Perhaps the biggest M&A news in the fall of 2019 was the abrupt termination of MedMen and PharmaCann’s $682 million all-stock acquisition proposal. The news landed with a thud after a steady stream of blockbuster M&A announcements throughout the industry. But a lot can happen in a short amount of time in this business, and industry observers were left wondering what went awry between the two companies.
We haven’t heard much in the way of an answer.
“In sum, the circumstances that led us to make the deal with MedMen a year ago are no longer present today,” Jeremy Unruh, a spokesman for PharmaCann, told Cannabis Business Times.
Here’s one circumstance that had shifted notably: From the time the two companies’ definitive agreement was reached in December 2018 until its public dissolution in early October, MedMen’s stock price slipped from $2.65 to $1.49. That’s a 43% drop in the value of what MedMen would be putting up to buy PharmaCann’s assets.
As with so much in the cannabis business, time is a crucial factor in these corporate transactions.
Another reason why we’ve seen a slowdown in deals and an uptick in agreements falling through is the Hart-Scott-Rodino (HSR) Antitrust Improvements Act, a 1976 law that’s making itself at home in the fragmented U.S. cannabis industry. The HSR Act requires companies involved in mergers and acquisitions to notify the Federal Trade Commission and the U.S. Department of Justice Antitrust Division of their intent. In short, the law gives the federal government a window of time to review deals and decide whether a transaction will impact competition in a given market. It’s a consumer protection policy. During that 30-day window, the parties can’t close.
An HSR review is triggered by a complicated formula that includes the size of the deal and the size of the parties. Larger deals, suffice it to say, trigger these reviews. And the cannabis industry has seen bigger companies cutting bigger deals.
Cannabis remains federally illegal, so why would federal antitrust regulators stick their noses into this business? Sander Zagzebski, corporate and business practice partner at Greenspoon Marder, says that antitrust regulators in the DOJ couldn’t ignore the growth and consolidation of the cannabis industry.
“Nobody thought … that the federal regulators would look at cannabis deals,” Zagzebski says. “And then, lo and behold, they looked at all of them. Everybody got these [filings] at the same time, and it put a halt to everything.”
After a busy season of deals from August 2018 to the spring of 2019, the major headline deals started to slow down. Antitrust regulators started flagging certain deals for HSR reviews.
Antitrust Act Fallout
In June, Cresco Labs came out as the first major cannabis company to openly discuss the review.
“Consistent with other pending transactions in the cannabis industry, we have received a request for additional information from the Department of Justice regarding our acquisition of Origin House,” Cresco Labs CEO Charlie Bachtell said in a public statement.
This hurdle posed a question of time and federal oversight.
“It took the market a little bit of time to figure out how they wanted to approach it—how they should be disclosing it to investors, that sort of thing,” Zagzebski says.
An HSR review might worry investors, as it will naturally extend the amount of time between announcing a deal and closing a deal.
“You don't have to reveal any secrets to accept the fact that when all these deals were being announced, the stocks were trading at very high valuations,” Zagzebski says. “Now that the shares have come back down, one of two things are happening: Somebody in a transaction will generally have to take the market risk of what happened to the stock between signing the deal and closing the deal.
“If the market risk is on the seller, then all of a sudden they're getting paid a whole lot less than they thought they were getting paid for their company,” he says. “And if the market risk is on the buyer, then they're suddenly suffering a lot more dilution than they bargained for when they signed up to the deal. In either one of those situations, the dramatic change in the trading price will put pressure on the transaction.”
Hope on the Horizon
In the case of PharmaCann and MedMen, the companies have not gone into detail publicly about why the deal fell apart. But the stock dynamics and the emergence of antitrust regulations in the U.S. are having an impact on deals writ large.
And following the review period for Cresco’s major deal, the company announced that it had lowered the cost of its acquisition by 16% per share. As of Nov. 13, the deal had not yet closed.
Just as market consolidation on face value is seen as a natural process of a maturing industry, so too does this antitrust review signal a turn toward normalized relations with government. Cannabis is coming into its own, growing pains and all.
“From a long-term perspective of cannabis, it's actually really encouraging to see the regulators looking at it from the perspective of, ‘Hey, this might be legal some day, and we want to make sure other legal issues that affect the industry are being addressed,’” Zagzebski says. “So, the antitrust regulators actually stayed in their lane, as far as we can tell, and reviewed it from an antitrust perspective, which is actually a really positive thing. It means that some people in Washington are starting to treat cannabis companies like adults.”
Eric Sandy is the digital editor for Cannabis Business Times and Cannabis Dispensary.
Breeding programs for almost any plant can be as simple or as complex as you choose to make them. Fortunately, you can quickly and effectively develop your own breeding program, even if you are a beginner. All it takes is a sharp eye for positive traits that you’re interested in developing and an accurate record-keeping system to track the usable crosses you’ve made, as well as the parental lines (male and female) that you’ve used.
Cannabis is dioecious (meaning the species includes separate female and male plants) as opposed to monecious (which means that an individual plant can have both male and female flowers). You need both male and female plants to begin a breeding program. TIP: It is imperative that you separate males and females from the beginning, and keep them separated throughout the program to ensure that you don’t get unwanted contamination by pollen from male plants that you have not selected to cross.
So how do you select breeding parents or parental lines to begin with? While it is relatively easy to select the female line, it can be difficult to select male lines for the following reasons:
- All the traits of interest on the female selection can be seen or documented, including: growth and development rates; flower characteristics such as size, quantity, smell and color; as well as potential for accumulating THC or CBD, and terpenes. This cannot be said of male plants.
- Male plants can only express growth and development traits visually. All other bud traits are hidden in their genetic makeup and are not expressed for selection. You can select for pollen sac size and density, but the data so far is inconclusive on how these traits translate to female flower size and density.
You can easily begin by selecting known female strains that have most or all the desired traits that you want expressed in any cross, and by selecting males that are derived from strains having other or stronger vegetative traits that you want incorporated into your new strain.
TIP: Once you’ve selected your P1, or parental lines, you must cross them by gathering mature pollen from the male flower and physically placing it onto the mature female flowers. You can tell when the female flower is ready by observing the stringy, white-yellow stigmas developing from the buds. Many people say these stigmas look like hairs. Tip: Once the stigmas are seen, you can pollinate within a two- or three-week period, so long as pistils are still present and white in color. The males are ready for pollen extraction once you see the oval-shaped anthers starting to split open and release pollen. You can also tell by observing any powdery, yellow pollen accumulating on leaves just under the male flowers.
At this point, make sure you’ve isolated both female and male plants to avoid unwanted cross-pollination and follow these steps:
Step 1. Place a piece of foil or a smooth plastic cup under the pollen sacs while you shake them. You will see the yellow powder (pollen) accumulating. A little bit of pollen goes a long way. TIP: You can break up the total amount of pollen you have collected into packets and freeze them if you intend to use the extra pollen in the future.
Step 2. Isolate the female plant you want to pollinate and either shotgun the entire plant by shaking off your pollen above the plant and letting it float down onto the stigmas, or pollinate specific flowers individually by using either a fine-tipped brush, your finger or a pen cap. Pollinating individual flowers gives the breeder the ability to pollinate the same female plant with pollen from several males at one time. If you take this approach, make sure to label each branch or flower with the specific cross.
In breeding terminology, the female plant typically goes first in the naming convention. For example, “Snake Eyes x Diamond Dust” means Snake Eyes is the female plant receiving the male Diamond Dust pollen.
Step 3. It is imperative that your pollinated female plant is isolated from all other plants while seeds are developing, unless all the female plants are receiving the same male pollen.
Step 4. Provide mother plants with a good source of nutrients, including more nitrogen than what’s included in most bloom nutrient formulas. It may be helpful to switch to a vegetative nutrient schedule to ensure seeds receive what they need during the seed-formation process. Seeds should start forming a few weeks after pollination, and will be busting out of their heavy calyxes several weeks after that. If you need to keep the seeds, save them in a cool, dark place—like a refrigerator.
You have now made your first successful cross! The seeds derived from this cross are called F1. If you continue to cross F1s with each other, the resulting generation is called the F2.
Now you can germinate your F1 seeds and see how they grow. Do they grow fast or slow? How do the buds develop? How long is the flowering stage? What is the smell like? How about the taste, or the potency?
TIP: It may be helpful to keep clones of your plants in case one happens to be a real winner. That way you can use it as part of your breeding program indefinitely.
At this point, it is important to stress record-keeping. TIP: To breed successfully, you must keep great records. Write down which plants were bred together and how their offspring performed. This lets you keep track of traits that show up in the parents and offspring. It will also help you create new strains because you’ll be able to know what traits to expect when breeding certain plants.
David Holmes has 20 years of cannabis breeding and cultivation experience. He is co-founder and CEO of Clade9. Dr. William Torello has over 35 years’ experience in the plant and soil sciences. He works for Clade9 out of Los Angeles.
As we close out 2019, I’ve compiled a list of common cultivation challenges that growers must address to achieve ongoing success. From breeding to business planning, here are some key tips cultivators should consider to reduce risk and maximize profits in their operations.
Infection Prevention 101
Everyone knows, has read or has been told many times over to quarantine clones before introducing them into a pest- and disease-free environment. But I still hear about very large-scale facilities being infected with broad or russet mites due to the introduction of infected clones. Some growers and facility employees also don’t completely decontaminate themselves or change attire after working in a quarantine environment.
TIP 1: The best solution to avoid infecting your facility when introducing new genetics is to use tissue culture for all specimens you introduce to a clean environment. Tissue culture, or meristem culture, is the only way to guarantee you are starting with clean stock.
TIP 2: The next best option is to have an off-site quarantine environment, which allows for compartmentalization so that new specimens are separate from others. Some quarantine those genetics at the same location at which they grow or in close proximity, but that is risky, as they should never be in close proximity unless they are deemed completely pest and disease free.
TIP 3: Lab test any specimens that are pest and disease free for powdery mildew and record them microscopically. Review the video on a large screen so you can more easily detect pests as well as their larvae, eggs or feces. This is a critical step because broad mites or russet mites can be devastating to an operation.
TIP 4: The only sure treatment once an outbreak is confirmed is to destroy all plants, disinfect the entire facility and start from scratch—hopefully after successfully preserving the genetic library via tissue cultured specimens.
Considering that infected cannabis is worthless, it makes perfect sense for a grower to do everything possible to be and stay pest and disease free. Besides the obvious of not introducing infected genetics in the form of infested clones and personal decontamination and changing attire, a few other prevention points exist.
TIP 5: The first entry point of infection is typically from the fresh air intake. Greenhouse growers must incorporate and use bug screens as a pre-filter, then at the very least sterilize the air by utilizing UV air sterilizers.
TIP 6: In addition to UV air sterilizers, both greenhouse growers and indoor growers should use HEPA filters on all incoming air whenever possible. Filtering and sterilizing all recycled air can help prevent mold and mildew from proliferating in cultivation areas.
Sustainable production can help growers reduce costly waste and differentiate themselves in a crowded marketplace. Wastewater recycling is one of several sustainable practices growers should consider in their operations. Unfortunately, some growers may take shortcuts and reuse untreated water because they’re limited on what equipment they can use due to space or financial constraints. But reusing unsterilized water is a recipe for disaster; it can throw off your pH and nutrient levels or spread disease throughout your crop, as it only takes one plant to infect the water supply.
TIP 7: Growers should always properly filter and sterilize their water prior to re-application. They should filter recycled water through reverse osmosis before using it. Then, sterilize the water using UV sterilizers or ozone.
TIP 8: If sustainability is a priority for you, whenever possible, use recycled materials in packaging and irrigation lines. In a perfect world, all cannabis refuse would be manufactured into packaging for cannabis products. For instance, growers can make plastic from cellulose derived from the extraction waste and can use the pulp from stocks and stems as well as from biomass and extraction waste for packaging.
As demand increases for recycled packaging, we will likely see an increase in the availability of recycled materials across the supply chain.
Drying and Curing Best Practices
Bud density is a major factor in the drying and curing stage. Small buds dry faster than large ones, meaning if you wait for the large buds to completely dry, the small and medium buds will be overdried. Overdried buds have fewer terpenes available, as they evaporate along with the water during the drying process, making the buds less flavorful and aromatic than they could potentially have been, resulting in a lackluster consumer experience.
TIP 9: Sort through large, medium and small buds to gain better control of the drying rate of each. Also, if cultivators separate and dry by bud size and then recombine each batch as it dries over the curing stage, the final result is typically a more homogeneous and uniformly dried product that has maximum terpene preservation (if all other conditions are met).
TIP 10: Make sure the buds are properly stored, as THC degrades rapidly when exposed to oxygen, light and heat, the primary enemies of THC. Even when properly stored, cannabis has a six-month shelf life, after which THC begins to convert to CBN. Not to say this cannabis is necessarily bad, but it has passed its peak THC and terpene content.
Growers who are stocking cannabis for longer than six months should store it in subzero temperatures in oxygen-free containers (where the oxygen is displaced by gaseous C02 or nitrogen).
THC in concentrates also rapidly degrades and converts to CBN. This, in turn, applies to all products manufactured from a distillate, including all edibles. While a gummy is on a shelf, the THC within is in a constant state of degradation/conversion.
Also, work with retailers to avoid displaying products in sunlight, and talk with packaging companies about how their products help with product quality maintenance.
Business Planning for a Changing World
The U.S. trade war with China has led both countries to impose tariffs. This has increased the cost of goods from China (and other tariffed countries), including vape pen cartridges. In addition, local governments continue to impose new regulations that make production and sales more challenging.
TIP 11: Many times, there is simply no alternative. But whenever possible, cultivators should consider the impact of regulations in their decisions.
For example, some growers in Santa Barbara County, Calif., are involved in a legal battle with local officials who are aggressively attempting to limit, if not get rid of, cannabis production in their county. When planning out long-term business expansion, factor in both local and global politics and have a plan ready to quickly pivot if political tides shift.
TIP 12: Form relationships with local authorities and neighbors. Go above and beyond to prevent any issues and resolve problems as soon as possible to avoid creating animosity.
TIP 13: Leverage research, product development and innovation. I often ask consulting clients why they choose to do exactly what their competitors do: produce the same things, the same way for often the same price. Be a leader, not a follower. A successful company strives to innovate and develop superior products whenever possible.
TIP 14: Not everyone needs a science degree to innovate. Offer multiple product lines that complement one another without conflicting. I once proposed to a client the possibilities of creating more than one brand line. I asked the client, “What does a customer purchase after they have purchased your two or three products?” To which the client answered, “other companies’ products.”
Understand Desired Genetics
Is your product destined to be sold as flower? For extraction? To be used in specific product formulations?
TIP 15: Growers should select genetics that suit their specific requirements, meaning if their intent is to produce a specific product, grow a plant that produces elevated levels of that compound, whether it’s a cannabinoid or terpene. If growing for flower, then the so-called “bag appeal” of a given cultivar becomes important, and you should be looking for genetics with “traditional” bud structures.
TIP 16: When breeding, select genetics based on lab results and data. Let lab results be a companion to observations when breeding for desirable traits. When scouting phenotypes, take notes, keep records and document (with photos and/or videos) the prospective cultivars to be bred to accumulate as much data as possible to aid in the selection process.
TIP 17: Breeding takes a lot of time and effort, and the payoff isn’t always what growers hoped it would be. Have a clear objective when selecting which cultivars to cross or when breeding the same cultivar with itself. There is no reason for taking a scattershot approach to breeding without a desirable outcome or at least intended beneficial traits in mind.
Kenneth Morrow is an author, consultant and owner of Trichome Technologies. Facebook: TrichomeTechnologies Instagram: Trichome Technologies email@example.com
Cannabis has exploded in popularity among consumers, but people aren’t the only species who seem to enjoy the plant—a number of unique pests and mites also feed on cannabis.
A closer look at these pests will help cultivators identify when a problem is beginning, so they can take corrective steps sooner. Here are tips to help growers identify pests.
Identifying Cannabis Aphids
In our research program at North Carolina State University, we isolate our mother stock from other plants. Any new plant material should be quarantined by placing the plants in a separate facility for a few weeks to ensure they are free of pests and diseases. Unfortunately, we didn’t notice cannabis aphids (Phorodon cannabis) on new cultivars we acquired, so we spent the summer getting the infestation under control.
Along the way, we acquired information on this cannabis-specific pest.
1. In general, cannabis aphids are smaller than the green peach aphid (Myzus persicae, adults of which vary from 1.8 mm to 2.1 mm) and are most often found on the underside of leaves or along stems (Fig.1).
2. Many aphid species exist and have similar characteristics, so we suggest sending a sample to a diagnostic clinic to obtain a proper identification.
Treating for Root Aphids
In 2019 we also learned about root aphids on cannabis. Cannabis Business Times contributor Dr. Raymond Cloyd of Kansas State University spoke about them during his presentation at the 2019 Cannabis Conference in Las Vegas. Root aphids are not common with commercial floriculture production, so we found the occurrence of them interesting.
The rice root aphid (Rhopalosiphum rufiabdominale) has been reported in many other states but remains uncommon in North Carolina. The pest will feed on a wide array of plant species, but with cannabis it is primarily a pest of indoor production. It thrives in moist environments, which occur with rockwool root cubes and around the pot edges with peat-based substrates. The dark brown to black coloration of these aphids allows them to easily camouflage with a peat-based substrate, so they may not be noticed (Fig. 2).
For us, discovering winged adults crawling up the stem, onto leaves and flying to other plants was our first sign of trouble.
3. We eliminated our infestation by soaking the root balls and containers in water for 10 minutes, rotating to new mother stock, and placing our new cuttings (clones) in our water rehydration bucket for 10 minutes to drown any aphids.
4. We commonly add 1 milliliter of dish soap per 1 liter of water to help clean the leaves. This also helps eliminate the surface tension and air pockets around the cuttings during the rehydration step.
Identifying Broad and Cyclamen Mites
Curled and distorted leaf growth, especially on the new and emerging leaves, is a typical symptom of a broad (Polyphagotarsonemus latus) and/or cyclamen (Phytonemus pallidus) mite infestation. The initial symptoms are a slight upward leaf curling (Fig. 3), which manifests into distorted growth (Fig. 4). These tarsonemid mites are smaller than the typical two-spotted spider mite (Tetranychus urticae) that observers can see with the naked eye.
5. An 80X to 100X magnification is needed to adequately view these mites. Populations are highest on the leaf underside and can quickly increase with indoor production.
6. Rain, wind and beneficial insect feeding help limit population explosions from occurring with outdoor culture, although significant damage has been observed in arid climates.
Identifying and Preventing Hemp Russet Mites
Another pest that can become problematic in cannabis is the hemp russet mite (Aculops cannibicola). These are also extremely small mites that can only be observed with 80X to 100X magnification. Hemp russet mites are pale green in color and have elongated bodies (<1 mm long).
The initial symptom is a downward curling of the new leaves (Fig. 5). Advance damage to leaves and stems appear as an overall browning or russeting, which lends the name to the pest (Fig. 6). Damage is usually only noticed when populations explode on a crop late in the production season. Due to their small size and lack of plant symptomology with low populations, hemp russet mites are often not noticed.
7. Inspect the lower leaf surfaces with a high magnification microscope to determine if the plants are infected. Hemp russet mites can spread from clothing, infected plants and wind currents.
Some cultivars infected with russet mites will display a bear claw like morphological change under extremely high population densities.
8. Because cannabis has such variability in leaf morphology, look specifically for any stunting or distorting pattern of the leaves such as curling, cupping, bending, wrinkling, etc.
Other insect pests also can attack cannabis, such as western flower thrips (Frankliniella occidentalis), two-spotted spider mites (Tetranychus urticae), whiteflies and numerous caterpillar species. These pests are larger in size and are easy to see with the naked eye.
9. Weeds growing in or around the greenhouse can harbor many insect and mite pests, so be sure destroy those. In our NC State greenhouses, we are always removing any germinated weeds. Much to our surprise, many of these weeds also contain a stray aphid, whitefly, thrips or spider mite despite the low weed population within the greenhouse.
Whenever possible, prevention is the best pest management practice for cannabis. Cultivators should know the pests they’re facing, no matter how small.
10. Starting with clean, insect and disease-free quality cuttings is ideal. Propagating and growing clones from pest-free plants will go a long way in preventing problems.
Brian Whipker1,2; Paul Cockson1; Patrick Veazie1; David Logan1; Matthew Davis1; W. Garrett Owen3 ; 1 Department of Horticultural Science, North Carolina State University, Raleigh, NC; 2 Floriculture Extension and Research; 3Department of Horticulture, Michigan State University
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