This article was first seen in print in our second issue published in the Fall of 2019.
Legislative changes in the cannabis industry are hard to keep up with. Since December of last year, the Agricultural improvement act i.e. farm bill and numerous decriminalization measures have been passed. We’ve also seen a comprehensive Marijuana Regulation and Taxation Act as well as an expansion to the state’s Medical Marijuana Program that both fell short in Albany. In this CannaBuff, ‘Deep Dive’ we take a look at the challenges facing businesses in the cannabis industry.
While regulations have eased nationwide, companies growing, processing, and selling hemp face uphill battles. Growing the plant according to regulations can be very difficult. At Cornell University’s Hemp Field on August 13th in Geneva, NY speakers touched on many of the challenges farmers face, particularly the law that restricts farmers from growing plants with THC content above 0.3%.
The restriction on THC content makes profiting from hemp very hard because the major market for hemp in NY is CBD and growing hemp rich in CBD, but below the legal limit of THC is not easy. Farmers are paid per percentage point of CBD in their crop, so they are incentivized to grow cannabis varietals with high CBD percentage flowers. However, hemp is a notoriously poor source of CBD with percentages as low as 0.03%. Varietals with up to 20% CBD exist but contain higher THC percentages making them illegal in NY.
Farmers are given a three-week window to test and harvest their crops. State regulators pay all hemp farms in NY a visit before farmers harvest and sample plants according to a protocol. Flowers ten centimeters below the top of the plant are selected and tested for THC content. If the plants test “hot”, they are seized and destroyed.
Furthermore, farmers have substantial costs involved in the startup. Farmers must pay for all the standard expenses necessary for crop raising: seeds, fertilizer, testing, chemicals, equipment, and fuel as well as substantial labor costs associated with separating hemp flower from the plant.
One major barrier in consumer-facing businesses is payment processing. Cannabis companies doing business in brick and mortar stores or online often have trouble finding a reliable payment processor.
Brenda Snyder, who co-owns a local CBD shop in East Amherst, says her payment processor dropped her business 2 months after she opened her store after they decided they no longer wanted to service stores selling primarily CBD products. The inability to offer credit/debit payments costs her hundreds if not thousands of dollars and forced her to quickly find an ATM merchant that was willing to provide her customers access to cash at a reasonable fee. “We could not find one merchant who would serve us because we were considered too high risk, we have had customers storm out because we do not offer credit cards,” she said.
Cannabis companies, including medical dispensaries, go to great lengths to accept debit payments. Some companies route payments through subsidiary and shell companies. Columbia Care, a registered organization with a dispensary in Rochester went a different route, creating their own credit card.
Strict zoning restrictions for cannabis retailers limit viable storefront locations. Prime real estate is limited and in high demand, especially for medical and recreational dispensaries.
The FDA’s reach
The FDA has been very conservative in its approach to the regulation of hemp-based products and cannabis in general. According to the FDA: CBD is not an approved food-additive therefore foods infused with CBD are illegal under federal law and CBD cannot be sold as a dietary supplement because it’s an active ingredient in a marketed prescription drug, Epidiolex ® (GW Pharma). New York State has a different stance, allowing CBD in dietary supplements and in food-like products, as long as those products are labeled and manufactured in accordance with relevant laws for dietary supplements. However, CBD companies must be wary of the claims made on their product labels as this is ultimately what determines the FDA’s purview.