Category Archives: industry specifics

Is Home Cultivation Finally Coming to Washington State?

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A new bill in the Washington state Legislature would add a long-awaited provision to the state’s cannabis law to allow adults 21 and over to grow their own supply of cannabis at home.

The new legislation, HB 1092 introduced last week by Rep. Sherry Appleton (D-Poulsbo), would allow adults to grow cannabis plants at home for personal use—a move that would align Washington with the rest of adult-use states.

As it stands, Washington is the only state that allows retail sales of adult-use cannabis but still bars home cultivation. Currently only registered medical patients with a state-issued permit can legally grow at home.

If the bill is enacted, adults 21 and over would be able to grow up to six plants on their private property. Yields would be limited to no more than 24 ounces, or a pound and a half of useable cannabis. Homes with more than one adult resident could legally house up to 12 plants, for up to 48 ounces, or three pounds.

A big question that remains is how consumers would go about getting cannabis seeds in the first place. The purchase and sale of seeds is still illegal under state and federal law, despite the fact Washington has legalized cannabis itself. Under the current proposed bill, there is no mention of where consumers would be able to purchase cannabis seeds were the bill to become law.

Daniel Shortt, a Seattle-based cannabis lawyer at the firm Harris Bricken, told the Seattle Post-Intelligencer that he believes the new bill will have to answer how home growers can acquire seeds.

“The way the entire marijuana market is set up, producers and processors can sell to retailers, who can sell to the public. Would that mean that now, to get these seeds, potential home growers are getting seeds from the retail store?” said Shortt. “If those seeds are being sold, that’s really the only place where the government could actually get revenue from taxes.”

In 2016 alone, Washington lawmakers introduced 44 bills that deal with cannabis in some fashion. The list includes bills that relax residency requirements for licensed marijuana business owners as well as legislation around medical marijuana patients and their employers.

The recently introduced House Bill 1060 has garnered bipartisan support. The measure would allow medicinal marijuana to be administered on school grounds to children who need cannabis to function normally, such as those who suffer from daily seizures.

A full list of cannabis bills that have been introduced in the state is available online.

Oregon reports big jump in marijuana business applications, licenses

In another sign that cannabis could be bigger business than previously forecast, the Oregon Liquor Control Commission says it received 1,907 recreational marijuana license applications in 2016 — far outstripping a projected 800 to 1,200, the agency said.

Seven hundred sixty-two of those applications were approved as of the end of last week, a big jump from 500 licenses in early December. In that time, the number of licensed retailers went from 99 to 260.

Processors, who have struggled with strict testing and labeling requirements, have been slower to get licensed, but the number in that category was up significantly as well, from 18 to 51.

“Our staff has worked nonstop and with determination to get this industry licensed,” OLCC Executive Director Steve Marks said in a statement. “Working after hours, working weekends, traveling long distances, this team has been flexible in getting this industry licensed, without compromising the trust placed in us to protect the public.”

Oregonians voted for legalization in November 2014, and the state began transitioning toward a regulated recreational market in October 2015 with “early start” rules, which allowed dispensaries to extend sales to adults who didn’t have medical cards.

That got recreational sales off to a fast start: In December, the Department of Revenue reported that tax payments totaled $54.5 million from Jan. 1 through Nov 30., $13.8 million more than the Legislative Revenue Office had projected.

But early sales ended with the arrival of 2017; all businesses operating in the recreational space now must be licensed by the OLCC.

The big increase in recreational retailers has coincided with a decline in dispensaries.

As of last week, since Oct. 1, 121 dispensaries had either surrendered their registration or withdrawn their application to go retail, and the number of dispensaries had shrunk from a peak of 425 to 307.

Senate Republican Leader Ted Ferrioli, co-vice chair of the legislature’s Joint Committee on Marijuana Legalization, told the Business Journal’s Elizabeth Hayes that he expected the number to ultimately dwindle to around 30.

In its statistics update, the OLCC also reported that it had approved 9,041 Marijuana Worker Permits out of 10,700 applications received.

Pete Danko

Some Oregon Marijuana Dispensaries Devastated by Recreational Sales Deadline

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By Keith Mansur     Oregon Cannabis Connection

There is definitely no wait at Stash Cannabis Company in Beaverton, Oregon, the past couple of days. Since the deadline for Oregon’s medical marijuana dispensaries passed on December 31, stores that have been waiting for their licenses from Oregon Liquor Control Commission (OLCC) are seeing a lot fewer customers.

It’s so bad that they had only two sales on January 4, for $125.00, and barely over $100 the previous day. The typical sales at Stash Cannabis Company, before they were forced to go back to medical-only sales, was about $4000 a day.

The problem has been devastating for dispensaries that are stuck in limbo between receiving their OLCC licenses and the deadline to end early sales that passed on December 31. These dispensaries, which had been allowed to sell to the recreational market since October 2015, are now out in the cold.“At that pace we will be at $3000 for the whole month,” explained Chris Mathews, owner of Stash Cannabis Company. “We’re turning away 75 or 80 people a day, at least.”

Mathews paid for his application on December 13, after waiting since August on a letter from his landlord showing he had legal occupancy of the building—an application requirement even though he had an operating medical dispensary under the Oregon Health Authority (OHA) system licensed by the city of Beaverton as a medical marijuana dispensary. He has still not gotten an appointment for an inspection walk-through, the last step before licensing. In fact, he may have fallen further back in line, according to his most recent conversation with OLCC.

Mathews emailed OLCC for the status of his application on December 21. They responded, telling him he was 10th in line. Anxious about the looming deadline, he emailed again December 27, and found he was still 10thin line. Finally, he checked on January 4 and found he was now further back in line,  suspiciously moved to 15th!

“It’s frustrating,” Mathews told Oregon Cannabis Connection (OCC). “I have met all the requirements, I took the Metrc training, and I’m just waiting for an inspection.”

He has been given no timeline, either. “They told me to call back next week and they will tell me where I am at then.

Washington and black market benefit

Martin Nickerson simply closed his McMinnville, Oregon, dispensary doors at Ocean Grown Cannabis Company. He knew it was a pointless endeavor to try and operate when the vast majority of his customer base was forced to shop elsewhere—which he knows means Washington state. Originally from Washington, Nickerson understands the market there and has even been told by his customers that’s where they are willing to go.

“We’ve shut down until we get our OLCC license,” Nickerson told OCC.
The county was holding up his Land Use Statement, or LUCS, which is a required part of the application. They received the LUCS January 4, the day we spoke with him. The OLCC now has a completed application and he is awaiting inspection.“The dispensary was being hit so hard on loss of product. We were watching customers go right to the black market or they are going right across the border to Washington,” Nickerson explained. “If you go across the border to Washington … they’ve got 50 different kinds of concentrates from $18.00 to $24.00 a gram. I have had customers tell me if it’s that much cheaper and there’s that much selection and accessibility to product, it’s worth the drive.”

“I want to see them helping us and not hurting us. If we could just work together and talk,” Nickerson said. “I appreciate the work they put in and all the time and effort that has gone into legalizing marijuana in Oregon, but they should be asking the cannabis community ‘what should we do here?’, you know?”

“We are trying to beat the black market and I am right here with the state to help them every step of the way but, boy, I hope they start to listen a little bit,” explained Nickerson.

Tax losses are huge already

The 420 Club in the City of Roseburg, Oregon, was the first licensed marijuana dispensary located in Douglas County, a county that still bans cannabis businesses due to a commission-imposed ban ordinance. The attempted repeal attempt failed in November 2016. Roseburg, however, has allowed dispensaries since 420 Club opened on November 6, 2014, and recreational sales eventually were allowed, too. One of the selling points for recreational cannabis to the city of Roseburg and an main argument for lifting the ban in the county was the tax benefits.

Four dispensaries were operating in Roseburg and 420 Club alone was contributing $18,000 in tax to the Oregon Department of Revenue every month, but that changed in October with the shortage of concentrates and edibles, and in some cases flower, for a few weeks.

“For the last two months we have collected $10,000 per month in taxes, but in the previous year we were collecting about $18,000 a month,” explained Hoyt. “As soon as the state started messing with the testing [on October 1, 2016], our sales dropped 40%.”

“However, now we aren’t collecting any taxes because of not being issued our license yet,” he told us. “We’re obviously not collecting anything for the state in taxes.”

They started their application process at the beginning of December and have faced delays similar to what other dispensaries have encountered. They submitted their application somewhat late because they had very low inventory and nothing available due to the testing backlog and timing of that with harvest. The same timing happened all across the state as dispensaries struggled to stock their shelves before the switch to OLCC retail sales.

“They did all the testing changes at harvest time, and that’s something you just don’t do because everybody and their brother has herb to be tested,” Hoyt pointed out. “That was just the wrong time to do what they did.”

It’s a widespread problem

“This was a completely avoidable disaster,” explained Casey Houlihan of the Oregon Retailers of Cannabis Association. “Several agencies dropped the ball and are now pointing fingers at one another, while our industry grinds to a halt. Scores of shops are scaling back employee hours, forced to turn away would-be customers because they are stuck waiting for a rubber stamp.”

The association has been working to help  cannabis businesses in Oregon negotiate policy issues. Their membership includes about 120 businesses and 65 dispensaries. They have provided guidance and input to legislators and administrators over the past few years in an attempt to prevent onerous rules and stifling regulations from being placed on the industry. They continue to address problems and suggest solutions to rulemakers and legislators.

“This was not the legislature’s intent when they passed ‘early sales’ [SB 460] in 2015,” Houlihan said. “The Oregon Retailers of Cannabis Association is doing everything we can to develop and organize for a solution to the current crisis, and we are working with policymakers to help make that happen.”

The number of licensed cannabis OLCC retailers (dispensaries) in Oregon as of December 30, 2016, was 216, according to the OLCC website information atwww.oregon.gov/olcc/marijuana. Of those only 178 have active licenses. 314 medical marijuana dispensaries remain on the OHA list, which is can be found athttp://public.health.oregon.gov/DiseasesConditions/. on their website. Rob Patridge, OLCC Chairman, told OCC that as of January 4, 257 applications have been approved.

Is there a solution?

The deadline was put in place by statute, so  legislative action would be required to change it. But the problem is immediate and serious, so waiting for the legislature to take care of this is no solution at all. Unfortunately, it appears that is a major roadblock.
“OLCC remains committed to expediting late filing applications and has been taking steps throughout the year to facilitate a quick transition, including working directly with applicants to complete their applications. Applicants can speed up the process by inventorying their products and completing their Inventory Transfer Requests. The December 31 deadline cannot be changed without legislative action since it is in statute. The deadline has been in place for 17 months, starting on July 27, 2015, when SB 450 became effective. The OLCC has been accepting applications for a year and retailers that applied and were ready have been approved through the OLCC’s expedited process. As of yesterday, 257 retail licenses have been approved and staff expects more to be approved shortly as applications are completed.”Patridge explained:

We also reached out to Rep. Ann Lininger, who co-chairs the Joint Committee on Marijuana, but received no response.

The reasons for delays are numerous and many have been forced by local regulations, inattentive landlords, rules changes and myriad reasons other than procrastination. If they have already paid the application fee and are already a licensed dispensary under the OHA, is there no way to allow them to continue to operate?

Let’s hope a solution can be revealed sooner rather than later.

© 2016 Oregon Cannabis Connection.

Portland is Behind on Issuing Cannabis Business Licenses

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With only a few weeks to go until the Oregon Health Authority officially turns the new commercial cannabis industry over to the Oregon Liquor Control Commission there is not much time left for businesses to obtain all their needed licenses. In the city of Portland there have been delays in the permit process for several cannabis businesses – who were worried that they would be shut down come January 1st when those licenses become required. Luckily, the Portland City Council has taken action to ensure that businesses awaiting licenses will not have action taken against them at start of the new year.

“There was some concern in the media about lots of businesses being found out of compliance and shut down January 1,” Commissioner Amanda Fritz said. “As long as there are good faith efforts that they’re in the process that is not going to happen. We appreciate most businesses are working their way through the process”

In hopes of speeding up the process some, the council also agreed that retail dispensaries will be able to obtain their licenses from the Office of Neighborhood Involvement – even if they are still in the process of obtaining all the permits they need. As long as they get the permits and have been successful in working through the complicated process, then they will be eligible to get their license ahead of schedule. This will not however, be an option for growers or processors – likely due to the fact that there are much more in depth inspections required for such businesses.

“We want to be very clear that the city and the Cannabis Policy Program will not be taking enforcement measures against any legally operating marijuana business that is currently waiting in line for its recreational license to be issued,” Fritz said at the top of the Council meeting.

Along with the measure that aims to help push along the licensing of retail cannabusinesses, the city council also approved a measure that will allow for a new license – for marijuana couriers. Such a license wouldn’t allow businesses to have a retail storefront – but it would allow them to have a headquarters, receive orders between 8am and 8pm, and make deliveries of cannabis up until 9pm. This is a first of its kind license – headquarters would have to remain 1,000 feet away from schools like any other cannabis business, but they would be able to deliver to homes that are closer.

It’s exciting to see the city coming to the end of a long initial process that has created what will likely be a thriving industry – and bringing new opportunities, such as the new licenses for marijuana couriers. Both of these measures will be voted on a second time next week before they are officially passed, but both seem to be extremely well supported and it is unlikely there will be any issue.

Fresh evidence of Oregon cannabis industry’s pain

main-street-marijuina-gorilla-glue750xx5472-3078-0-285Pete Danko

Marijuana sales in Oregon slid at an accelerating rate after new testing and packaging regulations went into effect, according to a new report.

Colorado-based BDS Analytics, which says it collects actual point-of-sale transactions, said dispensary sales were $7.6 million the first week of the month, then after a gradual decline landed at $6 million in the final week.

For the month, the firm estimated sales of $29.5 million, down 8.5 percent from September and the first time since May that sales hadn’t cracked $30 million.

Late last week, after weeks of often desperate requests and complaints from the industry, state regulators issued temporary rules intended to ease the testing burden and get product moving through the supply chain again. Many in the industry, however, said the revisions fell short of what was needed.

Economist Beau Whitney, who released his own survey in late November showing more than a fifth of Oregon cannabis businesses shutting down, said the new rules were “like putting small twigs at the back of a beaver dam – the water is still backing up, with no apparent end in sight.”

In its report, BDS said edibles have been particularly hard hit since October, with sales falling from $3 million in September to $2 million the following month. Producers of those products have faced the most extensive and costly testing burden.

BDS also released November data from a subset of dispensaries that feed the firm information and found same-store sales down 21 percent from September to November, “with some stores declining more than 60 percent in retail dollars.”

 

Marijuana industry brought to a standstill by new pesticide testing regulations

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Molly Harbarger | The Oregonian/OregonLive

Once packed with marijuana concentrates and extracts, the Human Collective’s shelves are nearly empty.

Some pot leaf-patterned socks and glass pipes sit scattered among what’s left. A static screen with just 13 flower options has replaced a digital “bud list” that used to scroll through the shop’s options for people waiting in line. The lines are gone, too. Only one or two budtenders work at a time – cut in half from before.

Within months of Oregon’s full recreational marijuana market coming online, the industry has come to a standstill with low supplies and big price jumps for consumers.

Don Morse, owner of the Human Collective in Southeast Portland, and other retailers, growers and processors blame Oregon’s strict pesticide rules for the problem.

The regulations – the first mandatory pre-emptive testing in the country for marijuana – went into effect Oct. 1. But the state has so far licensed only a handful of laboratories to do the tests on thousands of products, including flowers, edibles, concentrates, oils and extracts.

And the tests are expensive – in some cases more than six times what companies used to pay, they report. Then they must wait weeks to get their products back and find out if they passed or failed.

Morse has laid off five budtenders since last month. He’s down to about 10 percent of the concentrate inventory he had before October. He can’t find anyone to sell him enough marijuana to fully restock.

That’s happening in most of the more than 400 marijuana dispensaries around the state.

For Morse, the gridlock is ironic because he pushed for the rules. He helped convince growers and processors that reasonable pesticide limits and testing regulations would be better for them and consumers. But now the fledgling businesses are in jeopardy, he said.

“We don’t want to come off like it’s boohoo and we’re only in it for ourselves,” Morse said. “The people of the state said they wanted this both medically and recreationally. They left it to the state to set the rules and the state has set the rules to the point where it’s no longer available to them. It’s this roundabout way of making cannabis illegal again.”

Megan Hatfield bought a vape pen cartridge of Sour Diesel for $45 at Morse’s store. It’s usually around $30 there, but she still considered it a bargain. She tried two other pot stores earlier in the week, finding only two other options, both at $80 for a gram.

“Honestly, I have been to a couple of places that didn’t have a selection nearly as big as this,” Hatfield said.

The Governor’s Office is expected this week to announce some temporary fixes to address the testing backlog, while the Oregon Health Authority has borrowed inspectors from other divisions to help license labs.

The slowdown is the price of safety, said Jonathan Modie, a spokesman for the  health authority.

“Our goal is to protect public health,” he said, “by making sure that all marijuana products are tested for pesticides and other compounds by an accredited lab and that marijuana products that fail pesticide testing don’t reach consumers.”

***

Starting a year ago, anyone 21 and older could buy a limited amount of marijuana flowers, starter plants and seeds. Edibles and extracts were added in June. The state expects to issue 850 recreational licenses for everything from retail outlets to growers by the end of the year.

The state has debated how to handle pesticides for more than a year and came up with the nation’s most stringent rules for chemicals used in legal marijuana cultivation and the amounts that can show up in finished products, be it flowers or edibles.

While other marijuana states such as Washington have pesticide limits on crops, Oregon is the only state to require testing of each product before it hits shelves.

Labs here must test for a longer list of chemicals with stricter limits and in larger batches than before Oct. 1, when the rules didn’t say how to do the tests, who could do them and what happened if products failed. Today, labs must follow state-specified protocol and then state agencies follow up with growers and processors to make sure any products that fail are retested or destroyed.

So far, the state has issued two recalls for tainted marijuana flowers that made it to retail shelves.

The health authority has certified six labs for pesticide testing. It’s a long process that requires extensive proof that the labs are using the correct methods and that the results are consistent before a state assessor shows up to double check the work.

Through the end of the year, the state has three permanent full-time assessors and one full-time temporary assessor working. The Oregon Department of Environmental Quality has loaned three extra assessors – one full time and two part time – to help with the assessments and administrative tasks.

More labs will be certified through the state’s general lab-accreditation program, ORELAP, in the future, Modie said. There are eight more labs that have applied for accreditation, but none are ready for inspection yet.

“ORELAP’s role is to offer lab accreditation services, not to ensure that labs succeed in getting accredited or that there is sufficient supply of accredited labs in the for-profit market,” Modie said.

Rodger Voelker, lab director of one of the pesticide testing laboratories, Eugene’s OG Analytical, said that while some of the pesticide limits might be stricter than necessary, the delays are a temporary growing pain of a new industry.

“I hear this constantly — people saying this is totally unfair, that they don’t expect this of anybody else,” Voelker said. “That’s actually completely wrong. These things are expected of any industry where people are putting things in their mouth.”

Both state and federal agencies oversee food safety regulations that can be rigorous and expensive. Some of the health authority’s cannabis guidelines go above what’s required of food items, including a bigger sample that must be tested from each batch. But there’s also less scientific evidence about the effects of heating and inhaling marijuana products treated with pesticides, so the limits may evolve as research reveals new information.

Voelker was instrumental in pushing the state for the first comprehensive marijuana pesticide testing guidelines.

He acknowledged that the exacting new process created problems that the state and marijuana companies could have foreseen and are now causing pain. For instance, companies that take marijuana flowers and turn them into extracts and then infuse the extracts into other products are dealing with ingredients that are tested at each stage of the process. In the short-term, it brings those companies to a halt while that extract undergoes the lengthy process to get approval.

But Voelker predicted enough supply will soon be available and the system will be running smoothly a year from now.

“The bottom line is regulations are not perfect,” Voelker said. “They are made by humans for humans. In my opinion, although this isn’t fun to go through right now, we should be proud as Oregonians to put in place a system that is arguably better than any out there in regards to cannabis.”

***

The uncertainty is causing processors to reconsider their investments.

Sara Lessar and her husband have two plans for the future. The first is to wait until Oregon loosens its rules on pesticide limits for marijuana concentrates so their oils can get back onto dispensary shelves.

Across Oregon, processors and shop owners are saying they can’t get any concentrates through the testing process. Lessar buys marijuana flowers that are tested by state-certified labs and pass. But during processing, the pesticide traces are packed together and creep above the .20 parts per million maximum.

They can keep testing their oils to see if they can get them below the allowable limit, but the cost of testing is straining their ability to keep prices low, Lessar said. Before Oct. 1, they spent about $2,000 every six months on testing, but now they must pay $20,000, she said.

That’s tough because they just bought a new property in Coos Bay to produce Bandit Oils but have no revenue coming in and laid off three full-time employees and five part-time employees.

They’re considering their second option: Moving to California or one of the other states with legal recreational marijuana that doesn’t impose such strict pesticide limits.

Lessar isn’t against testing, she said, but the rules for concentrates seem almost impossible to overcome.

Others are hitting similar barriers.

“I have very few vendors who will sell me any extracts whatsoever and I have two vendors who will sell me edibles,” said Matt Walstetter at Portland dispensary Pure Green. “We used to have hundreds of products and tons of vendors.”

He said he usually has 15 varieties of shatter and five to 10 wax options — both types of concentrates. Now he has six shatters and one wax.

Walstetter stocked up before the transition date and like Morse relied on that to carry him for a while. But that will soon run out, he said.

The only edibles in Brad Zusman’s Cannadaddy’s dispensary are his own product. He created a marijuana-infused chocolate bar that he sold to retail stores around the state. But he decided to close the company, Blaze, when the bars couldn’t pass the pesticide tests.

He laid off his Blaze staff – 12 people — but he was still stuck with $80,000 worth of the bars made before the new testing rules. He was allowed him to “grandfather” the bars into his own inventory. But, because they weren’t state-approved, he couldn’t distribute them to other retail stores to sell to customers.

“That should have gone into all these other dispensaries, but people didn’t have cash to buy product,” Zusman said. “It’ll all be gone probably by the first of the year.”

The bars are almost a blessing in disguise, though, because he is struggling to find any other edible suppliers to sell to him. He lost $40,000 in October alone between slow business at his dispensary and the loss of sales for his edibles, he said, and told his 33 Cannadaddy’s employees that he might have to lay off 30 of them after the holidays.

“I predict you’re going to see 70 to 80 percent of the dispensaries you see today, you won’t see next year,” Zusman said. “If there’s not an emergency way to get products on the shelf, there’s no way to sustain leases or rent or equipment leases.”

***

Zusman’s prediction shouldn’t surprise anyone. Industry leaders warned state agencies that the new rules would create chaos.

Yet many were still surprised at the scale.

“We first started the conversation with the Legislature and Governor’s Office in August,” said Amy Margolis, an attorney who represents marijuana businesses. “And in that time we’ve lost good actors, people who have invested their lives and their livelihoods in this.”

The health authority’s accreditation program already had a large caseload before marijuana testing was added. The division also accredits labs that do environmental and water quality testing, as well as air toxics and industrial waste. It works with labs in more than a dozen states and three countries.

The administrator for the program warned that most marijuana labs need significant help shaping up and it can take months to get them there.

A new report says that the delay could cost the state millions.

The state collected $25.5 million in taxes from marijuana businesses by April and projected $44.4 million by the end of the year.

Beau Whitney, an economist for a national cannabis analytics company, doubts those projections will hold up now. He opened an online survey this month that so far is reporting that 80 percent of the responding Oregon businesses report that their bottom line is “severely impacted” by the market’s stall.

More than 22 percent of the 72 businesses that responded as of last week said they were going out of business or in danger of it and nearly all planned to raise prices for consumers if they hadn’t already.

Whitney said the survey shows nearly half of the businesses are losing $20,000 a month or more on average, some with their revenue cut in half. While Portland’s market is often considered oversaturated, Whitney said what’s happening isn’t explained by natural industry fluctuations.

“This is not just settling of the dust of the market,” Whitney said. “This is apparently policies that were put in place that have essentially devastated a market.”

He estimates the state stands to lose as much as $10 million of the projected tax revenue by the end of the year.

— Molly Harbarger

mharbarger@oregonian.com
503-294-5923
@MollyHarbarger

Portland startup Phylos Bioscience raises funds to bring a scientific approach to the cannabis industry

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The Phylos Galaxy, an interactive genetic map of cannabis strains, was the result of collaboration between Phylos Bioscience and the American Museum of Natural History. (Click for interactive graphic)

When Mowgli Holmes moved back to his home state of Oregon in 2013, the cannabis industry was beginning to take off in a big way — but as a molecular and evolutionary biologist, Holmes was surprised by the lack of research into cannabis as an agricultural plant.

“This new industry was taking shape really rapidly all around me, and it had no science driving it,” Holmes said. “All the basic science that we have for every other crop just doesn’t exist, and people are just running with zero knowledge.”

Holmes and co-founder Nishan Karassik started PhylosBioscience in 2014 to fill that gap in understanding. A new investment round will help the company expand its infrastructure in support of a new phase in its development. Phylos has raised $1.4 million of a planned $5.5 million round, according to a Securities and Exchange Commission filing.

“We’re going to be getting an Oregon State cannabis research license, and starting to do the basic genetics research that will help breeders develop new plant varieties,” Holmes said.

Phylos has spent the last two years developing tools to help cannabis breeders and growers learn about the genetics of their crop, including the Phylos Genotype, a tool that catalogs the DNA of  individual plants. Holmes said a commercial version of the tool is planned for release in two weeks.

The startup also partnered with the American Museum of Natural History on the Cannabis Evolution Project, a two-year research project which tested the DNA of thousands of cannabis samples to produce an evolutionary map of the crop. The project also resulted in the Phylos Galaxy, an interactive visualization of the data, including the genetic relationship between cannabis strains.

“We tried to make it so that the basic visualization of the genetic structure of the population would be interactive, so people could play with it and zoom around in it and learn from it,” Holmes said.

Holmes also pointed out that, unlike in many agricultural industries, genetic information can be as valuable and interesting to a consumer as it is to growers and breeders. Holmes now serves as Phylos Bioscience’s chief science officer, and Karassik as its CEO. The startup employs 15 people at its headquarters in downtown Portland.

Buyer Beware: Oregon’s First Marijuana Investor Fraud Scandal

Aug 1, 2016 at 4:20 PM

I can’t count the number of times I’ve warned potential investors that the cannabis industry is rife with fraud and bad behavior. With legalized cannabis still a relatively new industry and with states constantly changing their cannabis regulations, fraudsters can have a field day.


Cue the bizarre (though unsurprising) case of Portland-based dispensary,
Cannacea, and allegations of cannabis investor fraud swirling around it.I can’t count the number of times I’vewarned potential investors that the cannabis industry is rife with fraud and bad behavior. With legalized cannabis still a relatively new industry and with states constantly changing their cannabis regulations, fraudsters can have a field day.

Last week, as reported by The Oregonian, “[t]he Oregon Department of Consumer and Business Services [“Department”] ordered Tisha Siler, CEO of a Northeast Portland pot dispensary called Cannacea, to pay $40,000 in fines for multiple violations of state securities law, including selling securities without a license.” You can read the Department’s order against Cannacea and Siler here.

According to the order, in November 2014, Green Rush Consulting, a California cannabis consulting company which “worked with a felon previously convicted in a financial scam,” helped Cannacea and Siler come up with a private placement memorandum for potential investors of Cannacea. The Department found this PPM contained multiple misrepresentations, probably the most egregious of which was that “Oregon regulators contacted and specifically invited Siler to ‘open cannabis dispensaries in Oregon,’ and that ‘Oregon regulators stated they would ‘pre-approve’ or ‘green light’ up to six of Respondents’ medical cannabis dispensary applications, ‘ensuring [Siler] would sail smoothly through the application process.’ This ‘pre-approval’ or ‘green light’ was emphasized repeatedly throughout the PPM. In truth and in fact, no such statements were made by any Oregon regulator.” Out of all of the suspect PPMs the cannabis business lawyers in my firm have seen (which are many), this takes the cake as the most outrageous since no regulatory authority would ever make such a promise to anyone.

The facts get even more interesting:  In connection with the creation of the PPM, Siler provided Green Rush with a letter, dated October 16, 2014, that was purportedly from the Oregon Health Authority Medical Marijuana Dispensary Program (the “MMDP Letter”). The MMDP Letter represented that Cannacea had received a ‘green light’ from MMDP for six dispensary locations. In truth and in fact, the MMDP Letter was a fraudulent document. Specifically, the MMDP Letter: was created on letterhead that is not used by MMDP; contained fabricated statements, and; contained a forged signature of a regulator that did not even work in the MMDP. Upon information and belief, the MMDP Letter was created by Siler, or by another at her direction.

The result from all of this is that Cannacea and Siler cannot do any business in Oregon, and both Cannacea and Siler are jointly and severally responsible for $40,000 worth of civil penalties assessed against them by the Department. And while Green Rush Consulting is allowed to continue its consulting service in the state, Green Rush Consulting is “prohibited from engaging in any business activity related to securities in Oregon without permission from the Department of Consumer and Business Services.”

The foregoing is a cautionary tale for investors, marijuana businesses, and state regulators. Far too often, state regulators are too bogged down with satisfying current federal enforcement priorities to deal with the actual business of marijuana. So, I applaud the State of Oregon for setting an example for other states by actually taking relatively swift action here. As the industry matures in all states that seek to legalize, fraudster companies and at least some “cannabis consultants” will no doubt continue to take advantage of unwitting investors. In turn, state securities regulators should be setting their own guidelines for how to better prevent this kind of fraud. In the meantime, be careful out there and exercise caution when you receive a multimillion-dollar cannabis private placement.

 

Microsoft, marijuana industry software firm announce deal

BY KAREN TURNER

Microsoft becomes the first major tech firm to attach its name to the legal pot industry.

America’s burgeoning weed industry just seems to be climbing higher.

Tech giant Microsoft announced Thursday it is partnering with a cannabis industry-focused software company called Kind Financial. The company provides “seed to sale” services for cannabis growers, allowing them to track inventory, navigate laws, and handle transactions all through Kind’s software systems. The partnership marks the first major tech company to attach its name to the burgeoning industry of legal marijuana.

While most big tech companies have been shy to get involved, tech start-ups have been flocking to the up-and-coming pot trade, which is fully legal for both recreational and medical purposes in five states. The weed industry’s specific needs for data tracking to optimize plant growth and other logistics, as well as its booming market potential, make it well-suited for tech partnerships. “Nobody has really come out of the closet, if you will,” said Matthew Karnes, the founder of marijuana data company Green Wave Advisors, to The New York Times. “It’s very telling that a company of this caliber is taking the risk of coming out and engaging with a company that is focused on the cannabis business.”

This hesitancy comes from the still murky legal status of marijuana in most of the country. Marijuana is still illegal nationwide, and the risk of crackdowns where federal and state laws contradict have discouraged many banks from working with marijuana businesses. There are also risks in taking a weed business across state lines where it could have a different legal standing. And there’s always the danger that a change in government leadership, say with a changing Presidential administration, could result in a backtracking of relaxed weed laws.

Then there are the potentially negative association. “My company has stayed away from investing in the cannabis industry because it’s like investing in the porn industry,” said Zach Bogue, a venture capital investor. “I’m sure there’s a lot of money to be made but it’s just not something we want to invest in.”

Allen St. Pierre, Executive Director of National Organization for the Reform of Marijuana Laws, sees marijuana software and Microsoft as a natural pairing. “If you are trying to go big macro strategy at a company like Microsoft, and you want a super diverse portfolio, and you’re located largely in a place where you can visibly see the marijuana commerce happening, and of course maybe your employees and others are engaged in that commerce, why wouldn’t the company invest in it?” he said.

He adds that he believes that Microsoft association with legal weed will ultimately be helpful in the legalization effort. (Microsoft is based in Redmond, Washington, a state that has legalized marijuana for recreational use.) The legitimacy it lends will make it easier for marijuana producers to go about business, citing growers who see their ad dollars refused by corporations who don’t want to be associated with the substance. “Having a brand name like Microsoft will definitely catch people’s attentions,” he said.

He also thinks the partnership could have an affect on legislation. “Microsoft has a leviathan lobbying effort up here in Washington, D.C.,” he said.

A NEW GROWTH INDUSTRY FOR NATIVE AMERICANS: WEED

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Alana Semuels / The Atlantic

Alana Semuels     May 20, 2016

Can cannabis revive Oregon’s long-struggling reservation economies?

WARM SPRINGS, Oregon—The tribes on this reservation, located in the high desert on the eastern side of Mt. Hood, are accustomed to bad deals. Until the 19th century, the Wasco, the Walla Walla, and the Pauite survived off of the Columbia River, catching salmon and, eventually, trading for it. Then in 1855 they were forced onto the Warm Springs Reservation. It was 80 miles from the river, but they could still go there to fish—that is, until the U.S. Government started to build the Bonneville dam on the river in the 1930s and flooded their fishing spots.By the time the Dalles Dam was finished  in the 1950s—ending all hopes of fishing the river and the economic independence it brought—the tribe had been decimated by other factors too, including the removal of children to boarding schools, and the drafting of men to the Army.Now, the reservation, which spreads over 1,000 square miles in Oregon, is one of the most economically depressed places in the state. The unemployment rate is around 20 percent, and about one-third of its residents live below the poverty line. Sadly, the circumstances of Warm Springs are familiar for many Indian reservations. Nearly 30 percent of American Indians and Alaskan Natives lived in poverty in 2014, according to Census data, which is the highest rate of any race group.

Now, the Confederated Tribes of Warm Springs are trying to reverse that history by taking advantage of the intricacies of federal law that made them sovereign tribes with the ability to make their own rules. Between 1778 and 1871, American Indian tribes signed treaties with the federal government in which they gave up land and were granted sovereign nation status. Under the treaties, tribes have the ability to make and enforce civil and criminal laws, to zone land, and to license and regulate activities on their lands (with some exceptions in the court system).

The tribes in Warm Springs want to use that sovereign status to grow cannabis on their land and sell it off the reservation in Oregon, which in 2014 approved the use of recreational marijuana. Because the tribes are a sovereign nation, leaders say,  they will be able to start an operation quickly, without having to deal with the headaches of city, county, and state government. Recently, the tribes broke ground on a 36,000- square-foot greenhouse, and hope to get product to market by next year. Finally, after centuries of being on the bad end of deals with the government, the tribes’ status could give them a key advantage.

The idea of growing cannabis on the reservation has residents’ full-fledged support. In a referendum on whether to grow cannabis this winter, 1,252 voted for the idea, and just 198 voted against it, and turnout was high despite a snowstorm that could have kept people home.

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A voter casts a ballot in the cannabis referendum in Warm Springs in December 2015 (Pi-ta Pitt)

“I don’t smoke but I thought it was a good idea to bring in revenue,” Tom Kalama, a tribal member and reservation resident who voted for the initiative, told me. And the tribes are in need of more money. Tribal members used to get $100 a month from the tribe, dividends from economic ventures, Kalama told me. Now they get $25. Seniors used to receive $600 a month, now they receive $300.

Tom Kalama was sitting under a canopy where his wife Jeanine was selling Indian tacos (meat or beans on frybread) to passers-by. Their sons, ages 44, 42, 41, and 35, want to work on the reservation, but it’s hard to find jobs, Kalama told me. Instead, they drive outside the reservation for work, if they can find anything close to home.

The move to start a cannabis operation could also serve as a blueprint for other tribes that have yet to figure out how to gain from their sovereign status. “We’ve yet to see tribes fully exercise their sovereignty, and I think that cannabis is strangely a lens that will demonstrate the capabilities of taking that on,” Pi-Ta Pitt, the cannabis project coordinator for Warm Springs Ventures—the tribes’ economic development arm—told me.

Sovereignty is a big deal for tribes across the country. For centuries, despite the treaties, decisions on reservations were made by people at the Bureau of Indian Affairs in Washington, or by other state or federal agencies. Then, in 1970, Richard Nixon started to shift the federal attitude towards tribal sovereignty. The U.S. government had been controlling and subjugating the tribes for far too long, he said, in a speech to Congress. The federal government should step back, he argued, and let American Indians control their own resources.

The Indian Self-Determination and Education Assistance Act of 1975 ushered in what’s known as the era of self-determination, according to Robert J. Miller, an expert on Indian law at Arizona State University. It’s taken awhile to take hold, he said. The Bureau of Indian Affairs and other agencies resisted ceding control for a long time, but the tribes are trying to be more independent now.

“Communities that call their own shots and have flexibility in making their own decisions bear the risk of failure but also reap the benefits of success,” Eric Henson, a research affiliate at the Harvard Project, told me. A series of studies by the Harvard Project on American Indian Economic Development backs up that claim. Comparing tribes that were economically successful and those that weren’t, the studies found that tribes that make their own decisions about economic development outperform those who cede such decisions to outside agencies.

In Mississippi in the 1970s and 1980s, for instance, a tribal leader named Phillip Martin created a manufacturing hub, industrial park, and eventually a theme park, on the Mississippi Choctaw reservation, lifting the tribe from poverty to wealth. Because of his efforts, the unemployment rate on that reservation fell to around 4 percent, at a time when the rest of the nation was going through a recession. Tribal businesses employed 7,000 people at the time of Martin’s death in 2010. This was an especially remarkable feat because Martin led the tribe to self-sufficiency before the federal Indian Gaming Regulatory Act of 1988 made it easier for tribes to operate gaming businesses in their territory.

What’s more, the tribes’ ability to call their own shots could be essential in the cannabis business, Pitt told me. Private growers might spend thousands to set up an operation somewhere and then get harassed by city or county authorities who don’t want a cannabis operation in their vicinity (the use and growth of marijuana is still illegal under federal law). The tribes also don’t pay county or state land taxes, which could give them a big financial leg up in a state like Oregon, which levies high property taxes to make up for the lack of sales tax.

The Confederated Tribes of Warm Springs have tried other things to lift themselves out of poverty—efforts such as gaming which also takes advantage of their sovereign status—and most haven’t been successful. Warm Springs has a casino, a hotel and lodge, and, up until very recently, a timber mill (the mill went bust).The casino was far from the target market of Portland, a hilly two-hour drive away. The hotel and lodge are dated and have to compete with hundreds of other resorts closer to Portland. The timber industry has been dying for years. Marijuana, on the other hand, is a market that’s just starting up, and the outcome could be very different, tribal leaders say.

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Ben Bisland on the area the tribe has cleared for the greenhouses (Alana Semuels / The Atlantic)

“The tribe has really been on the decline for several years—this will be a good foothold to start climbing again,” Ben Bisland, who manages projects for Warm Springs Ventures told me, standing on the flat expanse of land under a butte that will house the greenhouse.

Nationally, it can be difficult for tribes to thrive because of the circumstances that led them to reservations in the first place. Native people were often confined to reservations with barely farmable land and with few resources. Reservations often don’t have infrastructure like broadband or railway lines that could help support industry. Overlapping jurisdictions between federal, state, and tribal entities made it difficult to get anything done. And “It’s literally been American policy to acquire all the resources and land the indigenous peoples had,” Miller, the ASU professor, said.

The gaming act has made winners out of some tribes, mostly those located close to cities who can start up casinos and attract a high volume of customers. But others, like the tribes in Warm Springs, have not found casinos to be very profitable, because their reservation is too far from big population centers. The Warm Springs tribes are situated in the perfect location to grow cannabis, though, Pitt said. There are more than 300 days of sun a year, and the reservation is close enough to easily bring product to market.

Warm Springs is not stopping at marijuana. They’re moving ahead on other economic development opportunities, too.  “Marijuana is notthe answer. It’s part of the answer,” former Oregon Governor Ted Kulongoski, who serves on the tribes’ economic development board, told me. The tribes are trying to become a national testing site for unmanned aircraft systems, or drones, and want companies to test how to use drones to fight forest fires on the reservation. Warm Springs Ventures, the tribes’ economic development arm, recently booted a private telecom company and founded its own tribal telecom company. Its also getting into the carbon offset market. “Think about 200 years of deprivation, being driven onto the poorest land available— – you don’t overcome that with a decade of gaming,” Henson, from Harvard, told me.

But as a way to test the sovereign power of tribes and their ability to create economic development for themselves, marijuana could be a big deal. Because Oregon has approved recreational marijuana, and because it has independent tribes, the state could become a testing ground for a new industry that could replace, or supplement gaming, on reservations. This is not true in other states: Despite a 2014 Department of Justice memo that said that the federal government wouldn’t interfere with cultivation on tribal lands, state interference in South Dakota has motivated one tribe to suspend its marijuana operation, while a sheriff’s office in California raided anothergrowing operation on tribal land there. Warm Springs, for once, has been able to take control of its own business, and perhaps set a path for other tribes.

“This is something that can be an inspiration to other tribes, to be able to learn, what does sovereignty look like,” Pitt said.