Imagine being informed by your local city health department that you are not allowed to include a nutrition facts label on the popular products you make and sell for human consumption. Julianna Carella faced that very problem relative to gourmet snack items she produces at her Oakland, Calif.-based business, Auntie Dolores Kitchen.
“In 2010 the San Francisco Department of Public Health (SFDPH) told us we had to take the nutrition label off our products,” says Carella, the company’s founder and CEO.
To be sure, Part 101 – Food Labeling of Title 21 of the U.S. Code of Federal Regulations, Chapter 1, Subchapter B holds no authority over any Auntie Dolores commercial offering.
Imagine further that, even though you’re clearly turning out pretzels, assorted cookies, glazed pecans, chili lime peanuts, cheese biscuits, caramel corn, and fudge brownies for retail sales, your manufacturing facilities and products are not subject to any state or federal food laws, regulations, or inspections. Not for now, anyway.
You see, most all of Carella’s eye-catching goodies contain cannabis, a.k.a. marijuana, a regulated Schedule I (a.k.a. Class I) narcotic.
Cannabis is sometimes used to reduce nausea and vomiting during chemotherapy, to improve appetite in people with HIV/AIDS, and to treat chronic pain. Knowing this, the aforementioned company name makes total sense. Carella is quick to clarify that, no, she doesn’t have a dear, beloved aunt named Dolores. Rather, she explains, Auntie Dolores is a play on “anti dolores,” with “anti” meaning against and “dolores” being the Spanish word for pains.
When it comes to the $2.7 billion legal U.S. cannabis industry, local, state, and federal laws often conflict, Carella says. “Regulation is disjointed,” she emphasizes. “The right hand isn’t talking to the left hand. So regulations, often the lack thereof, are a major challenge.
“Since the beginning of our business, which was in 2008, our products have not been considered food, nor have they been considered medicine,” Carella continues. “They are just considered cannabis.”
That’s why the SFDPH forced Auntie Dolores to remove the nutrition labels.
“We urged the SFDPH to allow us to keep the labels because sick people eat our products, including diabetics and cancer patients with specific dietary needs, and they need to be able to read and understand what exactly is in them to get the appropriate dose of THC (tetrahydrocannabinol), the primary active substance in cannabis,” Carella relates. Most importantly, a scrupulous cannabis product label will include the THC content in milligrams (mg).
Cannabis foods, more commonly known as edibles, are made with an herbal or resin form of cannabis as an ingredient. These foods are consumed as an alternate means to experience the effects of cannabinoids without smoking or vaporizing cannabis or hashish.
Like many edibles manufacturers, Auntie Dolores utilizes carbon dioxide (CO2) extraction, often referred to as supercritical fluid extraction, as the method of procuring cannabis concentrate for its products. “CO2 extraction is considered the most effective way to extract beneficial essences from plant matter,” Carella points out.
The forward-thinking Carella says that, along with being one of the first edibles companies in California, Auntie Dolores was the first such Golden State entity to put a nutrition label on its products. “We convinced our city health department to allow us to leave the labels on because we feel consumers have the right to know this information,” she relates.
The label issue was resolved within three months, Carella reports, emphasizing her respect for the SFDPH. “The SFDPH has always been very proactive since San Francisco was the first city in all of California to have a medical cannabis ordinance,” she explains. “Historically, we have been able to communicate our needs as producers to the department successfully and they have been responsive and fair.”
Most all other edibles producers in California currently include nutrition labels on their products voluntarily.
What About HACCP?
According to the SFDPH, no edibles requiring refrigeration or hot-holding shall be manufactured for sale or distribution at a medical cannabis dispensary due to the potential for foodborne illness. Exemptions may be granted by the SFDPH on a case-by-case basis. For such exempted edible cannabis products, ice cream and other dairy products for example, SFDPH may require a Hazard Analysis and Critical Control Points (HACCP) plan.
At the federal level, marijuana remains classified as a Schedule I substance under the Controlled Substances Act, where Schedule I substances are considered to have a high potential for dependency and no accepted medical use, making distribution of marijuana a federal offense.
“Regardless of the state of origin of any medical marijuana products, edible or otherwise, such products are not allowed to be transported across any state lines,” Carella mentions. “There is absolutely no interstate commerce, so legally consumers are not supposed to move them across state lines even if they are moving from one state to another.”
Not surprisingly, to date, the U.S. FDA has not approved a marketing application for marijuana for any indication, including medical use.
That said, the FDA currently holds no jurisdiction or power over U.S. commercial edibles, which are allowed to be produced and sold in some states courtesy of specific state statues. Nonetheless, Auntie Dolores follows basically all of the food safety measures any food company would implement, Carella says. “We use a HACCP plan, even though our products don’t require refrigeration or hot-holding,” she boasts.
Intelligent Regulations, Please
“I don’t believe there should be any restrictions as to the types of products we make, be they temperature sensitive or otherwise,” Carella asserts. “We want regulations in California, but we want intelligent regulations. The current regulatory climate here does not inspire one to avoid purchasing edibles from the black market.”
With a staff of 20 people, including six to eight in production, Auntie Dolores operates out of two rented facilities in confidential locations, manufacturing more than 5,000 units of product per month. As an example, a canister 5 inches in diameter containing 30 sugar-free, low glycemic pretzels (in an inner zip lock bag) counts as one unit. “Each pretzel is designed to individually deliver an optimal dose of THC, with a full mg content of 120 mg THC per canister of pretzels,” Carella relates.
(By the way, Carella says most California landlords won’t rent space to an edibles producer. And because of the manufacturing sites being kept confidential, Carella adds that bioterrorism isn’t a main concern of her company.)
It’s a federal crime for cultivators in any state to sell cannabis plants or byproducts to buyers in other states, so all Auntie Dolores edibles are made with THC and cannabidiol (CBD) derived from cannabis grown in California. CBD is a non-psychoactive cannabinoid purported to provide anti-inflammatory and anti-anxiety benefits.
“The hemp-derived CBD that we use comes from the seed and stalk of plants that are cultivated in Europe,” Carella mentions.
Carella purchases cannabis plants and extracts from a local cooperative of growers. “We use a van to pick these materials up, and we have sales representatives and a distributor that pick up our finished products and deliver them to the dispensaries” she relates.
Auntie Dolores is actually part of this cooperative. “Anybody that touches the plant, from growers to manufacturers in our kitchen, to retailers and documented patients, are considered members of our cooperative,” Carella explains.
Legalization of medical cannabis has allowed the laboratory testing of medicinal cannabis products. Any testing of cannabis or cannabis products must be conducted at labs in the states where they are produced. “Some of the biggest potential contamination concerns during cultivation or extraction are pesticides, heavy metals, mycotoxin, and aflatoxins,” Carella says.
“California edibles producers are not required by law to do ingredient and finished product testing, but many dispensaries require testing,” she adds. “We do ingredient testing and finished product testing to determine microbiological safety and proper potency.”
Auntie Dolores relies on C.W. Analytical, a laboratory in Oakland that is dedicated to cannabis testing. Carella turns to this lab for analysis of raw materials and cannabis oils before they are used, THC potency testing of finished products, and heavy metals and contaminant testing of CBD and pet products.
“California cannabis labs are very busy since California is the biggest marijuana market in the world, holding some 50 percent of the U.S. market,” Carella mentions, noting that there are at least 35 cannabis testing labs in California.
In regards to sensory analysis, Auntie Dolores calls upon patients in its cooperative to handle taste testing of its edibles.
California Dreamin’: Change is Comin’
In the long-standing absence of detailed regulations and guidelines for its legal state medical marijuana industry, some California cities besides San Francisco have been making their own laws to oversee the manufacture of cannabis edibles, Carella says. However, this regulatory hodgepodge is about to change for California edibles manufacturers, as well as the state’s entire cannabis industry.
On Sept. 11, 2015, California passed three key pieces of legislation relative to medical marijuana. As a result, effective in 2016, California will (finally) have a highly scrutinized, fully functional medical cannabis industry, subject to stringent regulation of all components of the chain from plant growers to dispensaries, including edibles manufacturers.
Specifically, Assembly Bill (AB) 266 will establish uniform health and safety standards for medical marijuana, including quality assurance (testing) standards to be enforced by local code enforcement offices. AB 243 regulates cultivation of marijuana plants, including use of pesticides. And Senate Bill 643 creates a new Office of Medical Marijuana Regulation to regulate how cannabis is grown and sold and to set fees and license businesses. Cities and counties will enforce the regulations and can choose to create their own marijuana sales taxes.
“Regulations will be good for us,” Carella says. “We had no regulatory climate before and now we do. Without that, manufacturers are self-regulating, creating public health issues. In comparison, Colorado has strict rules to produce edibles, but California, no. Here anybody can produce edibles in a dirty basement or garage with no enforceable standards. And many companies are less than scrupulous with their product labeling procedures.”
At present only cannabis dispensaries require state licensing in California. “The three bills that were passed in September are addressing this issue and in the future growers and manufacturers will be licensed establishments,” Carella points out.
Rocky Mountain High on Regulations
Under the newest Colorado Marijuana Enforcement Division retail marijuana regulations, most notably impacting potency, packaging, and labeling, effective Jan. 30, 2015, edibles sold recreationally must be wrapped individually or demarked in increments of 10 or fewer milligrams of activated THC. Moreover, edibles packaging is obligated to more stringent child-resistant capabilities. And now there must be more explicit warnings and information on labels, including statements such as “This product is unlawful outside the State of Colorado” and “The intoxicating effects of this product may be delayed by two or more hours.”
To help address the issue of protecting children from unintentional ingestion of cannabis, FunkSac, a Denver, Colo.-based packaging solutions provider specializing in odor barrier and child-resistant packaging for the cannabis industry, has recently applied Child-Guard, a child-resistant slider technology from Presto Products Co. (which is owned by a New Zealand investment company and operates five manufacturing facilities in the U.S.) to create a sister product to one of its existing products. The result is FunkGuard, a child-resistant reclosable package.
To that end, FunkSac partnered with Atlapac Corp., a contract converter of premade packaging based in Columbus, Ohio.
“FunkGuard was tested by an ISO 17025 accredited facility and meets the standards set for child-resistance by Title 16 CFR 1700 of the Poison Prevention Packaging Act, as well as being listed on the next release of the ASTM D3475 index,” says Garett Fortune, CEO of FunkSac. “The pouch is also approved for use with food grade materials. FunkGuard can be used as a primary package or as an exit bag, wherein primary packages are placed into a larger FunkGuard pouch before leaving a dispensary in order to comply with individual state regulations.”
“We launched FunkGuard to provide a best of breed flexible packaging solution to the cannabis industry,” Fortune says. “FunkGuard can be used to package many different forms of product, including edibles, which are particularly dangerous if in the wrong hands. No solution is child proof, but FunkGuard is a great deterrent for kids and easy enough for adults, which is a tricky balance.”
“The design is both high-tech and intuitive,” adds Paul Unrue, Atlapac’s vice president of sales and marketing. “The design is intuitive because it works very simply but is very technical in its operation. It appears the Child-Guard slides open when slid across. But it won’t open the package unless you plunge the slider into the pouch. So it’s extremely difficult for a child to open, yet very easy for an adult to do so.”
Child-proof packaging could become a requirement in California, Carella predicts. “At Auntie Dolores we use a lot of plastic, heat seals, and additional materials to keep kids out,” she notes.
Constraints Surrounding Distribution
Auntie Dolores edibles are sold in more than 250 of the estimated 2,000 licensed dispensaries throughout California.
“Because we are organized as a not-for-profit mutually beneficial cooperative and have medical cannabis patients in our cooperative, we are able to provide goods and services to these members, including via the Internet, provided that they carry the proper documentation and identification,” Carella says.
In an arrangement that may seem confusing to industry outsiders, the company is legally allowed to sell Auntie Dolores products in any legal medical cannabis or adult use state through partnerships with entities that are licensed to produce and process cannabis in their state. Those partners are responsible for their own state and federal taxes.
“No Auntie Dolores product can be shipped across state lines but rather the brand is licensed as intellectual property to licensee partners who hold the proper license to produce edibles in their state,” Carella explains. “The licensees can make THC-based edibles with our proprietary specs and recipes, and then sell them with our label. Per our contract, they pay us a percentage of the revenues of anything they sell.”
“Our parent company is a California corporation and we file state and federal returns in California,” Carella adds. “We don’t have any revenues from licensees yet, but essentially any licensing revenues would be reported on our return.”
Evolving Cannabis Use Laws
In 1996, California voters passed Proposition 215, making the Golden State the first in the union to allow for the medical use of marijuana. While marijuana remains illegal federally, a total of 23 states, the District of Columbia and Guam now allow for comprehensive public medical marijuana and cannabis programs, as of Nov. 9, 2015. (Of these states, 14 reportedly had active retail markets in 2014.) Recently approved efforts in 17 states allow use of “low THC, high CBD” products for medical reasons in limited situations or as a legal defense. (Those programs are not counted as comprehensive medical marijuana programs.)
It’s important to note that there are no laws permitting purchase of cannabis for adult (recreational) use in California yet. However, a bill to legalize marijuana recreationally in California is expected to pass a legislative vote and be implemented in 2016.
Throughout the country, some of the most common policy questions regarding medical marijuana include how to regulate its recommendation, dispensing, and registration of approved patients. Some states and localities without dispensary regulation are reportedly experiencing a boom in new businesses in hopes of being approved before presumably stricter regulations are made.
Since marijuana is a Schedule I substance, federal law prohibits its prescription. According to the National Conference of State Legislatures, medical marijuana “prescriptions” are more often called “recommendations” or “referrals” because of the federal prescription prohibition.
With regard to edibles for medical use, it is widely regarded that the appropriate dose and consumption schedule for each user varies and depends on many factors, including height, weight, tolerance, previous usage, current state of well-being, and health issues. It is reported that marijuana infused edibles can take anywhere from 30 minutes to two hours to take effect.
“We’ve heard from many patients that the effects from edibles can last up to eight hours or longer,” Carella says.
States with medical marijuana laws generally have some form of patient registry, which may provide some protection against arrest for possession up to a certain amount of marijuana for personal medicinal use.
Only four states, Colorado, Washington, Alaska, and Oregon, plus the District of Columbia have legalized marijuana for adult use (and also medical use). Along with California, adult use advocates are now reportedly targeting additional states, such as Arizona, Maine, Massachusetts, and Nevada, for ballot measures in 2016.
There were 1.5 million purchasers of legal cannabis in the U.S. in 2014, according to the “State of Legal Marijuana Markets 3rd Edition Executive Summary,” published in 2015 by the ArcView Group, a San Francisco-based investor network focused on the cannabis industry.
Individual state requirements for cannabis traceability, quality assurance, and laboratory testing and monitoring requirements are definitely on the rise in legal cannabis states, says Patrick Vo, MS, MAcc, CEO of BioTrackTHC, a software company that serves the cannabis industry, both government agencies and the private sector. With offices in Denver, Colo. and Olympia, Wash., BioTrackTHC is a division of Bio-Tech Medical Software Inc., Fort Lauderdale, Fla.
“Regulations, especially those addressing traceability, are crucial for advancing the cannabis industry, performing recalls, and improving product quality and safety,” Vo emphasizes. “As more states adopt a centralized traceability system, food safety will improve for edibles.”
According to Vo, the BioTrackTHC Enterprise System provides inventory and sales management capabilities, and is capable of submitting real-time data to state traceability systems, such as in Washington. BioTrackTHC’s system provides regulatory agencies with real-time inventory movements and compliance data. This comprehensive model links growers, processors, and retail dispensaries together to ensure that the entire supply chain is monitored from seed to sale.
Vo says BioTrackTHC’s Enterprise Systems are used in more than 1,300 locations in the 23 U.S. states that have legalized cannabis in some form, along with Washington, D.C., Jamaica, parts of Canada, and some Latin American countries.
Moreover, BioTrackTHC was selected by four of the last five state regulatory agencies to implement a seed-to-sale traceability system, namely Illinois, New York, New Mexico, and Washington. To date, six states have regulations for traceability. (Colorado and Oregon use different systems.)
“In Washington, BioTrackTHC is the state-mandated reporting system used by any business that touches the plant in compliance with Washington Initiative 502 (I-502) regulations,” Vo notes.
Passing in an Evergreen State election on Nov. 6, 2012 with 55.7 percent of the vote, I-502 mandated that rules for producers, processors, and retailers be in place by Dec. 1, 2013.
As it is described by the Washington Secretary of State’s office, I-502 shall “license and regulate marijuana production, distribution, and possession for persons over 21; remove state-law criminal and civil penalties for activities that it authorizes; tax marijuana sales; and earmark marijuana-related revenues.”
“All retail products under I-502, including infused edibles, must have laboratory-submitted passing test results and data in the traceability system before they can be unlocked for shipment to retailers,” Vo relates.
“It’s important to note that, whether a person or organization is for or against marijuana legalization, all can agree that proper tracking provides an important means of accountability and compliance for this emerging industry,” Vo adds.
Fastest Growing Industry in America
In 2014, according to ArcView Group’s executive summary, the legal cannabis industry expanded 74 percent to reach $2.7 billion in combined retail and wholesale sales, and thus firmly established itself as “the fastest growing industry in America.”
Five states now boast markets greater than $100 million, the executive summary continues, while one additional state posted 2014 sales above the $50 million mark. Legal adult use sales began for the first time in Colorado and Washington in 2014, adding $370 million in new sales dollars.
Colorado became the new epicenter of the industry as the first active adult use market, and recorded $315 million in 2014 adult use sales, for $805 million total combined retail (adult and medical) and wholesale sales, the ArcView Group’s research elaborates. Washington also successfully opened its adult use market mid-2014 and added $65 million in adult use sales. Both states launched these markets with relatively few problems, which has led to a growing public acceptance of adult use legalization as a safe workable model with economic benefits for the states that choose regulation over continued criminalization, the ArcView Group reports.
On the downside, Cannabis’s Schedule 1 narcotic status presents a major roadblock for those in the industry who seek financing. “Banks insured by the FDIC will not typically lend openly to cannabis companies for fear of repercussion from the government,” Carella explains. “And because of 26 U.S.C. 280E tax regulations, cannabis entrepreneurs are not allowed to write off many of the usual operational expenses incurred in more traditional businesses.”
Despite the financial, legal, and regulatory challenges associated with cannabis, Carella jumps at any opportunity to extol her high (no pun intended) level of satisfaction with a career in the edibles industry.
“For me, edibles production is a long term commitment,” she emphasizes. “I’m active on the board of the California Cannabis Industry Association because I want to be involved and have a say in our industry.”
“It’s really fantastic to help people with their health problems,” Carella says, “and to get them to eat, rather than smoke, cannabis, which is healthier. We get lots of testimonials, which is very rewarding. The positive feedback keeps me and my team going.”