Episode 1
Jason Wilson is the Cannabis Banking & Research Expert for ETFMG | MJ, a firm developing innovative thematic ETFs that provide investors unique exposure to new markets. He led the first installment of the Voice of Cannabis Series, presented by ETFMG | MJ and Fourth Wall Advisory.
Joining Jason is Axel Bernabe, Assistant Counsel for Health to Governor Andrew M. Cuomo, and Kelly D. Fair, Director of Legal, USA for Canopy Growth Corporation.
Episode 1 includes an overview on the federal government’s approach to cannabis legalization, how specific states are developing their own regulatory standards and processes, and the science behind CBD.
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SPEAKERS
Axel Bernabe
Assistant Counsel for Health to Governor Andrew M. Cuomo
Kelly D. Fair
Director of Legal, USA
Canopy Growth Corporation
EPISODE TRANSCRIPT
Joe Eletto: (00:11)
Hello, everyone. Welcome back to SALT Talks. My name is Joe Eletto. I'm the Production Manager of SALT, which is a global thought leadership forum and networking platform encompassing finance, technology, and geopolitics.
Joe Eletto: (00:25)
SALT Talks is a series of digital interviews with the world's foremost investors, creators, and thinkers, and just as we do at our global SALT conferences, we aim to both empower big important ideas and provide our audience a window into the minds of subject matter experts and we are thrilled to kick off our new Voice of Cannabis Series today, brought to the SALT platform in partnership with strategic marketing firm Fourth Wall Advisory, leading international cannabis company, Canopy Growth Corporation, an issuer to MJ, the world's largest cannabis ETFMG.
Joe Eletto: (01:01)
Hosting today's panel is ETFMG's MJ Research and Banking expert, Jason Wilson. With over 15 years of experience in the asset management, finance, and structured product space, Jason has a track record of bringing hard to access client classes to market. Jason has held leadership and senior positions at several leading financial institutions. Most recently Jason was Senior Vice President at INFOR Financial Inc. INFOR is a leading boutique investment bank based in Toronto, Canada that has worked in connection with a number of companies in the legal cannabis industry, including acting as an adviser to Canopy Growth Corporation, in connection with entering into a strategic relationship with Constellation Brands.
Joe Eletto: (01:48)
Jason has also worked at investment banking division of Societe Generale, France's third largest bank at FCIBC one of the five largest banks in Canada. While at Societe Generale and CIBC, Jason provided asset managers and financial institutions with various capital raising, financing, and risk mitigation solutions and strategies. Jason has an LLB from the University of Western Ontario. Prior to completing his university studies, Jason was a member of the Canadian Forces and is a recipient of the Gulf of Kuwait medal, awarded for his engagement in direct combat during the Gulf War in 1991.
Joe Eletto: (02:27)
If you have any questions during today's talk, please enter them in the Q&A box at the bottom of your video screen, and now we'll turn it over to Jason to conduct today's SALT Talk.
Jason Wilson: (02:37)
Great, thanks, Joe, and thanks very much for the intro, very much appreciate it. Everyone, pleasure to have you all here. Obviously, it's our first episode of the Voice of Cannabis series and today we're going to specifically talk about the CBD market. Pleasure to have two expert panelists with us. On the business side, we have Kelly Fair. Kelly is from Canopy Growth Corporation and it's an understatement to say that she's deep in the weeds ... No pun intended ... in the cannabis, US cannabis space. She acts currently as a US General Counsel and she's also been Officer of the California Courts since 2004, so she brings a lot of business acumen and legal experience to the cannabis space with us. Also joining us on from the regulatory side is Axel Bernabe and Axel is Assistant Counsel to New York State Governor Andrew Cuomo. So in that role, he's got a number of things going on pertaining to health but specific to today's conversation, Axel oversees all of the hemp medical and adult use cannabis framework in the State of New York. So thank you both for joining us today.
Axel Bernabe: (03:52)
Glad to be here.
Jason Wilson: (03:53)
I guess kind of to kick things off, start kind of the higher level and talk about the ... Maybe, Kelly, we'll start with you and talk about the federal landscape. If you think about, it's been almost two years since the Agriculture Improvement Act was passed which removed hemp from the Controlled Substances Act. Initially, I think there's a lot of euphoria in the industry, thinking, "This is it. It's green light, go on everything." Any kind of hemp related product, including CBD based edibles and drinkables was open for business, and the contrary seems to be somewhat true. I mean, honestly, we have federal legalization, but there's a lot of ambiguity from the FDA and the DEA and what have you. So can you kind of speak to the FDA framework and where it stands with CBD based or hemp based products in the United States right now?
Kelly Fair: (04:45)
Sure, Jason. So you're right, when the Farm Bill pass in December of 2018, there was a lot of euphoria getting just the legalization of the commodity and the derivatives of the commodity. And the Farm Bill did give jurisdiction to the USDA and the FDA to then regulate. I think the USDA came out, out of the gate with guidance just to make it clear that hemp and the derivatives are both legal and interstate commerce couldn't be interfered and so the farmers were really excited about getting that commodity as part of their portfolio. The FDA came out in a different posture about May of 2019 and it updated its website and did a public statement saying that because CBD had been investigated as a new drug in relation to the approval of the Epidiolex Pharmaceutical, it would not recognize CBD and dietary ingredients and conventional food additives at that time and then in the same breath said, "But we're evaluating systemic impacts on human consumption at these levels," and just really signaling to the industry that it's not intending to close the swim lanes for dietary supplements in foods.
Kelly Fair: (05:59)
So it was kind of a double edged not real sure what's going to happen. Since then, it's no secret that the FDA has not yet regulated the CBD and dietary supplements in foods. It is open for public comment. It is partnered with stakeholders like Canopy Growth to evaluate a whole host of concerns it has around toxicity, liver, reproductive toxicity, and just really stating it needs to understand the impacts of humans consuming much lower doses of hemp derived CBD. We have been in partnership with the FDA. I believe that the evidence that they have, the science that they have is sufficient to prove out the safety profile of this substance. We've made it no secret that we disagree with their position on IND Preclusion, but have answered their call for data and we've asked our other stakeholders to also be forthcoming with data.
Kelly Fair: (06:59)
Currently pending is the FDA has issued enforcement discretion guidance. It's sitting with OMB now. We have not seen what the guidance says but stakeholders, including Canopy testified at OMB about what it should say and we're continuing to have discussions with FDA and just put a new study in the docket two weeks ago, are planning on putting a third study in the docket in a couple of weeks once it's published. So that's broad brush strokes where the FDA is. I will say with incoming new Commissioner Han, his first public statement gave some optimism to the industry. I think it's a direct quote, he said, "It would be a fool's errand to try to stand in the way of hemp derived CBD end products at this point," and it doesn't seem to be the FDA's intention to do so, but then again, it just wants to do so in a way that protects public safety.
Jason Wilson: (08:02)
And that makes sense but it's obviously just adding this level of ambiguity that's kind of hard to manage around. Is there any movement on Capitol Hill to try to force the FDA along or anything happening there at all?
Kelly Fair: (08:18)
Yes, and you make the great point that it does ambiguity and it hurts all the way up and down the supply chain. So those farmers that I discussed at the beginning that did make the investment into the hemp crop initially, Canopy being one of them, we were growing hemp over seven states in that first growing season. They are not seeing the benefit of that investment because the products cannot be sold without that ambiguity, and the margins on high yielding hemp crops versus fibrous crops for industrial application is quite significant. And so those farming constituents have gotten the attention of congress and we're seeing congressional leadership on the issue from both sides of the aisle in states that have strong farming constituents, including Senate Majority Leader Mitch McConnell, representing Kentucky. He's been a huge advocate of hemp and hemp derived CBD.
Kelly Fair: (09:16)
There's been consistent pressure from the Hill on the FDA to either regulate or have a legislative fix to just amend the Food, Drug, and Cosmetic Act. That's the most recent activity we've seen. We saw it coming in a bill form from the Chair of the House Agricultural Committee Collin Peterson last year, proposing to amend the FDCA and we understand that Majority Leader McConnell is also considering some language. I wouldn't be surprised if there's some pressure around the appropriations process, that happened last year. More of a carrot scenario where the FDA could get $2 million in funding, if they were to regulate or say anything. They felt a bit short of regulating and I don't know if they said much in what they gave to Congress this summer, but ... so I'm expecting a lot more activity on the issue, yes.
Jason Wilson: (10:13)
So, Axel, maybe you can pipe in a little bit, obviously, at the state level, but the thing that strikes me as a little bit interesting is the DEA's recent interim ruling and in some ways, it just seems clumsy. Others are suggesting that there's more to it, that they're trying to run a little bit of interference. Can you speak a little bit about that interim rule and what that means to the industry?
Axel Bernabe: (10:40)
Yeah, I'm happy to talk about that. Just to frame the issue, because I think Kelly did a really great job of explaining some of the complexities for regulators. So the states have been picking up a lot of the absence of regulation at a federal level and implementing that at a state level. So we've had to step in in the form of regulating dietary supplements or food and beverages in a way that normally would really be left to the USDA and the FDA. And so I think it's important to understand that playing field because that's the only way you can really appreciate the difficulty that the DEA and the FDA are having in determining whose jurisdiction starts where and where it ends. But in addition to the complexities that Kelly mentioned on food and dietary supplements specifically, what we also see with cannabis or cannabinoid hemp products that are derived from legally hemp plants and have low THC is the sale of flour which is akin to a sort of tobacco product and vapes which are also traditionally regulated by the FDA but haven't been because of the complexity of regulating vape devices.
Axel Bernabe: (12:00)
So again, if you see the full spectrum of products that you're dealing with, that are downstream from cannabis sativa, you really understand the complexity of the regulatory environment. So we're focused on trying to promote consumer protection in that space and pick up where the USDA and the FDA aren't really actively regulating and that's a big challenge for the states because we're not accustomed to doing that ... But I could talk more about that, but going back to your specific DEA question ... So understanding that dynamic the Farm Bill kicked jurisdiction over hemp to the USDA and the FDA, clear, and that was supposed to be broken up with the USDA taking care of growing and once it was harvested and once you started to convert those products into dietary supplements or any other kind of extract, that was supposed to be the purview of the FDA. But you still have this question of what happens to THC that's derived from a legally compliant hemp plant?
Axel Bernabe: (12:55)
There is always THC on a CO2 extract or on an ethanol extract. You're always going to have slightly hot product that's coming out from you extract, and so really that is an issue that we're struggling with and I can tell you what the State of New York is doing, but that's something that the FDA will need to struggle with, and the Farm Bill, clearly kicked that to the FDA. What the DEA did with its regulations, which I agree with you, Jason, was a little bit ... I'm trying to pick my words carefully ... but it was a little surprising, was twofold. First it said that the intent of its regulation was really just to make conforming changes. The Farm Bill changed the definition of hemp and excluded it from the Controlled Substances Act. Well, it was going to change its regulations to make sure that that was reflected in its regulations, and it changed a couple of things on the exporting of Epidiolex and so forth, but really it stated that its intent was not to really change the law.
Axel Bernabe: (13:50)
And yet in the preamble or in the introductory part of the statement, it said that intermediary products, so these extracts that come out of your extract facilities that are hot, that run above 0.3% THC are going to be considered Schedule One THC substances. And that's really problematic for pretty much anybody who's making any food ... Well, extract that's going to be added to food or any dietary supplement, because almost any form of extraction is going to result in a slightly hot intermediary product. So it was problematic because one, I don't think that they had right jurisdiction to actually make that statement and regulate that definition that was really kicked to the FDA. And two, the way they did it they didn't actually step into the breach and say, "All right, let's regulate intermediary products." They said, "We're not actually doing anything controversial, but by the way, in passing, here's what we consider to be legal for intermediary products." So it sent everybody into a tailspin and I just don't think it was very sophisticated or good regulatory practice, to be honest with you.
Jason Wilson: (14:50)
Well, and Kelly, maybe you can speak a little bit to the intermediary concept. If we look at the alcohol industry and ROC Constellation being an investor in Canopy, clearly there's a different framework there.
Kelly Fair: (15:01)
There is and it's because it's regulated. If the FDA were to step in and actually regulate or any regulatory body, and regulate intermediary product, we could see something very analogous to beverage alcohol. If you look at how bourbon is manufactured, bourbon can only be above or under a certain proof, but in the manufacturing process, the liquid is well above that proof, before it gets diluted with water and that intermediary product moves from facility to facility. Bonded facilities, as per regulation, so it's controlled, and that you know that that intermediary product is not going to commercial sale and that's the key and without that regulatory framework, it creates this ambiguity and it creates ... and really for no reason, because the intermediary product that Axel is describing is not for commercial sale. It is to go and then be further processed into isolate or further processed to delete or dilute the THC so that you can have a product that you can bring to market outside of the dispensary network.
Kelly Fair: (16:14)
So adding that regulatory framework is going to be really vital to clean it up and the DEA doesn't have the resources, I wouldn't think, or the ... shouldn't have the desire to enforce against what they've just done. To be looking for intermediary product, moving, to be testing it to see if like an extract is hot or a distillate or an isolate, it just seems like they're biting off more than they want there.
Axel Bernabe: (16:42)
And actually, just if I can, Jason, just to follow up on that thought, so that's, Kelly, what we've heard through a couple of different channels. The DEA isn't interested in getting in this space. They understand that right now, they would have to enforce against pretty much every processor in the country. They're not going to do that, which is all the more reason why, well, why put that language in there? I think they were trying to plant a flag and say, "Look, we still have to deal with this issue."
Axel Bernabe: (17:08)
So in New York, actually we considered this issue even prior to the DEA issuing its regulations and what we're thinking of doing in our regulations, which should be coming out soon, is allowing processors to possess up to 3% THC product in its intermediary form, and that's usually a distillate or crude oil and so that would provide them with a legal protection to have that, just in the same way that, Kelly, you were describing, would be happening on alcohol front. So there are ways around it, but what's really fascinating is that if the FDA goes the way of enforcement discretion, which it looks like they may go ... and because it would be a fool's errand to put this genie back in the bottle, you're going to have piecemeal, state by state approach to all these issues, right? Including the important issue of THC.
Axel Bernabe: (17:54)
So while I think I understand the ... I truly empathize with the FDA's sort of deer in headlight stands here because there is so much coming at them on the cannabinoid front. Like I said, vapes and dietary supplements and foods and THC and they're just not accustomed to this. The idea of not regulating it just makes things more complicated down the road. So we're trying to work with other states, we're coordinating with Florida. It's unfortunate that California didn't get its bill passed at the last minute there, but that's ... You have to step into that breach. If not, you just, you leave the market ripe for diversion and an untoward conduct.
Jason Wilson: (18:36)
So federal framework is working through some issues, but at the end of the day, state by state any hemp related product has to be approved as well, so, and Axel, I mean obviously like you, I mean you're right in the center of it. I mean you're there, you're responsible for basically you're overseeing all this regulatory framework in New York State. Can you kind of describe your framework? How it works from edibles to drinkables, to you name it, how's it work in New York? Is it different from other states? Give us a kind of run through.
Axel Bernabe: (19:12)
Yeah, I'll keep it really high level, because obviously we could do an entire panel on that, but I want to keep it interesting for a sort of industry and not to get too wonky on this, but it was a very interesting process, because we had to think through ... Of course, you have your basic licensing and your basic ... Even the testing is borrowed heavily from the adult user markets where you're testing for contaminants and you're testing for pesticides and whatnot. So that was fairly simple. What was more complicated was deciding, okay, if we're going to allow food and be sensible about it, do we put some kind of cap on the daily amount or on the serving amount that you're per serving, that you're going to allow CBD or other cannabinoids?
Axel Bernabe: (19:53)
And so there isn't a lot of guidance. The UK's put out a 60 milligram daily dose limit proposal. Australia has 70, I think. So one of the things we're thinking of doing is ... and we're going to get comments on these so they're not going to ... They're going to be put out for comment and then we'll get to tweak them, but we're thinking of putting a 25 milligram per serving limit on CBD food products. So if you're doing a seltzer, a CBD seltzer, you're not going to dose it up with a couple of hundred milligrams. We're going to try to keep it proportional to the product. So stuff like that, we're taking some steps into regulating vapes by limiting some of the excipients you can us, by doing some protective measures around the heating elements on some of your vape hardware. So that's also new for us. We're creating effectively a mini-FDA. We're running a lot of this through our Medical Marijuana Program, because they have experience in that.
Axel Bernabe: (20:48)
But at its core, it's a consumer protection statute that builds on the federal rule. So we really cite to the Federal Dietary Supplement, the Federal Food Rules, and say, "You have to build your product compliant with those standards," so that hopefully when the FDA does this, to Kelly's point, right, once they really start to understand that there is no IND preclusion, that this isn't a drug, then they'll implement their dietary supplement protocols and they can just fill in that and we can stand back a little bit and step back. But as far as relative to other states, I think New York is going a little further, because of the things I'm saying, dosage on food, vapes, and in that regard, I think we're a little bit more aggressive. Florida has a really good program up and running. Oregon is fairly sophisticated, so is Colorado.
Axel Bernabe: (21:36)
So a number of states have gone forward and we're working with them. We have a round table where we meet regularly to discuss the issues, but some other states are a lot more reluctant. They're more conservative. They don't know how to deal with the THC issue. They don't know if they want pre-rolls or smoke the bowls. Is this a new cigarette like product? So a lot of regulatory issues, but we're being fairly bullish on the industry. We think it's a promising industry if it's regulated properly. That's the premise.
Jason Wilson: (22:07)
So, Kelly, you're in California. I mean, you've been there for a long time, what's happening over there? I mean it's an important economy, obviously, one of the largest in the world, what's the status? I know we have Bill 228? You give us an update?
Kelly Fair: (22:22)
Yeah, so I just want to echo something that Axel said that New York is, it is bullish and it has been the most progressive and has made my job as an advocate for regulation easy from the beginning, because I've been able to state to the FDA, "Look at New York. Look at how New York's ... Even the initial regulations are tying to the FDCA, see how it's keyed together. You have the right regulations in place to regulate these products, you just need to turn it on." So I just want to give a hat tip to the State of New York as one that is progressive, because I think ultimately, you regulate, then you protect your public. If you don't regulate, you're not protecting your public from diversion and bad actors, so I'll just start there.
Kelly Fair: (23:11)
And then move to my great state, on hemp, just very similar to at the federal level, that California's Department of Agriculture has come out strong with regulations, allowed its farmers to get off and running, even from the state level, all the way to the county level. The testing went off without a hitch. That first growing season, we're a part of it, and the Department of Health, on the other hand, much like the FDA has added more than a fair amount of ambiguity and just a cooling to what actually can happen in California. The Department of Health has issued an FAQ response saying that until the FDA regulates, it does not allow hemp derived CBD in any human ingestible or animal food products.
Kelly Fair: (24:04)
So the FAQ response is very vaguely written. It leaves open the issue of smokables, it leaves open the issue of manufacturing without sale in California, and so 228, AB228 was to clean that up, and to say specifically that inclusion of hemp derivatives to dietary supplements or food would not adulterate the product and allow the products to enter the market and open the possibility for actual regulation. This is the second legislative session where the bill has not passed for a host of reasons. This last round was due to maybe some late industry input and then just a very unfortunate round of technicalities as far as how the session ended, just generally with the senators having to be quarantined and remote voting and it was just ... You couldn't have made it up, truly, at the end.
Kelly Fair: (25:09)
But we along the way have been working with the governor's staff and office and have had very productive movement on the issue to make sure that the bill is drafted correctly, that the regulations roll out appropriately. This is on the governor's radar as something that he thinks California wants and needs and he's been nothing but supportive of companies like Canopy in their investments in California. So we remain optimistic for the future of AB228 and just regulation generally.
Jason Wilson: (25:44)
And I have to believe the will, as you said, the will is there. There's a lot of technical, a lot of difficulties right now and I think one of the industries poised for growth post-COVID is going to be the cannabis industry in general, just because of the job growth, the opportunities, so it's obviously hard to get a lot of alignment. But it must be incredibly difficult, I think of Canopy Growth, that is the largest cannabis, global cannabis company operating in over a dozen countries globally. You're trying to build this platform across 50 states. You and your team must be ridiculously off the hook busy trying to get your handles on this. How are you coping? How are you managing? I know you just launched your shop, Canopy.com website. How do you manage all this?
Kelly Fair: (26:32)
Yeah, so what we've done as a regulatory platform and that, I am responsible for that, is just to look at states like New York, look at how they're regulating, look at how all 50 states are regulating and create basically omnibus policies for every point along the supply chain, for how we grow, how we extract, how we produce. We produce at GMP standards, we label in accordance with the FDCA and all of the states in which we sell, and trying to go to the highest common denominator for regulatory standards so that we are then selling a product that consumers can trust and that are going to be compliant with the federal FDCA at the end of the day and any state that's got more stringent regulations, so we don't have to pivot the opposite way.
Kelly Fair: (27:30)
We have so much at stake with our reputation and our relationship with our consumers to make sure that our products, like BioSteel, Martha Stewart's products are coming to market, First and Free, This Works, we want all of those products just to be best in class no matter what, and for the consumers to trust them. And I've said again and again, I think we've got regulations on the books that will ensure that is the case and so our official position is just to manufacture and sell at those high standards.
Jason Wilson: (28:03)
So I find cannabis fascinating. It's a drug, as we know, with Epidiolex as we spoke to, its potential for wellness product. There's all these different layers it touches. How are you working on the science side? I know in Canada a lot of it is educating physicians, to make sure that they better understand how to use this. What is Canopy doing on the science side? What are you seeing out there to help get motion behind the whole cannabis industry?
Kelly Fair: (28:36)
What we're doing is very focused on what the FDA is asking. I presented to the FDA last October and started the conversation by saying, "I'm not here to tell you our legal position. I'm not here to tell you how much pressure you're under by congress. I am here and I brought a team of scientists to talk about the questions that you're asking again and again." And so those are all around toxicity, just generally, liver toxicity, reproductive toxicity, and then longevity came up in that conversation. And so basically our science mandate has been to give the FDA what they need, so we've got grass studies on going that are looking at liver toxicity and reproductive toxicity. We've given the FDA interim data as it comes out, so that we're feeding them real time. We've done a study around cosmetics and whether the CBD in cosmetics breaks the blood barrier, whether that should be part of the FDA's analysis on systemic impacts. It should not is the answer and that just got put in the public docket.
Kelly Fair: (29:43)
And in October, one of the leaders on the CBD working group, asked if we'd done a longevity study. We hadn't and we hatched a plan to do one in the car ride back to DC and it's just finished and we'll be giving that to the FDA shortly. So to answer your question, what are we doing? We're doing whatever the FDA is asking and I implore all of the rest of the hemp stakeholders to do the same.
Jason Wilson: (30:15)
So a lot of collaboration and, Axel, you must be getting a lot of this. Like sitting there on your side of the fence, how do you look at this space? I mean, there's obviously, there's a lot of product in the gray market, in the listed market, if you will, that's being sold, maybe without approval, obviously you want to work with companies like Canopy Growth to get the proper products out. What are you looking at to help manage that process?
Axel Bernabe: (30:42)
So that's a really good question, so I always come back to this and I think it's important for industry to understand how the regulators are viewing the market, right? We're struggling with a lot of these questions and the frameworks we apply and the rules we make and what we rely on to make those rules. And if as industry you don't understand that, then you maybe jeopardizing your entire business, because you're just going to run a foul of what the regulators are looking to do.
Axel Bernabe: (31:07)
So I think Kelly nailed it when she said that she appeared in front of the FDA and started answering their questions, because that's obviously how they're focused about it. But going back to your kind of writ large question, what's fascinating is there are examples of drugs that are both prescription drugs and over the counter drugs and health and wellness and that's a question of dosage and you have to find where to set that dial. Less common is a notion that you would have a potentially pharmaceutical product, an over the counter product, a dietary supplement product, and that it's a compound that's used recreationally. So it's the fact that it crosses so many spaces that makes it really difficult to regulate.
Axel Bernabe: (31:48)
So I'll give you just one example. As we're contemplating rolling out adult use in New York, we have to figure out what to do with our medical program and when we say medical program, it's also almost ... it's not a misnomer, but it's a hybrid. It's not an FDA clinical science randomized trial driven program. It's a program that's dictated by some science, by anecdotal evidence, by clear history of use of cannabis for medicinal purposes and so there's even an interaction there. What happens to the medical program, where do you set the tax rates, what kind of products do you allow and one program and not the other. So even with CBD, that's why I think you have to understand the DEA being so sort of, having such a hard time understanding where to position itself.
Axel Bernabe: (32:34)
As CBD, you look at something like a ... examples are always sort of the easiest way to drive this point across, but look at something like a tincture, a 1200 milligram tincture of CBD that you'll find in a dietary supplement. That's a fairly common product that's out there. That tincture itself will contain about 30 milligrams of THC and 30 milligrams of THC is sufficiently high to be intoxicated, but nobody's going to go out and buy a CBD tincture for a $100 in order to down 1200 milligrams of CBD in order to get that 30 milligrams of THC, when they could go buy a gram either at an adult store or on the illicit market. But as a regulator, you still have to think about that, so you know, so that, yeah, it has been fascinating, Jason.
Axel Bernabe: (33:17)
It's been really, really interesting but to bring it full circle to what Kelly said about what Canopy does right, shooting for best in class, shooting for meeting those GMP requirements, the labeling, the proper testing, that makes our life a lot easier. So that's what's great about working with Canopy and getting feedback from them is they know that that's what'll put them ahead of the pack and for us, we know, that they're looking to be compliant actors in the space and so we can get from them feedback on what's reasonable, what's doable. Because we're all kind of feeling our way around here, trying to understand what the road sign should be on this miraculous compound, frankly.
Jason Wilson: (33:56)
And then I'm guessing, at the end of the day, that that higher standard, if you will, will also ... It should make enforcement a lot easier. I mean, at the end of the day, regulations are one thing, but enforcing them is another, right? So trying to get this market, make sure that, again, protecting the consumer. I think that should be a large part of it as well.
Axel Bernabe: (34:14)
It really is. On that note, really quickly, I mean dietary supplements, the FDA doesn't love dietary supplements. It's a framework that's difficult. It's third party certified, so they don't control those audits. They don't go in and inspect and people are developing their own hazard plans to make sure there are no contaminants. It's not the level of hands on regulatory oversight that the FDA would want, but it's a compromise with the supplements industry that dates back to the [inaudible 00:34:40] of the '80s. But now you have a CBD product that has the properties you've just described, Jason, and they're being asked to put it in a regulatory framework that they don't, already don't feel comfortable with. So it's a challenging process but companies like Canopy and others that are doing the science, are really going to help this along, because if we could start to knock out some of the real concerns, we can start to fit it into existing regulatory frames.
Jason Wilson: (35:11)
So last question, I know we need to turn it back over to Joe for some Q&A and maybe we'll end this you, Kelly. Next generation products, what do we expect to see coming to the market next year 2021? What's it going to look like?
Kelly Fair: (35:26)
So from Canopy's perspective, we're really excited about all the form factors. It is a miraculous compound and it helps consumers in lots of ways, so we explore every way that a consumer might like the product, in ways that they don't even know that they might like the product. We have our First and Free, our This Works products. I expect the topical platform to expand even more. There's a lot of cosmetic applications for CBD that I think are just great. The vapes and the pre-rolls are also coming to market. Just more broadly, I think consumers are starting to recognize the pre-roll as something they enjoy. It's doesn't give you the same euphoric as smoking a THC pre-roll, it's just a very quick way to get your body to relax very quickly. I mean I'm talking anecdotally at this point, as a sampler of our own test products.
Kelly Fair: (36:26)
So I think that it's really the sky's the limit for what kind of form factors we're going to see on the market. Canopy does focus on what kind of form factors are going to have the best effects for the consumer. So I don't think that we're ever going to have like a CBD shampoo and going to claim that it does anything for your body. There has to be a line in the sand and we need to distinguish the snake oil from actual effective products that will deliver CBD in an effective way. So we will continue to evaluate and, yeah, I think as the regulations roll out, we'll be able to see less and less of the snake oil on the market.
Jason Wilson: (37:12)
That'd be great and, I think, welcome for the industry in total. So Joe, what do you have ... We should probably move it over to Q&A. I think we've run over a little bit but what do you have that we can get in front of the appropriate people.
Joe Eletto: (37:28)
I was going to say, that's fine for me, I was learning a ton as well. So we had ETFMG, obviously, at SALT 2019 curating some of our conversation so just having these on going sessions is really informative involvement for the industry. So we had a question from a viewer from California. So he was talking about farming and how farms might negatively affect the neighborhood without the appropriate regulations. How is, in building and industry, in building these regulations in its piecemeal nature right now, how is that being enacted? How are those sorts of businesses or that part of the supply chain being regulated?
Jason Wilson: (38:07)
I think, Kelly and Axel, you probably both speak to that. Kelly, maybe you're in California, maybe you should kick off.
Kelly Fair: (38:14)
Yeah, I'll say that, I'll echo what I said earlier, that the California Department of Agriculture did a great job ... I mean California's just a great ag state anyway, and so the way that California is zones is that you shouldn't be next to any sort of a hemp grow, if you didn't know that you are next to a very agricultural area. Like we have our state zoned so that most of the hemp cultivation is happening in areas that are predominantly ag. They're either industrially zoned or agriculturally zoned and so we didn't see as a company that grew, I think we had 1500 acres in California that first growing season, much in the way of nuisance complaints or we were never close to actual neighborhoods.
Kelly Fair: (39:01)
I think that changes county by county. Ventura County was certainly a beautiful place to grow hemp because it's warm. We had great crops there. That was closer to cities than I had otherwise seen. I can speak for our cannabis facilities in Canada, the nuisance around smell is a huge issue in Canada and there's a lot of technologies that we put in place to mitigate just smell, just generally. And so if we continue to cultivate in the US, we would apply those same technologies, but I think the regulators have done a great job in keeping the ag areas separate from the cities.
Axel Bernabe: (39:49)
Yeah, I mean, for the most part, that's right. It is a long history of the intersectionality of agriculturally zoned districts and urban centers and there are other types of farms that emit smells and noises that folks don't want to be around. So for the most part, our legislation just categorized hemp as another crop and so long as you're in an ag district then the town can't prohibit you from growing hemp. It's like any other crop.
Axel Bernabe: (40:16)
We have had a number of complaints on smell, but that might not be the biggest challenge. The biggest challenge is probably cross pollination and the fear that folks that growing field crops or even adult use indoor grows, and that's more challenging. Creating a heat map and trying to tell people you can grow in this area but not in this area is something we're just going to need to take a day at a time, but, yeah, the smell issue, we borrowed from prior crops and if you're an ag district you're good to go.
Joe Eletto: (40:50)
So we've got two, I guess, larger questions that we'll try to cram in real quick. So people always compare or most of the time compare cannabis with alcohol and say, "I should be able to just go to a store, take if off the shelf, take it with me." Is that a fair comparison on the consumer end with ... as we spoke about today cannabis touching so many possible end points, where alcohol is really, it has a finite number of uses?
Axel Bernabe: (41:18)
There's, I think, the retailer angle that Kelly can speak to, the industry angle for sure, which she'll know a lot more about but from a regulatory standpoint, there's some overlap. It's a substance that can be used as an intoxicant and there are all sorts of regulatory questions like driving under the influence, taking it while you're pregnant, age, all these considerations are very similar to alcohol, the licensing, all that's very, very similar. But I think as we've been saying, what's unique is that people are taking it as a medicine. Four out of five Americans are saying they're taking cannabinoids generally as for medicinal reasons. Be it anti-stress and ... you could say the same thing about alcohol. Somebody has a drink at the end of the day to de-stress.
Axel Bernabe: (42:00)
But I think there are definitely overlaps. There's a lot to learn from the alcohol system and framework, but then you're just going to have to innovate with a lot of other regulatory onion peels to fully capture all the complexities of the plant.
Kelly Fair: (42:18)
Yeah, that's a great point on the regulation side. Canopy as a company have been advocating for a regulatory model for federal legalization that does model very much after alcohol, because there are so many similarities. What's dissimilar though is that alcohol came out of prohibition federally, and at the state level at the same time, so it was really a blank slate. Where here, we're going to come out of prohibition, where we have 32 plus states already with robust regulatory frameworks. And so when you're navigating that as a company and you're thinking all the way down the supply chain where a customer wants to walk into a liquor store and also get cannabis, there are a lot of complexities there.
Kelly Fair: (43:05)
I mean cannabis is regulated at the state level, I will always say that is appropriate, because only those states know what their communities need and they know what their constituents voted for if it was on the ballot and how they wanted it controlled and regulated, and so I think we're a long way off from this scenario where cannabis is just like any other medicine or vice, depending on which side of the fence you're on and where your use is. But I also don't think that there's a huge barrier, even from a commercial side to the dispensary model if it's done well.
Kelly Fair: (43:46)
I'm sitting in San Francisco and me walking into a dispensary to get any product, any beautiful product that I want is just as easy as going to a beautiful wine shop but with more controls. I couldn't go into a dispensary and shoplift, for example, because everything is behind a counter. I have to go through a bud-tender. I mean and I don't find that that experience takes away from the consumer experience and there are ways to enhance it and so we'll just have to let our communities decide how cannabis could be maybe put more into mainstream retail, when it's appropriate.
Joe Eletto: (44:28)
Got you. I like the term bud-tender. That's awesome. So last question. Obviously an easy question is the election. I'll posit this to whomever can answer and we're going to have more conversation around the election and with the possible results are later in the Talks. We don't need to dive too deep, but we're now two months out from election day. What are the next, I guess, 10-ish weeks going to mean for cannabis on the federal level? Are people looking at both candidates in different ways or I someone going to come out more in favor, more anti, just that sort of 40,000 foot overview of the next two months.
Kelly Fair: (45:09)
I think that's me, right, Axel? I don't think you could say anything.
Jason Wilson: (45:15)
It's also a great into, Joe, to tune in back in for episode two in two weeks.
Joe Eletto: (45:18)
Exactly.
Kelly Fair: (45:19)
That's right.
Jason Wilson: (45:20)
Congress in cannabis episode. Yeah, Kelly, why don't you handle that one?
Kelly Fair: (45:24)
Okay, well, it's no secret, it is public that the house intends to move the Moore Act in September, the week of the 21st, and so that is quite significant as an election issue because Kamala Harris is co-sponsor of the Moore Act. And so that will create great momentum going into the election cycle, I think just for cannabis generally. I would anticipate that the house passes that bill. What happens in the senate is TBD, not expecting great things, but will give the industry real momentum going into 2021, especially if the senate changes and the White House changes so very exciting time for the cannabis industry. It will be history vote. It's history that the bill is going to move at all, so it's very exciting.
Joe Eletto: (46:20)
Fantastic. Well, with that, thank you for the extra time, everyone, Jason, Kelly, and Axel. Want to thank also ETFMG, Fourth Wall Advisory and Canopy for the support of this series. We're really looking forward to seeing what is going to be spoken about over the next four episodes. All the episodes are now available to be registered for on SALT.org/Talks/VOC for Voice of Cannabis, and we'll be releasing who is going to be speaking on each of those in the coming days and weeks. But we have some that are going to be timed with the presidential debates and such it'll have more of a political angle to them as well as financial services angles.