Illinois Lt. Gov. Juliana Stratton makes one of the state's first cannabis purchases Jan. 1, 2020, at Sunnyside.
Courtesy of Cresco Labs
Adult-Use Cannabis Sales Begin in Illinois
Sales began at 6 a.m. on New Year's Day at most retail locations, and businesses made sure to greet the customers who got up early to take advantage of this historic day.
Long lines and mix of happy and frustrated customers marked the first day of adult-use cannabis sales in Illinois. While some of those customers encountered supply shortages or point-of-sale glitches (or dispensaries that they only thought were licensed for adult-use sales), many on the ground in this newest cannabis market reported smooth sailing.
Sales began at 6 a.m. at most retail locations, and businesses made sure to greet the customers who got up early to take advantage of this historic day.
“The early bird gets the herb!” Oak Park resident Jack Fitzgerald shouted as he left Seven Point in the morning, according to the Chicago Tribune’s roundup of the day’s activities. The Chicago Sun-Timesnoted that some customers had started lining up outside stores as early as Tuesday night.
In stores throughout the state, the mood was often jovial—despite the frigid temperatures—and raucous cheers were a common refrain amid the day’s business.
At this point, the state has licensed 43 dispensaries to sell adult-use cannabis products. (On Jan. 1, six of those dispensaries were reportedly not ready yet, according to the Chicago Tribune.) More retail licenses are expected, and we’ve been watching the lottery process unfold in highly contentious neighborhoods in Chicago.
Among the first customers in the state was Lt. Gov. Juliana Stratton, who purchased gummies at the Clark Street Sunnyside* location.
“We’re ecstatic for our Sunnyside* dispensaries to begin serving recreational customers on such a historic day that launches a new era of cannabis and the development of an industry that will bring greater justice, social equity and business ownership opportunities throughout the state,” Charlie Bachtell, Cresco Labs CEO and co-founder, said in a public statement. “With 13 million residents and 100 million annual tourists, Illinois is predicted to be one of the largest recreational cannabis markets in the United States. Cresco is uniquely positioned in the supply-constrained state, with permission for the largest cultivation footprint at 630,000 square feet and ten retail dispensaries, including three in high traffic areas in the city of Chicago.”
“Today is historic not only for Illinois, but for the U.S. cannabis industry," Revolution Global CEO Mark de Souza said in a public statement. "The Illinois adult-use market has enormous potential to do good for the state and all Illinoisans. Today would not have been possible without the tireless work of countless individuals in government, cannabis, and community groups who saw the power and potential of the plant.”
Convergence Laboratories Receives Type 8 Testing Laboratory License from California Bureau of Cannabis Control
The company operates in Santa Rosa, Sonoma County, with an additional location opening in 2020 in Salinas, Monterey County.
Santa Rosa, CA, Dec. 23rd, 2019 – PRESS RELEASE – Convergence Laboratories has announced that after a three-year journey, the company has officially received a Type 8 Testing Laboratory license to operate in the state of California from the Bureau of Cannabis Control (BCC). BCC License #C8-0000116-LIC was formally issued to Convergence Laboratories on Dec. 23, 2019. This license takes precedence over their previously awarded temporary license and allows Convergence Laboratories to “offer or perform testing of cannabis goods to manufacturers, individuals, and distributors in the state." In addition to licensing, Type 8 laboratories are required to obtain ISO/IEC 17025 accreditation.
The company, which provides valuable testing of cannabinoid-based products to patients and consumers in the state of California, operates in Santa Rosa, Sonoma County with an additional location opening in 2020 in Salinas, Monterey County. The comprehensive services provided by Convergence Laboratories are one of the most vital ancillary businesses catering to the hemp and cannabis sectors today. It is through services such as the ones offered by Convergence Laboratories that brands can ensure the quality and potency of their products, and consumers can be assured the purity of what they are consuming.
According to co-founder and CEO Nicole Griffith Barbieri, “To me, this industry isn’t about being the first or the biggest. It’s about being true to oneself, your ideas and focused on the vision. Timing, perseverance and integrity has brought Convergence Laboratories to life. I would like to thank everyone who supported us and worked so hard to get to this point. I am excited to see what the future holds."
Maintain Your Company's Values When Looking for M&A Deals in the Cannabis Market
Many small cannabis businesses will need to partner with larger companies to survive.
Given the rapidly expanding state of the cannabis industry and my status as a long-time industry insider, I’ve spent most of the past 10 years looking for like-minded business partners and the funding to capitalize on visionary goals.
This has meant kissing a lot of frogs along the way, and there was a hard-learned lesson there: Don’t kiss frogs. It’s careful planning, thorough searching and a long courtship that fulfills dreams.
Simply put, the cannabis industry is not a place where only the brave can succeed. It’s big business, where the bar for knowledge, skills and abilities is set very high. Given the breadth of experience needed, no one person can succeed alone. The complexities of compliance and banking, combined with the variances in early markets like Oregon and Washington, which seem to be either saturated with cannabis or facing shortages, are pushing the industry out of reach for many people.
Cost is another huge problem. It is expensive to compete for permits and to build out compliant facilities, and cannabis companies pay high taxes and fees that wipe away profits. Granted, any new business anticipates that it will take two or three years to become profitable, but for the cannabis industry, it’s likely to take even longer than this. In fact, many of the small California cannabis businesses have been trying to wait out limited access to banking, while hoping for a reversal of IRS 280E tax rules for upwards of five years now. With these burdens in place, most operators lack access to merchant services accounts, don’t have access to traditional funding, and are not allowed to take regular business tax deductions. It’s an untenable situation for any small business trying to break even. Heck, this environment is tough for large, well-funded companies, too.
My conclusion after five years of brand building, partnering and funding searches is this: Until the market stabilizes, many small cannabis businesses will need to join larger verticals to survive. And, there’s only one way to find the right match for this, and that’s by first establishing a foundation based on shared values.
1. Know your corporate values
I know a lot about this topic. My dispensary, Magnolia Wellness, has a mission: to help every individual be their best selves. We believe that both the use of cannabis itself and the experience of visiting the dispensary are transformational, and this idea is complemented by a full calendar of classes, events and direct services like massage therapy.
Now, our small business wants to join with a larger, vertically integrated company, which has the skills to help build and scale the brand. (Even better if they have other holdings complementary to ours, like cultivation and manufacturing.) So, finding the right partner includes looking for people who understand that values-based decisions lead to strong, long-term performers that attract and retain dedicated, long-term clients.
2. Know your company’s value
It’s tough to determine a cannabis company’s worth, especially following so soon after the widespread downturn in Canadian valuations. But, you can’t go to market without a clear understanding of how much your company is worth. This means creating a clear basis for growth over three to five years, using provable internal and external metrics to base projections and draw conclusions. Investors rightfully are wary right now, and, because of this, retail shops are raising funds at 1x to 1.5x sales, rather than the heady 2x sales valuations being touted a year ago. Spend a lot of time studying the competition and looking at other people’s deals. Investigate who is selling and for what price, and look closely at deals that actually close. Yours will have to meet or beat others on the market to succeed.
3. Decide what you want
Now that you’ve figured out the values you won’t sacrifice to make a deal and determined the worth of your company, you have a decision to make. Are you staying or going? The answer to this lays out a web of choices. If you want to continue working with the company, consider looking for a partner to help fund and manage it with you. Or, find an investor willing to contribute funds, who will support the company under your leadership. Consider folding up into a larger company, selling your entire business to them. You then become an employee there in the same role or maybe a better one.
If you want to leave, think of it a bit like a corporate adoption. Whom do you trust to take your company from toddler to teen? What happens next still will affect your reputation and personal brand, so don’t just hand it off to anyone. You want to be sure your company will thrive in new hands, especially if part of your profits from the deal includes stock in the company that acquires it.
4. Find your funder
You’ve made some tough choices and are ready to find your funder. There are plenty of places to look, but get ready to find lots of competition already there. So, be armed with a well-thought-out business plan and proforma, and hit the field ready to pitch. The first place to look is obvious: Start at one of the dozens of well-attended cannabis business conferences. Investors are there, looking to meet entrepreneurs with interesting projects. While there, keep an eye out for brokers specialized in cannabis deals. Sign with them, and they’ll help find your buyer, pitch the deal and see it through to close, all for a cut of the final sale price. Network and ask for referrals. Find out who’s buying, looking for partnerships, or wanting to invest in industry businesses. Post on your LinkedIn page, as investors and lenders are there looking to meet people. Scour news sources, and watch who’s making deals; contact them with your deal if it looks to fit their portfolio. And, don’t forget hedge funds and other private funds. Investors are out there now looking for the right project.
5. Take time to get to know each other
It takes a lot of work to get this far, but this isn’t the time to stop working or to rush. Mutual due diligence is the next step, and it’s going to be difficult. Your funder is going to want to understand every detail about the company, including regulatory information, financial data and human resources. They are looking for any liabilities—past, current or potential—and are digging deep to verify the balance sheet and profit-and-loss statements. All the dirty laundry gets hung out to dry during due diligence, and you really get to know each other while it’s happening. Plus, due diligence works both ways. Your team needs to know everything about the funder, too—including whether the investor really has the money to pay the asking price and the skills to close the deal. Many funders don’t, so watch out for people who are stringing the deal along, hoping their own funding comes through before you require funding for your deal.
If you make it through due diligence and everything checks out, it’s time to close the deal. You’ll want a lawyer and an accountant to help because there are an enormous number of potential liabilities to prepare for and avoid. Don’t try to close a cannabis business deal alone, as mistakes now can cost money and time, and small errors can cause problems that linger for years into the future. Turn this part over to the experts on both sides, for sure. And then, congratulations! You’ve closed your deal and are ready to celebrate.
Debby Goldsberry is the executive director of Magnolia Wellness and author of “Idiot’s Guides: Starting and Running a Marijuana Business.” She has more than 25 years of experience in medical cannabis.
The U.S. Department of Agriculture (USDA) has extended the comment period for the U.S. Domestic Hemp Production Program interim final rule until Jan. 29, 2020.
The USDA said in a press release that the extension will allow stakeholders additional time to provide feedback. The initial deadline for comments was Dec. 31, 2019.
USDA published the interim final rule on Oct. 31, 2019, as authorized by the Agriculture Improvement Act of 2018 (2018 Farm Bill). The rule outlines provisions for USDA to approve plans submitted by states and Indian tribes for the domestic production of hemp. It also establishes a federal plan for producers in states or territories of Indian tribes that do not have their own USDA-approved plan.
Stakeholders can submit written comments at www.regulations.gov. Comments may also be submitted by mail to Docket Clerk, Marketing Order and Agreement Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW, STOP 0237, Washington, DC 20250-0237; or by fax at 202-720-8938.
Comments received by Jan. 29, 2020, will be considered before a final rule is issued Nov. 1, 2021.
As of Dec. 31, the USDA had received more than 1,500 comments on the rule.
New Colorado Marijuana Rules Go Into Effect Jan. 1, 2020
Rules promulgated from the 2019 legislative session are the most extensive since retail marijuana was legalized in 2012.
DENVER, Colo. December 31, 2019 -- PRESS RELEASE -- Marijuana rules stemming from the General Assembly’s 2019 legislative session go into effect on Jan. 1, 2020 for all regulated marijuana businesses across Colorado, most notably allowing, for the first time, state licensing of hospitality establishments and the issuance of permits for residential delivery of medical marijuana. Final rules were adopted by the State Licensing Authority on Nov. 5, 2019 after a summer of extensive stakeholder engagement led by the Marijuana Enforcement Division (MED).
“Feedback from our stakeholders through work groups and public comment has always been a MED priority,” said Jim Burack, MED Director. “But this year, we encouraged an even more collaborative approach to rule development where work group participants utilized their experience and expertise within stakeholder teams to engage more directly in the drafting of rule language.”
Highlights of notable key rules that go into effect on Jan.1 include:
Marijuana Hospitality Businesses (HB19-1230):
Creation of two marijuana hospitality business licenses, subject to local jurisdiction approval, including 1) “Marijuana Hospitality Business” license (may be mobile), allowing consumption of marijuana on the licensed premises, and 2) “Retail Marijuana Hospitality and Sales Business” license (cannot be mobile) allowing for the sale and consumption of retail marijuana on the licensed premises.
MED will maintain a list of approved hospitality businesses on the Division’s website.
Regulated Marijuana Delivery (HB19-1234):
Creation of a permit to allow delivery of regulated marijuana to private residences from medical marijuana stores, subject to local jurisdiction approval.
Delivery to private residences from retail marijuana stores begins on Jan. 1, 2021, also subject to local jurisdiction approval.
Sunset Regulated Marijuana (SB19-224):
The Retail Code and Medical Code are integrated to create a single code, which will streamline operations for both regulators and businesses.
Criminal history disqualification provisions are amended so that felony convictions within the past three years will typically preclude licensing as an owner or employee.
Industrial hemp can be used in the manufacture of marijuana products and sold in retail marijuana stores. Prior to this legislation, the sale of industrial hemp products by licensed marijuana businesses was limited to medical marijuana stores. Beginning July 1, 2020, industrial hemp used by medical and retail marijuana manufacturers and sold in medical and retail stores will be subject to testing and can only be sourced from persons registered with the Colorado Department of Public Health and Environment.
Retail and medical marijuana stores and hospitality establishments can collect marijuana consumer waste for purposes of reuse and recycling. This includes containers, packages and cartridges, among other waste components left after the marijuana is consumed.
Other notable rule changes:
Vitamin E Acetate, Polyethylene glycol (PEG) and Medium Chain Triglycerides (MCT Oil) are expressly prohibited for use in the manufacture of regulated marijuana concentrate or regulated marijuana products intended for inhalation. Read more here.
In an effort to further simplify the licensing process, there are now only two (instead of three) license categories for individuals working in the regulated marijuana industry: 1) owner and 2) employee.
Cannabis Business Times’ interactive legislative map is another tool to help cultivators quickly navigate state cannabis laws and find news relevant to their markets. View More