As Ohio hemp farmers look ahead to their first harvest under the state’s new law, the question of processing and contracts is top of mind. Now, the state’s first hemp extraction company has received a license and announced that it’s open for business.

The company is based in Chagrin Falls, outside of Cleveland.

“We’re a small, boot-strapped startup,” CEO Jacob Wagner said. “We have been pushing for this since about September of last year.”

Wagner is the former dean of the Cleveland School of Cannabis, and chief processing officer Leo Debevc worked as the director of faculty at the school (while teaching extraction classes, as well) before working for Curaleaf as a training manager in Maryland. With three other partners, the Haywood team plans to meet the rising demand for hemp processing Ohio—where more than 200 farmers are working with the crop for the first time.

The goal at Haywood Industries is to create their own products with USDA-certified organic materials under the Reverb Hemp brand. The company will be using solventless extraction techniques, including sonication, to accomplish that. Haywood will be doing bulk rosin pressing to make dry ice sift and full-spectrum rosin. Sonication is one of the unique elements in Haywood’s arsenal, and Wagner said that the company is developing a proprietary process to create new products.

But seeing the demand in the very near term, Wagner said that Haywood will also sign off on toll processing contracts. The team is planning to pursue ethanol extraction processes for higher-volume orders.

“When it comes to toll processing, we want to be able to service as many customers as we can to the best of our ability,” Wagner said. “We recognize the real need for that—and not just in Ohio, but the industry writ large throughout the country.” He pointed to the vast quantities of 2019 hemp that either went into storage for months on end or, in some cases, never even made it off the field. The importance of securing a contract with a licensed processor cannot be overstated.

“We wanted to be able to provide that modern hemp infrastructure to Ohio and to start to develop a sustainable hemp supply chain in Ohio,” Wagner said. “We think Ohio is going to be a key state in the hemp industry for a lot of reasons, not the least of which being the copious amounts of agricultural land and expertise we have here—available at reasonable prices.”

More than a year and a half into medical cannabis sales in Ohio, many cultivators are seeking some regulatory relief—on the amount of space they can use to grow, and how they can package, sell and market cannabis product.

Level II’s Maxed Out

Across Ohio, smaller growers are requesting more cultivation space. “We’re moving stuff pretty quick, as we can get it ready and out the door,” said Scott Golden, facility manager at Agri-Med Ohio, which is located in Meigs County in Southeast Ohio on the West Virginia border and markets its products with the “Meigs County” name.

Cultivators in Ohio were licensed as either “Level I” or “Level II.” Initially, Level I growers are limited to 25,000 square feet of cultivation space and Level II growers are limited to 3,000 square feet. The Ohio Department of Commerce, which regulates cultivators, processors and testing labs, can approve Level I expansions to 50,000 square feet and Level II expansions to 6,000 square feet. The department may then approve Level I and II growers for final expansions to 75,000 square feet and 9,000 square feet, respectively.

As a Level II grower, Agri-Med has maxed out its 3,000-square-foot indoor cultivation space in Langsville. It requested an expansion but was denied, Golden says. Other Level II cultivators in the same situation include Ancient Roots in Wilmington, Fire Rock in Akron, FN Group (Wellspring Fields) in Ravenna and Ohio Clean Leaf in Dayton, according to the Dayton Daily News.

Jennifer Jarrell, a spokesperson for the Ohio Department of Commerce, said the department has decided to not yet grant any expansion requests. “The director, [Sheryl Maxfield], hasn’t requested expansion plans from licensees as set forth in OAC 3796:2-1-09,” Jarrell said. “If a program need for cultivation area expansions is identified, the Department will initiate a formal submission and review process and communicate this process to all licensees.”

As of Aug. 21, Jarrell said 12 Level I growers and 12 Level II growers are operational, adding that “There are 7 Level I provisional licenses and 2 Level II provisional licenses remaining.” She also said several Level I cultivators are not using their full 25,000 square feet of growing space.

One of the concerns some Level II growers have expressed is that with space remaining limited to 3,000 square feet as demand grows, many in the state’s expanding patient base may be unable to access products or cultivars that help with their ailments.

Agri-Med rotates between growing about 12 and 16 strains for the 43 storefronts to which it sells throughout the state. “Right now, basically, as we post stuff on the menu, it goes,” Golden said.

“If you get, of course, a bigger facility, you can run your most common strains more often instead of running through cycles,” he said.

Ancient Roots, located in Wilmington between Cincinnati and Columbus, grows about 20 strains in its 3,000 square feet of cultivation space. President and CEO David Haley said the 3,000-square-foot limit includes flower and veg space.

“I think our products move pretty quickly,” he said. “We generally don't have a problem selling it, [I’ll] put it that way. If we could produce more, we could certainly sell more, and we could probably offer it at a better price point as well.”

Like with other types of business, it’s a case of supply and demand, Haley said, adding that “right now, it certainly would appear that the demand side is definitely growing at a pretty good pace, which we're happy to see.”

Ancient Roots sells to 43 storefronts, Haley said, clarifying that many retailers have multiple locations. Some of the dispensaries Ancient Roots sells product to are Strawberry Fields, Terrasana, The Botanist and Verdant Creations.

Expansions won’t be complete immediately after the Department of Commerce approves them, Haley noted, saying the department will need to think ahead to future patient demand.

“It's not going to happen for another … best case scenario, I think, for most people six months, and realistically, for most, it's probably closer to 12, depending on how much you've got to build on or whatever you have to do from a renovation standpoint,” Haley said. “That's the only thing that I really hope they’re considering is, what are the needs going to be further down the line, not right now?”

Riviera Creek, a Level I indoor grower in Youngstown, Ohio, has been granted 25,000 square feet of cultivation space. However, Chairman of the Board Brian Kessler said it’s come at a cost. Level I growers pay a $20,000 application fee, a $180,000 licensing fee and an annual $200,000 fee. Meanwhile, Level II growers pay a $2,000 application fee, an $18,000 licensing fee and an annual $20,000 fee.

The Level I growers who spend 10 times more money than the Level II growers need to ensure they have enough patient demand for their product, Kessler said. To illustrate the point, he said cannabis sales began in Ohio in January 2019, but it took time for more stores to open. (The Columbus Dispatch reported that 30 stores were open on Sept. 17, 2019).

“Our goal all along has been [to] be careful because you don't want to create a business that can get in trouble because you've spent too much money and there's no customers,” Kessler said.

Riviera Creek has not yet fully utilized the 25,000 square feet it has been allotted for cultivation, he said. “I don't know if we'll get there by the end of this year, but definitely probably throughout next year we should be meeting that,” Kessler said. “We will be exceeding our market share that we were supposed to satisfy—we’re exceeding it now, and we hope to continue to exceed it all the way into ’21.”

Public Comment on the Program

The state of Ohio is in the midst of implementing rule changes to its program, said Ali Simon, a spokesperson from the Ohio Board of Pharmacy, which regulates dispensaries and registers patients and caregivers. Industry stakeholders and patients have submitted and continue to submit public comment to the Board suggesting changes to current and proposed rules.

One draft rule change is to eliminate the “Tier I” and “Tier II” classifications, which referred to plant material with THC content with 23% or less, and higher amounts not exceeding 35% THC, respectively. Current proposed rules include the classification of “total target THC,” taking into account THC and THCA levels.

In public comment, a representative from Columbus-based Green Investment Partners, which the state lists as having a processing license and Jarrell said has a provisional Level I cultivation license, submitted a comment claiming a present 5% THC variance is difficult to comply with because analytical methods also have variance. In response, the Board said it will increase the variance to 10%.

Representatives from the Ohio Medical Cannabis Cultivators Association (OMCIA) and Huron-based grower and processor Firelands Scientific wrote that they do not support a proposed plan to reduce the amount of what it considers a daily dose of cannabis for patients from 2.83 (the “Ohio tenth”) to 2.52 grams. OMCIA and Firelands cited packaging costs as a concern; in response, the Board said processors can package two units together. And while the current rules require flower to be sold in “2-day units,” changes will allow processors to sell “single day units.”

OMCIA and Firelands Scientific also commented that they would like the state to increase the patient purchase limit for a 90-day period from 8 ounces to 9 ounces; in response, the Board wrote it “has consulted with experts who reject the contention that an increase of the 90-day supply from 8 to 9 ounce[s] would be safe and appropriate for patients.”

Other Ohio Qualms

Cannabis business owners told Cannabis Business Times and Cannabis Dispensary that Ohio’s program can be improved in multiple other ways.

Haley said patients should be more simply able to track how much cannabis they can purchase. There was a change in April 2020, but the program is still causing some confusion for patients.

The state has also placed numerous restrictions on cannabis advertising. These include a requirement for cultivators, processors and testing labs to submit an advertisement; a $100 "advertising fee"; and additional information, such as a description of the ad and proof that a patent isn’t being used, to the Department of Commerce for consideration.

In late 2019, Cleveland-based hip-hop group Bone Thugs-N-Harmony reached out to Ancient Roots, Haley said. “They wanted to do a collaboration with us and have us grow a couple strains for [them]. And the state didn't kind of see eye to eye with us on that. So, we weren't able to do it.”

Kessler echoed a similar sentiment about communication with patients. “As far as how … you get the message out there, that's an issue that I hope, over time, we're able to work with the state and things get a little better,” he said. “Marketing is very, very restrictive right now in the state, and part of it was because we were just getting the industry started. I hope, as we're getting a little more established, that it'll be a little looser so that people can start telling their stories.”

These concerns aren’t just coming from businesses, either. In public comment, a patient wrote, “Please allow medical marijuana companies to advertise, and respond to people on social media[.]” (The Board of Pharmacy responded, “The advertising rule is not presently under consideration.”)

Haley, though he doesn’t agree with all of the regulations, said he commends the work that the Department of Commerce is doing to support the medical program. “They were given the set of rules that we’re all bound to,” he said. “I think over time, they'll make the necessary changes to make this a little bit of an easier program for patients to navigate."