whether it could grant a Colorado credit union an injunction to force the Federal Reserve Bank of Kansas City to issue the credit union a “master account.” A master account is essentially a bank account for financial institutions and is necessary for a depository institution to operate.

In its lengthy June 27, 2017 decision, the three judge panel opined that because the credit union would admittedly serve state legal CRBs, a request for an injunction is tantamount to asking the court to grant relief that would facilitate illegal activity, i.e. providing banking services to drug traffickers.

There is also a legal battle raging over 280E. In 2010, the IRS began annually auditing the Harborside Health dispensary, ultimately slapping it with a bill for back taxes, fees and penalties totaling $15 million. In response, Harborside filed suit against the IRS in 2016, claiming that 280E did not apply to its business because its revenue was not derived solely from medical cannabis and, as such, it should be allowed to take standard business deductions related to these other revenue streams. Unsurprisingly, in its court filings, the IRS argued that 280E is applicable to Harborside because its business consists of trafficking cannabis, which is illegal under federal law, and revenue from separate streams does nothing to change that fact. A decision in the case is expected in late 2017, and will surely have an impact on the industry.  

“Outlaw” banks

Local banks serving CRBs in states with a medical cannabis market are slowly becoming more prolific, but these brave bastions of cannabis cash do so at a significant cost.

A bank that serves the cannabis industry can expect to increase operational costs across the board in order to satisfy the due diligence requirements imposed by FinCEN. Banks conduct due diligence through reasonable investigation of a business’ account activity and by reviewing publicly available information about the business. These due diligence obligations often force a bank to hire additional labor and implement new software, in an effort to track the integrity of its CRB customer. Increased costs further deter local banks from participating in the industry.

Ohio, however, is trying to implement a new blueprint for CRB banking. Ohio will be the first state to offer safe harbors for financial institutions that work with CRBs, and the first state to implement a state-run “closed-loop” payment processing system for patients and CRBs. Ohio is rolling out its medical cannabis program this year, and industry watchers are eager to see whether the state’s novel banking solutions will create an efficient, cash-free system.

Plants under the LED glow of an indoor cannabis grow operation in Washington state. Photo Credit: Rory Savatgy

Looking forward

By 2020, legal cannabis is expected to be a $21 billion industry employing more people in the United States than the manufacturing industry. It is high time for the Fed to address the banking and taxation inequities at the state and federal level. The federal judiciary’s hands are tied by the illegal status of cannabis, so it is up to Congress to take steps to enact substantive laws that protect the industry.

If members of Congress do not want their seats foreclosed on in the 2018 midterm election, they should be mindful that legal cannabis has far more support and goodwill among constituents in both blue and red states than Congress itself.  

Note: This article was co-authored by Meredith Kinner and John McGowan, founding partners of Kinner & McGowan, PLLC — a boutique law firm in Washington D.C. with a cannabis-focused practice.

End


Stephen Gold & Andy Yashar: Pioneers in Cannabis Tech

Stephen Gold and Andy Yashar are co-founders of The Daily Leaf, a technology company that has partnered with dispensaries to find and list the best cannabis deals throughout Oregon cities — with plans to expand to Seattle, Las Vegas, and beyond.

In this episode of the Ganjapreneur.com podcast, Stephen and Andy join host TG Branfalt to talk about the technology aspect of the cannabis space, launching a tech startup on a minimal budget, the importance of creating and maintaining a company image, and how — by focusing the efforts of a small, dedicated team — they have been able to create a truly effective service that benefits cannabis companies and consumers around their state.

Listen to the interview through the player below, or scroll down to read a full transcript of this week’s Ganjapreneur.com podcast episode.


Listen to the podcast:


Read the transcript:

TG Branfalt: Hey there, I’m your host TG Branfalt, and you’re listening to the Ganjapreneur.com podcast, where we try to bring you actionable information and normalize cannabis through the stories of Ganjapreneurs, activists and industry stakeholders. Today I’m joined by Stephen Gold and Andy Yashar, founders of The Daily Leaf, winners of the Best Tech Product at the 2016 Dope Magazine Industry Awards. Welcome to the show guys, and congratulations on that.

Stephen Gold: Oh, thank you very much. An honor to be here, thanks for having us on. Steve Gold here. We actually won 2016 and 2017, Best Tech Product at the Dope Industry Awards. So here in Oregon we’re definitely making strides to become a buzz, to help people around town find information about what’s going on with deals, and all that other good stuff.

TG Branfalt: I didn’t know about the 2017, so double congratulations guys, that’s really, really good stuff, that’s incredible. Before we get into the product though, I want to talk to you guys about what you did before you got into the cannabis industry, so if you guys each want to tell me what you did, and how’d you end up here?

Andy Yashar: This is Andy. I was in web development, and really helping dispensaries back in the day, before recreational was even a thought, of doing internet marketing and getting out there. Building a web presence, and showing people what they had in stock, where they could find them, and a little bit about the background of each person that worked there.

Stephen Gold: Myself, I came from the fashion industry. I was working in New York City, and I saw the opportunity for the recreational market to explode. I had always had ailments that lent itself to marijuana, even though I wasn’t a medical marijuana patient. So I came out to Oregon to get involved in the scene, to see what was going on, to get my medical marijuana card, and to really engulf myself in what was a blossoming industry, it still is. About two and a half years ago along the way, I met Andy and we joined forces to bring The Daily Leaf to life.

TG Branfalt: That’s one of the most interesting career jumps that I’ve gotten, is from the fashion industry to the cannabis industry. Could you briefly tell me some of the similarities between the two, how you brought over that experience to this space?

Stephen Gold: Sure, so I’d say the personnel, both industries are absolutely crazy. The people that work in it, we all work in the fashion industry, everything was last minute. I was getting called literally five minutes, the day before something had to go into production, “Steven, we need you.” Here in marijuana it’s kind of similar, we’re all working and we’re all trying to catch up, and work these extremely busy schedules, and work in different things. So in that essence things are the same with the personnel, it’s always crazy. And then also I’d say that one of the things that helped us in getting our name and getting ourself in the foot was my sense for design aesthetic.

Working in the fashion industry, we had attention to detail, wanting to make sure things were beautifully presented, because the end product was putting them on garments to go out for the world to buy, so you couldn’t have any mishaps. And just my eye for that has helped us craft this into something that Andy and I have been able to build into something much larger than we even thought when we first met each other.

TG Branfalt: So now, why don’t you tell me more about The Daily Leaf? If you look at the website, it is really nicely designed. It’s very use friendly, and so I’m assuming that that’s really an amalgamation of both of yours backgrounds kind of meeting and developing this, right?

Andy Yashar: Yeah, this is Andy, I would say that Steven and I work really good as a team. I tend to work heavily on the back end, making sure that people can find us when they search for certain products and certain search phrases on the internet, and Steven really brings a good eye for colors and the way that things should be presented, so it was a good marriage. Essentially, Steven really works on the front end, and I really work on the back end.

TG Branfalt: Describe to me what your service provides, and how dispensaries benefit from working with you guys.

Stephen Gold: Sure, so what we really set out to do when we first started The Daily Leaf, was to create a platform that helped dispensaries advertise deals, specifically one focal point in getting information out about what the best products are out there, and how cheap you can get them. Not necessarily saying that everything on The Daily Leaf has to be a $5 gram, and a $15-$20 eighth, but we found that people are always looking for deals. Furthermore, people are looking to find out what a product looks like before they get into the store. So by simply advertising deals and offering the consumer a way to see that flower before they actually drive 20, 30 minutes to a store, we’re finding that we’re able to drive people from all across town to a dispensary.

So while dispensaries will use other marketing/advertising platforms to help them advertise and have people find out where they are, and are location-based, The Daily Leaf is strictly product-driven. So it allows each dispenser an equal playing field to kind of say, “Hey, we have this product, are you interested in it? This is what it looks like,” and we’re able to drive people from … If you live 30 minutes away from a town, we’re getting people that are driving to those areas to go purchase it, simply based on the product and the image. Furthermore, we’ve really built a niche for ourselves through our newsletter. We’re currently reaching about 10,000 people in Oregon and surrounding areas that are looking for deals, emailed to them.

So what we do, a couple times a week we’ll curate all of our deals that come onto our platform, and we’ll push them out. People can literally go on there, the easiest way to sign up for that newsletter is to just go to our website, Dailyleafdeals.com, and then literally a popup will come up and say, “Hey, do you want to get all the latest deals?” You put your email in there, and you get the information. We found that that, directly to people, and essentially just in their inboxes is the best way for us to differentiate ourselves, and to get information out quickly and easily.

TG Branfalt: You started as this Groupon for cannabis, and the current product, now you guys provide information on, among other things, product launches, events. Can you guys explain to me when you decided to evolve your service to these other aspects?

Andy Yashar: This is Andy. I used to do huge promotional events for larger corporations. Maxim Magazine, Red Bull, Coors Light, back when I was just getting out of college, so I have a lot of event experience. When we actually launched The Daily Leaf, we threw a huge event, and we gave away probably five to six thousand dollars worth of marijuana products. Not stuff containing marijuana, but accessories, essentially, and we had a huge response from it. So fast-forward six months later, we did a huge 4/20 party where we had over 1000 people show up. It’s something that’s not foreign to us, to do events, but it’s a great way for us to showcase what The Daily Leaf is, and what we do on a day to day basis, and present that to the customers directly without … Essentially making them go to the internet and finding us, we can present that to them face to face, and show it to them live.

Stephen Gold: And then beyond that, as we were building our reputation in town, and as dispensaries were using our platform, consumers were using it, we found that there was a lot more people out there. A lot more brands, producers, processors, wholesalers that started reaching out to us and saying, “Hey, your platform’s amazing, how do we work with you, what do we do?” So we had to integrate it beyond on the web, where first we had just the deals, and just the abilities for the dispensaries to log in, and all of their specials. Then we decided, since we had a bunch of brands wanting to get involved, we developed these micro-sites through The Daily Leaf. We already had a name that was building a presence, and a lot of brands don’t necessarily have that footing online.

Us being a credible source allows these brands to get a foothold on the internet. So by allowing brands to 1) just advertise on The Daily Leaf, and to have their own dedicated page, it gives them an area to further push and get information online, and also gives our consumers a way to learn the back end of what these brands are all about. So just giving people content about, “If you’re a Co2 company, how do you make your oil?” There’s so many different techniques out there, and the elementary user who’s maybe just going to a dispensary the first time doesn’t even know the different methods. They don’t know the difference between shatter or oil, or BHO over Co2 vs. RSO, all these different terms that, being in the cannabis community you know, but the entry level user doesn’t. We wanted to give them a back end into, so if you like the brand, Truly Pure, a CO2 company here in Oregon, if you like these guys you can see a back end video about their process to making their oil, from the trim down to when it gets into a cartridge, and into your hand.

So we found that that information was 1) valuable for the brand, but also valuable for the consumer, to learn and educate themselves about what’s really going on.

TG Branfalt: How important has the multimedia been for your engagement? Not just with the YouTube videos, but also the images that are used to promote a product on your website?

Andy Yashar: This is Andy. I think that being as interactive as possible in this day and age is necessary for any business to survive. I think that a lot of people that are in the 24 to 35 year old rage spend a good time on their cell phones each and every day, so the more content that we can produce, is another customer that we have the potential to land as a lifelong user. So I think as much content as we can push out, the better it’s going to be for us.

Stephen Gold: I think it’s everything. Going back to my first point, we created The Daily Leaf because we wanted a place to find out what something looked like, seeing the picture before you even went to the store. So defining that, in order to drive a customer to go to a shop, you need to show them what they want to purchase before getting there. So that media is definitely very important, it drives our sales. That’s one of the things where we coach our dispensaries that we work with, because you can tell if a dispensary puts up a product on The Daily Leaf, then they don’t really take much time. Maybe they don’t take the best picture, you can’t really make out any detail, and it kind of looks sketchy. More than likely, the customer’s not going to want to click on that ad and see what that deal’s about.

But then if you have a dispensary that takes a few minutes to take a nice picture, curates a deal really nicely, you’ll see that that deal gets a lot more play. So yeah, it means everything to have great media.

TG Branfalt: So I want to talk to you guys a bit about the experience as a startup. But before we do that, we’ve got to take a short break. This is the Ganjapreneur.com podcast, I’m TG Branfalt.


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TG Branfalt: Welcome back to the Ganjapreneur.com podcast, I’m your host TG Branfalt here with Stephen Gold and Andy Yashar, founders of The Daily Leaf. So tell me about the startup experience in the cannabis space, specifically for your tech product. How’d you find funding?

Andy Yashar: Well, I had some money saved up, so I spent … I wouldn’t say a large amount of money, because I already knew what I was doing, but I think that we spent, I’ll say a few thousand dollars getting business going, and really working, and trying to save as much money along the way as possible.

Stephen Gold: Yeah, we actually haven’t raised any money to date yet, we have done this all just through ourselves, and working lean. That’s been real important to us. Having a team that’s very dedicated, Andy and myself both wearing many hats, working many hours to just nail this down and build a product that actually has traction. Because for us it’s everything, so we don’t want to go and get funding too soon and give away too much booty, we want to make sure that we’re able to keep our … There are partners out there for us, and we’re starting to get down that line where we’re about to get funding to push ourselves into new markets.

But it’s been very hard the last year and a half, two years, working towards this so that we can be in this position where we now have a product that is somewhat successful here in Oregon, we have built traction, and we have been able to do this really on a shoestring budget, I’m telling you.

TG Branfalt: What about the initial reviews and reaction? You start with three grand, you have this idea … So what was the initial response, and what has your growth been like thus far?

Andy Yashar: Starting out was tough, because I say that the tech part of marijuana is getting flooded with more and more people trying to join every single day. So essentially what we wanted to do, is we set out to create something different. We wanted to be really separated from everybody else and really be for the people. I think that that’s one our biggest advantages, is that people really know that we’re looking out for them, as far as presenting the product, making sure that they know what they’re buying before they get to the store, finding them the best deals. Not only do we encourage dispensaries to post deals, but we’re going out, we’re negotiating deals for our users. We’re meeting with brands and meeting with dispensaries, and we’re actually negotiating deals between the two so we can actually have a really good value for people that visit our site.

Stephen Gold: To get started, what we really did to build our traction was just utilize our core skill set. So Andy with SEO and being able to get the website to be where we’re searchable online. Myself with building a buzz on social media, and getting people to think, again going back to the design aesthetic of the fashion industry. Our Instagram account and what we put out, it looked like we might have had a staff of ten to 15 people, when there was just two of us sitting in the office. So by portraying an image that we were bigger than what we are, allowed people to really gravitate and really get behind it. Furthermore, we had those events that we did that Andy touched on, where we brought the industry together, and we were able to piggyback off of other situations where we can build a crowd.

Our first event, we weren’t even launched yet, because we launched on Green Friday in 2015, November 25th, and this event was in October, and we had people lined up around the block to get in to get that free swag that Andy was talking about, where we were giving away five, $6000 worth of products. I’d say it was a combination of getting into the industry at the right time where there wasn’t anyone like us. There wasn’t anything going on, no-one was able to capture that buzz and be in town, and be able to show face, and really ignite the industry and get people behind them. It was just by stance of luck that we were able to do this at that current time. Because right now, if we’re looking at the industry right now and how it looks, it’s completely different. Those events that we had are somewhat in Oregon not maybe so legal anymore.

The rules had changed when the regulations came in, and a lot of things changed up. Because we entered the market before the recreational market hit yet, it was still just medical. So we got in right at the right time.

TG Branfalt: What’s your growth been like with the migration to recreational?

Andy Yashar: We’re gaining 20% new users every single month, so this last 4/20, we did triple the amount of traffic that we did they year prior, because of the fact that our website’s really ranking really well, and we had probably 2-300 different types of deals on our website for 4/20. We got picked up by a lot of media outlets, and we had a huge buzz going into 4/20, so it was really beneficial to capitalize on the market and make sure that we had everything, and we were the one-stop source for everything 4/20 in Portland.

TG Branfalt: Moving forward, do you guys have plans to expand into other existing or newly legal markets?

Andy Yashar: Yeah, so we are formalizing a plan right now to where we’re going to be going into Las Vegas, which I think our deals platform is really what people look for when they visit Las Vegas, is to save as much money as possible. So Las Vegas is a huge market for us, we plan on going to LA, San Francisco. I think that Arizona, as soon as they are a little bit more open to recreational marijuana, is going to be another huge market for us. I have clients that I do website work for down there currently, and they’re telling me that they’re ripe for The Daily Leaf, that people would drive 45 minutes just to save $15 on some shatter. So I really believe that our expansion is going to be something that’s going to be very popular throughout different cities, even though there is current existing tech in those markets.

We plan on rolling out an app that’s going to be all deal-based. We’re also going to have featured brands on there, so people can read about all of their favorite products, find out where they can buy them at, and how they can save money on it.

TG Branfalt: So why the decision to focus on cities instead of the state as a whole?

Andy Yashar: We really believe that really dense markets are really beneficial for us, and word spreads. So when we go to a huge metropolitan area and we do really well there, the outer lying cities really pick up on it, and we start to expand slowly to those areas. If we started a huge reach and we focused on an entire state instead of a city, we would be overwhelmed with what to write about, who to cover, what video content to generate first. If we focus on the cities and really build that network in, then the smaller cities are a lot easier to penetrate.

TG Branfalt: So far, what are some of the barriers to entry in some of these markets for your product specifically?

Stephen Gold: Barriers to entry,

Andy Yashar: I would say manpower right now. If we had a larger staff, which we’re hiring very, very slowly, and we’re being very meticulous on who we pick, I think that as we grow our staff it’ll be easier to actually go into these markets and have a very good presence.

Stephen Gold: Yeah, it’s say it’s a double edged sword. We touched on not wanting to get funding too soon, which we strongly stand behind, but then again you don’t have the large marketing dollars that some of our competitors would have, and do have. So when you go into new markets and you have a small staff, being able to show value to people who don’t know you from anybody … Because you talk to a dispensary owner, and they’re probably getting 50, 70 calls a day from people trying to sell them something. So that’s why building a buzz was and is so important for us. Because if we have a buzz, if we win those awards and people are talking about us, and we’re doing things differently, then that word will spread out. For example, we’re based in Portland, surrounding towns of Salem, of Eugene, of Bend. Those towns are starting to hear about The Daily Leaf, we’re working more and more into those towns and building a presence in the whole state of Oregon from the buzz we’re able to build just in Portland.

Andy Yashar: I’d say right about now, 20% of the dispensaries in Oregon are our clients. So we really want to build that up to the 50% mark, and then we’re going to move into Washington and really build a huge presence down there. I think that if we really conquer our home territory first, and really make sure that we have a very, very good network of people, then going into say, a Las Vegas and bringing testimonials with us, and letting them know that, “This is what our clients are saying,” that’s going to give us a little bit more credibility when we go and we actually ask for money.

TG Branfalt: I want to discuss some of these events that you guys have hosted in the last couple of years, but before we do that, we’ve got to take our last break, this is the Ganjapreneur.com podcast, I’m TG Branfalt.


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TG Branfalt: Welcome back to the Ganjapreneur.com podcast, I’m your host TG Branfalt, here with Stephen Gold and Andy Yashar, founders of The Daily Leaf. So why don’t you tell me about some of the outreach events that you guys have had? You’ve had a gold tournament, a bowling. How did you come up with these things, and how’d you reach out to sponsors and businesses?

Andy Yashar: So we have a partner in the event space, and his name is Matt Enos. And Matt Enos approached us with a gold tournament. He has a huge passion for golf, he was a caddy for 15 years of his life at a country club down in California. He really wanted to grow this company really bad, but he just didn’t have the right people and place to make that happen, so he approached us and really, really wanted to build his brand. So we started doing the 4/20 golf tournament, and essentially it’s pretty much a mixer for all of the brands, dispensaries. A lot of the people that are in the network in Oregon, to kind of meet on a sunny day during the summer and play golf. It’s been a very successful event for us, so what we did was, is we came up with a bowling tournament called Canna Bowl.

Canna Bowl was something that I had the idea of one day when some of our clients and us, we went bowling one night and we said, “There should be a cannabis bowling tournament.” So we launched it a few months later, and High Times came down and really loved it, and did a huge write up about it, and it’s been very, very successful. We have another tournament coming up on June 29th, as far as golf goes. We’re praying for a sunny day there, but it’s been raining almost every day here in Oregon, but we’re really praying for a sunny day so we can get together and network a little bit more.

TG Branfalt: When you decide to hold these events, do you get any pushback from the venues at all?

Stephen Gold: With cannabis events, in each state there’s different rules or different regulations. When we first launched, I think I was touching on this a little bit earlier, when we first launched and we had some of these events, consumption was open and allowed. It was something where we can have sponsors come in, and if you’re an oil company you can dab out people that come by and let them try your product. This is a great way to interact with consumers, and it’s a great way for us to position ourselves, to bring those consumers and bring those brands out of the dark and have everyone meet. So those events were great. Just recently in Oregon, the rules changed a little bit. So the act of consumption is not necessarily allowed, so it’s moreso I’d say on us, as being responsible hosts, to know the rules and regulations, to make sure that we speak with our lawyers to know exactly what we can do, so that we’re not putting anyone in a situation where they’re opening themselves up to not following the rules and not having the regulations.

When it comes to these events, with Canna Bowl, we didn’t have people smoking inside the event, because that’s not allowed. We didn’t’ have any smoking anywhere near the event, because you can’t mix alcohol and marijuana. But what we did was we had a additional component that was separate from it, where we had people go and if they wanted to smoke, it was a safe and it was a legal place for people to smoke and try different products. So we’re able to continually understand the laws, and be able to then further make sure that the events we put on are fun. There is some sort of component of consumption because everyone likes that, but if it’s not allowed obviously we’re not going to go down that route. One other thing to touch on with the events is, we always try and work in some sort of component where we can give back, because that’s important to us as well.

Being able to build a name is important. Building a presence and brand is very important for us, with 4/20 Sports and The Daily Leaf, but also we want to make sure that we’re giving back to the community, giving back to people that will benefit from it. So our 4/20 event last year, we gave 10% of the proceeds to Grow For Vets. With the golf tournaments last year, we were able to do Mulligans for the MS Society. So that’s really important to us, to make sure that we work in that component. Not every time, but where it affords itself, where we could, we like to work a charity effort into the equation.

Andy Yashar: Yeah, even though we’re broke there’s people out there that are more needy than we are, so I really think that helping others out is a huge component to 4/20, and we want to continue that with each event that we do.

TG Branfalt: I think that that’s one of the most overlooked parts about this sector, is the type of charitable acts that a lot of the businesses do. Unfortunately, some of them, I don’t know if you guys have had any trouble doing this, but they sometimes get donations actually sent back, because the foundation or the charity can’t accept drug money, essentially.

Stephen Gold: Interesting. We’re in an interesting place where we do not touch the product at all. We never put our hands on it. While we do advertisements for it, we’re just a media marketing company, so for us we luckily haven’t had that issue, but I can see, I mean banking is a huge issue, and I know there’s tons of barriers for our clients. It’s a struggle. Being a small team, think about this, we’re a small team and we do take credit card payments, but we’re going around collecting cash every month from clients and making sure we make the rounds, and catching people the right day and making sure the owner is there, I mean it’s …

Andy Yashar: Someone actually Western Union-ed us $100 yesterday. For me, I’ve been in this industry for a long time and I’ve never had anybody Western Union us $100 before, so every day it’s something new, right?

TG Branfalt: So what in your opinion is the most pressing issue facing the industry? Is it banking, it is the threat of federal interference?

Andy Yashar: I honestly think that Jeff Sessions is a lot more talk than he is bite. There’s something that came out yesterday that said that they’re giving him no money to fight medical marijuana.

TG Branfalt: Yeah, the Roebuck farm and Hickenlooper said he had a meeting with them last week in which he came away not believing that any sort of crackdown was forthcoming.

Andy Yashar: I really think that Trump, whatever your thoughts are about him, he really wants to leave state regulations up to state leaders. I really think that after the Trump administration is gone, I think that there’s going to be somebody that comes in with an actual good head on their shoulders, and is going to know that cannabis is going to become legal whether the federal government wants it to or not, and the first thing to do would be to put regulations in place so everybody can benefit from recreational marijuana, not just states.

Stephen Gold: Yeah, and I think the biggest issue right now is probably the whole banking issue. The idea that because it’s federally illegal that there’s that whole 280e situation where you can’t write anything off, it’s hurting a lot of businesses and it’s making it very hard for people to do regular business. Even where we are you can’t even do regular marketing and advertising, whereas a regular business can take ads out on Facebook or Google, and that’s just worked into your marketing course because that’s what you need to do as a business. Where in marijuana, it’s illegal. You do advertisement, you get shut down, so people need to … The federal law is a big problem but there’s nothing that’s going to change in the next year, in the next two years, but maybe in the next five years we’ll be looking at something different.

TG Branfalt: So finally guys, what advice do you have for entrepreneurs, specifically those interested in entering the tech sector of the cannabis space?

Andy Yashar: Do your homework. Really get out in the market and meet people, and ask people what their needs are. Good ideas are great, but what’s actually functional and what the industry needs, that’s the homework that needs to be done in this market.

Stephen Gold: Yeah, and for people who think that they could probably enter the space without having knowledge of marijuana, without being involved in the actual city or the state that you want to do business in, because it’s very grassroots. Everyone’s very connected. Here in Oregon, even sections of Oregon, Portland has it’s own market where we all stay very close. Then there’s Southern Oregon where there’s a lot of growers that have a close-knit relationship. So you’re not necessarily just welcomed because you have a good idea, you’re welcomed because you’re a part of the movement. So if you want to get involved, you might have a great idea, you might be the most amazing developer or the most influential person, but if you’re not really engulfed in marijuana, you don’t understand how it works, then it’s going to be very hard for you to get any traction.

Andy Yashar: And save your money. Definitely save your money, because you can run though money really fast in this industry, so be careful.

Stephen Gold: Yeah, and not to say that, but today it could be all nice, we’re all smiling, we’re all having a good time. Tomorrow something might come out and the whole world turns to shit, you know what I mean? So it’s very volatile, so it’s not for the weak-hearted, or however you want to say.

TG Branfalt: Well, I want to thank you guys for coming on the show and turning $3000 into a great product, especially for people in Oregon who are looking for the best deals around.

Stephen Gold: Thank you, thank you.

TG Branfalt: Before we go, could you just tell us where they can find out more?

Stephen Gold: Yeah, the best place to get information is through our newsletter, so you can go to Dailyleafdeals.com. Down at the bottom there you can enter your email address, or a pop-up will probably come up there. Enter it in, we send out updates, once, twice a week with whatever is going on around town, whether it be deals, whether it be brands doing parties, events and things like that. So whatever is going on in Oregon, currently only in Oregon, whatever is going on in Oregon, you can find out through The Daily Leaf at Dailyleafdeals.com.

TG Branfalt: Thanks again guys, for coming on the show.

Andy Yashar: Thank you.

Stephen Gold: Thank you, have a good day you guys.

TG Branfalt: You can find more episodes of the Ganajapreneur.com podcast in the podcast section of Ganjapreneur.com, and in the Apple iTunes store. On the Ganjapreneur.com website you will find the latest cannabis news and cannabis jobs updated daily, along with transcripts of this podcast. You can also download the Ganjapreneur.com app in iTunes, and Google Play. This episode was engineered by Jeremy Sebastiano, I’ve been your host, TG Branfalt.

End


A business person counts cash as part of their taxpaying procedures.

The Current State of Cannabis Business

One of the first things you learn in high school civics class is that there is federal law, and then there is state law. There are times where these two worlds collide; the collision is particularly bad when it comes to cannabis.

Currently, we have 29 states plus the District of Columbia that have legalized cannabis for medical and/or recreational use. Problems arise because the federal government considers cannabis to be a Schedule 1 drug — the most restrictive category possible — which presents a quagmire for those in the industry when it comes to banking and taxation.

Into the Tax Court, we go

First, let’s tackle taxes. There was a famous U.S. Tax Court Case, Edmonson v. Commissioner in which Jeffrey Edmonson was a drug dealer. He sold amphetamines, cocaine, and marijuana — and for his crimes, he was sent to federal prison in 1974. When he was released, the Internal Revenue Service reconstructed his income and sent him a Notice of Deficiency. Edmonson took the IRS to Court in 1981. He reasoned that if the government was going to treat his drug sales as a business, then they should also consider his business expenses.

Drug dealers didn’t keep records, so by using something called the Cohan Rule, Edmonson testified that he sold his drugs on consignment. He wanted to take expenses for the cost of the drugs. However, he had to travel as well, and he had a dedicated telephone line, all of which the Tax Court considered and gave him credit for those expenses. Congress hated this, so they came up with an amendment to the Internal Revenue Code, Section 280E, which states:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

Section 280E is still in force today. If you are a cannabis business owner, you are probably aware of this, for even in a state where cannabis is perfectly legal, when you file your taxes, all you can do is take an expense for the cost of the cannabis.

Consider the case of Californians Helping to Alleviate Medical Problems Inc. v. Commissioner in 2007 — a.k.a. CHAMPS. What this company did was sell subscriptions to anyone that had a medical marijuana card. They offered a monthly membership which included cannabis, but it also covered caregiving that would help their patients through the conditions that ailed them. The Court reasoned that there could be two businesses under one roof and it was mathematically easy to figure out how much of the expenses would be billed under caregiving and what would be billed as cannabis.

BINGO! We had found a way around Section 280E — but it’s not actually that simple.

Relying on experts to help you navigate the complicated waters of cannabis business will make your life as an entrepreneur much easier.

Section 280E finds a way

In 2012, a company called the Vapor Room found themselves in Tax Court. The case, Olive v. Commissioner, showed us that we couldn’t just throw two businesses together and deduct expenses to get around Section 280E. In Olive, using the principle of CHAMPS, the Vapor Room was selling medical marijuana, but then just giving away things like movie nights with popcorn and Yoga Classes. But here is the problem: there was no aggressive pursuit of income for that part of the business, so Tax Court quickly disallowed these expenses. And because their tax bill was so high, the Vapor Room went out of business.

I can’t tell you how many Olive-type dispensaries I see in a year. Somewhere along the way, someone who claimed they specialized in cannabis taxation would advise splitting into two businesses by basically just throwing them together and seeing if it would fly. The validity of that tactic couldn’t be less feasible. I’ve seen dispensaries with a setup where they sold cannabis and some T-Shirts and thought that they were operating under CHAMPS. The cannabis business is one of the most audited industries and, if you are in it, you really need a person that specializes in cannabis taxation. Not someone that says they do, but someone with proven experience and the knowledge to back it up.

This story doesn’t end there. Federal law strictly imposes its ‘hands-on’ banking policies for cannabis entrepreneurs as well. Unless you have some connections or lie about the nature of your business, opening a bank account is literally impossible. While it’s legal for banks to open such accounts, banks are not usually willing to engage with the cannabis industry because of the tax and legal ambiguities.

So, you have these businesses that have to operate in all-cash, and with cash comes theft. I’ve been in practice for 23 years and I know that businesses that operate with mostly all cash are going to see employee theft. You have to think about security — and it’s not just the employees that pose a security risk, it’s the general public as well. As a result, most dispensaries require some kind of armed and/or trained security on the premises.

Joining the right team

You have the Tax Code that is against you and you have a business that is all cash, what are you supposed to do?

The easiest thing to do is do your research. Find an accounting firm that actually specializes in cannabis. In the business of marijuana, you need to rethink how you want to enter the marketplace, how you want to handle taxes, and how you want to deal with cash.

An accountant that specializes in cannabis will have connections. For instance, they would have established a “team.” They will have a cannabis attorney (you’ll need one). They will have several banking solutions for you so your cash-use is minimized. They will have solutions to the issues you will undoubtedly encounter.

For instance, because regulations regarding cannabis are generally created by the state legislature, your team will need to know the different nuances of your state. For example, if you are a dispensary in Nevada, all you can do is sell cannabis — so the two-businesses-under-one-roof strategy won’t work for you. You will need another solution to your tax problem.

Depending on your state, there may be some banks and merchant companies that will take you on as a customer. The point is that cannabis is the new gold rush, and just because someone says they specialize in cannabis doesn’t mean they do, so do your homework.

New developments for taxes and banking

For cultivators, Section 280E doesn’t take that big of a bite, taxwise. For instance, the cost of growing cannabis includes most of their expenses. Yet, even hemp farmers are under the control of Section 280E.

There are some new developments on the tax and banking side, however. In the House, they have introduced H.R.1810 – Small Business Tax Equity Act of 2017, which would get rid of Section 280E. The Senate even has a companion bill — but both bills are stuck in committee. In the Senate, they have also introduced S. Rept. 114-280 – Financial Services And General Government Appropriations Bill, 2017, which would end the industry’s banking restrictions.

Until then — before you spend the money on a license to grow, cultivate, or open a dispensary — meet with someone that specializes in cannabis taxation. You may need to go back to the basics.

First, study your state laws. Second, sit down for a consultation with a cannabis tax specialist. Tell them your idea and let them work around it. They should be able to offer you several different options. Together, you can figure out what banking options are available; there are some small banks and even merchants that will work with you, but, for the time being, you will need the right team behind you to help guarantee a cannabis tax and banking workaround.

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Getting Compliant: Quick Guide to Regulations for California Cannabis Entrepreneurs

Complex laws and regulations governing the cannabis industry present a host of challenges for entrepreneurs looking to operate in this space. Cannabis businesses in California have a short window of time — specifically, by Jan 1, 2018 — before they will have to be fully compliant with these regulations.

For many, the potential rewards of this emerging industry justify the effort and outlay required to establish a compliant cannabis operation. Given the federally illicit nature of the plant, however, an uncertainty always looms around cannabis, especially due to the multi-tiered nature of state and local laws and the overtly political nature of this industry. As a result, the ability for operators to produce, manufacture, distribute, or sell cannabis related products can only be done in strict adherence to local, municipal and state regulatory code — and in a manner that is nothing short of 100% compliance.

Cured branches of cannabis flowers that now await trimming. Photo Credit: Sarah Climaco

For starters, here is a list of various agencies that a California business owner could potentially contend with. To reach federal compliance, entrepreneurs must consider the following government bodies:

  • IRS
  • Occupational Safety and Health Administration
  • Department of Agriculture
  • Department of Labor
  • Environmental Protection Agency
  • Consumer Protection Act

To reach state-level compliance, the Medical Cannabis Regulation and Safety Act (MCRSA) and the Bureau of Medical Cannabis Regulations (BMCR) require the consideration of an additional six regulatory agencies:

  • California Department of Food and Agriculture
  • California Department of Pesticide Regulation
  • California State Department of Public Health
  • Department of Fish and Wildlife
  • State Water Resources Control Board
  • California Medical Board

Under the MCRSA, medical cannabis businesses in California will have to deal with regulations spanning lab testing, quality assurance testing, seed to sale tracking, packaging and labeling requirements, plant limitations, environmental restrictions, ownership restrictions and more. The initial rules released are not final and are undergoing a 45-day public comment period.

The same level of regulatory scrutiny should be expected for the Adult Use of Marijuana Act (AUMA, aka Prop 64), which was passed in 2016. MCRSA and AUMA differ in many places, including timelines, residency requirements, vertical integration restrictions and more. As touched upon briefly in a previous article, Governor Jerry Brown’s Budget Trailer Bill seeks to merge the MCRSA and AUMA to maximize public and consumer safety, favoring the AUMA’s liberal standards more.

For California specifically, medical and recreational licenses are set to be issued starting January 1st, 2018, although we won’t know much about the Adult Use of Marijuana Act until Governor Brown’s technical fix bill passes this summer.

Licensing will be controlled at the state level but enforced primarily at a local level, allowing local agencies to ban and/or restrict licensing as they see fit. To ensure compliance, businesses will need to take city and county ordinances, rules, and requirements into consideration — in addition to federal and state regulations. Whilst some of you may have licenses already, new operators will need to be thorough in preparing for the coming changes.

So what can businesses do to prepare?

If starting a new business

Start researching what regulatory and financial compliance will entail for your business license type. You will also want to understand the limits and restrictions on vertical integration with most cannabis business license types.

Next, identify municipalities that will issue cannabis permits as well as correctly zoned properties. For zoning, you have both state level and local issues to deal with. On a state level, you have an overarching regulatory body that makes the rules but doesn’t necessarily enforce them, relying instead on local lawmakers, police and fire departments to do so. You will want to establish relations with these people, which we will discuss later on this piece.

Once you have identified a location that’s zoned appropriately and meets state regulations, work on securing it but keep in mind that zoning laws can change. Also keep in mind specific zoning restrictions, such as the fact that if certain land is zoned as agriculture it does not mean it is necessarily zoned for cannabis. You will need a written approval from your local zoning authority to be included with your application. This approval is known as a ‘variance,’ which is basically like a zoning ordinance stating a land-use exception. 

Additionally, some applicants will be required to demonstrate compliance with California’s environmental laws — this can be done through either a local permitting entity or via an Environmental Impact Report (EIR).

A cannabis worker pours a fresh batch of concentrate onto a sheet of wax paper for cooling. Photo Credit: Sarah Climaco

When securing a license, it is highly advisable to create a business plan that properly reflects local laws and regulations, to ensure you have the right to operate on the property, and to know who your neighbors are and if they approve of a cannabis business operating in their neighborhood — specifically related to odor, water use and the type of people it may attract if it is retail. Your attorney is your best guide for filling out an application, but understand that up to 25 percent of applications are thrown out before even being read if there are red certain red flags such as an improperly filled out application or a business plan that doesn’t reflect the rules.

Under the initially released MCRSA regulations, you will need to submit information about owners and business formation documents. If any owners have any serious convictions, they will need to be disclosed, so it’s recommended that you double check everyone whom you work with.

If you are working with investors, can you prove where their assets are coming from? Take a look at their legal history. Any felonies on their records will be will be a red flag and result in your application being disqualified as these state auditors are looking at hundreds of applications for reasons to toss them out. There are other nuances around investors, such as their ability to show that they can move liquid assets within 30 days — but we won’t dive too much into that here.

Priority licensing is available for those who have been in operation and in good standing with the local jurisdiction since Jan 1, 2016. This can be interpreted to mean that the commercial cannabis activity commenced in conjunction with the license type for which the applicant is applying. Being in ‘operation’ could mean that the client began engaging in transportation, distribution, testing and sale of the cannabis goods as authorized by the local jurisdiction. You will need to provide plenty of information to the authorities as aforementioned including proof of ownership or permission to operate on the premises in which you currently operate. If you think you can qualify, you may want to begin gathering all your documentations as soon as possible.

Establish good relations with local regulators

As part of your ongoing research, figure out who your local and state legislators, inspectors and regulators are. Connect with them and welcome them into your facility(s), letting your staff know ahead of time to be extra welcoming. Establishing a relationship with these parties is the best way to get leeway if the need ever arises.

The idea here is to have an attitude and culture of not breaking the rules and keeping compliance a priority. Get buy-in across your entire staff and adopt processes and software that keep you compliant. Once California’s seed-to-sale system is announced, you will want to make sure to submit all the information it will require, or use software that will automate the submission of your business information to these regulatory agencies on a continual basis.

Bagged cannabis flower is stored inside of a locked cage while it awaits either packaging for consumers or transportation to an edibles manufacturer. Photo Credit: Sarah Climaco

Learn who the lawmakers are, from the governor down to the people in charge of zoning. You will want to establish rapport with these law-makers and establish proper communication with them, instead of being frustrated when the tides turn. Familiarize yourself with lobbyists in the industry such as NCIA to NORML and MPP, and participate in these committees. Attend local events held by these groups so you can connect with players who know how the regulatory climate will evolve, and support measures that help the cannabis industry as a whole progress.

Stay up-to-date on regulations

As we keep mentioning, rules are constantly prone to change — sometimes even within days. You will have to take initiative to stay compliant instead of hoping that compliance updates find you. Stay up to date on any press release or change in FAQ on the state website and join any email lists you can as well.

Remain flexible and fluid as these laws evolve, treat compliance as an asset and start with a compliance-centric, SOP driven business model, which entails developing processes that keep your business structured and evolving them alongside regulations. Depending on your business model (retailer or producer) there may be an appropriate business software platform to help you run your operations while staying current with changing regulations.

Below you can see some compliance scores by state assembled by Adherence Compliance, who offers software that helps you self-assess your cannabis business and receive a compliance score.

Cannabis company compliance averages on a state-by-state basis, assembled and presented by Adherence Compliance 

Don’t discount the importance of banking

Although California remains a cash-heavy state, you may want to start your search for local banking as soon as you can because it may impact your ability to secure a license. Credit unions are a good way to circumnavigate some of the big banks’ regulations, especially because they are local and community focused. The U.S. Treasury and Justice Dept. have stated in the Cole Memo that they aren’t going after financial institutions on a state level, so figuring out how to deal with money is very much part of compliance. If you are out of compliance with banking, it could open you up to a host of issues.

But is banking really an option for California cannabis entrepreneurs yet?

If you’ve been following the news, you’ll have noticed that President Trump and AG Sessions probably won’t do anything positive for the banking issue anytime soon. Banking rules for cannabis have not evolved much since 2014, which was when the DOJ and FinCEN at the Treasury Department issued a memorandum to create a civil structure allowing banks and credit unions to work with cannabis clients, but they had to adhere to regulatory obligations.

The larger banks simply don’t find the risk/reward to be worth it, but the smaller guys who suffered as a result of the financial crisis often do. As part of the FinCEN guidance, banks and credit unions must verify the compliance of their cannabis clients with state regulations. But since, in California at least, there haven’t been any laws set in stone, cities and counties have come up with their own hodgepodge of ordinances allowing for local banking leeway — but these have largely fallen short in helping financial institutions feel secure against FinCEN. In addition, FDIC would not renew an insurance policy if it seemed that an institution was working with cannabis businesses.

As compliance approaches, however, local financial institutions will be better able to defend their positions in complying with FinCEN and DOJ, and will be the early adopters to do so. These banks will need to develop cannabis specific operating procedures that ensures that they pay specific attention to cannabis businesses and can meet FinCEN guidelines.

Audit your financials

As mentioned earlier, organizations like NORML and NCIA can help you connect with reputable professionals who understand the tax code and federal law, specifically Section 280E, so that you can select a firm that has cannabis knowledge, such as the folks over at LIV Consulting.

Once you’ve shortlisted a few CPAs and maybe even selected one, work with them to identify risks of fraud and noncompliance that may not be obviously evident. Check to see that you are in alignment with local ordinances as far as tax is concerned — and continue to do so periodically as the requirements can change. If you have received a violation that you feel you should not have received, contest it sooner rather than later so you don’t pass the expiration of the statute of limitations for an appeal. Properly contesting penalties in good faith could help you reduce the fines you pay, which is another reason to keep you and your staff trained on the latest compliance requirements.

Moreover, be sure to file your taxes, even if uncertainty about the legality of your business is looming. Tax agencies are more than likely to audit you and hold you responsible for past-due taxes, even putting you at risk of non-compliance. Once 2018 arrives, cannabis businesses will have to pay mandatory taxes, including a 15 percent excise tax on retail sales, as a result of MCRSA giving counties the authority to tax all types of cannabis businesses. Meanwhile, however, the IRS still expects taxes to be paid — and you have until 2018 to get your taxes in order.

If you are behind on taxes, there are options available to help you. It’s recommended that you carry out a surprise audit where you play out a process and see how your staff responds. Take notes during this process and review it with a team. Without a plan, you risk becoming noncompliant, as even a 99% compliance level still isn’t fully compliant. It’s all or nothing — and that can spell the difference between a profitable business or one that gets shut down.

Maturing cannabis plants inside an indoor licensed grow op. Photo Credit: Sarah Climaco

Go the extra mile

From issues around transportation to extraction equipment setup to local permits, remember your footprint as a business. Get buy-in from regulators and the community so you can get support if things go awry. Find someone involved with legalization efforts such as NORML who has a list of lawyers in every state and talk to these people, as well as zoning people, regularly so you can see what they are looking for and get insight into staying on top of the latest rules.

Maintain a professional demeanor and shake the stigma around stoner-culture. Remember: you are representing the cannabis community at large, so prepare for changes and be amiable to them. Compliance is your number one priority and will be a certain percentage of your overhead, so embrace it with the utmost concern and keep your staff and standard operating procedures up to date.

It’s unclear how things will play out in California, but as 2018 nears, having strong industry relations, standard operating procedures, trained staff, audit-readiness, valid permits, compliant infrastructure and business software will help you navigate the gauntlet that lies ahead. We can always look to see how other states have carried out legalization and have a sense of what to expect in California. The more you stay involved, the better your chances are of coming out on top.

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Shaping Fire: Ben Cassiday, Putting Terpenes to Work For You

Ben Cassiday is the co-founder of True Terpenes, a company that extracts and distills naturally occurring terpenes harvested from a variety of organically grown plants.

In this episode of the Shaping Fire podcast hosted by Shango Los, Ben and Shango discuss the many commercial applications of raw terpenes, how terpene extracts are affecting the cannabis industry on a wide scale, and where commercial-grade terpenes usually come from. The two also discuss specific plants that share similar terpene profiles with cannabis, as well as the personal, consumer-level use of terpenes — including their role in aromatherapy and how beginners to the subject can experience this unique and uplifting boost to one’s quality of life — and much, much more!

Listen to the interview below, or continue scrolling down to read along with a full transcript of the episode.


Listen to the podcast:


Read the transcript:

Shango Los: Cannabis smells really good. Most of us buy cannabis based on its smell. We unscrew the jar, stick our nose in there and take a mighty whiff. It’s your body that tells you if you want that strain or not.

I’m Shango Los, founder of the Ganjapreneur podcast. I’m now host of the Shaping Fire podcast, and my friends at Ganjapreneur.com invited me to share with you this special episode of Shaping Fire. I hope you enjoy it. If you do, I invite you to find more episodes at shapingfire.com.

During Shaping Fire episode 11, we spent a lot of time talking about cannabis terpenes with world-famous neurologist and cannabis researcher, Dr. Ethan Russo. He explained how THC, CBD and the other cannabinoids work in cooperation with the terpenes in the plant in what’s called the Entourage Effect. The terpenes are the plant’s aromatics. They are why cannabis smells so good, whether it’s pine, chocolate, citrus or skunk or any of the other aromas of cannabis. One of the essential aspects of healing with cannabis simply is its smell.

If you enjoy hearing frank discussions that dive deep into cannabis health, business and technique, I encourage you to subscribe to our newsletter. Every week you’ll receive a new podcast episode delivered right to your inbox along with commentary on a couple of the most important news items from the week. Social media sites are becoming very unreliable in showing folks every post they want to see, so sign up for the Shaping Fire newsletter to make sure you don’t miss an episode.

My guest today is Ben Cassiday, cofounder of True Terpenes. We’re going to talk to Ben about cannabis aromatics and aroma therapy, how terpenes are isolated for sale and how you can use terpenes even without cannabis for everyday healing and quality of life. Welcome to the show, Ben.

Ben Cassiday: Hey, Thanks for having me on. It’s a real honor.

Shango Los: Let’s get right to it and talk about where terpenes come from. I mean, we know where they come from in nature, but how are isolated terpenes extracted or manufactured?

Ben Cassiday: One of my favorite things about that question, and I think it’s probably … Once somebody gets over the idea or starts to understand what is a terpene and then they’re immediately like, “Well, how do you get them?” It’s one of the ones that I get asked the most.

What I like to initially say to people, “You’re actually, probably a lot more familiar with isolated terpenes than you think.” Let’s just start with saying that terpenes are separated from plant material typically through two different methods, one of them is vacuumed distillation and one of them is steamed distillation. Sometimes you can use steam distillation in a vacuum distillation setup.

Just to give a rough preliminary description of vacuum distillation, it’s where we’re removing the atmosphere. A lot of people are starting to see these fancy glassware setups for short path distillation and other kind of high-level extractions within the cannabis industry. Just know that the actual purpose for these distillation setups has been more tailored towards the essential oil industries for a long time. So, we’re using the same technology that’s been around for a while to isolate terpenes with vacuum, which means like I said, we remove the atmosphere. When you remove the atmosphere, you’re basically making it easier for things to boil off. They don’t have to fight the vapor pressure for them to become active in an environment. Vacuum distillation is great because it allows you to use a very little amount of energy and a little amount of heat, which means the molecule doesn’t get distorted or destroyed. Steamed distillation is a little bit more widely used, but it allows some of the molecules, some of the terpenes to change in state. They’re not necessarily just like they were in the plant.

So, there’s positives … Steamed distillation allows for a larger batch sizes and a little bit less sophistication when it comes to equipment. Vacuum distillation allows for very, very precise and gentle extraction practices. Really, it’s a process of taking raw plant material, turning it into an essential oil and then taking that essential oil and slowly boiling all of the individual components out of it.

Shango Los: One thing I’m not hearing any of that is any chemicals, so it sounds like the two processes you’ve described so far are actually pretty clean.

Ben Cassiday: That is correct. There’s different industrial applications or distillation procedures that somebody might take plant material and they might use a solvent. Under vacuum distillation or steam distillation, but in this case when we’re working with food grade and sometimes above that grade, chemicals that people are going to be ingesting or using in fragrances and other kind of related fields, it’s always been a really important thing in our line of work, personally with our company, to make sure that there hasn’t been any solvents used in the process.

Shango Los: Right on. That’s a good example. I want to talk briefly about the bad example. A couple of weeks ago we had Dr. Ethan Russo on the show talking about terpenes and cannabinoids in general, and he surprised me. He said that some terpenes are derived by … they’re coming from petroleum refinement and it’s a byproduct of that, tell me about that. I don’t really know what they would do so give me a little background.

Ben Cassiday: Actually after listening to that episode when it went live, which I just have to say is maybe one of my favorite podcasts of all time not just because I’m on your show at this moment, but really it just went in depth. I loved it. It inspired me to look a little bit more into because I had a few ideas but I wasn’t really sure.

A lot of people are starting to hear at this point, especially when I go out and speak to people, people have heard cannabis might have 200 terpenes and that there’s 30,000 or 40,000 in nature, and so it’s a very diverse class of chemicals. To say that something is a terpene doesn’t necessarily … It’s not some a small class of chemicals. You’re not going to necessarily find the same terpenes in cannabis that people are going to be getting from these industrial sources of petroleum.

When I looked into it, what I was able to find is people are distilling in an industry … not really people, but industry has been distilling petroleum for things like mineral spirits, kerosene, naphtha and they … As far as being a hydrocarbon molecule, they’re very similar. So, I think for my best guess, without having reached out to Dr. Russo to confirm based on what he was saying, I think that we can assume that any carbon-based organic substance that is made of isoprene, which is the building block terpenes, can be considered a terpene.

I think it’s just such a wide diverse class of chemicals that, yes, in fact, many of them can be derived from all sorts organic materials and a lot of times we don’t really think of mineral spirits or kerosene, gasoline. It seems so chemical in nature, it doesn’t really seem like it’s an organic product, but it really is. It’s derived from crude oil in and through distillation process, cleaned up. That is my best guess at this point as to … without being able to speak with him directly.

Shango Los: Right on. That makes sense. So, it’s not that we’re getting d-limonene from citrus fruit and also from petroleum. It’s a specific set of uncommon terpenes that we would get from petroleum production.

Ben Cassiday: I believe … and maybe, I would even say those might be some of the most prevalent terpenes on the planet just because of how much crude oil is actually distilled and then the number of uses for kerosene and naphtha and other kind solvents of that nature. But, yeah, as far as the ones that we’re all, and at least in this community, quite interested in, from my knowledge so far I don’t think you really need to be concerned that it came out of gasoline or crude oil producing gasoline for your like your alpha-pinene, or your myrcene, or linalool.

Shango Los: Right on. Cool. That makes a good point. So, even though they are truly trashy terpenes, they’re not really the one that we work with in our sphere, and so let’s focus on ours. Let’s talk about the grades of terpenes because one thing I have certainly read people fighting about, quality of terpenes on Facebook and different forums, and we all know how ugly and inaccurate a lot of those debates are, so let’s go through a couple of different standards that can be used to grade a terpene. I know a lot of folks who are selling terpenes, they really push that they are organic and food grade, what does that mean to me as a purchaser, as a consumer of terpenes?

Ben Cassiday: Good question. As far as food grade goes that really just means that the Food and Drug Administration has placed this substance on the approved food additives list.

Our company really focuses on only selling terpenes that are found within cannabis. It just so happens that we haven’t ran into a terpene that was found in cannabis that also was not found on the Food and Drug Administration’s list of approved sources. In that case, all of the terpenes that we’re working with are food grade, GRAS, a lot … Some people might not know GRAS stands are Generally Recognized As Safe that means for human consumption. It doesn’t mean that it’s free range and you can just bathe in this stuff. It just means that under the right circumstances with proper product formulation that this can be used in a cosmetic product, or a nutraceutical product, or a food product.

Shango Los: Right on. That makes sense. Then, the organic part, that probably refers to whatever your source plant material was raised without pesticides?

Ben Cassiday: It definitely does if it’s got a third-party certification on it for being organic. But I actually have the statement pulled up here, it’s an FDA statement and, basically terpenes are by definition an organic molecule. They contain carbon. They don’t exist outside of being organic. So, the FDA actually allows all terpenes that are not synthetically derived to be listed as an organic substance because in isolation they, again, it’s a carbon containing molecule, it is organic-

Shango Los: I see. That’s like those of us who are nerds for organic food. We would call a little-o organic meaning … Yeah, it’s about it being a natural source not necessarily whether or not it uses pesticides.

Ben Cassiday: Right. Which brings me to the point that I usually bring around with that, which is what’s most important, I think, with terpenes is looking at what else is in the solution? It’s very difficult, almost impossible to get a 100% terpene solution or even a 99.9% in most of them. It’s just very difficult to do. So, you need to really look at what is in that other percentage and that really becomes what’s important.

A lot of the terpenes are very similar by chemical nature. They have almost the exact molecular weight of one another, under the right circumstances within the plant and outside of the plant, they can actually turn from one to another, so it’s very easy for limonene, alpha-pinene, myrcene, for instance, to phase shift between each other given their environment. You might have a bottle of 99.9% limonene, it doesn’t mean that it’s contaminated with something. It really might mean that that final fraction in there was some myrcene and alpha-pinene that just could not be separated. That’s what I like to always bring it back around is to is as far as these terpenes go, a terpene is organic but the package that it comes in and the other substances in the solution is what we really need to look at.

Shango Los: Right on. That make sense. In this industry, do we really care whether or not the original plant was grown GMO or not? Is that something that we want to be aware of when we’re making purchases?

Ben Cassiday: I think you have such a diverse crowd of people that are consuming, I think it’s important to make sure that people are aware beforehand that it came from … whatever they’re consuming came from non-GMO.

Myself, personally, I come from the camp that I think that we should investigate GMO. I don’t think that it’s something to be shunned, but I also think that everyone should be notified of what they’re consuming and people should have the ability to opt out if they’re not interested. I think that if that applies to food then I think it applies to cannabis as well.

Shango Los: Right on. That’s a good point. That brings us up to what is probably the most discussed and possibly controversial part of what is and is not a terpene because terpenes got really hot and interesting in being able to extract cannabis profiles.

The first time I saw this being done was at the Emerald Cup in … Let’s see, that would have been 2015, Emerald Cup. Tony Verzura from a United Cannabis had all these people around him and he was taking what they know … folks were bringing him up, what was otherwise, mediocre slabs of shatter, and he was taking cannabis profiled terpenes and painting the dab oil and then the folks would go and dab and they’re like, “Oh, this is the best Gorilla Glue I’ve ever had!” They were adding terpenes after the fact, and people were going bananas. It was quite impressive to see everyone’s excitement about taking mediocre cannabis product and supercharging it with a terpene profile.

After I got into that I realized how controversial it was about whether or not different cannabis companies were either, A, taking actual cannabis flowers and distilling from that to get the actual terpenes that was in a batch of flower or, B, doing research to find out what terpenes were in, say for example gorilla glue, and then hand blending food grade terpenes to emulate what the terpene profile would have been if you would have taken them directly out of the flower. Man, people will fight all day long on social media about that. Why don’t you break it down for us, the differences between those two approaches?

Ben Cassiday: Absolutely. I think I first would just start by saying my same opinion about the GMO substance applies to this as well. I think that isolated terpenes, we don’t have the entire catalog of 200 available to us at this point, and there’s a couple of different reasons for that. Some of them are incredibly difficult to have in isolation, and that’s because they might have a boiling point around room temperature of 80° or so, which is why when you’re in a hot grow room it really just smells something special and you’re never really going to be able to re-create that or fully capture it with the final product. Live resins and other extractions are doing a pretty good job of capturing as much terpene as possible, but at the end of the day, there are some of these compounds that are not easily isolated. What that leads to is the terpenes that we actually have at our disposal, so add back are primarily the heaviest, most stable molecules, the mono and sesqui-terpenes.

If you were imagining you … let’s say, you started with a gorilla glue forge, just to follow your example, and you took that into the testing lab that we prefer to use this time, SC labs, and they gave you the terpene analysis back, which at this point they count for 34 of them, you would have … that’s going to tell you the natural ratio that the terpenes, that they are able to test for, are found in that plant.

Then, there’s one other special number on that page, and it’s the total content by volume. You’re going to see all these different ratios and it’s 34 of them, you’ll see alpha-pinene at 3% and beta-pinene at 2%, so it’s going to be listed out in either percentages or by milligrams per gram. Then, at the bottom is going to say, “But the total content of that entire gram was 4%,” or 7%, or something along those lines. It’s going to vary depending on if it was a flower sample and if it was grown indoor or outdoor or if it was a concentrate and how it was extracted.

So, what’s really important to look at it is, if you’re looking to emulate cannabis naturally you’re going to want to only add back those mono and sesqui-terpenes, let’s just keep it easy, say there’s 34 terpenes, you’re going to want to look at what does the plant naturally produce at its best case scenario, fresh off the plant before any sort of degradation has happened or mishandling, and then try to emulate that. Not just slopping it on and assuming that more is going to be better but really, precisely maybe even take … measuring the … again, we’ll follow your example, so we’ll say a slab of concentrate, running a terpene test on that and seeing where it is right now, currently as a blank canvas without any additives to it. Then, let’s say you get a A+ top shelf concentrate that you really admire from another source, somebody else did some live resin and you have some standard BHO, you could look at the terpene content of that live resin and compare it to the terpene content of your BHO and you could spike all of the individual mono and sesqui-terpenes to make it more like the A+ medicine.

I think that’s best case scenario, what you saw Tony doing, was because he because the product he was working with is supposedly cannabis derived terpenes, it’s taking those natural ratios in the proper dilution and adding it back. Nature already did all the heavy lifting with that. I really am a fan of those sorts of products. I think that the only reason that I’m in the business that I am right now is because they’re very cost prohibitive. They’re about 15 to 20 times more by the time you get to the consumer level of somebody buying a milliliter next to a milliliter, cannabis derived versus isolated plant derived terpenes. There are also little bit less shelf-stable and a little bit more inconsistent as well. Somebody has to continue to grow that crop of cannabis under the same conditions to produce the same flower to then be distilled under the same … It’s a lot of new tech coming into play, and people haven’t been isolating terpenes for a long time and it’s a little bit of a … not as much available as far as source material. You can only grow so many plants, most places in this world and then you have to decide what to you’re going to do with those. I’m just not convinced personally that distilling cannabis derived terpenes out of that is maybe necessarily the best use for really good cannabis.

I think, as … to get back to comparing apples to apples, I think limonene from an orange and limonene from cannabis, they’re chemically identical, and this is true of all terpenes. The other ones that I think people might be familiar with are linalool from lavender and myrcene from hops. But what I think ultimately it comes down to is the importance of purity in relation to contaminants. If you have five milliliters of limonene, you want that to be as close to as possible to pure limonene. If you’re dealing with a distillation like what we work in, achieving those super high percentage purities is one thing, we shoot to have everything above 96%, but then the other side of that coin is making sure that the other 4% that’s remaining is not pesticides, solvents or other degraded organic material.

One thing that a lot of people might not be familiar to hearing is that if chemicals like acetone or a couple of other known solvents are actually … can be produced by the degradation of plant material of other natural organic materials as UV and time play their course.

I think that was a little bit of a round-about so I apologize, but really I think as far as source comes … and maybe you could actually return to the question.

Shango Los: Yeah, right on. Bringing it back to the cannabis strain profiles part, and you answered my question really well, explaining the difference between the cannabis derived and the plant food derived. But what it occurred to me is that when you described how cannabis-derived is going to be 15% to 20% more … not 20, 15 to 20 times more expensive, what made me think of … I’ve seen a handful of terpene companies, and I know the prices they charge, a lot of these folks that write their copy to suggest that their profiles are extracted from cannabis, they just can’t be doing it for the price that they’re selling it at it.

It sounds to me like some companies are probably being a little creative with their copywriting just because it’s so much cooler. People generally think it’s cooler to take your terpenes directly from the flower, but that’s so cost prohibitive that maybe they’re writing their copy to kind of suggest that in an abstract way. But when push comes to shove, they are actually pulling terpenes from food plants and then just doing their absolute best to make a blend that matches the terpene profile that they got out of the test.

Ben Cassiday: Yeah. I guess to start off to say, we really made it our … we took a position early on because everything that you just said was the thoughts that I’ve had and that our company has had, but we took a position early on, did not try to police the industry just because there’s so much to focus on within the organization that what people are doing on the outside, we’re … I just don’t have a crystal ball.

What I will say is that I think it’s not it … I think part of what you said with people, the copy, I think people are getting pretty creative with their copy. At least in my experience, I’ve bought from several of the companies that suggests that it’s cannabis derived, and what it really appears to me is something along the lines of a cold trapped cannabis terpene from a vacuum oven or maybe even a distilled batch combined with isolated terpenes. This isn’t a new practice by any means. The essential oil and perfume industry since, I think probably its inception or very shortly thereafter, has been plagued with companies that will take lesser oils and cut more expensive oils to make them stretch further. So, yeah, I mean, it’s a practice that in one way or another is happening. We just, like I said, we never went really wanted to police the industry and we’ve never been embarrassed that we sell plant derived terpenes so we’ve just always made it blatantly obvious that these are from other sources and try to give people the tools to decide if working with us is within their guiding principles for what their business is trying to achieve.

Shango Los: Right on. That makes a lot of sense, no reason for you to police the industry. One of the things about having both a freed open market and also the internet, if somebody is selling schlock, the word is going get around and they’re going to have to deal with that. Better to focus on your own startup company and your own science and and go from that.

We’re kind of late for our first break so we’re going to get that. But anybody who’s been listening to the first set here, they’re all like, “Man, they’re leaning on the manufacturing and science part a little heavy.” Do not fear, set two is going to be all about how to use terpenes in everyday life. So, please stay for that. You are listening to Shaping Fire. I’m Shango Los, and my guest today is Ben Cassiday, cofounder of True Terpenes.

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Welcome back. You are listening to Shaping Fire. I’m your host, Shango Los. Our guest this week is Ben Cassiday, co-founder of True Terpenes.

In the first set we were talking all about how isolated terpenes are extracted or manufactured and the differences between terpenes that come from raw cannabis versus come from plant sources. Well, that’s really interesting for people who are nerdy about the science part but I’m sure there’s people who are listening who are like, “All right, I got it. I know what terpenes are. Now, how do I use them in my everyday life?” I’m going to start with the example that is actually how I met you, Ben, and what really impacted me and how I knew I wanted to have you on the show.

This past year, in December, I was down at Emerald Cup and Ben was part of a group of cannabis owners, NI, and we all rented this wine villa where we could all stay together. It was really great, right? Because all these cannabis business owners were all learning from each other.

At one point, Ben went around the room and he gave everybody just a little bit of a beta-caryophyllene in their hands and encouraged them to cup their hands and inhaled deeply, and I had never done that before. Beta-caryophyllene just smelled so good and it made me feel so calm and it made me realize that even though up to this point, all of my care about terpenes was really what was in the flower. I never really thought about using the terpenes independently from cannabis for quality of life.

Since that time, I’ve gotten an ultrasonic terpene diffuser and you showed me how to dab it, so let’s go through some of those ways that people can use terpenes at home without actually burning or vaping some marijuana.

Ben Cassiday: Okay. Yeah, definitely. I think the, just like you were saying, the first, and I think maybe easiest, is probably … is through the process of what you called hand huffing.

I want to first start by saying what I actually had everybody try at the Emerald Cup was … it was beta-caryophyllene but I had mixed it one-to-one with just some extra virgin olive oil. I think that that’s just an important note to start off with for anybody at home that might want to try this just because we want to make sure, just like any other essential oil that we’re going to put it with a carrier oil, unless you’re an aromatherapist or an expert that’s been using this for a really long time, I think you can always assume that you should probably cut them with something because they are very just powerful chemicals. Each and every one of them. Many of them active solvents in high purity. I just want to start with that and say make sure that you’re being safe and practicing good aromatherapy practices.

With handhuffing, the reason I really wanted everybody to apply the beta-caryophyllene to their hands was twofold. It is one of the most relaxing and calming … Our particular mix is derived from a combination of black pepper and clove, and it very much resembles both of those plants. It’s spicy and earthy. When you come into contact with it, it’s immediately everything that I think that you’ve just described, it’s relaxing and it’s really, in my opinion … People have heard chew on black peppercorns if you’re too high or something of those nature, and I think that beta-caryophyllene is so interesting for that purpose because it’s not overly stimulating, it’s not in your face too strong and it’s one of the more benign terpenes. By that, I mean that you can be around a lot of it before you start to get to an intoxicated level, whereas there’s some terpenes like, let’s say, geranial, which is the main terpene in roses and geraniums, which really can start to have an effect on you very quickly. I like to start with beta-caryophyllene, it helps people get their hands terpy and then we move from there.

The second reason why it’s so … it’s very … it’s a good learning tool and nobody’s going to get hurt from it in most cases. The other reason being is it’s a topical anesthetic and it works very quickly. That’s the other reason why I really like to introduce it to people is because everybody at one time or another in their life, or most people, have had the opportunity to have a sore muscle or something along the lines where they rubbed a cream on and were expecting some sort of relief. There’s obviously varying  degrees of success with those, some of those like a icy-hot pack and like Vick’s vapor rub for instance, actually are containing terpenes. So, with the handhuffing I just want to always encourage people to make sure you’re using an olive oil or a coconut oil, sweet almond oil. You can get on Google and look around for an aromatherapy carrier scent and you’ll find a list of 30. But the main ones that I really like to do that with are the primary ones from cannabis, and I think that it’s just because I’m so familiar with them and I know what to expect when working with them.

Should we go down that road or would you like to go other methods?

Shango Los: Yeah, let’s go into other methods. You recommended to me an ultrasonic diffuser, which I picked up and I love, why don’t you go ahead and explain that and why it’s making my room smell so good right now?

Ben Cassiday: Yeah. That’s actually probably the way that I consume the most terpenes, and everybody within our company, is the ultrasonic diffuser, which basically is just using a small amount of water and a vibrating sound wave to make the particles of the essential oil and water into nano particles so that they can be puffed up into the air and naturally breathed in lower concentration. So, whereas we’re getting a direct inhalation of the extract when it’s in our hands, we’re filling the room ambient with terpenes when we use an ultrasonic diffuser.

That’s, like I said, I feel like it is a little bit more natural because we’re getting a diluted … it’s combined with oxygen, you’re breathing it over a period of time. I, personally, start my day, every single day in my office, I close the door and I kick it on and I put some limonene and citral in it, both citrus derived terpenes, and that really just seems to be a … like Ethan had alluded to in his episode, very sunny and bright and alerted. That’s the way that I’ll start my day if I’m sick or thinking that I’m getting sick, I’ll use alpha-pinene. Alpha-pinene acts a bronchodilator. Anybody that’s had interaction with it, I think, will testify that it opens the lungs and makes it just much easier to breathe. That’s what you had mentioned earlier, Shango. It’s low impact, it’s certainly, I think, therapeutically active but it’s not going to give you any sort of chance to you inhale something that’s too potent or too strong and it’s not going to scent your hands or anything like that. It’s just very easy to set in the corner of the room and let it run.

One of my favorite reactions to take note of is the before and after somebody that’s never used one before. A lot of people have differing opinions on how aromatherapy works and what it is, but it I just like to let it speak for itself. So, to have somebody sit down in a room and start a conversation and let the diffuser run for a few minutes and then to watch the face change as they realize that they feel different than before, four or five minutes before, I just really love the aromatherapy diffuser. That’s what I would generally recommend to anybody that’s starting to get into terpenes and having interest in them just because it’s low-impact, it’s pretty cost-effective, terpenes will last a long time in it, and it really gives you the ability to start to investigate them. Then, once you start to learn more about other ways of preparing and consuming them then you can move on to that.

Shango Los: Right on. That makes a lot of sense. One of things that I found really easy too is while there were really nice ones that were 200 bucks, I got mine for 50 bucks on Amazon. All I did was search ultrasonic diffuser and then there were all these different ones that I could choose from. Yeah, they’re cooler ones that I can upgrade to but I’m up and going for 50 bucks. Not only that, but I like that it’s a way to share terpenes with other folks too. I’ll have people over for a dinner party or a little get-together or whatever, and it’ll fill the room and people always comment on the smell and that always gets me talking about terpenes and then turns into a little education thing sometimes, which I obviously am into.

Before we go to the commercial, let’s talk about dabbing terpenes by themselves. You gave me a really great experience when we were down there in California and I’d like you to describe it for other folks.

Ben Cassiday: Yeah. Just for sake of everybody else in our organization who isn’t a huge fan of me always showing that off, but I just think running into people like yourself who are so passionate about it and willing to experience it, we had actually inhaled a very small amount of alpha-pinene for the effect of opening our lungs. I just want to say that the company that I’m with does not really endorse that practice. We really suggest that people use terpenes for topical and oral administration at this time, but-

Shango Los: But since I want to talk about it.

Ben Cassiday: Since you want to talk about it, exactly. Basically, what we had done is we had taken a vape battery mod, that’s what they’re called. The one that I had particularly went from 5 to 40 watts. We put a ceramic nail on it that had like a to-go water pipe attached to it and so we basically had taken just about a third of a drop, which I usually measure out with a toothpick or something of that nature, we had dipped it down into the alpha-pinene, taking the drop and put it on the nail. I think that this is really important too, whereas when people are dabbing cannabis concentrates they generally already have the nail at the temperature that they’d like it to be at, which then they go in and they inhale it and it all vaporizes, but I haven’t really found the right temperature for that.

What’s worked really well for me is starting with a cold nail, adding the terpene and then allowing it to come up to temperature with the nail and then it vaporizes at exactly the right point, as soon as it’s hit the temperature where it does vaporize. It seems like it’s a much less violent reaction. Whereas, as an experiment, again, not a suggestion, but as an experiment if you wanted to just drop a drop of terpene on a 600° nail or something, you would see it dance around and then just poof off. I think that that rapid expansion would happen and that’s what would lead to somebody having a really poor experience.

Most terpenes, and not all terpenes, can be just inhaled directly. I really wouldn’t suggest just going through a whole catalog of them. But in the case of what we did, like I said, it was just a very small amount of alpha-pinene, and the physical response is so dramatic afterwards. You can definitely feel the ease of taking oxygen into your lungs. I think, personally, a mental clarity or alertness, it’s not necessarily the same thing as after your first dab of the day. It’s a little bit still even more clear than that. It’s little bit lighter. So, very, very positive. I really hope to develop a product around alpha-pinene, if we’re able to go through the right channels as far as FDA approval basically, for that sort of thing because just because something is GRAS rated or food safe doesn’t mean that you can put into a product and inhale it.

Shango Los: Right on. That makes sense. It’s funny, when you mentioned putting the terp right on a hot nail or something and having it dance around, while I definitely don’t want to hit that because of potential terpene toxicity, I do want to see that. I might do that at home just as a visual experiment and not actually hit it. People are like, “How can I do this on the go?” There are these new portable dab rigs that are based on batteries, and those seem to go really well. Actually, the one I’ve got from Vuber technologies, I put a little bit of terpene there on the nail and then I just let it start coming up to temp and then as it comes up the temp I can hit it. Man, when you gave me the pinene to try for the first time, I was … I have asthma, and so the idea that my lungs opened up and I could breath and I felt the power that comes from being in a forest … Ethan and I were talking about that, going out into the forest and taking a forest bath because it makes you feel like you want to throw your shoulders back and put your chin up and you are full of power. It’s amazing. Just taking a little bit of pinene will do that to you.

Slowly, I’ve worked my way through all the terpenes I have, and there’s a big difference between doing that with pinene, or myrcene, or linalool, they really do each have their own caricature or character-

Ben Cassiday: The thing that I would say if somebody really was was interested in figuring out which ones are of greater interest for that is to look at a terpene analysis and just look at the ratios that they’re found naturally in the plant. Alpha-pinene is found in pretty high levels, myrcene is found in pretty high levels, but other terpenes, again, I’ll bring up geranial or maybe linalool, much smaller quantities. For the amount that’s in there, they’re very potent but just using that logic as a rule of thumb for how much you might want to consume of any one of them has lead me pretty well.

Shango Los: All right. Fantastic. Let’s go and take another short break. You are listening to Shaping Fire, and my guest today is Ben Cassiday, cofounder of True Terpenes.

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Welcome back. You are listening to Shaping fire, and I am your host Shango Los. Our guest this week is Ben Cassiday, cofounder of True Terpenes.

Ben, it’s very common now for cannabis product developers to spike their products with terpenes, they’ll go ahead and process it however they’re going to, but if they want it to be relaxing, maybe they’ll add some linalool or myrcene. Or, if they want it to pick you up, they’ll add some commonly known as sativa terpenes like citrine or something like that. I know you have got a lot to say about that, but why don’t you synthesize that a little bit down and just give us your thoughts for product developers on terp stability and degradation and homogenization and things like that?

Ben Cassiday: Okay. Yeah, absolutely. I think, just like I had said before, I think spiking with terpenes is an acceptable practice. I just think there also should be … you should disclose that you’ve done it. That’s what we encourage all of our clients to do. We give them artwork from our company that we encourage them to co-brand with so that if they have questions that those questions can be directed to us so that we can properly answer them. I really think if you’re getting into it, it’s just all about making sure that people know what they’re consuming. Nobody wants to be surprised later on. That’s one of the most important things.

I think the ability to influence a product, especially like … I think I’ve had the greatest success with tinctures and topicals. We have an incredible blend that we put into … and call Indica blend tincture. In the Oregon market, same thing, we have sativa. They’ve been great. We wouldn’t really be able to do it without their control of isolated terpenes because it’s a standardized recipe from batch to batch to batch, everything comes out identical. I think that that’s a definite pro if you’re working with products, distillates or isolates, isolated CBD or distilled THC, are two very, more common cannabinoids that are definitely becoming commercially viable for people to use in making products. Combining those with terpenes so that you can control the outcome of the product is really rewarding and can be lucrative.

What I’ll say about the stability is that isolated terpenes … I’m told by several of the people that we’ve consulted with from PhD chemistry world are much more stable because there is less chemistry, basically able to happen within the bottle of terpenes. Let’s just say you had a cannabis derived profile of terpenes from an OG Kush or something like that, you might have 70 terpenes in there that are slowly degrading with UV and with time and with … if they’re not kept at room temperature versus under some sort of colder conditions. So, they definitely have the opportunity to degrade where when you have this isolated chemical you can more readily prepare for how it’s going to degrade. You can put a shelf-life on it. But with these unknown solutions that are different from batch to batch, if you’re going with a complex profile, it’s a little harder to do.

Isolated terpenes, I’m told, and from our experience, are much more stable but all organic things to grade. It’s just something to take into consideration.

As far as homogenization, terpenes are are nonpolar so we need to make sure that they are mixed into the right carriers. Just about any oil or fat-based carrier is going to work great. The easiest, I think, healthiest that I’m aware of personally is MCT. MCT works really great with terpenes for somebody that’s first getting into it right now. I think making a home-based MCT tincture with or without cannabinoids is a really good way to start experiencing these in a relatively safe manner as long as you’re doing your research on concentrations.

What I really encourage people to do when they’re starting to get into product development with terpenes is walk before you crawl. There is so many of them, they say up to 200 at this time, we offer 31 of them. It’s about when we’re going to expand that even further. But taking on so many different terpenes, it really just gives you 31 more … If you bought our whole set, you’d have 31 more variables, so I really encourage people to get used to the core eight, the terpenes that are found in the highest quantities and define unique branches of the cannabis family tree. Just to briefly go through those, that’s alpha-pinene, linalool, beta-caryophyllene, eucalyptol, limonene, myrcene, terpenaline and geranial. They all can be tied to common essential oils as well that most people are familiar with. I really encourage people look into aromatherapy and find the plants that contain these terpenes the way that their essential oils are used naturally and then start to mimic those. You’ll find some that are more prevalent in topical applications and others that are used and consumed orally or some that are never consumed but are used ambiently and inhaled through the air.

Really, for somebody getting into this, it’s not just a new form of cannabis extract where you can throw it on the nail and inhale it and you’re just comparing the difference between a CO2 oil and a BHO or something. These are definitely highly potent therapeutic compounds. So, I always invite people to do their homework, definitely pay for a consultation with a company that works with these regularly or with an organic chemist to just get your bearings down because for as much as everybody wants them to be therapeutic, with that, the other side of the coin is that they can have dramatic effects that you may or may not be so satisfied with if used improperly.

Shango Los: Right on. Well said. I’ve got a lot of respect for product developers. I’ve my dabbled in it myself mostly enough to realize how challenging it is. It’s one thing to put something together that works right then and there, but as soon as you add degradation, homogenization, shelf-stability and some kind of product liability if the wrong person gets what you’ve made. I’ve realized what a craft product development is and adding spiking with terpenes to it, it adds a whole another level of artisan into the craft because I would say the people who are adding terpenes to their products, the ones who are doing it really well aren’t just spiking the hell out of one, they’re actually crafting several of them together for a desired effect, and that is challenging. Just totally up and beyond what the rest of the soda or the edible or the capsule is. It’s a whole other level of expertise.

Ben Cassiday: Absolutely. The other thing with these being highly volatile, meaning they evaporate easily, being very volatile scent molecules, they also have a very strong flavor on the pallet. So, bringing them into a product is not necessarily just as easy as taking your current existing recipe and adding some terpenes to it. The entire recipe needs to be analyzed to make sure not only that you’re not going to ruin the flavor or grossly manipulate the flavor, but that it’s not going to, like you said, the shelf stability side of things, three months down the road that it’s not going to separate or that some sort of discoloration or something along those lines happen. It really is something to integrate into a product.

We usually recommend that people give it a 8 to 12 weeks shelf stability test. There are laboratories that you can work with within the food and cosmetic industries that can do some simulated testing to help you get some more rapid feedback. They can can do about a week’s worth of microbial testing and then build upon that a model that can give you an idea. But, ultimately, it’s, again, it’s just like with any other new input, you’re going to need to really put in your own R&D. We’ll get a lot of people that will call us and really want the silver bullet, and so far I haven’t found it.

Shango Los: Yeah. Right on. You got to build a silver bullet at home. Well, Ben, thank you so much for being on this show. We only got through about half of my questions so I’m going to have to have you back another time, but thanks for making the time to be here today.

Ben Cassiday: Oh Shango, I really appreciate it.

Shango Los: Ben Cassiday is co-founder of True Terpenes. You can find out more at by-terpenes.com.

You can find more episodes of the Shaping Fire podcast and subscribe to the show at shapingfire.com and on Apple iTunes, Stitcher, YouTube and GooglePlay. On the Shaping Fire website you can also subscribe to the weekly newsletter for insights into the latest cannabis news and product reviews. On the Shaping Fire website, you will also find transcripts of today’s podcast as well. For information on me and where I’ll be speaking, you can check out shangolos.com. Thanks a bunch to Ganjaprenuer for having me back for a visit. Be sure to check out Ganjapreneur every day for the latest cannabis news. I’ve been your host, Shango Los.

End


A cannabis worker inspecting plants inside of an indoor grow operation in Washington state.

Court Rules Against Cannabis Company in Bid to Prevent IRS Audit

The bid by an Aurora, Colorado licensed cannabis company to prevent the IRS from investigating whether it violated federal drug trafficking law was defeated by the U.S. Court of Appeals Tenth Circuit who ruled that the company could not enjoin the agency from auditing the business due to previous case law, specifically Lowrie v United States, 1987, and the federal Anti-Injunction Act, according to a report from Forbes.

Green Solution Retail Inc., argued that they would suffer “irreparable harm” if the IRS were allowed to continue their investigation because “a denial of deductions would deprive it of income, constitute a penalty that would effect a forfeiture of all of its income and capital, and violate its Fifth Amendment rights.”

The IRS contended that the Anti-Injunction Act prevents lawsuits “for the purpose of restraining the assessment or collection of any tax;” Lowrie prevents tax deductions for personal, living, or family expenses. In the cannabis space, businesses file their taxes under IRS Code 280E which denies legal cannabis businesses the ability to make deductions allowed by federally-approved businesses.

Kyle Speidell, president of The Green Solution LLC, said the company was “of course disappointed” by the decision but planned to continue “aggressively” pursuing “all remedies on this matter in opposition to the IRS.”

“An IRS position we might add which gives full voice to former Supreme Court Chief Justice John Marshall’s admonition that ‘the power to tax is the power to destroy,’” Speidell said in the report. “We fully intend to prevail in the court of law as we have and continue to do in the court of public opinion.”

The company could try to bring the matter to the U.S. Supreme Court who overruled Lowrie in Direct Marketing Association v. Brohl, 2015; however, the Tenth Circuit concluded it was still bound by the Lowrie case.

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Oregon Congressman Rep. Earl Blumenauer, known for his progressive policies and colorful bow-ties.

Oregon Rep. Blumenauer: Cannabis has ‘Come of Age Politically’

During a conference call with reporters today, Oregon Congressman Rep. Earl Blumenauer said “marijuana has gone mainstream” and “has come of age politically.” He warned that cannabis industry operators should not be “coasting” in the age of Trump but rather continue being “good citizens” and striving for the “gold standard” to thwart a federal crackdown.

“We’re continuing to watch the evolution of the issue as more and more people are involved, as the industry grows and as the consensus that this ought to be something that the federal government ought not to try and suppress, regardless of peoples’ individual feelings about marijuana,” he said. “The overwhelming number appeared not to want the federal government to interfere with what states do.”

Blumenauer, a Democrat and co-chair of the Congressional Cannabis Caucus, has replaced recently retired Congressman Sam Farr as the titular sponsor of the now-titled “Rohrabacher-Blumenauer amendment,” which eliminates Justice Department funding for enforcement of federal laws against medical cannabis in legal states. He said the amendment, which sunsets this session, has historically drawn majority support from both sides of the aisle and is likely to, again, be successful this session; however, he admitted that “nothing is certain until it happens.”

When pressed about signals of a potential crackdown from the Trump Administration, Blumenauer said that “one thing has been consistent and that is we’ve received inconsistent signals from this administration on a wide variety of issues.”

“I think what is important is, first of all, what the candidate Trump said on the campaign trail that the state ought to be able to pursue with what the states are doing – I think that’s consistent with what most people I know who have some familiarity with Donald Trump think is his actual opinion,” he said. “…Marijuana got a lot more votes than Donald Trump or Hillary Clinton.”

Blumenauer explained that there are three main areas this year for possible Congressional action on cannabis policy and those measures are “less likely to be standalone legislation,” but “opportunities to be able to put something onto other vehicles.”

These three main areas, he said, include passing bills that would eliminate the federal roadblocks to cannabis research, end “punitive taxation” which, thanks to IRS code 280E, forces cannabis businesses to pay “three, four, or five times” what similarly situated businesses pay, and providing access to banking services for the cannabis industry.

Blumenauer is joined by fellow caucus member and Oregon Congressman Sen. Ron Wyden in the  introduction of a package of bills knows as the “Path to Marijuana Reform” which addresses these issues in addition to civil forfeiture and decriminalization.

“I think it’s highly likely that we will be able to take some vehicles that are moving through Congress and deal with these three provisions that have overwhelming bi-partisan support – have no major opposition – and it would make a profound difference in being able for the industry to function,” he said. “Ultimately, I am confident we will reschedule or deschedule marijuana, but in the meantime these provisions are critical and I think are highly likely to occur.”

Tomorrow, activists with DCMJ plan on distributing free cannabis to members of Congress, Congressional staffers, credentialed journalists, support staff, interns, and other Capitol Hill workers 21-and-older with valid Congressional Identification.

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Professionally grown cannabis inside of a licensed Washington cultivation facility.

Sweeping Bipartisan Marijuana Legislation Introduced in U.S. House & Senate

In a key development, Rep. Carlos Curbelo (R-FL), Republican member of House Ways and Means Committee, joins Rep. Earl Blumenauer as lead sponsor of critical 280E tax reform bill

WASHINGTON, DC – Today, a bipartisan group of U.S. senators and representatives introduced seven measures to advance more sensible cannabis policy at the federal level. The bills covered a broad range of issues related to resolving the tension between state and federal cannabis laws.

“The flurry of bills on the Hill today are a reflection of the growing support for cannabis policy reform nationally,” said National Cannabis Industry Association (NCIA) executive director Aaron Smith. “State-legal cannabis businesses have added tens of thousands of jobs, supplanted criminal markets, and generated tens of millions in new tax revenue. States are clearly realizing the benefits of regulating marijuana and we are glad to see a growing number of federal policy makers are taking notice.”

The Small Business Tax Equity Act of 2017, introduced in the House by Rep. Carlos Curbelo (R-FL) and Rep. Earl Blumenauer (D-OR) and in the Senate by Sen. Ron Wyden (D-OR), Sen. Rand Paul (R-KY), and Sen. Michael Bennet (D-CO), would allow state-legal cannabis businesses to take normal business deductions like any other legal business. Currently, the law prohibits cannabis businesses from deducting expenses related to sales.

“Cannabis businesses aren’t asking for tax breaks or special treatment,” said Smith. “They are just asking to be taxed like any other legitimate business. NCIA and its members appreciate this strong support for a fair approach, and we’re especially proud to newly gain that support from Rep. Curbelo.”

The Regulate Marijuana Like Alcohol Act, introduced in the House by Rep. Jared Polis (D-CO), would regulate marijuana like alcohol by inserting marijuana into the section of the U.S. Code that regulates “intoxicating liquors.” It would give oversight authority to the Bureau of Alcohol, Tobacco, Firearms and Explosives, and would establish a permitting system to cover the cost of that oversight.

The Responsibly Addressing the Marijuana Policy Gap (RAMP) Act, introduced by Sen. Wyden and Rep. Blumenauer in their respective chambers, covers a broad range of issues at the federal level, including banking and tax fairness for businesses, civil forfeiture, and drug testing for federal employees. The two Oregon officials see the provisions in this bill, collectively, along with the other two bills introduced today, as the “Path to Marijuana Reform.”

The Marijuana Revenue and Regulation Act, introduced by Sen. Wyden and Rep. Blumenauer, contains the provisions included in the Marijuana Tax Revenue Act and the Regulating Marijuana Like Alcohol Act.


Note: This press release was distributed on behalf of the National Cannabis Industry Association; Ganjapreneur is proud to be a sponsoring member of the NCIA.

Read NCIA’s white paper providing real-world examples of how 280E harms small businesses across the country.

Meet the people who are building a cannabis industry based on compassionate care, responsible education, and cutting-edge innovation – WeAreTheCannabisIndustry.com

Contact: Aaron Smith, Executive Director. (303) 223-3554 — aaron@thecannabisindustry.org

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Mature cannabis plants pictured shortly before harvest in a Washington grow facility.

Cannabis Taxes: The Challenges of Running an All-Cash Business

Editor’s note: This is the final installment of a three-part series about cannabis taxes and the intricacies/pitfalls of staying tax compliant in the marijuana industry. If you haven’t yet, check out Part 1 and Part 2 to get the full scoop.

Let’s take a moment to examine the “logic” of the Federal Government. We have a business that is legal in some states but has a history of being federally prohibited. As a result, cannabis retailers must conduct all their transactions in cash, which only makes them juicier targets for thieves and criminals — and furthers the potential for cannabis-related crimes.

The Feds, in their refusal to allow cannabis industries to use the Federal Banking System, have created a safety hazard for the owners and workers of cannabis dispensaries everywhere.

In this final part of my series, I am going to lay out some basic strategies and other ideas for operating within the realm of an all-cash business.

IRS audits in a cash-based industry

Cannabis certainly isn’t the only industry where cash is the main source of income — for instance, topless bars generally handle a lot of cash. To put a myth out there to rest, the IRS can actually trace cash. How, you ask? Let’s say that you are paid in all cash and you report $25,000 of income on your tax return. On that same tax return, you report that you paid $15,000 in mortgage interest and $3,000 in property taxes.

How did you eat? Unless you have some source of untaxable income, the IRS will indeed question the return.

Photo Credit: 401(K) 2012

The IRS will reconstruct your income. One method they use is a cash flow analysis. What they will do is ask you questions about your lifestyle. How much is your rent? What do your groceries cost? How much do you spend on clothing and utilities? You get the picture. They will multiply that out by the number of months in the year, and that is your income.

This method has been backed up by the United States Tax Court, but there are other methods that they can use as well.

Point of sale and other useful tools

If you are in the cannabis industry, you must keep track of your sales. This is done with a point of sale (POS) system, which tracks sales and inventory and enables you to run a daily Z-Tape that tells you what your sales were, how much tax you collected, how much cash should be in the drawer, and other information. A POS system is necessary to stay in compliance with the state tax regulations and also allows you to track your inventory so you know what to order and what your best-selling product is.

Dispensaries need to take precautions by systematically removing some cash from the cash register and placing it in a safe. This should be done periodically throughout the day. Other security measures available to you include installing security cameras, and some dispensaries have even gone so far as to have armed security on site.

Then there is theft. I can’t tell you how many times my practice is called into a business to audit cash. Employees steal. Counting a drawer before and after an employee’s shift is essential. Having only one person per register at a time is the best way to handle this, because if that drawer is short, then you have one person to go to. Note that humans do make mistakes. If the drawer is over or short by $20, that is normal. Discrepancies in the hundreds of dollars however, signifies theft. Not only do you have to worry about the theft of cash, but you also have the vexing problem of the potential loss of cannabis. Alarm systems that are set off by magnetic strips attached to the cannabis packaging can act as a deterrent to this kind of theft. Properly setting up your dispensary is key to minimizing this problem.

Electronic money solutions

Banks won’t touch cannabis money, but some dispensaries are turning to Bitcoin, which is a kind of digital currency that uses encryption techniques to regulate the generation of currency units. This cryptocurrency technology verifies the transfer of funds completely outside of the central bank’s domain. Dispensaries can take Bitcoin as payment, and make payments with the cryptocurrency.

Photo Credit: Fabian Figueredo

While Bitcoin can now be used and traded digitally in a similar way to more conventional forms of currency like euros or dollars, the main feature that sets it apart from standard currencies is the lack of centralization. There is no single authority controlling cryptocurrencies like Bitcoin, and some people are more comfortable with this type of money.

Bitcoin’s transactions are processed through a network of machines and their underlying transactions; again, there is no central regulatory agency involved. Theoretically, the system cannot be rigged to support any one monetary policy, such as what happened in Cyprus several years back. Even if one part of the network is offline, the currency still flows.

In summary, it is decentralized, meaning the Feds don’t control it.  

There are literally thousands of different cryptocurrencies out there, Bitcoin just happens to be the most popular. At one point in my career, I was tax consultant for the biggest cryptocurrency limited partnership at the time in the United States. What they did was mine cryptocurrency; they would exchange dollars or euros for Bitcoin, then exchange Bitcoin for Fatcom, and then Fatcom for BlackCoin. They made money via the exchange rate between the different cryptocurrencies — a strategy that could potentially open up a passive income stream for a struggling cannabis company.

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Inside of a licensed cannabis operation in California.

Cannabis Taxes: Introduction to Marijuana Taxation

Editor’s note: This article is the first installment of a three-part series; stay tuned for Parts 2 and 3 in the coming days!

Following the 2016 elections, marijuana is now legal in some capacity in 28 states. However, even though it’s legal in certain states, the federal government considers the drug an illegal Schedule I narcotic. Resultingly, business owners in the marijuana industry have hit a wall with IRC §280E, which states:

“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”

IRC §280E will no longer apply to cannabis businesses if and when cannabis is no longer classified as a Schedule I or Schedule II controlled substance.

When IRC §280E was enacted in 1982 to overturn the result in the Tax Court case Jeffrey Edmondson v. Commissioner, it held that the taxpayer, who was engaged in an illegal drug dealing business, was entitled to deductions for “telephone, auto, and rental expenses” that he incurred in his business. The Senate report makes clear that IRC §280E was intended to overturn the decision in Edmondson and deny deductions to illegal drug dealing businesses. However, for Constitutional reasons, Congress did not attempt to prevent taxpayers from using cost of goods sold (COGS) to compute gross income. Thus, IRC §280E denies all deductions from gross income in computing taxable income, but illegal drug dealing businesses are permitted to take COGS into account in computing gross income.

Avoiding the pitfalls of Section 280E

In 2007, there was a U.S. Tax Court Case that involved Section 280E. There was a dispensary operating as both a dispensary of cannabis and a caregiving facility. The Court found that the dispensary operated with a dual purpose. Its primary purpose was to provide caregiving services to its members, while its secondary purpose was to provide its members with cannabis. Thus creating “two businesses under one roof.” The Court then proceeded to allocate the expenses between the two businesses, which lead to a commonly used strategy today of allocating various expenses among dispensary use and the act of caregiving.

However, in another Tax Court Case, the Court held that the owner of a medical cannabis dispensary was not entitled to any business deductions for expenses associated with caregiving services that were provided alongside the cannabis business. In 2004, the Vapor Room Herbal Center opened in California. In addition to selling medical marijuana, the dispensary provided vaporizers, games, books, and art supplies for customers to use and also held regular activities, such as yoga classes, massages, and movie showings — all free of charge.

The IRS audited the Vapor Room’s tax return and concluded that the taxpayer was not allowed to deduct expenses in connection with COGS or the other reported business expenses. The case ended up in Tax Court. While admitting that a business can have multiple activities that are taxed differently, the Tax Court found that the Vapor Room’s sale of medical marijuana was inseparable from the other services provided.

The case ended up in Appeals Court. Judge Graber, who wrote for the three-judge panel, affirmed the Tax Court’s decision. First, to determine whether the Vapor Room’s ordinary and necessary business expenses would be tax deductible under §280E, the court considered whether the Vapor Room was a “trade or business” that “consisted of” trafficking marijuana. Taking these contested phrases in turn, the court stated that “the test for determining whether an activity constitutes a ‘trade or business’ is ‘whether the activity was entered into with the dominant hope and intent of realizing a profit. Applying this test, the court found that the only “trade or business” of the Vapor Room consisted of the selling of medical marijuana, because although the Vapor Room provided other services — such as food, drink, movies, and counseling — the selling of medical marijuana was the only income-generating activity of the business.

The IRS has weighed in on the matter and has concluded that although marijuana-related businesses are permitted to determine COGS, they must do so using Section 280E, as it was enacted in 1982, and Section 471, which allows the use of inventories to determine business income. When §280E was enacted in 1982, an ‘inventoriable cost’ referred to any costs that could be capitalized to inventories under §471.

To capitalize something simply refers to the manner in which something is expensed. Capitalization simply means delaying the recognition of an expense by treating the item as a fixed asset rather than recognizing the cost in the period that it was incurred. Capitalization is generally only used by companies that operate on the accrual basis of accounting.

In addition, the IRS concluded that cannabis businesses are not permitted to calculate COGS using the more recent IRS regulations which can be found in Section 263A, which permitted the inclusion of additional expenses, namely purchasing, handling and storage expenses, and service costs.

This has set up a dichotomy. For resellers, the costs that they normally incur in the purchase of cannabis may not be deducted as COGS under the rules of Section 280E. These costs are directly related to the trafficking of cannabis. This means that only the actual invoice price of the cannabis is deductible. Not including the transportation costs and other costs that are normally associated with gaining possession of inventory.

A freshly trimmed nug of cannabis. Photo Credit: Cannabis Pictures

For cannabis production businesses, like growers, there are significantly more opportunities to claim items as COGS. Production-related wages, rents, and repair can be considered as COGS upon the sale of the inventory for accrual-basis taxpayers and immediately for cash-basis taxpayers that are cannabis-production businesses. However, marketing and general business expenses remain nondeductible.

Indirect production costs that may be considered as COGS include:

  • Repair expenses;
  • Maintenance;
  • Utilities;
  • Rent;
  • Indirect labor and production supervisory wages, including basic compensation, overtime pay, vacation and holiday pay, sick leave pay (other than payments pursuant to a wage continuation plan under section 105(d)), shift differential, payroll taxes, and contributions to a supplemental unemployment benefit plan;
  • Indirect materials and supplies;
  • Tools and equipment not capitalized; and
  • Costs of quality control and inspection.

The IRS has also permitted producers to claim some additional COGS deductions, as long as the company makes sure to produce financial statements that are in accordance with Generally Accepted Accounting Principles (GAAP). GAAP is basically the accrual method of accounting whereby income is recognized when earned and expenses when incurred.

These expenses include:

  • Taxes deductible under §164, other than state, local, and foreign income taxes;
  • Depreciation and depletion;
  • Deductible employee benefits, including pension and certain profit-sharing contributions, workers’ compensation expenses, stock bonus plans, premiums on life and health insurance, and miscellaneous employee benefits such as safety, medical treatment, cafeteria, recreational facilities, and membership dues;
  • Costs pertaining to strikes, rework labor, scrap, and spoilage;
  • Administrative expenses related to production;
  • Officers’ salaries related to production; and
  • Insurance costs related to production.

What are the effects of Section 280E?

The effect of 280E is that those in a legal cannabis business are reporting that they have up to a 70 percent tax liability. Let’s say that you own a regular business, and you have $1 million in sales, you have $600,000 in COGS, $100,000 in salaries, $50,000 in rent, and $200,000 in other business expenses. The result would be that you would have to pay taxes on $50,000. If the tax rate was 30 percent then the taxes owed would be $15,000.

If this were a cannabis business, you would be paying taxes on $400,000 ($1 million minus the COGS at $600,000) and would not be able to deduct anything else. If you were in the 30 percent tax bracket, you would pay $120,000 in taxes. That is a $105,000 shift for a company operating in the cannabis industry

As you can see, taxation for the cannabis industry is a complete mess. In the next installments of this series, we will discuss strategies to get around Section 280E, the challenges of the banking system, and how to run an all-cash business.

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Hadley Ford: Choosing the Right Cannabis Investments

Hadley Ford is the co-founder and CEO of iAnthus Capital Holdings, a cannabis finance and investment firm with active partnerships in four different legal U.S. markets.

In the following interview, our podcast host TG Branfalt interviews Hadley about his life before entering the world of finance, which included five years spent in communes and hitchhiking around Europe and the United States. The two also discuss cannabis companies trading on the Canadian stock market, the many investment opportunities found in cannabis, strategies for choosing the right state market for an investment, and much more!

Listen to the interview below, or keep scrolling to read a full transcript of this podcast.

Subscribe to the Ganjapreneur podcast on iTunes, Stitcher, SoundCloud or Google Play.


Listen to the podcast:


Read the transcript:

TG Branfalt: Hey there, I’m TG Branfalt and you are listening to the Ganjapreneur.com podcast. The Ganjapreneur.com podcast gives us an opportunity to speak directly with entrepreneurs and experts who are working on the front lines of the industry to normalize cannabis through responsible business, education and activism. As your host, I will do my best to try to bring you actionable information to help you plan, grow and manage your cannabis business.

Today, I’m joined by Hadley Ford, co-founder and CEO of iAnthus Capital Holdings. How are you doing today, Mr. Ford?

Hadley Ford: Very well, TG. Thanks for having me on.

TG Branfalt: Absolutely. It’s a pleasure. I start these interviews with talking about the background of my guests. But, through my research I found an article that talks about your experience in Europe. So, before we get into your background, why don’t you tell us about what you did in Europe.

Hadley Ford: About my checkered past, “Come the revolution.” I was an aspiring chemical engineer at the University of Rochester and was thrown out of that school. That’s a story for another time with a beer in front of us or something else to consume. I then spent the next five years hitchhiking around Europe and the United States living in communes with hair halfway down my back and “Come the revolution” and all that good stuff. I had to find a way to support myself so I was a street performer as a juggler and did some big form magic, as well, pulling ropes through people and things like that. Just sort of lived outside the grid for five-ish years.

TG Branfalt: So, now you’re applying a sort of magic to a whole new industry.

Hadley Ford: (Laughs) And a lot of juggling, a lot of juggling as well.

TG Branfalt: Of course, of course. So, now can you tell us how you ended up getting into the financial and healthcare industry?

Hadley Ford: It’s the usual path of anyone who’s going to go work on Wall Street that you have to be a long-haired anarchist living in communes. It was quite a turnaround. I had thought that was the path I was going to be on for the rest of my life, but life had different aspirations for me. Sort of one turn at a time occurred and I found myself back in the United States and I found myself taking night classes up in Boston, at Boston University. And I stumbled into some accounting classes, and I liked that and the next thing you know I was a Finance major at Boston University. After that I became a research analyst at Fidelity. And I went back to business school at Stanford and was recruited out at First Boston, got recruited away to join Goldman, then worked at Goldman really on both the principal side for awhile and also the corporate finance and M&A side, mostly in media and telcomm.

And then I left that and did a little content delivery start-up and competed against Akamai. Sold that company and then re-joined Bank of America as head of the tech group out of New York. And, did that for about three years. I got a phone call from an old client of mine at Goldman; he claimed his father had found a way to cure cancer, and would I sit down with him and figure out how he could finance that? So I sat down and I was so enamored of both of his father and the business plan, that I quit my job at Bank of America and the plushly appointed offices there, and waded into start up a company called Procure Treatment Centers which ultimately became the largest provider of proton therapy in the world. We raised about $800 million privately and saved thousands of lives.

Unfortunately, we depended very heavily on debt capital for the growth of that company. The debt crisis hit; we didn’t have access to growth capital. We ran it as an operating company for three or four years. And then I wanted to do something that was more growth-oriented. So, had an amicable separation and went off to see what the next big opportunity could be.

Around that time, I got a phone call from a guy I’d done a lot of business with when I was at Goldman. Actually, had invested in his company and taken him public, sat on his board. He called me out of the blue and said “What are you doing?” I said I’m looking for the next big thing. He said “I found the next big thing.” I said “What’s that?” And when I’d dealt with him before, he had been emerging telcomm, he’d done some internet stuff, he’d done some virtual currency companies. So I was expecting 1s and 0s.

Instead, he says “Cannabis.” And I laughed. And he said “Why are you laughing, it’s a $50 billion industry we went from black to white.” And I said “I’m laughing because my brother is already the largest provider of medical cannabis in New Mexico and my sister’s one of four licensed operators in Vermont. It’s kind of the family business. And he said “Well, you’re an entrepreneur. Why aren’t you in the family business?” And I said “Well, I’m not really convinced that there’s a national opportunity right now. It’s a very good business on a local basis. You get a license and you finance it with your friends and family and you’ve got a good business. You join the country club and it’s very respectable. But how do you scale that? You can’t ship product across state lines. You can’t even get a trademark or a copyright on your name. I don’t know how you scale it nationally.”

So, this fellow, Randy, who is now my partner, said “Well, we always liked working with each other. Why don’t we figure something out?” So we traveled around the country. Went to conferences. Met with operators. And determined two things, which we may have been able to determine in an afternoon with a six pack. But, the first is that there’s no regular way institutional capital available to the cannabis entrepreneur in the United States. So, if you are fortunate enough to have a license, you had no access to institutional capital for starting your business, growing your business, buying out your partner, or, if you wanted to sell your business, be acquired and have acquisition finance, either.

The second piece is because you don’t have access to institutional capital, you didn’t see all the usual camp followers you’d see in a growth industry. You didn’t have, you know, a lot of accountants, lawyers, consultants, advisors who are there. So, you had this weird anomaly where the entrepreneur has a license but has none of the usual factors of company-building available to him or her.

We thought, “That’s sounds pretty easy.” We’ll just set up a little merchant bank. We’ll raise $200 or $300 million. Charge two and twenty. And, we’ve both built big companies. We’ll go in and help people build companies and provide financing for it. But, for the same reason that Citibank wasn’t going to write a prime plus two loan for someone’s greenhouse, you weren’t going to get CalPERS or Toronto Teachers to give you a $30 million blank check into a $300 million fund. So, we kind of scratched our head about the supply side of the equation for awhile and then we discovered the Canadian public markets, which are really the only capital markets in the world, public or private, that has shown a willingness to provide financing for cannabis operators.

Now, there happened to be Canadian operators and there happened to be Canadian investors, but our supposition was that we could structure something, raise money publicly in Canada, educate the investor there about the opportunities in the U.S., and then flow that money in to support the U.S. cannabis entrepreneurs. That’s sort of the CV that gets me from juggling in Europe and living in communes all the way to providing institutional capital for entrepreneurs in the cannabis space today.

TG Branfalt: So, let’s get right into some of the financials here. What is the importance of harnessing the right skills to support a diversified portfolio of cannabis industry investments for shareholders?

Hadley Ford: Well, I think, you know, if you’re an investor … A sort of public market security investor and you say “Gee, I see this tremendous growth opportunity where, you know it’s really unprecedented where you’ve got a $50 billion market that’s … Think of that reservoir of cash and someone opens up this sluice gate and all that cash is flowing from illegal owners to entrepreneurs who’ve been licensed with background checks, it’s sort of a built-in 30% growth for the next 10 years.

But, there’s no real way for the public investor to sort of access that growth opportunity. So, you’ve got to say “What public companies are there that I can invest in?” Well, you can invest in the Canadian guys, but they don’t have any real exposure to the U.S. market. And then you look at the U.S. public stocks and you’ve probably got 250 companies that used to be Joe’s Mining Company that renamed themselves Joe’s Cannabis Company. And, then you’ve got sort of a handful of companies that are, you know, what I would call operating companies with management teams and operations that are kind of small cap. What you want to make sure from an investment perspective is that those management teams actually have the appropriate backgrounds and excellence and skill sets that you can trust them to actually go execute and make a dollar for you from an investment perspective.

So, what we offer the retailer/institutional investor, from a public security perspective, is a team that has actually worked within the world of finance and corporate governance and regulation and real estate. And, I think people can take great confidence that, when we diligence something or structure something, that it’s being done in the same form or fashion that they would expect someone from Sand Hill Road or Wall Street to do.

So, from an investment perspective, you know I think it provides security that the cash you’re putting to work is going to be put to work in a prudent and effective manner. So, it’s really, you just want to see all those skill sets, if someone’s actually going to be investing money in cannabis, you want to make sure they have the background of diligence and modeling and legal and regulatory and documents and all that sort of good stuff.

Because our view is cannabis expertise are kind of the table stakes, right? You’ve got a vast network of people who help us diligence the cannabis piece of it. But, then the value-add piece becomes “How do you deal with regulation, real estate, making sure you have enough money to build your model out, things like that?” And, that’s the expertise we bring to the table.

TG Branfalt: How much in the early going did you rely on your family to help you navigate this industry?

Hadley Ford: 100%. I mean, it’s a brand new industry. You just really have to have someone you can trust who can educate you on the ins and outs and quirks that are kind of the daily stuff you face in the cannabis industry. So, the idea that I actually had family members that were in the business and they could help get me up to curve on things you have to be aware of and think about was invaluable. And that also allowed us to have that as a launching pad from an investment perspective to raise the initial capital. Because, it’s nice to have a good idea, but it’s a lot better if you actually have some investments that you’re already making.

So, you know, I would say that, without their involvement, there wouldn’t be an iAnthus. It was a nice intersection point or Venn Diagram, as it were, where I had two siblings who were cannabis experts and they had a sibling who was a financial expert. And that’s a nice combination. It’s a confluence of events that was very fortunate for both them and for me.

TG Branfalt: So, moving to kind of a bigger picture, what’s your take on the experience of innovative industrial properties. There’s that real estate investment trust that was focused on cannabis industry properties, you know they were approved for a listing on the New York Stock Exchange in November. They had to reduce that IPO goal from $175 million to $100 million; they cut their number of shares offered by more than half, from 8.75 to 4 million. Why do you think that this failed to gain the traction that it anticipated on this major market?

Hadley Ford: You know, I’d say a couple of things. I’d say one of the big positive … And I was surprised, right, that the New York Stock Exchange approved it for listing. I mean, that is a great vote of confidence for the future of cannabis and the capital markets because, you’re probably aware that NASDAQ has repeatedly denied listing applications to their exchange.

And, ultimately, the Canadian market is a fine place to raise capital now, but the U.S. market is going to be vast and large and need a lot more capital than probably Canadian markets can provide over time. So, you do need to have a working capital market, public market, down here in the U.S. to effectively support the growth of the industry.

So, I think that is a great positive takeaway. Now, technically, why would they go from 175 to 100? Well the people who are involved in innovative industrial had had great success in the past in other industries. In healthcare REITs and things like that. And, I think, probably their anticipation was that you’d have much more institutional participation in a deal. Now, I didn’t see the book and how it was allocated, but my guess would be they had zero institutional interest. Very hard to do an all retail deal of $175 million. Matter of fact, I was talking to people about the deal before it actually went out in the market or before they tried to price it. And I think everyone was of the same view that, from just a pure retail allocation, they were going to be well south of $100 million or being able to get capital out of the market.

So, it wasn’t a surprise to me or really any of the bankers who were watching the deal that it didn’t raise the type of capital it wanted to originally. But, I think, what it did do, was set precedent that there’s an actual cannabis business model listed on the New York Stock Exchange and it’ll be up to them to execute. And, if they execute, I think they’ll be able to raise more retail money. And my expectation would be that, sometime in the next year or two, you’ll start to see institutions play as well, as they become more comfortable with the concept of cannabis within the public markets in the U.S.

TG Branfalt: Do you feel that this political climate is safe to invest in? We’ve got Jeff Sessions who has been an outspoken opponent of legalization, and there’s really been no movement on a federal level for a comprehensive medical program or any sort of major reforms. So, what is your feeling about this political climate in terms of investments?

Hadley Ford: Well, I’m kind of torn. Because, as a provider of capital, I like people to think it’s a wild and dangerous place so it keeps out other providers of capital. But, rather than play the game theory and say yes, it’s very dangerous, don’t come into it, I’ll give you the straight up thought of how I think about it. Because I get this question all the time.

I don’t lose any sleep over it. Let’s call a spade a spade here. I mean, it’s against the law at the federal level. If you go back and look at what Loretta Lynch or Eric Holder said about cannabis in their confirmation, actually worse than what Sessions said. At least Sessions showed some … You know sort of said “OK, there’s the Cole memo and I have to undertake my sworn duty to enforce the laws of the United States.” But it’s a matter of resources and the Cole memo is informative. Go back and look at what Loretta Lynch said. She said “It’s against the law and where we see cannabis, we see violence.” It would make your feet go cold. Frankly, the Obama administration weren’t great friends to cannabis. Eight years, I didn’t see anything get rescheduled or descheduled or decriminalized.

The Cole memo came out, and that was nice. But there was no, as you point out, proactive movement in that direction. And, frankly, I think if you go back and look at what the industry thought about the Obama administration’s view on cannabis, I think there was great disappointment that there wasn’t a more proactive stance. I don’t have any expectation that the Trump administration is going to be proactive, but I don’t have any fear that they’re going to send the Feds in to shut stuff down. I just think it’s way down the list of things that are important to the administration and I do think that many within the transition team and many of the appointees are states rights and that’s the way it’s going to go. I expect, for the next four years, you’re going to have this uneasy peace between the Federal government and the states, but that’s going to be business as usual.

There has been sort of a little pause, from at least my understanding … We’re not in the business of raising private capital, but a lot of the guys we’re talking with are, and they sort of give us feedback that there’s been a little bit of pause in the ability to raise private capital. But I don’t think anyone thinks you’re going to see a proactive roll-back of anything at this juncture.

TG Branfalt: So, I want to talk to you a bit about the Canadian government that is being proactive. But before we get to that, we’ve got to take a short break. This is the ganjapreneur.com podcast. I’m TG Branfalt.


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TG Branfalt: Hey, welcome back to the ganjapreneur.com podcast. I’m your host TG Branfalt here with Hadley Ford, co-founder and CEO of iAnthus Capital Holdings. Before the break we were talking a bit about the U.S. Federal government and their inaction under the Obama administration and what we expect to see under Trump.

But your company, as you mentioned, you’re publicly traded in Canada. The Federal government there is expected to announce legalization plans this spring. What do you anticipate, not just the market, but the regulations looking like under Canada‘s plan?

Hadley Ford: You know, that’s a great question. We’re publicly listed up there. We focus primarily on the U.S. markets. I don’t pay too much attention to investment opportunities up there, but I’m generally aware of what’s been going on. I was actually at a conference where this very question came up. I think, first off, it’s probably going to take longer than what people are anticipating. People are saying “Oh gee, it’s going to be very quick.” My guess, it’s going to take a year or two to work through Health Canada and all the regulations and all.

My expectation is that the government is going to have a bigger role in it than people anticipate. I’m not Canadian but I spend a lot of time up there and you know, you see the government has a hand in the sale and distribution of alcohol for recreational use. My guess is they’re going to want to play a role like that from the cannabis perspective as well.

I also think, if they have the same type of stringent production and oversight requirements they have from a medical perspective, that they may have some pricing issues and concerns from the recreational perspective. It may just keep the price at a rate that doesn’t displace the black market. We’ll see. It will play out through time. It’ll be absolutely fascinating to see how the politics are played and who gets to capture the margin and what regulations get laid out on the production side of it.

And, I do think, from a capital formation perspective, anything that increases the interest from a Canadian perspective, increases number of investors who are actively participating in the market up there, helps reduce our cost of capital and allows us to make that money available to the U.S. entrepreneur. So, in a strange way, anything that’s bullish and positive in Canada, it will have a positive effect on the cannabis entrepreneurs down here as it sort of trickles through the capital markets.

TG Branfalt: Do you think that it might force the hand of the U.S. legislature, because now you would have our neighbor with legal, adult-use cannabis?

Hadley Ford: Yeah. You know, I think all these flags that get planted are all part of a general trend … Whatever analogy people use, “Genie out of the bottle,” “Rock rolling downhill” … You’ve got upwards of a quarter of the United States will now have access to full adult-use cannabis when the regs get written over the next year or two.

You kind of run through all the different stages. You have full medical programs or high CBD programs and you have close to 90% of the U.S. population has access to some form of cannabis. You know, it can only be helpful to that direction if a well respected northern neighbor, our largest trading partner and someone who’s been an ally of the United States for 150 years is going to be moving in that direction. That’s only a positive. So, I think, if this continues to move in that direction, I don’t know that they go full-rec for the whole country and all of a sudden the U.S. is going to be doing the same thing. But, it’s clearly a positive indictor and keeps the momentum going the right way.

TG Branfalt: So, in what U.S. states have you made investments?

Hadley Ford: We are in Vermont, New Mexico, Massachusetts and Colorado. On any given day, we are in discussions in a half dozen other states.

TG Branfalt: And, Massachusettsrecreational program is expected to be huge due to its proximity to New York City. And Boston is supposed to be a huge market. Colorado is just rolling … So, why don’t you tell me a bit about New Mexico and Vermont. Vermont is such a small state that, as an investor if you’re aiming at a big money market, it kind of seems counter-intuitive.

Hadley Ford: Well, yeah. We typically look for things that I would call oligopoly situations. And that can be set up either in a town or a region, a state, it can be a license holder in a limited license market, it could be a market share leader in a more competitive market. But we look for situations exactly as you point out, where there’s a big growth opportunity and good returns on the capital we put to work. So, if you look at Vermont, the medical market is nothing to write home about from a size perspective. You’ve got 3-ish thousand registered patients and 4 licensed operators who are divvying that up. But, if you look at it from a full recreational perspective, Rand came in and did a study for the state and estimated the in-state market to be $100 million.

Now, if the full-rec program … They don’t have a referendum process and Massachusetts has to go through the legislature there. But, every time that’s been put forth, last year, year before, it’s made it through the Senate and bogged down in the House. At some point, Vermont will be full-rec. I think it polls 80% among the population and, if you’re one of a limited number of license holders, in every form of the bill and every anticipation is that, if you have an existing license, you’ll be able to participate in the new market. And probably have either an explicit or implicit head start because you already have infrastructure and grow and processing and locations in place. $100 million market, four license holders? That’s a pretty big market. That’s a good opportunity. Plus 13 million tourists go to Vermont every year. So, we like the returns.

Obviously the returns in bigger markets can be bigger. So, you look at a New Mexico, 2 million residents, same type of thing. We’re invested with the market share leader there. There’s good growth, and I think, ultimately, that’s probably a full-rec state. Sort of unclear when that happens, although probably it is more likely now that the House of Representatives is now Democratic rather than Republican in the state.

And then you look at a state like Massachusetts. You kind of have the best of all possible worlds. You have a much larger market, 6-7 million person population, 40 million people within a 250 mile drive of Boston. And, just because of the way the state’s put the process in place, limited number of licenses. So, that’s an ideal market and value creator for us.

Colorado, a different opportunity completely. You’ve got, from a regulatory perspective, the most mature market in the United States. You’ve got $1.2 – $1.3 billion of legal sales in the last 12 months. You’ve got 600 store fronts, maybe 400 operators that control that, a very fragmented market. So, we think there’s great opportunity if you have the capital to actually help consolidate and grow that market. And, that’s how we view Colorado.

So, we’re opportunistic on how we put our capital to work. That’s four different markets with four different opportunities, but I think they all come down to the same piece. Can we put money to work? Is there an oligopoly type situation we could take advantage of? Are we going to have good returns for our shareholders’ money? And the answer in all four of those markets is “Yes.”

TG Branfalt: So you had mentioned this oligopoly system … Would you say this is the best system for investment compared to, say, a Michigan market which still kind of operates in a gray sort of sector?

Hadley Ford: Yeah. We won’t invest in a state unless it has a good state regulatory structure that we think abides by the Cole memo. So we haven’t made investments in California or Michigan. There’s just too much risk around that from our perspective. It sounds funny … Here we are investing in something federally illegal and we’re saying “There’s too much risk.” But, even under the Obama administration, which is supposed to be this friendly counterpoint to Trump, the Feds were very active in hassling people in both those states and people went to jail in both those states under the Obama administration. That’s not a good headline for us to take our investors’ money, invest in something, then have it shut down because they’re not abiding by the Cole memo.

So, until someone actually drafts the full state regs, we’re going to be on the sidelines. It doesn’t mean we’re not looking. We probably have active conversations in those states on a weekly basis. We kind of know the players. We kind of know what we would do. But we want to wait until the path is set within the constructs of the Cole memo.

TG Branfalt: I want to talk to you a bit more about Vermont. But before that, we’ve got to take one more short break. I’m TG Branfalt, this is the ganjapreneur.com podcast.


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TG Branfalt: Hey welcome back. I’m TG Branfalt. This is the ganjapreneur.com podcast. I’m here with Hadley Ford, co-founder and CEO of iAnthus Capital Holdings. Before the break, we were talking about the states in which you have invested in and your reasoning for making those investments. I’m sure that you’ve spoken to a lot of people in Vermont. You have investments there, your sister runs a dispensary there. What are people expecting in terms of recreational legalization? I know that the last bill was seen by many as flawed which is why it wasn’t passed. Not because it was recreational, but because the bill was bad. So what’s your sense from talking to people on the ground?

Hadley Ford: Well, you start from the people, right? I go back to my “Come the revolution” days. The people want it. It polls 80% “Let’s go full-rec.” And the rest of it, I forget the author that said this but, “You never want to watch sausage or laws get made.” It’s political horse trading. They don’t have a referendum process in Vermont. It’s one of 14 or 15 states that don’t have that process to change the law. So you have to go through the legislature.

And it’s just horse trading, right? I mean, it almost doesn’t have anything to do with cannabis at some juncture. You need votes at the committee level and you need votes in the House and you need votes in the Senate. I was up there last year testifying and in the halls of power, and people were making trades. “I’ll vote for you on this if you vote for me on that.” It’s just political machinations as usual. My expectation is eventually you will have a bill. It’ll get passed. I don’t have a particular view on what that will look like. Because I don’t know what deals and trades get made. Someone needs a bridge in their town and that’s how you get their vote. But, I assume it will be full-rec at some point. I don’t know what the odds are this year. There are people putting forth forms of the bill. But you’ll get something this year or next year.

I think when you talked before about pressure surrounding governments, whether it’s Canada to the north of them or Massachusetts to the south of them, eventually I think the pressure will come down on the politicians. They have to do something. And they will.

TG Branfalt: Changing gears a little bit, I want to talk to you about the role that big business should have in the cannabis space. I have a lot of conversations with a lot of people and the overwhelming sense that I get is there were a lot of activists who stuck their neck out on the line and got arrested in the early days of this market. So they have a lot of fear about big business entering the cannabis space. Some of these fears are valid, and some maybe not so much. But you’ve worked on Wall Street and in the healthcare sector, both certainly big business. Is this something that should worry current industry professionals and what role should, or do you see, big business having in this space?

Hadley Ford: I’m not sure really what that means. I hear that “Big Weed,” “Big Business” and I was up in Vermont testifying in front of the Senate committee and they said “We’re worried about Big Weed. You’re Big Weed.” I’m just one guy. My brother and my sister are in the business and they said “Hey, we need money.” And, okay, I know how to raise money; I’ll see if I can get you some. Is that Big Weed? That would be like if they called up and said “Hey we need computers” or “We need a car.” Capital is just one factor of success when you’re an entrepreneur. It’s an absolute necessity. And I think a lot of entrepreneurs understand that. They need the capital.

And I think the worst thing you can do, and I think you could go find this. I think it’s on record. When I was talking to the Senate committee I said “The worst thing you can do if you want to have a strong, vibrant cannabis business and allow entrepreneurs who have a passion and love for this to be successful, is to not give them enough money.” Because an under-capitalized entrepreneur is ripe for the picking from Anheuser-Busch or Phillip Morris. Right? If you’re under-capitalized and you can’t compete, you’re in a bad competitive position. But, if you have unfettered access to capital and you’re living in Vermont or Colorado or Massachusetts, you can build a real business. Because these other guys aren’t there yet.

Anheuser-Busch and Phillip Morris and KKR and Goldman Sachs, they’re not there. The big banks, the big operators, the big consumer goods companies aren’t there. So, now is the time for the cannabis entrepreneur to build a lasting network, a lasting brand, a lasting business with great customer and patient care. But you can’t do that unless you have capital. So, I think having less restrictions on the capital aspect of it, less restrictions on that ability for the entrepreneur to tap into money is very bullish and is in keeping both with my own background of going back to the initial question of being a street performer and I think it’s in keeping with the original people on the front lines here who tore down the walls and allowed cannabis to become the business it is today.

The money piece makes it a level playing field against the big boys and they should be welcoming of anyone who can provide capital in an industry in support of the entrepreneurs today. Because now is the time to build a lasting business. Before the big guys come in. Did that answer your question?

TG Branfalt: Absolutely. Were you, as a person who provides capital to smaller operators, if say, a Phillip Morris or an Anheuser-Busch were to enter the space in one of the states where you have investments?

Hadley Ford: That’s a good question. It depends how they entered. I do think that cannabis today is so fragmented and still trying to figure out the business models, that the craft end of it still has a lot of value. And, I think it would be tough for those guys to come in and compete on that craft basis today. I also don’t think that those players would have any advantage of scale today because there’s really no scale players. I think, if you had a really good, strong operator, and that’s what we think our partners are, we’d probably write more checks in support of them so they could compete on the margin against those guys.

I think the bigger thing that would be worse for our business model, is if we woke up tomorrow and Trump completely de-criminalized it and Citibank was offering Prime plus 2 loans. Now, that would be very beneficial to the partners that we have already, because now they would have access to debt capital and cheap rates and could grow a lot faster. But, it would probably limit the opportunities for us to put capital to work. Right now, essentially, when people need capital, we’re providing the entire capital structure for them.

I think if Citibank were lending a lot of money, we’d only be providing the equity piece of the capital structure. There’d be levered returns so our returns would probably be better, but there would be smaller checks that we’d be writing. So, if someone needed $7 million to build out the operation, right now we would give them the whole $7 (million) and we’d get a nice return on the $7 (million). If Citibank were around, maybe Citi bank gives them $5 (million), we’d only provide $2 (million). Now we’d get a better return on that $2 (million) because it would be a levered return, but we’d only be putting $2 million to work instead of $7 (million).

But, I have no illusions that the market’s going to be free of competition in the long haul and, as I go back to our point, pick your management team, we’ve got a pretty smart team and have been very successful in a lot of industries. I think we’re very flexible and can move quickly. It’s a huge market and we’ll figure out a way how we make money.

TG Branfalt: What advice would you have for the greenest, no pun intended, inexperienced investor?

Hadley Ford: From a public perspective or a private perspective? Or both?

TG Branfalt: Both. Let’s start with public.

Hadley Ford: From a private perspective, be prepared to do a lot of work. Don’t just throw your money into something. This is a real business. It is complicated, it’s tricky. You’ve got a lot of regulatory piece. So, unless, you’re prepared to hire lawyers and accountants and spend a couple of months making sure the Ts are crossed and the Is are dotted, probably not a place to wade in from a private perspective. A lot of guys do. Some will make money and some will lose money. I think if you’re serious about getting a return and you’re allocating some portion of your portfolio to it, you should expect a lot of ancillary expenses around your diligence process that you wouldn’t get if you were investing in the local bakery or something.

I think from a public perspective, it’s such a nascent industry that you really want to understand who the management team is that you’re backing. You look at the United States and, I haven’t counted them up recently, there’s probably 300 companies that align themselves with being in cannabis. I think you could probably take 250 or 270 of those and say they’re probably not worth looking at. They used to be a mining show and someone wrote a business plan and changed the name.

And, then you’ve probably got a dozen or two guys that have real businesses that have revenue derived from cannabis. I would look at the management team. I think the market opportunity is still huge. If you pick the right management team, from a public perspective, they’ll figure out a way to make money for you.

So, do that work. Go online. See what the names are. Google them up. Make sure they have a background of excellence and a background of success. See if their backgrounds actually fit to what they’re saying their model is. You look at us, not to use it as a way to tout our own stuff, but we say “We’re financing cannabis.” Okay, who do we have on our team? Guys who worked in finance and law and real estate and that kind of fits with the model. Do they have a track record of excellence? Yes, they’ve been successful in multiple other forays in their careers. That gives you a level of comfort in a very nascent business.

No one’s got a penny or track record in cannabis that you can validate from a public disclosure perspective, so you are taking a little bit of a flyer on that. I think understanding the team and pitching that team is probably the starting point for how you want to invest on the public side.

TG Branfalt: Let me ask you. Where do you see the cannabis industry, say, by 2020?

Hadley Ford: I don’t anticipate anything in the next four years, three years, at the federal level that’s going to change things. I think you’ll continue to see certain states move toward medical that haven’t. They’ll put a vibrant program in place. You’ll see additional states adopt full-rec. You already have people talking about it in Rhode Island and Maryland and Vermont. So you’ll continue to see that trend as we go forward. I think you’ll also see, maybe this is just believing my own rhetoric, but I think you’ll see a loosening of some of the constraints around capital in these states. A lot of the states say “Gee, you can only control this number of licenses, you have to be a resident of this or that.” They put all these factors in from a capital perspective because they’re worried about, I don’t know what they’re worried about. I guess Big Weed coming in.

But, I think, ultimately, we’ve seen a trend that way too. You had ownership restrictions in Washington, they fell away. You had very stringent restrictions in Oregon and they’ve loosened those. Colorado has moved, you used to have to be a Colorado resident, now you can be a U.S. resident. So, I think, as people recognize, as the politicians and regulatory overlords recognize the benefits, not just the social aspects, but the economic aspects of jobs and taxes that cannabis brings to a state, they’ll say “Gee, it’s silly to put restrictions on the capital.”

As an analog, I would look to California and Silicon Valley. They have no restrictions on capital there. And they’ve created just a huge engine of growth and economic development with tech investment. There’s no reason Denver shouldn’t play that same role within cannabis other than the fact that public companies can’t invest in companies in Denver. Whereas, if they had that restriction removed, I think you could go from 18,000 employees in cannabis in Colorado to 36,000 or it could look like the Sand Hill Road of cannabis.

I would see that trend continue. You might, if this guy O’Neill gets appointed head of the FDA, maybe there’s a re-scheduling of cannabis so you’re going to see more research done in the United States. That would be, I think, a very positive strength. I think the rescheduling might change the 280e tax situation that we have. Which means there would have more cash available for reinvestment at the operating level just from your own operations rather than shipping it off to Washington. And, I’d see that could be possible in the next four years, as well.

I do think it will stay a states rights issue. I think different states will develop different ways of overseeing and regulating it. And the states have been pretty good about copying each other. Guys from Massachusetts go on a junket to Colorado and learn. So, I think you’ll see best practices from a regulatory perspective propagate between all the states as well.

It’s a great, grand experiment. I don’t want to sound like I’m getting on a soap box saying how wonderful it is. Because there’s a lot of stuff that needs to be fixed. But, you’ve got a lot of states that are experimenting a lot of things. You’ve got a lot of entrepreneurs that are experimenting a lot of things. The best will rise to the top. And I think people won’t be shy about copying it and we’ll ultimately meander towards a very functioning, widespread market with capital available for entrepreneurs to build great businesses. That’s the trend and I expect that to continue for the next four years.

TG Branfalt: For everyone involved, we all hope that trend continues as well. My own fears about descheduling … Sort of thinking that it will allow the Big Pharma to enter the market. But that’s a conversation for another time, I think.

Hadley Ford: Hey, look. Big Pharma, they’re not going to be interested in the recreational market. They’re going to be interested in developing big medicines that can help people. A lot of these medicines take hundreds of millions of dollars to develop. So, I’ve got to tell you. People think of me as Big Weed; I don’t have hundreds of millions of dollars to throw at a drug. So, if you want to make society a better place, come up with something that’s just a great use of one of the 70 cannabinoids in the plant to solve some terrible disease. That takes money. So, I’m not averse to doing it. You don’t want people to corner the market around it. But, if you can develop the life-saving drug and it takes that kind of money, let someone come in and have that money. And it would be on a regulated basis, just like Pharma is, and let them develop it. That could be beneficial. So long as they don’t have a monopoly, it’s okay.

TG Branfalt: Well Hadley, I want to thank you so much for the opportunity to chat with you. This has been a really, really enlightening conversation for me and a lot of people who may not understand the finance side of it, and who are afraid of people with your background getting into the industry. I think you’re helping to quell some fears by being kind of on the forefront on this issue. So, I want to thank you so much for joining me on today’s episode.

Hadley Ford: Thank you so much for having me on. It was a pleasure. I enjoyed it greatly and, hopefully, you’ll have me on again sometime in the near future.

TG Branfalt: I certainly hope so.

You can find more episodes of the Ganjapreneur.com podcast in the podcast section of Ganjapreneur.com and the Apple iTunes store. On the Ganjapreneur.com website you will find the latest cannabis news and cannabis jobs updated daily, along with transcripts of this podcast. You can also download this Ganjapreneur.com app in iTunes and Google Play. This episode was engineered by Jeremy Sebastiano. I’ve been your host, TG Branfalt.

End


Yellow envelope full of $100 bills.

IRS Targeting ‘Top 100’ CO Cannabis Companies

The IRS has opened an “aggressive” round of audits on some of the largest and most successful Colorado cannabis growers and retailers, according to an Inc. report. James Thorburn, a Colorado-based tax attorney who represents cannabis clients, says “it’s now just a matter of time” before the agency audits “pretty much everyone in the industry.”

The audits are focused on the taxable year of 2013 to 2014 and are being conducted on businesses using the 280E tax code — the regulation created for businesses participating in illegal trafficking of Schedule I or Schedule II substances. Under the code, businesses are not allowed to take any deductions besides the costs of goods sold. According to Thorburn, in order for the IRS to impose a 280E penalty they must prove that the taxpayer had been “illegally trafficking in a controlled substance” under state and federal law — so the taxpayer must have been convicted of a federal or state drug crime in order for 280E to apply.

The businesses being audited have neither violated state laws nor been federally charged with any drug crime, but Thorburn said the businesses might be being targeted for “political” or “enforcement” reasons. He said if the IRS implements 280E, “the taxes are so severe that the industry couldn’t withstand the taxes that are imposed.”

According to a Denver cultivator, who wished to remain unnamed in the report, “most of the top 100 marijuana companies in Colorado are being ‘randomly’ audited.” His company is one of them — the IRS claimed he misfiled Form 8300, reserved for cash deposits over $10,000, and under 280E.

According to an earlier report from INC., 30 other canna-businesses were being audited back in July for not properly filling out form 830 for the tax year 2014 to 2015.

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