Since President Donald Trump signed the 2018 Farm Bill (officially titled the Agriculture Improvement Act of 2018) into law in December and ushered in a nascent era of U.S. Department of Agriculture oversight, a domestic hemp industry has begun to take shape. State regulators are sunsetting the pilot programs that began several years back and working to transition existing and new businesses into this burgeoning federal regime.

At the same time, the cannabis industry is evolving on its own track. The adult-use marketplace hummed to life in the earlier years of this decade, with Washington and Colorado voters leading the way. Now, questions of federal reform and descheduling continue to shape the national discussion—in Washington and across the country. If it’s the inevitability that so many business owners say it is, what will federal legalization look like?

Clues Abound, Already

Many cannabis businesses are taking matters into their own hands and consolidating the market before the federal government comes to a conclusion. The cannabis industry experienced 91 mergers and acquisitions (M&A) during the first three months of 2019, compared with 62 deals during the same period in 2018, according to data on Viridian Capital Advisors’ website. Canadian firms are driving much of the M&A activity, as they take advantage of a nationally legal marketplace in Canada to acquire U.S. assets.

But what about hemp? Will the hemp industry develop along the same market consolidation tracks that cannabis is tracing now?

“The U.S. hemp market will mature more rapidly than the adult-use and medical cannabis markets due to federal legalization,” Jushi Holdings CEO and Chairman Jim Cacioppo tells Cannabis Business Times. Jushi Holdings, a multistate cannabis and hemp operator based in Boca Raton, Florida, recently acquired Dalitso LLC, a licensed cannabis business in Alexandria, Virginia, that produces CBD and THCA oil extracts.

“Legalization has opened access to financing and IP protection, providing access to capital to fund new and expanded operations throughout the country,” Cacioppo says. “Hemp cultivation and manufacturing is still an incredibly capital-intensive business, with extraction equipment costing upwards of $4 million for some industrial units.”

What’s Next for Hemp

The hemp M&A market could advance at a faster pace than the cannabis industry because of its legal status, according to Cacioppo.

“Hemp and hemp extracts are ‘federally legal,’ subject to the FDA's pending guidance, and the hemp industry does not operate under the same limited license regime that the marijuana industry does,” he says. “There are … few barriers to entry for a company to start their own CBD line—they just procure oil, packaging and build a website, and they are off selling product.”

Biological control is a preventative approach used to manage insect and/or mite pests through the use of natural predators and parasitoids. A number of factors can cause a biological control program to fail to provide sufficient regulation of insect and mite pests. Here are four of the most common factors to avoid so you can get the most from your parasitoids and predators.

1. Not implementing an ‘aggressive’ scouting program

Because biological control is a preventative approach, it is important to develop and implement an aggressive scouting/monitoring program that will allow you to determine the population dynamics (relationship between pest populations and environmental factors that can influence populations) and track trends in pest numbers during the growing season. Scouting at least twice per week will result in more efficient timing of natural enemy releases. However, before releasing parasitoids, remove any yellow sticky cards at least one week prior, as adult parasitoids are attracted to and will be captured on the yellow sticky cards.

2. Not conducting a quality assessment of purchased natural enemies

Quality assessment and functional natural enemies that are capable of locating and killing targeted hosts are critical to a biological control program’s success. Shipments of natural enemies (parasitoids and/or predators) should be stored for no more than three days to avoid negatively affecting fitness and foraging ability, which can impact the performance of natural enemies in regulating pest populations. In most cases, natural enemies should be released immediately upon receipt.

Before release, however, always check to ensure that natural enemies are alive. For predatory mites such as Phytoseiulus persimilis, which are shipped in vermiculite or bran carriers, a small amount of the carrier can be placed on a white sheet of paper and checked with a 10x hand lens or a dissecting microscope to determine if the predatory mites are active or not. Parasitoids, such as Encarsia formosa and Eretmocerus eremicus, shipped as parasitized pupae or mummied aphids can be evaluated for quality by placing a sample release card (for whitefly parasitoids) or small sample of the carrier with mummified aphids (for aphid parasitoids) inside a glass Mason jar with a lid. Affix a 1-inch section of a yellow sticky card to the bottom of the lid. Check the Mason jar regularly to ensure that adults are emerging from the pupae or mummified aphids. The number of potential functional parasitoids that emerged from pupae or mummified aphids can be assessed after all the parasitoids have died in the Mason jar.

3. Not releasing enough natural enemies

Do not be “cheap” when purchasing natural enemies. Always release a sufficient number to ensure regulation of existing insect and/or mite pest populations. Not releasing enough natural enemies will likely result in poor regulation of pest populations and subsequent damage to a cannabis crop. Be sure to consult supplier/distributor catalogs for specific information regarding release rates of natural enemies.

4. Releasing natural enemies too late

Biological control is a preventative approach and, as such, natural enemies are typically released before insect and/or mite pest populations are even detected to make sure pest populations do not become established. Therefore, order natural enemies in advance so that you receive shipments at least every other week, which will ensure that you receive a consistent shipment of natural enemies early in the production cycle. Once the cannabis crop starts budding and producing the sticky trichomes, it is too late to release any natural enemies.

Editor’s Note: This article previously ran in sister publication Greenhouse Management magazine and was adapted by Raymond Cloyd for Cannabis Business Times.

Raymond Cloyd is a professor and extension specialist in horticultural entomology/plant protection in the Department of Entomology at Kansas State University.

When visitors step into Pacific Reserve, a one-word reaction often follows: Wow. The crop in its cathedral-like Monterey County, California, greenhouse has that effect. Once the senses regroup, the hum of activity surfaces. From breeding and popping seeds to marketing and distributing its carefully curated brand, Pacific Reserve has a lot going on in-house, part of a conscious decision to control the company’s destiny and remain nimble as the state’s market evolves and business and operations lessons are learned.

For co-owners Brook Eagle, William Tomlinson and Andy D’Amico, the venture represents the synergy of their decades of growing experience, sacrifices made and a shared vision to bring the cannabis industry their very best.

Common Bonds and Beginnings

Pacific Reserve’s partners came together in 2016 when Northern California’s Monterey County (home to Salinas) opened to cannabis cultivation. Tomlinson and Eagle were founding members of The Guild collective in San Jose; D’Amico was a co-founder of cannabis-infused confectioner Day Dreamers Chocolate. While working separate projects on a shared Salinas Valley property, they connected.

All three have grown under California’s Proposition 215, the Compassionate Use Act of 1996, for more than 20 years. “We really found a common sense of hard work ethic and respect for each other,” Eagle says. “We’re deep in the culture. We believe in the plant, what it can do for our economies and for people’s health and well-being.”

In April 2017, the trio left their existing brands to start Pacific Reserve. Other than a minimal initial raise, they’ve bootstrapped and self-funded the project. “We take a lot of pride in that,” Eagle says. “We’ve gone through our ups and downs but have really built this farm from our own blood, sweat and tears.”

Monterey County only allowed cannabis cultivation within existing greenhouse and industrial buildings. (A pilot program allowing outdoor cultivation was just approved in June.) The team set up on a former floral farm that offered two greenhouses: one 3-acre structure (130,680 square feet) allocated to the nursery business, and one smaller 36,000-square-foot greenhouse for flowering.

With their experience and access to extensive genetics, concentrating on nursery production made sense. Monterey’s cannabis business taxes provided motivation, too: Fiscal-year taxes were $15 per square foot for flowering canopy versus $2 per square foot for nursery.

Pacific Reserve’s nursery offered commercial growers Grodan-plugged clones, 10- to 12-inch “teens” in 4-inch pots of organic soil and “ready-to-flower” plants. Learning and improving were priorities. “We built better environments, we figured out better protocols and really fine-tuned our nursery business,” Eagle shares.

Timely Pivots and Flower Expansion

As Pacific Reserve’s nursery business grew, the company encountered some unexpected obstacles. Compliance became an issue but not in the way people might expect.

“We’ve really been on top of our game and tried to be uber-compliant here,” says Eagle, Pacific Reserve’s compliance point person. One reality of being compliant was discovering that many other cannabis businesses weren’t, which significantly limited potential customers for compliant businesses like Pacific Reserve.

During that time, Monterey County also changed course. Effective July 1, 2018, fiscal-year nursery taxes dropped to $1 per square foot, but the mixed-light cultivation taxes that had been cost-prohibitive for Pacific Reserve dropped from $15 to $5. “That brought [flowering canopy] down to a rate that was competitive with other counties in the state, like Humboldt, Mendocino and Santa Barbara,” Eagle says.

One advantage to being owner-operators, especially in a volatile industry, is agility. “We make all the decisions, the three of us, and we aren’t afraid to make fast and decisive decisions,” Eagle says. When the tax rates became more competitive in Monterey County, Pacific Reserve expanded flower production and began focusing on wholesale flower sales.

Moving toward the wholesale market offset inherent nursery challenges like the seasonal nature of the business. Most of Pacific Reserve’s greenhouse-grown starts go to greenhouse and outdoor growers rather than indoor growers. “There’s a little bit of a hard transition to go into indoor facilities with plants that have been hardened off outside,” Eagle explains. The seasonal business peaks from April through July, then client gardens harvest and either slow down or take winter off.

Pacific Reserve scaled its nursery back to exclusively produce clones and teens, built out roughly half the former nursery space for flowering, and supplied other California brands with its flower. The company is planning another 75,000-square-foot expansion for greenhouse flower production over the coming year.

As 2018 ended, many people forecasted a massive California cannabis surplus for 2019. Eagle, Tomlinson and D’Amico disagreed. From their perspective, people weren’t clearing regulatory hurdles fast enough. They foresaw a shortage of compliant, licensed flowers for retail shelves. That’s when they decided to launch the Pacific Reserve brand. “We were right in our predictions,” Eagle says.

Brand Creation and In-House Control

Pacific Reserve continues to evolve as the business grows. The company discontinued wholesaling flower in December 2018 to focus on its new line. “Our brand is a Pacific lifestyle brand that reflects where we came from, where we’re living now and the West Coast culture of cannabis,” Eagle explains. “We’re not just a hip-hop culture or a hippie culture or a surfer culture. We’re part of the cannabis culture of the West Coast. That lifestyle that encompasses all those things.”

Initially, the brand relied on other businesses for non-production work, from rolling pre-rolls to distribution, but that soon changed. “We just found a lot of inadequate work being done in the space for us,” Eagle shares. “We found that the majority of the industry was still very immature from where we needed to be.”

So, the company successfully applied for processing, manufacturing and distribution licenses, moved everything in-house, established standard operating procedures (SOPs) and expanded its team—all devoted to Pacific Reserve’s brand. The only exception is extraction; an outside extractor produces crumble from Pacific Reserve’s product for the crumble-infused joints Pacific Reserve rolls.

The move reduced costs in some areas and increased it in others, but it’s all part of the curve. “We are learning throughout all these processes,” Tomlinson says. “We’re all smart enough and capable enough to see where the inefficiencies are and become more efficient. … Every month, we’re refining our processes, so in turn it’s becoming more cost effective.”

The brand is currently in 80 Northern California dispensaries. Its SoCal launch is expected sometime in August.

Each cultivar carries its own distinctive product label that reflects an aspect of the lifestyle Pacific Reserve is all about—from Pacific landscapes to a ’67 Impala—all designed by the company’s in-house designer.

The team has learned from other’s mistakes, as well. “We’re big proponents of making sure we have the infrastructure there to produce this product before we go out and market our brand,” Tomlinson says. “We’ve been very cautious about how we approach the market. When we go down to Southern California, we know that we’re going to have the product to keep supplying these stores to maintain that shelf space.”

Cultivation Continuity and Organic Priorities

Pacific Reserve’s organic greenhouse approach differs little from nursery to flower. “We really believe greenhouse [cultivation] grows the highest-quality medicine for the most-efficient costs, and we compete with the indoor-grown out there, in the sense of THC potency and quality of flowers,” Eagle says. “We also think that sun-grown brings a uniqueness out in the cannabis that indoor can’t.” Pacific Reserve supplements with lights in winter; the rest of the year, its plants just receive full sunlight.

Pacific Reserve plants are soil-grown in fabric pots on the ground, with an emphasis on organic soil and multiple organic inputs to create a full spectrum of macro- and micronutrients. Fabric pots allow roots to air-prune and grow larger, Eagle explains, while porous soil allows more feedings and air to the roots.

“A big thing for us is that we are cannabis users,” Eagle says. “We’ve been smoking cannabis for most of our lives, and we want to produce something for our customers that we can stand behind and that we would use. Organic inputs become really important to that.”

A Dosatron irrigation system with timed drip emitters waters multiple times a day. Eagle tests soil and leaf samples every two weeks. “I know what the plants are uptaking, and I know what’s in my soil, and then I feed accordingly,” he says. “We’re letting the plant and the soil, its food base, tell us what it needs so we can grow them optimally and not feed too much nutrients or feed too little, which saves us in costs.”

The team’s integrated pest management (IPM) strategies include predatory insects and proactive organic sprays for expected pests. “IPM to us isn’t the sense that we’re always 100-percent bug-free. It’s the sense that we’re out in the world where there’s always going to be bug pressures. We just need to deal with them, so they don’t overtake a crop,” Eagle says.

The brand keeps 16 cultivars (a mix of sativas, indicas, hybrids and CBD-dominant varieties) in production and switches them all three times a year. Some go straight to pre-rolls, others to jars.

Current flower production runs about 12,000 pounds annually. Monthly nursery production runs about 140,000 clones, some of which become teens for sale or stay in-house. Automation is used only in packaging; everything is hand-trimmed, and all processes are designed to treat flower very gently.

Goals That Transcend THC

Eagle, Tomlinson and D’Amico are currently building out 12,000 square feet for breeding and phenotype selection. Eagle, the primary breeder, says the company has collected about 400 genetics and a stable of 15 different males for in-house breeding purposes.

Eagle focuses on uniqueness and compatibility with the Salinas climate (think foggy mornings and botrytis threats). Breeding for THC isn’t always the priority, even though the California market accentuates it.

“We still hold on to the value of terpenes and how it tastes,” he says. “Sometimes your bud may test at 15 percent, but with the right terpene, you’re getting just as high as if you’re smoking a flower that tests out over 20 percent. I like to find stuff that has a lot of uniqueness, so that’s always one of my goals. Then just breeding some strains that are consistent, yield well, test high and have amazing terpene profiles.”

Pacific Reserve’s top-selling genetic is Ruby Slippers, a sativa with what Eagle describes as a soaring high and beautiful deep red color to its stems and the slipper-like undersides of its leaves. “It was bred by a friend but selected by us out of a few thousand seeds, so it’s definitely kind of an in-house strain,” Eagle says. “We’ve been slowly getting it out, but we’re about to have a lot of that out to the market.” Another favorite is Don’s Delight, a 20:1 CBD-dominant strain bred by D’Amico for a friend undergoing chemotherapy.

Plans are to release more genetics bred at Pacific Reserve soon—like Gypsy, a high-potency WIFI 43 x Boil Over cross that Eagle describes as having strong floral terpenes and uplifting, anti-anxiety highs. “We scrutinize our genetics really hard,” Eagle says. “When we do release them, I think that people are really going to find them very pleasurable, not only in smells and tastes but also in the effects that they cause.”

#FromOurFarm

Pacific Reserve’s marketing materials prominently feature the #FromOurFarm hashtag. The tag is more than a marketing tactic to Eagle, Tomlinson and D’Amico; it beckons back to their roots, growing on their own small farms under Proposition 215, and everything they and their families endured to make their dreams a reality.

“We really want to convey the message that we’ve made the decision and gone through all the struggles to control our own destiny,” Eagle says. “We’re not buying flower from another grower, we’re not using another distribution [company], we’re not trying to have a third party market us. Literally everything we’re doing is around this one table here at this farm.”

Tomlinson adds, “It’s really just portraying what we’re all about here and what we’ve sacrificed to get to this point—and how we’re really going to stay true to ourselves and our love for this plant that has brought us so much joy throughout all these years.”

Jolene Hansen is a freelance writer specializing in the cannabis and horticulture industries. Reach her at jolene@lovesgarden.com.

Walking onto the Rogers Arena stage in Vancouver, British Columbia, Dan Sutton bore a distinct resemblance to a young tech-company CEO. Donning a long-sleeved black T-shirt, black pants, and black sneakers, his head shaved and face decidedly not, he struck the perfect Silicon Valley-esque balance between relaxed and serious, ready to crack a joke one minute and speak truth to the point of bluntness the next. He has something important to say—just not about iPhones or search engines.

“Why don’t we grow tomatoes in warehouses?” he asked rhetorically of the TEDx Vancouver audience. “Think about the word agriculture. Do you see images of smokestacks, concrete bunkers, factories? If you’re like me, you probably see rows of leafy green plants thriving in the sunshine.”

What Sutton said during the next eight minutes has come to define the ethos of his Vancouver-based company, Tantalus Labs. That is: the most sustainable way to grow high-quality cannabis at scale is outside, under the sun, in modern industrial greenhouses. To Dan, sun-grown is homegrown. “Plants thrive in sunlight,” he said with the confidence of an agricultural scientist. “They’ve evolved over billions of years to do just that. The sun provides a broader light spectrum and a higher light intensity than any artificial bulb.”

Though his audience responded with thunderous applause, this was quite a controversial position for a 28-year-old cannabis executive to take in 2015. Canada was still three years away from legalizing marijuana for adult use, and growers were just beginning to step into the light after decades of being forced to develop cultivation best practices underground. But that was beside the point to Sutton. The status quo had to be challenged because it no longer made sense to him.

Since that TEDx talk, Sutton, now 32, has become a rare phenomenon in Canada and in the North American cannabis industry—a genuine maverick CEO. Despite the diminutive size of his company compared with its peers, Sutton cuts an outsized figure on Twitter, the blogosphere, and television news shows, deliberately turning traditions upside-down or shutting them out altogether, zigging while everyone else is zagging.

Case in point: While most Canadian cannabis companies have either gone public or are priming themselves to go public on major stock exchanges, Sutton is content to keep Tantalus Labs private. While his contemporaries are trying to achieve massive national and international scale, buying up and building out physical infrastructure by the acre to exponentially increase their cannabis production, Sutton is almost single-mindedly focused on one greenhouse project in the Fraser Valley of British Columbia, called SunLab. And while most industry darlings are diversifying into new markets and developing a deep product portfolio, Sutton is building his company around the belief that the most powerful way to create value is to place quality over quantity. (Tantalus Labs has only seven cannabis cultivars—not hundreds.)

“We’re up to a bunch of weird and wild stuff, and we see the world through our own unique lens, but people seem interested,” Sutton tells Cannabis Business Times in an interview.

So, what exactly is Tantalus up to?

How can this small Vancouver LP realistically compete with the production output of publicly traded giants like Canopy, Aurora, or Aphria? How does Tantalus plan to grow? And why have investors been so patient with Tantalus’ relatively slow growth?

Every time Sutton is asked these questions on Canadian TV news or at industry conferences, he dodges, hints or teases, but never commits, suggesting with his knowing smile and raspy baritone that the questioner may be looking at Tantalus through the wrong prism.

“Not everyone is going to understand why it is you’re doing what you’re doing, but genetics is certainly one of my favorite aspects of the business,” Sutton says in the interview with CBT. “It’s a place where Tantalus Labs is making some pretty amazing investments, and not just financially. You’re going to see some really exciting stuff from us on that front—hopefully in the next 10 years but certainly over the next two years.”

As a successful entrepreneur and cannabis consumer himself, Sutton knows his clientele and what they want: a quality and consistent experience, whether that means treating a medical condition or eliciting a desired high or effect. He also understands that the experience depends largely on the genetics of the plant and comprises a company’s intellectual property—which can be transferred, legally, anywhere in the country. So, Tantalus may never need to achieve the production scale of a Canopy, Aurora, or Aphria, because producing might not be Tantalus’ end-game after all.

“I think we will always be a small-batch producer,” Sutton says. “Small batch in that we want to keep every harvest focused on a quality of plants that allows us to maintain a meticulous degree of control and commitment and keep doing new and interesting things that maybe have a degree of scarcity associated with them. What we’ve really learned over the last eight months since we’ve been in sales in the legal recreational market is that there is a far higher demand for Tantalus Labs’ cannabis than we could have ever anticipated.”

Viewed in this light, Tantalus’ SunLab greenhouse could actually be seen more as a lab than a production facility—a testbed to experiment with and perfect a small number of high-quality cultivars, which the company could then license to other growers in the region and perhaps even the world.

“This is our sandbox,” Sutton says of SunLab. “This is where we figure out our IP, where we figure out our systems, where we figure out our processes.”

Sutton’s Sandbox

A glimpse at the future for Tantalus Labs must begin at SunLab, the 75,000-square-foot “crown-jewel” greenhouse engineered to grow cannabis using the sun, fresh air and free-falling rainwater. The facility cost $10 million and took two years alone just to design. The company is currently in construction on a 50,000-square-foot expansion, which Sutton is optimistic will be completed by the end of the year.

SunLab also boasts a 98-percent crop-retention rate, Sutton says. He expects to produce between 2,500 kilos and 3,000 kilos (5,512 lbs. to 6,614 lbs.) of cannabis this year, and by expanding by another 50,000 square feet, the company could easily reach the 7,000-to-8,000-kilo (15,432-to-17,637-pound) range, he says. While this might sound impressive, consider that Canopy Growth, the largest publicly traded marijuana company in the world with a market capitalization of around $15 billion, has just over 4 million square feet of greenhouse-growing space in Canada, with three million alone in British Columbia, the company reports, and is on pace to hit 500,000 kilos (1,102,311 lbs.) of annual production, according to an article in The Motley Fool.

These comparative numbers are staggering—and sobering for Tantalus. But they also might be irrelevant, because the company has no plans to build more SunLabs across North America.

“You’re going to see a lot more partnerships,” he says. “You’re going to see a lot more collaborations. You’re going to see us sharing our IP, both from a production standpoint and a genetic standpoint, with other new entrants in the marketplace.”

A theoretical SunLab 2.0 would only happen if the plan fails—what Sutton calls a “backup option.” Still, he is bullish on his prospects. “I just think that there are so many beautiful greenhouses across the globe that we should be able to figure out which cultivars are going to thrive in those environments,” he says. “And leverage infrastructure that already exists, without the need to deploy capital, time and obviously infrastructure resources.”

Easier said than done. To develop high-quality cannabis cultivars and then build a business around licensing or sharing the IP to other growers, Sutton and his team have to prove that high level of quality consistently over time. That requires proof in the form of production.

“It’s about how many people we can touch with our product,” Tantalus Chief Financial Officer Luke Jenkins said during a November 2018 appearance on Valens GroWorks’ “Extracted” podcast. “We like to think that SunLab is this massive, amazing facility, but in the grand scheme of things, it’s not that big. And servicing the Canadian market is going to be a challenge for us at that footprint. Servicing the British Columbia market alone is going to be a challenge at that footprint. How we get our product to more people is going to be a huge thing that we think about over the next 12 to 24 months.”

Then Sutton, joining Jenkins on the podcast, interjected with one of his personal mantras: Start low and go slow.

A Bet on ‘Genetic Differentiation’

Early in that same podcast episode, co-host Kayla Mann said this about what Sutton and his team are up to in the Fraser Valley: “Tantalus is growing some of the best cannabis on the market right now.”

High praise, which, to Sutton, is a testament to Tantalus’ focus on a smaller number of cultivars, which he says helps achieve a higher overall quality for each of them.

Tantalus Labs produces only Blue Dream, Serratus, Skunk Haze, Harlequin, Cascade, Cannatonic, and Watersprite. The company went through a 16-month process with the Canadian Border Services Agency, the Canadian Food Inspection Agency, Health Canada, as well as foreign governments, lawyers and translators to import 150 different cultivars in about 20,000 individual seeds. That allowed the company to run its own phenotyping process. As Sutton explains it during the interview with CBT, “We were actually popping cohorts of these seeds and then selecting our favorite varietals, not necessarily ones that others were doing or what was on trend, but just things that we found interesting. That genetic differentiation allows us to deliver experiences to our users that are really difficult to find anywhere else.”

For LPs, one way to compete in the increasingly competitive world of cannabis is to license their IP to other growers. Intellectual property rights can go a long way in the monetization of cannabis-related ideas, products and services, but not if the end product is of average or low quality—or the same as everyone else’s.

“If you create something like Charlotte’s Web or some strain that is in extraordinarily high demand, and people want it everywhere and view you as having it locked down, then the IP could definitely be a revenue source,” says Vince Sliwoski, an intellectual property lawyer who manages Harris Bricken’s Portland office and teaches Cannabis Law and Policy at Lewis & Clark Law School. “Otherwise, licensees may be reluctant.”

Assuming Tantalus can meet its own high bar for quality, applying for a patent would be a next logical step. Then, only Tantalus would be able to make or sell the product, or license other growers to do so.

That patent could cover either the creation of a new or improved cannabis cultivar or make proprietary the way in which the strain is created. But a specific cannabinoid formulation, for example, cannot be patented unless it is “human-modified,” according to the recent ruling in United Cannabis Corporation v. Pure Hemp Collective Inc.

Unfortunately, there is not a lot of legal precedent to guide Tantalus’ IP strategy. In the United States, Biotech Institute LLC has the honor of the first utility patent to be awarded for cannabis breeding and production methods. The U.S. Patent and Trademark Office granted U.S. Patent No.: 9,095,554 for the “breeding, production, processing, and use of specialty cannabis.” Since winning approval in August 2015, Biotech has filed a number of “child” applications, all claiming priority to that first cannabis strain patent. Meanwhile, in the first-ever cannabis patent infringement case, United Cannabis Corporation (UCANN) sued Pure Hemp Collective Inc. for infringing on its “ ‘911 Patent,” which covers liquid cannabinoid formulations of a purified CBD and/or THC greater than 95 percent. On April 17, Judge William J. Martínez of The United States District Court for the District of Colorado denied Pure Hemp’s Early Motion for Partial Summary Judgment. On May 22, federal Judge Nina Y. Wang denied Pure Hemp’s attempt to explain how UCANN’s patent is invalid. In doing so, the lawsuit proceeds. The cannabis industry is closely watching for developments in these cases, according to Sliwoski.

There are other IP-protection options, however. Tantalus could retain its intellectual property as a trade secret, or partner with other growers to share its proprietary cannabinoid/terpene ratios or the technology used to create branded products.

A patent would be preferable, as patents afford the most powerful IP protection, providing the owner with a temporary monopoly to exploit the invention. Patents protect new and non-obvious inventions (including plants, processes and machines), while trade secrets protect “patentable inventions,” which provide economic value to the holder if kept confidential.

The business case for a patent versus a trade secret is overwhelming. “If it’s just a trade secret and not a published patent, you don’t really know what you’re getting,” as a buyer, Sliwoski says. “A lot of the evidence for what these strains can do or achieve is anecdotal. It’s a hard market to be a buyer/licensee in.”

A Tantalus spokeswoman would neither confirm nor deny whether the company has sought any patent, trade secrets or any other IP protection.

A sensitive topic in cannabis circles, the protection of intellectual property has already exposed fault lines in the industry, with one side arguing against overly broad patent awards for practices and products that have been in place for decades, and the other trying to protect their interests in an ever-evolving global cannabis industry.

Where Sutton and Tantalus come down on the issue is unclear. But Sutton has already weighed in, if indirectly. On May 16, he sent three tweets, one aimed directly at Aphria: “@aphriainc is attempting to trademark the term ‘sungrown cannabis.’ I have no remarks on the matter at this time, save that I would bet that this will turn out to be a mistake.”

And another: “#Sungrown is for growers of all sizes who celebrate their natural environment and the fruit it bears. It is for the gardener and the greenhouse farmer. It is for the purity enthusiast. It is for everyone who told us it couldn’t be done. It is for all of us.”

And another: “So stand tall and be counted, and shout #sungrown from the rafters. Proliferate the story of the Emerald Triangle, the Gulf Islands, and the equatorial jungle. Natural cannabis is beautiful cannabis, and to celebrate sunlight is to celebrate all life.”

For Sutton, Sun-grown Is Homegrown

As the corporate leader, figurehead, and moral compass of Tantalus, Sutton is betting not only on his team of scientists to engineer revolutionary new cannabis cultivars; he is investing heavily in his home province of British Columbia, the strategy of greenhouses-as-a-testbed, and, of course, SunLab.

Four years after his TEDx Vancouver talk, Sutton is still ardently pro-sun-grown. And, for now, he says Tantalus has no plans to supplement cultivation operations with indoor grows.

“We are not going to be diversifying back into the indoor market,” Sutton says. “… Ultimately it’s economically not viable.”

Sutton is quick to point out that SunLab was designed to mitigate all the risks of outdoor growing by taking advantage of indoor-control technologies and being environmentally conscious. The roof of SunLab captures rainwater, which is then is triple-filtered and drip-line fed with added nutrients to each plant. No chlorine nor fluoride, nor pesticides for mold and pest control, are used. For airflow, SunLab features two 54,000-cubic-feet-per-minute, high-capacity airflow fans to pull transpiring moisture off the plant leaves—and more CO₂ across the base of the plant.

Most critical for Tantalus’ growth ambitions, SunLab was built to accommodate different cultivars. “The more robust strains that we can grow, we can have other partners in a diversity of regions,” Sutton says. For two years, Tantalus has been conducting an analysis of the regions where cultivars would thrive and trying to recreate that environment at SunLab.

“The plants have certainly responded,” Sutton says, “and as a result I am now very, very much of the belief that the best-quality cannabis may today be grown indoors, but in the next five years it is absolutely going to be grown in greenhouses.”

Sutton also predicts that appellations will become the norm in the cannabis industry, just as they are in the wine market, and that certain global regions will become known for their cannabis vintages.

“Over the course of the next 10 to 20 years, individual regions will come to be celebrated for specific genetics,” Sutton says. Much like the Emerald Triangle in California, which supports more than 20,000 cannabis growers, according to Leafly, and is known the world over as America’s cannabis epicenter, British Columbia will have its own “genetic story.”

Tantalus is already in discussions with a number of family farmers that want to be in the legal cannabis business, Sutton says. “We’re good at Health Canada compliance. They’re really good at farming in their particular region.”

Next Steps for the ‘Lucky’ Maverick

For Sutton, this asset-light growth strategy speaks to a savviness borne of years in finance and IT, which adds to the incentive for Tantalus to stay private, at least for now. As a former investor relations director for a large publicly traded company, Sutton knows what going public means: selling equity instead of cannabis. During the past several years, he says has watched companies IPO and flop, reneging on promises to investors, the industry and consumers.

Until that time when public markets beckon, his investors will remain a closely guarded secret. During a recent appearance on BNNBloomberg, Sutton called them “the most elite groups of Vancouver entrepreneurs and business developers ever assembled for a local startup.” In the interview with CBT, he called himself “lucky.”

In Silicon Valley and in Vancouver, B.C., luck is the byproduct of hard work and vision, and maybe the ability to fly in the face of business-as-usual.

As Sutton said in a recent tweet: “Remember that those who truly drive change are rarely celebrated and often demonized by their peers. Take it from a guy who has never needed, and will never need, your fucking approval.”

Paul Barbagallo is a business journalist of two decades. He is a former senior editor for Bloomberg News and a beat reporter for BloombergBNA.