It's Not Easy Being Green: How Legal Cannabis Continues To Be Regulated To Death
by Rudy Sanchez on 04/20/2022 | 10 Minute Read
Many celebrated finally “legalizing it,” but few could have foreseen the morass that decriminalized cannabis would become.
A vast majority of Americans support some form of legal cannabis. Hemp, which is defined as cannabis containing less than 0.3% of THC Delta-9, has been federally legal in the US since 2018, but when we start talking about medical and recreational cannabis, well, that's an entirely different game. “Being legal” means a lot of things, and it's not getting any easier for legitimate cannabis brands.
Legal cannabis is fraught with challenges, even in states that decriminalized cannabis years ago, such as California and Oregon. Cannabis’ continued Schedule I status, except for hemp, puts businesses at several financial disadvantages, and they must operate with additional overhead since interstate commerce is still forbidden. Designers new to cannabis will find a complex legal environment with many regulations crafted around it, some of which are also different in every state.
Since the legal weed is still relatively new, states are continuously changing their rules. And, yes, this is something that designers and brands must constantly reckon with.
Costs and Section 280E
There are many stumbling blocks to running a legitimate cannabis business. Green enterprises incur normal and typical non-COGS (Cost Of Goods Sold) businesses like any capital pursuit. Unlike selling cars, phones, or tomatoes, cannabis firms can not deduct these expenses federally, thanks to Section 280E. Cannabis is also unique in that businesses are confined to intrastate commerce. Budweiser, Gallo, and Marlboro sell age-gated and highly regulated products, but they can also freely produce goods and ship them to customers in different states.
Cannabis firms, even under the same brand name, currently have to set up a lot of redundant operations in every state they want to sell in.
Supply Chain Woes
Like many other businesses, cannabis firms rely on overseas packaging manufacturing. Since the pandemic, supply chain and logistic issues precipitated by the COVID pandemic have created bottlenecks in distribution. Being a plant, freshness is critical, and the unavailability of packaging puts the crop at risk.
Regulators are unaffected by supply chain disruptions, of course, and delayed packaging could soon be in non-compliance shortly after delivery. We’ve seen one cannabis brand get creative, like Camino releasing its holiday-timed infused candy in February after delays in overseas shipments. Unfortunately, that’s not a solution available to all supply chain roadblocks.
“Many packaging items in the cannabis industry have to be sourced offshore, says Elizabeth Corbett, vice president of sales for AE Global. Corbett has twenty years of experience in packaging and supply chain planning and execution, specializing in cannabis for the last eight.
“For example, there's really no glass manufacturing in North America suitable for the cannabis industry," she adds. "All tin manufacturing primarily comes from one region in China. Things that involve a ton of handwork have to be done offshore. And from everything that I'm reading, the supply chain problems of the last two years are not going away.”
“So what that means is that you have to be able to manage your supply chain and give yourself very, very long lead times. Unfortunately, you’ll be stuck paying for air freight when you would have been able to do ocean freight in the past.”
Regulations. Regulations. Regulations.
“Rules and the regulations are the biggest constraints for everyone,” said Andrew DeAngelo, co-founder of Harborside, a publicly-traded cannabis firm, The Last Prisoner Project, a cannabis reform non-profit, and the California Cannabis Industry Association a trade group. "They drive up the cost."
Image courtesy of Duallok.
Child-resistant packaging, for example, is required in most states. New packaging needs to undergo testing, which involves having groups of children in different age groups attempt to open the package. Should a design fail, that would require a redesign, potentially new packaging molds, and retesting.
“Child-resistant packaging is enormously expensive, and it can add 50 to 200% to the cost of packaging,” Andrew said. “A whole different mold and different technologies might have to be deployed by the packaging people. It also is not very sustainable. So if you want to do something sustainable and eco-friendly, and it has to be child-resistant, that becomes expensive and hard. Costs remain the biggest obstacle.”
“The other obstacle, here in California, in particular, is that the cost of doing business is so high that there's a very low-profit margin. People are then incentivized to spend the least amount of money on packaging as possible, which means it's often not so great for the consumer,” DeAngelo added.
New legislation in states like California and Oregon will make cannabis packaging more expensive and confusing. Some rule changes aim to combat the distribution of illicit cannabis and tackle the sale of unregulated yet federally legal hemp extracts such as Delta-8 THC.
New regulations could put the burden of teaching some basic knowledge of cannabis consumption onto the packaging. You know, the no-brainers— don’t eat more edibles too quickly after having already eaten some edibles or toking up while pregnant. In California, SB 1097, currently being reviewed by the legislative appropriations committee, would add additional warning labels, including a sextet of missives similar to those found on tobacco packaging in a bright yellow background occupying one-third of the front. SB 1097 would also require cannabis retailers and delivery services to give new customers a flyer with health warnings about cannabis consumption.
The new and costly rules would come while the legal California market already faces significant competition from the black market in the state, and regulators are making it even more challenging to compete with illicit actors.
California’s new packaging requirements seem over-the-top for a state that voted for recreational cannabis and had a de facto recreational market in the Prop 215 days, which decriminalized medical marijuana but made getting the required doctor’s recommendation a formality. Cannabis operators have operated in good faith, and with consumer safety in mind, for years.
“I toured the regulators through Harborside for many years, and we were very transparent,” DeAngelo said. “We opened our books, we opened operations, we showed them exactly how we were protecting children, protecting the community, how much we sold, how many people complained about it, and how many people got hurt. They still over-regulated us. We told them they would empower the underground market, and that's what's happened in California.”
Artificially Derived Cannabinoids
In Oregon, as in much of the country, soothing, non-intoxicating cannabinoids like CBN and CBG have become popular, with many believing that they aid in sleep and can calm moods.
Since cannabinoids like CBN and CBG come from hemp, they are legal, even federally, but some cannabinoids can get molecularly altered into another one; Oregon categorizes such processed compounds as scary sounding “artificially derived cannabinoids.” CBN, for example, can be made by chemically manipulating CBD, which is far more abundant naturally in hemp. Psychoactive cannabinoid Delta 8 THC is similarly produced from CBD as well.
Oregon’s Liquor and Cannabis Commission (OLCC) is concerned that these cannabinoids are being produced and sold on supermarket shelves without undergoing the same review and scrutiny as non-cannabis dietary supplements, such as the FDA’s New Dietary Ingredient and Generally Recognized As Safe (GRAS). The new rules remove products like gummies containing these derived cannabinoids from retailers such as supermarkets and, by July 2023, will be banned altogether unless they are FDA approved.
“We're currently focused on Oregon's upcoming rule enactment that will label CBN as an artificially derived cannabinoid," says Ben Gaines, director of marketing at Wyld. “The rule change is designed to impact Delta 8 producers, which are selling cheap gas station drugs. But CBN and its manufacturing process get looped into this overly broad rule. It forces companies like ours, which are selling a safe, beneficial product, to put an ancillary label on the cannabinoid and interrupt the consumer relationship with this beneficial cannabinoid and introduce a new idea, which is how it's derived.”
Speak to nearly any stakeholder in the cannabis industry, and they’ll say sustainability is critical, perhaps the most significant priority for their brand or business.
Requiring child-proof packaging, for example, limits the number of plastic-free options. Some brands, such as Wyld, however, are investing in designing genuinely sustainable packaging. Nor will it live in landfills or the environment forever.
“We believe strongly, where a sustainable option doesn't exist, that we can create that option. “I think a common refrain that you'll get out of people who want to produce more sustainable packaging is that the supply chain isn't there, or it's greenwashed. Wyld is directly engaging with manufacturers and suppliers to address those concerns. And make sure that Wyld packaging can be a leader in the space and a Northstar for people to point out as proof that sustainable packaging exists."
In Canada, cannabis packaging regulations are more similar to pharmaceuticals, forcing a plain approach. The amount of concentrated THC allowed per package is also much lower than in most of the US.
In this environment, Wyld used a certified, fully compostable pouch made from BioPBS, Woodpulp, and Bio Resins (even the adhesives, zippers, and inks). “The pouch was used in Canada but has not been deployed here in the US because of the product experience,” Ben explains. “In Canada, they have a maximum potency per package, which would limit us to two gummies per pack at five milligrams THC per gummy. That's very different than our US packaging, which is designed for ten gummies, has much higher potency per package, and also has a much less strenuous regulatory framework to address." The brand plans to bring the compostable packaging south soon as they are currently overhauling their US supply chain.
"Wyld is directly engaging with manufacturers and suppliers to address those concerns, making sure that Wyld packaging is a leader in that space and a Northstar for people to point out as proof that sustainable packaging exists," Ben says.
"We don't want to be the only brand on the planet with sustainable packaging," Ben adds.
Packaging’s Unique Role In Cannabis
In addition to wearing all the legally required and increasing pieces of flair, cannabis packaging also has to compensate for the lack of advertising, which is also tightly controlled and has to function in a unique retail experience, a revelation to Marc Hohmann, vice president of creative at Pax, a brand that makes portable cannabis vapes. Hohmann comes to Pax with extensive experience working with consumer brands like Pepsi, industrial corporations such as GE, and tech giants like Google, Dell, and AT&T, among many others.
“The packaging in cannabis, at least from what I can see, is a really a source or tool of information, more than a box of cornflakes,” says Marc Hohmann, vice president of creative at Pax. “Budtenders often don’t have much to go on other than the package itself. So how can this become an informational tool that very, very quickly for the person selling it to the consumer? The customer has very little knowledge about any of this stuff through advertising, billboards, or print ads. Besides the budtender getting training, the package plays a huge role, being a sort of interactive device that helps tell that story to the budtender while he's showing you the product.”
“You don't have any of that kind of middleman if you go to a supermarket to buy cereal," Hohmann continues. “Your mind is mostly made up from seeing a video or something.”
Marc also discovered that cannabis changes the roles of the designer. Unlike designing packaging for other types of consumer goods, creatives in cannabis might be called upon to advocate for a regulatory change by developing tangible solutions that satisfy the concerns of government overseers. “Usually, as a package designer, you're not advocating directly for some sort of legal change over something that immediately affects your work," says Marc.
“California regulation required a minimum sized warning on the cartridge itself, and we tried to solve that problem by putting stickers on the cartridge, which eventually would melt,” Marc explained. “We advocated for a smaller size because the legal size was too big to fit on the cartridge. Now, it can get engraved on the cartridge itself. As a cannabis designer, you're fighting a political fight with immediate design consequences."
Cannabis’ relationship with American consumers remains complicated, and decriminalization has not made it any easier. The patchwork of state regulations and the continued federal prohibition on Delta 9 THC creates a cumbersome and confusing legal landscape. New, constantly changing packaging rules, such as additional warning labels, add to the costs and risks in trading in legal cannabis. That has opened opportunities for black market marijuana operators to take sales from the legal market unencumbered by the rules.
It's Chinatown, Jake...Right?
Despite all these headaches and obstacles, cannabis remains a new and exciting industry. The business of weed is different in many constricting ways. But even with a thick rulebook, cannabis offers an opportunity for talented folks looking for a new challenge, something unlikely to change in 2022 and beyond.
As legal cannabis grows commercially and consumption becomes more accepted, the patchwork of state-level regulations is also getting more complex. The increased costs and intricacies also allow for less scrupulous cannabis providers to ignore all the rules and compete on price. Consumers looking for a better deal are risking buying untested cannabis, which might be full of heavy metals, pesticides, and other nasty stuff.
“Regulators are the ones that can change the taxes. They can change the rules. They can make all this go away for a little while, DeAngelo says. “The underground market doesn't have any of this to deal with. They're just punching the legal market in the face all over the place.”
The legal cannabis market remains strong enough to see a change in how state cannabis boards and bureaus regulate before the illicit market takes over, but further burdens and costs could very well kill legal bud, leaving consumers once again buying cannabis illegally.
Hero Image by Crystalweed Cannabis.
Jackson Family Wines
Jackson Family Wines
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