The first U.S. regulation of cannabis was the “Marijuana Act of 1937.” Since then, it has been illegal to grow hemp in America.The country’s dependency on and use of the plant has been minimized to the extent that hemp production almost no longer exists in American agriculture.
As Jack Herer famously said many years ago, “Hemp can save the planet.” Many people understand that hemp can help save the planet through a variety of ways, including protein, oil and fiber-use possibilities, for example. But, surprisingly, the masses are not beating down the door to purchase raw hemp fiber, despite all these uses.
While I do not believe I will ever see products like T-shirts manufactured solely out of hemp made in North America (mainly because foreign manufacturing costs are lower), that does not mean we should not be actively exploring the economic value of diversified hemp products.
Now is the time for hemp production to begin again. But this can only happen if manufacturers embrace and incorporate hemp-based products into their products, and a new industry rises to pioneer innovative processes and uses for the hemp plant and its offerings.
A Story of Today’s Hemp Farmer
Recently, I was contacted by a Canadian hemp farmer, Duane Phillippi of The Hemp Crew Corp., who requested that I visit his 1,800-acre farm during harvest season. While he was specifically interested in understanding the applications for essential oils and raw products in today’s economy, he had brought me there to evaluate current practices, and envision workflow and objectives for next year’s production.
Currently, the crop from the farm is sold as two products: seeds for dehulled hempseed and as bird feed. The corky ‘hurd’ from the stalk is utilized to manufacture paper. As of now, there are no customers to purchase the leftover fiber materials, which have been pressed into huge, round bales, then stacked and utilized for wind breaks on the farm.
The owner and his team have had to redesign and modify existing equipment to suit their specific needs. They have an engineer on staff who handles this. Plus, the equipment needed to harvest and process 1,800 acres of hemp can cost millions, and this is the company’s fourth year in operation.
The crew was already hard at work when I arrived at the farm, and large equipment was already rolling. The morning began with a group meeting where a plan for the day was set. Everybody was assigned a role and told where they could assist in other areas, keeping in mind the workday would not end till 12:30 a.m., when the last acre was harvested. After the meeting, we toured the farm so I could familiarize myself with current methods of growth, harvest and post-processing of products.
We began by examining the raw finished products, both the seed and the un-powdered hurd. It was amazing to see so many hemp seeds (literally truckloads of them) for the first time. The raw hurd is the byproduct of the hemp stalks. It still has a lot of fiber mixed in with it that will ultimately be pulverized and turned to powder, which is how the paper manufacturer requests it.
Next, we toured multiple plots—some harvested, some not. The harvested plots still had the hemp stalks remaining in rows as they grew. The unharvested plots had a single stalk plant with one bud at the top.
From there we went to see his endeavor into essential oil collection, which was amazing in that it contained experiments performed on a grand scale. He is working to have the process in place for later this year when the Canadian industrial hemp rules change to allow for the harvest and processing of hemp bud/flowers.
We ventured to the field next to see well over a million dollars of harvesting equipment and machinery in action. The seed was loaded into tractor trailers, then into grain silos for storage, then sent to market. The hurd is loaded into tractor trailers and hauled to the farm to be processed. In the processing area, the hurd is coarsely screened by conveyor to eliminate larger, unwanted fibrous material, and then it goes to the grinder. (It’s not as easy as it sounds to powder 1,800 acres of hemp, and the method by which to do so had to be created from existing equipment utilized in varying industrial applications. One can’t simply search for “giant hemp grinder” on Amazon and push the “buy it now” button.)
After the hemp is powdered, there are other implications to consider, such as the risk of explosion. With all the hemp particulate floating in the air, it is no different than a grain silo or grain/flower processing facility in that those industries take great care to prevent ignition from sources such as static electricity. Therefore, all equipment must be grounded, and dust suppressant techniques must be employed. For pulverization, the resulting material is further screened, filtered and placed into mesh bags.
The Economics of Hemp
Like this Canadian hemp grower, the conglomeration of multiple hemp farmers is still debating whether it is even worth the fuel, time and cost to harvest this year’s fiber. They still have two years of fiber sitting with no place to go. They are currently searching for outlets.
European hemp farmers, on the other hand, are far more advanced in that they have long-standing relationships with a multitude of manufacturing sources that utilize every bit of the hemp plants they produce. For instance, the leftover fiber “hemp flax” product is purchased and utilized in the manufacturing and constructing of Bentley car seats. Therefore, I’m confident there is an outlet for North American farmers’ fiber somewhere as well. Perhaps there is a manufacturer out there wishing to utilize an alternative source such as hemp fiber, having no inkling that tonnes of it are literally sitting in a field waiting for him.
As the day progressed, I considered the economic value of the crop’s diversified products and their respective costs of production, focusing on products that sell for less than their production costs (or don’t sell at all). I thought of essential questions to ask, such as whether it would be more profitable to target and harvest for essential oil production at the cost of seed maturation? Or is it more profitable to target the mature seed in lieu of the essential oils? Simple math and economics dictate which you should target as a farmer.
While keeping in mind the cost of production, I can only surmise that there are many uses for the raw fiber left in the field, stalks and bales of stalks-even if only utilized for oil-absorbing booms for oil collection off water surfaces, or for plywood, bricks and masonry. Better yet, what about hemp fiber-based media, i.e., grow cubes and blocks? To utilize hemp as a medium or component of medium would surely be an environmentally friendly approach to cannabis production.
I truly hope manufacturing begins to embrace the passionate hemp farmers, such as the individuals I had the pleasure to meet, because that is what is required for the hemp industry to progress. There are now very passionate hemp farmers producing hemp in a multitude of forms, and they need to sell their product to be able to continue to innovate, pay the bills and survive like any other farmer.
Kenneth Morrow is author and consultant of Owner of Trichome Technologies™
Not all good ideas remain good ideas over time. A good business idea 15 years ago might be a terrible idea today. It all depends on how industries evolve. The cannabis industry has changed exponentially over the years, particularly with legalization in its various forms. During this evolution, many of your former competitors have become legal.
What Were They Thinking?
They were thinking about a number of things, including access and obligations. In favor of going legal, let’s consider the concept of access; and against legalization, let’s consider the concept of obligations.
Access is great. Legal marijuana businesses have access to customers and to markets that support access to investment money, all at a scale far beyond the black market.
Obligations, on the other hand, are not great. Laws, regulations and politics that never mattered suddenly matter a lot. For you, however, the potential access and obligations matter mostly in terms of what your competitors are doing in your most important markets. Competitors going legal create the biggest challenges.
Some of your black-market competitors will sell their businesses, but then will face the challenges of handling the money they received for an illegal operation without being accused of money laundering. If you stay in the business, you will face a wave of legal competitors. Some will have been around for years and will have made the transition from the illicit market to the regulated one; some will have bought into existing operations; and some will have started from scratch. In comparison to black or gray market competitors, your legal competitors will have greater access to investment money, customers and markets, and to various business services than those operating outside of the regulatory system. Some legal businesses will have access to banks, and some will have lobbyists. All will have to put up with laws, regulations and politics in a new and different way.
Regulation’s Impact on Medical and Adult-Use Marijuana
It is likely that legalization will proceed in two distinct directions. Medical cannabis will probably be treated like some form of medicine and be regulated primarily by the U.S. Food and Drug Administration (FDA). Recreational marijuana will probably be treated like an alcoholic beverage and be regulated primarily by the regulatory authorities in individual states.
But the states will not act in a consistent way. For example, Oklahoma voters had not repealed alcohol prohibition until 1959, while others, such as Georgia and North Dakota, repealed it in the early 1930s.
Having said that, one might ask: “What happened to the thousands of illegal stills and speakeasies after the end of Prohibition?” During that time, the alcoholic beverage industry was characterized by significant overcapacity. One way or another, following the end of World War II, the thousands of illegal and legal producers and retailers either consolidated or disappeared.
Further, today, whether we order a 13.5-percent Pinot Noir or an 80-proof vodka, we expect the product to be exactly what the label says it is. We clearly expect our aspirin and cough syrup to be not only effective, but also free of contaminants, and we expect our alcoholic beverages to be equally free of contaminants and to taste exactly like they are supposed to taste.
Based on the path that the alcoholic beverage industry followed post-Prohibition, we can expect to find ourselves-in the short run-in an industry characterized by overcapacity and falling prices, followed by a period of significant consolidation.
Legal competitors will not have easy lives. To secure investment money by becoming legal, many businesses will need to “invest in,” which means pay, exorbitant taxes out of their own pockets. IRS section 280E (the tax code section that stipulates the cost of goods is deductible, but the cost of sales/distribution is not) is slightly more beneficial for growers than for dispensaries. But one way or another, all newly legal business also will need to invest in legal and accounting services to navigate the still-federally illegal industry.
What the Future May Hold
The 2013 and 2014 Cole memoranda, the 2018 Sessions Memo (which rescinded the Cole memoranda), the Rohrabacher-Blumenauer Amendment and our industry’s various other legal guideposts will fade into the sunset, to be replaced by a host of other key regulations. Lobbyists will seek advantages for their clients, whether their clients come from our industry or not. Whether one believes that lobbying will be good or bad depends on whether the lobbyists will be trying to advance anti- or pro-cannabis agendas.
As the industry’s legal competitors spend money to comply with legalization’s requirements, our industry will look less and less like it does today. Third-party testing will become obsolete as serious testing moves in-house to match current practices in the rest of the food and drug markets. The quality requirements will force cannabis businesses to hire new personnel with appropriate scientific skills. As testing moves into our organizations, it will be followed by a host of technical auditors with agency badges who will audit our in-house scientists’ work.
We will all learn more than we ever wanted to know about the Code of Federal Regulations (CFR)—"the codification of the general and permanent rules published in the Federal Register by the departments and agencies of the Federal Government,” according to the Government Publishing Office. The pharmaceutical industry pays attention to various sections of CFR’s Title 21 (the code of federal regulations for food and drugs) for supplements, over-the-counter and prescription drugs. The alcoholic beverage industry pays attention to CFR’s Title 27 (which prescribes federal regulations for alcohol, tobacco, firearms and ammunition excise tax (FEAT)). Various agencies issue various forms of guidance with respect to the code of federal regulations. And again, each state will continue to develop its own regulations.
Beyond the various federal and state regulatory structures, the pharmaceutical industry also participates in the United States Pharmacopeia (USP), which should be considered an extremely significant pharmaceutical industry-based organization. The USP already has a cannabis committee with a limited scope (identity, composition and purity). The unavoidable point is that the USP’s cannabis committee exists, as do the cannabis committees of many state bar (lawyers’) associations, to address both the needs of our industry and to address the needs of the consumers and patients.
What Does It Mean for Our Future?
Is any of this good? Is all of it bad? In the end, these are not relevant questions. With time, the competition will operate at a size and scale impossible to imagine today. The market will extend beyond the dozens, even hundreds, of dispensaries across any state to the tens of thousands of retail distribution points across the nation as producers attempt to offer their products to consumers through each and every available channel. The competition will attempt to serve millions of consumers across the nation and around the world. The competition will have financial power and, consequently, political influence. Expect producers to use both their purses and political connections to demand access to consumers through these retail channels, and retailers to demand access to this new set of consumer products.
Do we have any options? Can we make any decisions that have any influence at all? Once again, we might look at the pharmaceutical and alcoholic beverage industries for ideas. Each of these industries faced massive new regulatory regimes beginning in the 1930s, and each has survived.
We should note that neither the pharmaceutical industry nor the alcoholic beverage industry consists of a single, massive player. Each has large players and small players, and each (fairly regularly) goes through periods of small producer-based innovation and consolidation as larger players purchase smaller players.
We will not all dissolve into a single, massive enterprise, nor will we all join a single, massive trade organization. We will, however, probably find ways to advance our common interests.
However, as relatively mature industries, each has several national trade associations to which producers and retailers-both large and small-belong. And the trade associations tend to have a technical or scientific focus, a commercially oriented focus, or a decidedly political focus.
Each of these pharmaceutical and alcoholic beverage industry trade associations has developed to the point to where its leadership seeks out individuals primarily interested in industry development, in contrast to personal gain. Long ago, these trade organizations recognized that their rooms full of people who tried hard to sell something to each other rarely produced anything for anyone.
Nevertheless, like the individuals and companies in our industry, the individuals and companies in the pharmaceutical and alcoholic beverage industries face many common problems. Each of these industries’ professionals and companies have learned to manage many of their challenges cooperatively in a way that benefits all. And they are no more intelligent than we are. They merely ran into their respective problems about 80 years before we did. Like them, we will not all dissolve into a single, massive enterprise, nor will we all join a single, massive trade organization. We will, however, probably find ways to advance our common interests.
And the sooner, the better.
Thomas Schultz is president, Connecticut Pharmaceutical Solutions (CPS), CTPharma.com.
Rino Ferrarese is COO, Connecticut Pharmaceutical Solutions.
The authors do not provide legal, accounting, or tax advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for legal, accounting or tax advice. You should consult your own legal, accounting and tax advisors before acting on any related matters.
The best-designed systems are no match for mismanagement. When people get involved with systems, suddenly all the parts shown on blueprints and described in standard operating procedures (SOPs) start moving, and someone needs to keep them all under control. That task falls to the operations management team.
Operations management is chasing down a missing shipment of something needed yesterday, dealing with facility issues, training a new hire, talking to a regulator who dropped in and scheduling an employee to sub during another’s vacation. The complexity of operations management increases as the number of operations managers/team members decreases. This suggests lone rangers might have an infinitely complex task, one that may only be manageable in smaller operations or with significant automation.
Aside from cultivation, elements such as regulatory compliance, for example, can easily consume a full-time employee’s time as the operation size grows. Expect operations management to be a department, not a person.
A reliable and steady workforce is a blessing all operations would love to have, but we must be realistic in recognizing that cultivation jobs in the industry are subject to high turnover typical of entry-level positions. Reliability comes from appropriate training, supportive management and further opportunity. SOPs provide the bulk of information that staff need to learn their jobs quickly and perform them reliably, and management makes sure the education is working. Operators can’t do anything about market forces, but they can recognize and incentivize the best of their staff to stay and contribute, helping provide a stable knowledge and skill base within the operation.
Personal issues are the same in this industry as any other: Some issues aren’t harmful or even really noticed, while some are annoying and some are detrimental to the operation. Company policies and strong people skills within the management team can make the difference between an operation in turmoil and one that hums along.
In dealing with people, we are reminded that the best plans can often go awry. Ample examples exist of how poor communication has changed the course of history. Our inability to use our sophisticated communication skills to relay information effectively remains a curse and a mystery. Needless to say, over-communication is better than under-communication.
Day-to-day exchanges keep the wheels turning, but when there is a flub, good communication can mitigate its impact.
For example: A new growing medium has been approved, and the purchasing department was asked to stop placing orders of the old medium and start purchasing the new medium; but an interruption prevented purchasing from hearing the request. When the account showed no media inventory listed, rapid communication of that fact allowed expedited handling of a small emergency order to enable production to continue.
The direction to execute a task is a command that may be verbal or written, and usually comes with some prioritization. When spoken, commands will occasionally be misunderstood in the heat of battle, and senders of verbal commands need to ensure the receivers understand what they are being asked to do. Even then, verbal commands should be followed up to ensure action. Leave nothing to chance.
Alternatively, written commands, like “Chad, Cindy and Sam are harvesting Flower 1 today,” are difficult to mess up. Write things down.
Even the best managers need tools to help them keep up with things, and assess and report how the operation is performing. Here are several useful tools:
Standard Operating Procedures: These take a load off management. They contain the blueprint of the operation, document all procedures, and make clear standards of performance and data-gathering instructions.
In a nutrient SOP, process designers specified that media pH be held between certain levels. They specified instructions for use, as well as meters to use to measure the pH in the media. They provided a chart on which to record each week’s data. They provided training on how to read the charts, a file cabinet drawer to archive the charts, and a stated policy that this data was to be kept for one year and then destroyed. To educate and retrain staff, clear and concise documentation helps bring workers up to speed quickly and avoids extensive management hand-holding.
Instrumentation: Data’s importance cannot be overstated. Business runs on data. W. Edwards Deming, the architect of modern manufacturing practice and quality control, famously noted that without data, you are just another person with an opinion. Whether you’re evaluating minutes to complete a task, gallons of gas to cut the landscape or the cost of materials, information allows the operation to be understood-and with understanding comes the ability to manage.
When administering nutrients and pesticides, for example, logging the details of what was applied when and by whom provides managers with critical information to know exactly what the plants are being given and see links between applications and plant response. The same goes for light in greenhouses. These structures don’t receive the same light every day, so measurement and documentation of the natural light received inside provides insight into the likely yields that light can deliver along with insight into how much supplemental light might be cost effective.
People: Aside from performance data, the daily huddle, weekly status-reporting sessions and even the weekly ops luncheon provide human input. We all hate meetings, but they are valuable forms of intelligence gathering.
Instrumentation data needs to be handled appropriately. Some data, such as high CO2 levels, are so important that they trigger an immediate alarm. Other data is used every day, like checking whether the cleanup checklist has been completed-while some data is used only occasionally, like pesticide logs. Regardless of usage frequency, all data is important as it is management’s eyes and ears on the operation.
The story data tells management is the basis for making decisions about whether the operation is performing properly. Plants growing to schedule, pests under control and a smooth-running staff all feed a “green light” status, indicating everything is within specified parameters. Mite outbreaks, stunted growth or other maladies indicate “yellow light” status, suggesting added focus and monitoring. The realization that no one ordered the new growing media is a big “red light,” indicating potential imminent financial impact requiring immediate action.
A big part of what goes into the status report is consideration of the threat an event poses. The threat of a mite explosion would be considered high if populations exceed the operational control capability of a pesticide, but low if only a few mites are present. This is why performance metrics are an important part of SOPs. They provide the unvarnished and objective truth about an operation’s efficiency, as well as what corrective action might be taken if processes aren’t being followed properly.
Who Fits the Bill?
So where does one find superheroes who can do all the above, let alone all by their lonesomes? Realizing that we have not said a word about plant skills, we are happy to say there are many more people around with management skills than there are with growing skills. And once growing skills are written down, management skills are what keep investors and regulators happy.
General contractor-like skills, restaurant management, crew bossing-those industries need the same skills cannabis operations need to keep running. Essentially, this is someone to protect the investment. The ability to follow a plan and solve problems on the fly is more important than whether they know how to mix nutrients. Nutrients can be taught, but the skill to handle that chronic absentee effectively, stay on schedule and deliver consistent results most often has been honed through one of these other high-energy, high-stakes lines of work.
Operations management is a daily grind in almost all manufacturing, but it is also what pays the bills, so build a diligent and demanding management team and pay them well.
Kerrie and Kurt Badertscher are co-owners of Otoké Horticulture, LLC and authors of “Cannabis for Capitalists”. firstname.lastname@example.org
The legal cannabis industry’s workforce is growing by leaps and bounds. New Frontier Data predicts the creation of more than 280,000 cannabis jobs by 2020. With this growth in jobs, and keeping in mind most of them will be filled by millennials, are you prepared to attract and retain top talent?
Consider this: 42 percent of millennials want feedback every week (twice the percentage of every other generation), according to a report by HR/payroll solutions provider Ultimate Software, but only 19 percent say they receive it (per a Gallup report). In addition, just 29 percent of millennials are engaged at work, “meaning they are emotionally and behaviorally connected to their job and company,” reported Gallup. Sixteen percent are actively disengaged, which means that these employees “are more or less out to do damage to their company.” The majority (55 percent) of millennials are not engaged at work-the highest of any generation.
If those statistics are not daunting enough, 34 percent of millennials plan to leave their current employer within two years, the “2017 Deloitte Millennial Survey” found. And do not forget that employee turnover can increase labor costs by 75 to 100 percent for each employee that needs to be replaced, according to a report by HR solutions provider G&A Partners.
These startling statistics underscore the fact that many younger employees are seeking instantaneous feedback-in the same way they receive Facebook and Instagram “likes.” But they are currently part of management systems that do not place an emphasis on immediate feedback-instead conducting traditional annual or, at best, quarterly reviews.
Traditional reviews and bonus programs are designed at a corporate level, and often focus on employee behaviors and activities that may not be aligned with the mission and vision of a specific branch or operation. As an example, what if, as a company, you provided bonuses based on the total weight of a harvest. This metric would ignore total throughput (how many harvests per year, among other factors), and could even encourage employees to utilize higher levels of nutrients and potentially pesticides. Suddenly, costs have increased, while quality and safety have declined.
All this leaves the modern cannabis company with two big questions:
- How will you engage and develop your employees?
- How will you connect long-term company success with day-to-day tasks and activities?
A weekly or monthly “Positive Action Plan” (PAP) helps to create a culture of high-performing and motivated employees. The PAP ties together the company’s mission and vision, all the functional areas that make the company successful, and the actions and tasks that make up those areas. Each supervisor should take five minutes each week or month to complete a PAP for each employee, and another five minutes reviewing the results with the employee. The idea is to create a quick check-in that focuses on strengths and real-time feedback.
How to Use the PAP
Begin with the areas where each department supports the company’s mission. Ask yourself, “On what must we execute to be successful?” Support this by listing the activities that are completed on a regular basis as part of that area. (See the example below.) These areas can be separated however tasks are generally assigned in your company. Make sure you have accounted for all activities. Providing specific examples helps employees understand exactly what is expected.
In a cultivation environment, remember to include key areas that support your department such as cleanliness, record keeping and compliance, and routine maintenance. In a dispensary, include customer service, and support it with actions such as: greeting customers, making relevant recommendations of products and strains, and offering companion products and accessories. Corporate functions such as marketing and outreach can also utilize PAPs. Think trade shows, advertising, patient support groups, guest speaking at educational events and social media, for example.
Using a PAP this way draws a direct connection between the activities in a job function and the mission and vision of the company. It provides purpose. It allows each employee to see how he or she directly impacts the success of the company and the good that the company does in the world.
A completed employee-evaluation form indicates, in a snapshot, if the employee engaged in these activities rarely, sometimes or daily. The intent is to promote positive action where the feedback is being received well, and to prevent employees from reacting defensively.
I have seen some cultivation departments map these activities weekly on a whiteboard and assign certain tasks to each employee for the week. These weekly meetings are a great place to perform a quick review of the PAPs.
In more traditional employee evaluations, there is often a focus on “areas for improvement.” Some drawbacks exist to this strategy in that it implies there is something wrong, it can focus on the employee’s weaknesses (not strengths), and it can be ambiguous in how to accomplish improvement.
Instead of saying, “Improve upon being a team player,” a more positive approach shifts the focus to tangible examples. Say, “A skill you are developing is teamwork. Last week when you asked your coworkers how you could assist them in completing harvest is a great example of how you excel in that area. Keep doing that and more often!”
3 Steps to a Focused PAP
Use these steps to build this component of desired behaviors into a Positive Action Plan:
- List one to three skills (strengths) that the employee possesses and one to three skills that the employee is developing (area of improvement).
- Provide examples of how the employee uses those skills in his daily or weekly routines. The more specific the examples, the easier it is to understand, and the more likely you are to see results.
- When you list current skills with areas to be developed, provide tangible examples with your feedback. Again, frame the conversation this way: “That thing (example) you did on Wednesday was great. Keep doing that!”
Some common skills may include communication, teamwork, leadership, creative problem solving, meeting deadlines, consistency and timeliness.
The successful implementation of a PAP program serves to connect strategic and tactical activities in any company. The use of PAPs results in engaged, motivated and dedicated employees, reduced turnover and, in-turn, greater company success.
Colin Kelley is the co-founder and vice president of corporate development for Haze.Delivery. Prior to that, Kelley served as the chief financial officer and chief operating officer of Minnesota-based medical cannabis cultivation and dispensary business LeafLine Labs.
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