What is a Cannabis Business?

Cannabis Businesses

 ~ Creating New, Safe Economic Drivers for our Communities ~

The debate over cannabis legalization in California is over. The state released a set of rules in April that will strictly regulate every single aspect of the medical Cannabis Industry. In addition, local authorities are enacting similar measures that dictate not only how cannabis businesses must operate, but address issues of public health and safety, environmental requirements and youth access, among many others.

Nevada City is remaining progressive in its outlook about the medical cannabis industry by not only establishing a dispensary ordinance that allows local patients to access clean, regulated medical cannabis locally; but it is also now considering whether to develop regulations for other medical cannabis businesses, including testing, manufacturing, distribution, cultivation and transportation of medical cannabis. Local medicine makers will now have a chance to enter the statewide legal market, where patients with real conditions, from cancer to rare cases of epilepsy, are clamoring for the kind of medicine they can produce.

These types of licensed cannabis businesses can also generate revenue for our municipalities, create jobs and address many of the health and safety concerns from the public.

In Colorado, the legal cannabis industry created 18,005 full-time jobs and added about $2.4 billion to the state’s economy in 2016, an analysis from the Marijuana Policy Group (MPG) shows. In 2015, California generated $2.7 billion in medical-cannabis sales,  according to Troy Dayton, the CEO of the market research firm ArcView.

Here are some important information to consider when forming your opinion about the different license types being considered by the Nevada City Planning Commission:

  • DISTRIBUTION AND TRANSPORTATION:

Distribution and transportation are key economic opportunities for Nevada County in general. Cities and towns that adopt regulations for distribution and transportation can create commercial centers that link cultivators to the rest of the state, eliminating outside brokers from coming into our communities to operate in the black market.

Under state regulations, all product must be tracked, taxed, and verified as safe by a licensed distributor. These licensed distributors will be looking for real estate, they’ll have to purchase equipment and technology for the track and trace system, hire employees and hold business licenses close to the means of production, where product can then be transported, also by licensed individuals, to local or statewide retail stores or dispensaries. Distribution facilities are best situated in industrial and light industrial zones, business parks, and other non-residential areas.

By working to ensure that there are regulated distribution and transportation facilities for the industry, we can provide an opportunity to create tax revenue, fill vacant industrial and business real estate within the city limits and create more high quality jobs.

Mandatory use of a distributor is a controversial issue for the cannabis industry. As the marketplace becomes more and more competitive, independent distribution partners may help to offer a voice for the small farmer with dispensaries. However, many small farmers fear that they will no longer be able to manage their relationships with dispensaries and large distributors will have outsized influence on prices and access to the legal market. Here in Nevada City, we have an opportunity to open an independent distribution licensing system to local residents, local farmer co-operatives, and existing local businesses that want to enter the legal statewide cannabis market.

  • LAB TESTING

The California Department of Public Health has been tasked with ensuring that all cannabis is tested prior to delivery to dispensaries, manufacturers, or other businesses. The state presented its first draft of regulations Friday and the public will have a 45-day period to gather public input and define the licensing requirements. Under proposed regulations, certified lab testing licensees are not allowed to hold any additional license types of or have ownership interest in a non-testing facility licensed pursuant to this division.

Nevada City has a unique opportunity to create a license type that is attractive to scientifically minded entrepreneurs who know how to leverage their knowledge to create a reputable cannabis testing business. The testing requirements outlined in MCRSA and AUMA will provide growth potential in this industry which employs highly educated and well-paid scientific professionals. Currently, only 2 to 5 percent of the cannabis consumed is tested by a laboratory facility. Some testing facilities in the state report processing approximately 15,000 samples per month, the majority of which only test for potency.

New regulations will also require that a representative sample of all cannabis sold be tested by a certified testing facility to determine whether the chemical profile of the sample conforms to the labeled content of compounds.

In addition, establishing lab testing licensing, can help attract other scientifically minded professionals, as well as people in the fields of research in the medical field.

Currently, there are no labs available to farmers in the area. According to Mj Biz Magazine, a cannabis industry publication, one of the larger and more well-known labs in the business, California-based Steep Hill Halent, expected to net $1.5 million in revenues in 2015, not including royalties from labs that have licensed its brand. The firm now has labs in California, Washington State and New Mexico, with two licensees in Nevada and Colorado.

Though other lab companies may not see that much in revenues, smaller labs are also seeing an increase in business as consumers also clamor for tested, clean medicine.

  • MANUFACTURING

Cannabis manufacturing is the term used for any processes that “compound, blend, extract, or infuse cannabis products.” These processes can include the production of hash oil, vaping products, and cannabis-infused foods known as edibles, which are useful for patients who because of their specific health condition need to consume higher amounts of cannabinoids.

Although the term “manufacturing” has generally been demonized by illegal butane hash oil (BHO) lab explosions and a lack of oversight over the cleanliness of the product, under new regulations, all of that will change. In fact, some licensed manufacturing facilities already resemble state of the art laboratories with safety and security measures in place that include fire and blast proof retrofits — a far cry from the image of the trailer home labs featured on shows like Breaking Bad.

The advantage of having manufacturing businesses close to the means of production is that it keeps product in the area until it has been processed, proving an outlet for local farmers to get their products to market. Also having regulated manufacturing businesses can divert law enforcement resources to bad operators using volatile solvents in underground labs in residential areas, causing public health and safety issues in our communities.

From an economic development perspective, infused products are becoming a bigger piece of the legal cannabis sales pie, according to the MJ Biz Daily 2016 Marijuana Factbook. Market trends show that 55+ age groups tend to use more edibles than younger groups. At the same time, some individual retailers have already seen concentrates and edibles sales eclipse flower/dried cannabis revenue. On average, these products represent about 30 percent of total sales at present.

It remains to be seen what portion of total sales these products will ultimately represent, but they are a critical part of the product mix for cannabis retailers, especially as some patients can’t smoke  because of their health condition.

Under MCRSA and AUMA, there will be two types of cannabis manufacturing licenses available:

  • Type 6 = Manufacturer of products not using volatile solvents.
  • Type 7 = Manufacturer of products using volatile solvents.

The California Department of Public Health (CDPH) is responsible for licensing manufacturers of cannabis products and establishing fees and fines. CDPH is in the process of developing standards regulations, licensing procedures and addressing policy issues in support of medical cannabis manufacturers and testing laboratories. CDPH is also responsible for issuing Type 6 and Type 7 licenses to manufacturers.

The new laws require all manufacturers to package all medical cannabis products in tamper-evident packaging, use a unique identifier, label the product, include specific health warnings, and prohibits medical cannabis packages and labels from being made to be attractive to children.

Manufacturing companies will be looking for suitable real estate for their operations, purchasing expensive equipment, using general contractors to retrofit buildings and install security and safety measures, and hire skilled workers. For example, Care By Design, a 35,000 square foot state-of-the-art cannabis manufacturing facility in Sonoma County,  employs 30-40 individuals.