Smoke Stacks™ Leads the Way After Implementation of Harsh Regulations
California’s cannabis testing regulations became effective July 1, 2018, increasing the cannabis test thresholds to levels never before experienced in the California market. Most California producers believed the state would, yet again, extend the regulatory implementation period another six months. Grupo Flor however, took a contrary view. We organized our processes and lab partner relationships so that our in-house flower and concentrates brand, Smoke Stacks™, would hit shelves July 1, 2018 being fully tested, labeled and packaged in full compliance with the law.
The July 1, 2018 implementation impact was massive and sudden. Whole swaths of California wholesale supply chain producers were unable to meet the new test standards and Facebook and Instagram posts went viral of empty dispensary shelves across the state. One winner emerged: Smoke Stacks™.
While certainly exciting in terms of validating and testing our products and business processes, the most thrilling aspects has been relationship development and the acquisition of market share. The cherry on top is the great response to the quality of our product from shops throughout the state.
While betting on July’s implementation and preparing to mobilize may not seem genius, consider that Grupo Flor’s distribution company had to source goods from a small and diverse archipelago of farms that were themselves producing compliant cannabis.
Quite a feat in the absence of a robust and standard supply chain.
Distributing the highest quality cannabis throughout California
Regulatory compliance and accountability is the “What” we do; but when it comes to distribution, it’s really the “Why” and “How” we do that sets FlorX apart. FlorX is the distribution arm of Grupo Flor and it’s run by cannabis retail veterans, supply chain logistics experts and straight-up process nerds whose combined efforts create a killer distribution service with one singular goal: reduce back-end hassles so shop owners can focus on the front of shop.
“FlorX is paving the way with cannabis distribution by embracing forward-looking supply chain strategies. The team at FlorX is obsessed with procuring quality product and delivering world-class customer service. The team at FlorX is also very focused on compliance with local and state regulations. This has allowed FlorX to be there for dispensaries when others were not prepared,” said Steve Podell, President of Distribution.
New Faces Join the Grupo Team
FlorX welcomes new Bay Area sales team members Ashley Palma and Vittorio Lagorio.
Ashley joins FlorX from Riverview Farms, where she successfully built relationships with dispensaries in San Jose, Santa Cruz, and Monterey County. Her experience selling flower, pre-rolls, topicals, and edibles will continue with FlorX and we look forward to seeing her thrive with us.
Vittorio joins FlorX from W.M Dickerson and Farmers Produce, where he excelled as a broker for the past ten years. He is excited to take his sales experience to new heights in the cannabis industry as he covers wholesale sales for the East Bay and San Francisco.
Federal Legislative Look
Could A New Bill End Federal Prohibition of Marijuana? A bipartisan group of lawmakers introduced new legislation that highlights the growing divisions within the Republican Party on the nation’s current patchwork of marijuana laws. The effort to allow states to decide their own marijuana policy potentially pits President Trump, who has voiced support for the state’s right to choose their own policy, against his own staunchly anti-marijuana attorney general. Additionally it highlights the chasm between anti-marijuana GOP leaders in Congress and the growing number of rank-and-file Republicans who are demanding federal protections for their state’s burgeoning marijuana businesses.
After Sens. Gardner and Warren introduced the legislation, advocates called it the “most significant piece of marijuana-related legislation ever.”
State Legislative Look
Flash Sales Throughout the State at Dispensaries not Compliant by July 1
Since the state of California fully legalized cannabis on Jan. 1, the industry had a six-month transition period to adopt new testing, packaging, and ingredient standards. Any leftover products that didn’t meet the new requirements were destroyed or sold in lash sales on June 30.
The deadline had many in the cannabis industry scrambling to sell tens of thousands of dollars worth of old, non-compliant stock by the end of June, touting discounts and parties to lure customers.
First Look at California’s Proposed Final Marijuana Regs
California regulators released the first draft of permanent adult-use and medical marijuana regulations on Friday, July 13, starting the clock on a process of hearings and public comment that will end later this year with a final set of rules governing the nascent industry.
The proposed rules are contained in 315 pages of documents issued by the Bureau of Cannabis Control, the Department of Food and Agriculture and the Department of Public Health.
The changes that were most apparent were:
- Deliveries anywhere. The new language will allow licensed marijuana deliveries in any city or county in the state, even those that ban retail outlets, processing and cultivation. The provisions are similar to legislation, now shelved, that would have barred local governments from stopping state-regulated companies from delivering to their residents. That bill drew opposition from cities and counties, which argued that local control is a key tenet of Proposition 64, the 2016 voter initiative legalizing recreational marijuana. Companies including WeDrop Cannabis Delivery, CannaWagon and Weedmaps lobbied for the bill.
- Advertising restrictions are increaseded. New rules expand restrictions on marijuana advertising that might appeal to children, such as the use of inflatables, toys and cartoon characters. Additionally, outdoor advertising must be affixed to a building or a “permanent structure.” That would appear to bar roving billboards attached to trucks or truck trailers. As for billboards, “It would depend on the billboard,” said Bureau of Cannabis Control spokesman Alex Traverso. “We’d have to look it at case-by-case.” The bureau’s proposal also offers guidance for how advertisers can show that 71.6 percent of their audience is 21 years of age or older.
- Attention events-holders. Changes will require cannabis event-holders to provide more details about where licensed retailers will be set up, where attendees can light up or consume marijuana and where sales will occur. Cannabis-focused events have proven challenging for organizers working under the state’s emergency regulations. Organizers of the Chalice Festival sued the Bureau of Cannabis Control and the city of Victorville in June after they declined to issue permits for the event planned for the San Bernardino County fairgrounds this month.
A New Beginning
Jennifer Rosenthal Iverson, Esq.
Jennifer is a local cannabis and criminal defense attorney and Vice President of MCCIA. The views and opinions expressed in this article are those of the author and do not reflect an official position of the Association.
July 1 marked the beginning of new and exciting times at both the State and local levels. The most impactful regulations facing operators are the testing and packaging requirements. These requirements have had a substantial effect on the market. Across the state dispensaries and retail facilities are experiencing the fallout of the supply chain.
The County of Monterey is gearing up on enforcement for all cannabis operators. As indicated in the County’s recent memorandum released June 29th, in order to remain in good standing you must submit your conditional use permit application by August 1, 2018. If you do not submit your conditional use permit application you will not be able to continue cultivating on site. Further, the County is conducting both canopy audits and inspections for building code violations. Any building code violations found on site could have a substantial negative impact on the operator’s ability to continue cultivating and moving forward through the regulatory scheme. If you are conducting structural improvements to buildings and greenhouses it is critical to go through the required permitting process.
In addition, the County and State will be issuing enforcement actions against all entities that are currently operating with over 25 employees and do not have a permitted public water system. If you are operating with more than 25 employees it is critical to start the process of the State Public Water System application. The process alone can take up to 6 months and your conditional use permit application will not be deemed completed until you have submitted your application.
The six month report card on California’s first steps into regulated cannabis came in with a sobering grade: “Needs Improvement.” With its heavy emphasis on local (county and municipal) controls, administratively intense applications and compounded State and local tax rates exceeding 45% for each cannabis dollar earned, most legacy California cannabis operators and indeed consumers, have simply elected not to participate.
Of the ~2,500 cannabis dispensaries operating before regulation, less than 500 have thus far become state-licensed shops. (The remaining 2,000 or so shops are electing instead to make as much money as they can until their Prop 215 rights sunset on January 1, 2019.) Because regulated operators cannot sell to legacy Prop 215 shops, the entire regulated marketplace has suffered massive constriction, forcing layoffs, reduced SKUs, and intense financial restructuring.
“Pioneers get the arrows, settlers get the land,” goes the saying. With regulation came a great reckoning that leveled the playing field and reset the marketplace, but with a much smaller footprint than anticipated. Some contraction was expected, but governments are scrambling to reset a healthier course. For example, our own County of Monterey was the first in the state to reduce cannabis tax rates, and it did so by almost 75%! In the meantime, most operators in California who chose the regulated path are reeling to down-scale to a constrained market. Those who did not, the Prop 215 operators, have less than six months of existence left and time will only tell how many will migrate to the regulated environment.
As the hangover excitement of regulation fades, a new market emerges – even if slowly. Ours is a challenging landscape and Grupo Flor will surely earn its fair share of arrows. However, unlike others, Grupo Flor was specifically designed to weather these transitional years. From our blend of cannabis and ancillary business units, to our aggressive acquisition of permits to the very architecture of our supply chain, we are specifically built to weather this transitional. Successful scaling will require more than a strong foundation, capital and guts; it also demands a mature adjustment of perspective with balanced expectations.
New Faces Join the Grupo Team
This spring, Grupo Flor hired two key players who bring a new level of expertise to cultivation and greenhouse operations — meet Sam Burgner and Mikey Towey.
Sam Burgner, Harkins Farm Indoor Lead Grower, is a recent Master of Science graduate from Purdue University — one of the nation’s top horticulture programs. Sam also worked alongside NASA Kennedy Space Center on how to efficiently grow plants in zero gravity on the International Space Station and conducted research on ways to cultivate food crops under the harsh conditions present aboard spacecraft.
Sam’s in-depth knowledge of plant and environmental physiology is being put to good use on the vertically-tiered production project at Harkins Farm, which will utilize cutting-edge fertigation, lighting, and climate control systems for 22,000 square feet of intensive production.
“Joining Grupo Flor was a natural fit. For years they have had their eyes on the future of Cannabis in California, and mine have been fixed on the future of crop production. I appreciate the innovation that they bring to the industry and the easy-going nature of the team makes the difficulties of building an industry from the ground up flow smoothly,” said Sam Burgner.
As a former whitewater raft guide, an avid outdoorsman, and devotee of fresh and local agriculture, Sam is already finding himself at home on the Monterey Peninsula with the natural beauty, great trails and hikes to explore.
Mikey Towey, Compliance Manager, who overlooks Grupo Flor’s ongoing compliance efforts, including the identification and prioritization of applicable regulations, development of internal processes and procedures, and the rollout to partners, stakeholders, and employees. Mikey’s expert knowledge in the state-mandated track and trace program is instrumental in the successful implementation and integration.
Mikey ran operations for one of the largest indoor cultivation centers in Washington State and most recently managed greenhouse operations in Monterey County. With this type of expertise, Mikey plays a major role in the design of Harkins Grow and the general A to B operation flow, as well as the procurement of genetics.
“I’m excited to be a part of such a talented team where everyone shares the same vision for excellence and innovation. This position gives me the opportunity to create infrastructure and procedures for a fast growing company in a nascent industry and that is pretty cool,” stated Mikey Towey.
When Mikey isn’t overseeing major cannabis operations, he enjoys spending time with his girlfriend, Serina, and his french bulldog, Napoleon. As a former substitute percussionist for the Seattle Symphony, he still likes to practice music and composition (when he isn’t at the gym or yoga, of course).
Federal Legislative Look
In Washington, evolution on the marijuana issue is moving forward at warp speed in political terms.
Senator, Mitch McConnell fast-tracked a Senate bill to legalize low-THC hemp. Democratic Senate Minority Leader Chuck Schumer of New York introduced a bill to remove marijuana from the Controlled Substances Act, which would deschedule marijuana entirely. Colorado Senator Cory Gardner struck a deal with President Donald Trump, who promised to not target Colorado’s legal marijuana industry in exchange for Gardner releasing his hold on Trump’s Department of Justice nominees. The Food and Drug Administration opened a comment period on the scheduling of marijuana ahead of a special session of the World Health Organization convened to re-evaluate marijuana laws, and both chambers of Congress passed “right to try” bills that might have accidentally legalized medical marijuana for terminally ill patients. Taken together they suggest that nearly 50 years of federal marijuana prohibition is about to disappear, and it’s happening in the face of an administration that has expressed its outright hostility to the notion. Bipartisan efforts are picking up steam to push for access to banking for legal marijuana businesses at the least making it so marijuana businesses don’t have to be all cash.
State Legislative Look
The new rules came from the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health, and what is noteworthy, is that they allow companies with medical licenses to continue to do business with those holding only adult-use, recreational licenses rather than requiring a separation (which would have been a huge disruption to the industry). Of special interest to Grupo Flor, is that a provision requiring that if a product is branded as being from a specific county, 100 percent of the cannabis used in it must be from said county, and all of our cultivation is done is Monterey County.
The new regulations also outlaw what industry folks refer to as the “ice cream truck” delivery model, in which someone can load up a delivery truck with all kinds of cannabis products to have on hand as orders are placed online and a delivery driver cruises through town. Instead, delivery drivers now must receive orders and stock their vehicles at a brick-and-mortar location before making the rounds.
Bigger changes are down the road, most notably, the July 1 deadline, after which all cannabis products sold legally in California must pass stringent laboratory tests for potency, molds and pesticides, with products that fail testing, facing the possibility of being destroyed.
On May 22, 2018 the Monterey County Board of Supervisors reduced cannabis taxes! This decision was spurred by pressure from the local cannabis industry about the damaging impacts of the high taxes. This was supplemented by a report from HdL a cannabis consulting firm that analyzes rates in jurisdictions across the State. This report exemplified the challenges growers face to succeed with the cumulative state and local tax rates already at 30 percent. Listed below are the new tax rates that will be adopted in July of 2018.
- Mixed Light Cultivation (greenhouses): $5 per sq. foot
- Indoor Cultivation: $8 per sq. foot
- Nurseries: $1 per sq. foot
- Manufacturers: 2.5% of gross receipts
- Distributors: 2% of gross receipts
- Testing: 1% of gross receipts
- Retailers: 4% of gross receipts
These new tax rates are a relief for the industry, however, there is still a disconnect between the popular perceptions of the ‘Green Rush’ wealth and the harsh economic realities faced by those seeking to comply with the new law.
It’s been 168 years since the gold rush and with legalization of cannabis California, Grupo Flor is smack dab in the middle of a well publicized “green rush.” This is energizing a whole new crop of investment and participation interest in cannabis. It seems whether we’re at a local basketball game or dinner party, whenever someone hears that we’re in the cannabis industry, the first questions is, How do I get involved? This is usually followed by a litany of questions about investing in cannabis and Grupo Flor’s activities.
The Future Is Bright
Despite what is considered to be an unfriendly administration in Washington D.C., nine states and the District of Columbia now allow for recreational marijuana use, and thirty allow for medical use. Twelve states are poised to join the marijuana legalization wave this year, with more possibly joining as legislative sessions continue. Public support for marijuana legalization reached new highs in 2017. A Gallup poll showed that 64% of Americans favor legalization, and a majority of Republicans back it for the first time. Vermont became the first state to legalize marijuana through the legislature rather than a ballot initiative, in January of 2018. There is a distinct rolling out of increased regulatory acceptance of the cannabis industry throughout the nation.
With the New Year well underway, we enter a new era – right smack dab in the center of the biggest legal, adult-use marijuana market in the world. At Grupo Flor, we’ve hit the ground running with plenty of great news to share…
But first, why Grupo Flor?
If you’ve been around this thing for a minute, you know the California cannabis marketplace is severely fractured and regional. Grupo Flor’s goal has been to create a regional “ecosystem” that is strong in a diversity of relationships… READ MORE
Seed to Store Model
Fueling Grupo Flor’s Growth
Grupo Flor is excited to have secured much of the capital needed to complete facility build-outs, fuel hiring, purchase compliance technology and launch partnership brands through Grupo Flor’s affiliate distribution arm, Flor X, Inc.
We are also excited about a number of federal bills that seek to synthesize federal and state marijuana law. Among a handful of others, these five measures are pending in Congress that address some of the gaps once filled by the Cole memo…READ MORE
State Legislative Look
After Jerry Brown swatted down the beehive of legislation that tried to show up at the end of 2017, things are calmer this start of 2018, with more emphasis on refining the regulated marketplace at the division levels of the Bureau and various departments handling different aspects of the supply chain. We are particularly excited about some negotiations underway that could change child proof packaging laws and maybe, just maybe, (fingers crossed) eliminate the difficult Adult Use and Medical distinction in the supply chain before it gets to the dispensary counter. We will keep you posted.