INNspired

Legal cannabis is spreading. According to a new report by Grand View Research, the global legal marijuana market is expected to reach US$73.6 billion by 2027 with a compound annual growth rate of 18.1 percent.

A survey of over 1,000 US consumers found that the modern cannabis user is largely representative of the general population. Moreover, cannabis consumption today blurs the lines between strictly recreational or medical. In fact, more than 50 percent of consumers report using cannabis for both purposes. As THC and CBD products make their way into an even wider array of product categories, our frame of reference for the modern cannabis user will continue to evolve.

In 2019, the medical cannabis market took home a leading revenue share of 71 percent, driven by the widespread adoption of cannabis as a pharmaceutical alternative for a wide range of conditions, including cancer, arthritis, Parkinson’s disease and more. A growing need for effective pain management therapies is expected to boost product demand even further.

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Major telehealth platforms in the medical cannabis industry

Telehealth represents the intersection between innovative technology and the forefront of medical science. While remote medical practice saw its beginnings more than half a century ago, recent technological advancements have connected more patients to physicians than ever before.

In the US, platforms like NuggMD and IndicaMD provide patients with an online medical cannabis card that enables remote purchase of the drug. Patients can meet with physicians over secure video chat and can be approved to access cannabis within minutes. Physicians typically follow-up with patients by email, recommending the types of cannabis that would best alleviate their ailments and ensuring that they don’t purchase the wrong products. Other platforms exist to oversee the rapid delivery of cannabis and hemp products to patients across participating states.

Other parts of the world are undergoing the same transition. It has been more than eight years since Colombia — a country that represents more than a quarter of the world’s total export quotas — decriminalized the possession of small amounts of the drug, and roughly four years since the country legalized medical cannabis. In 2019, Colombia’s Constitutional Court overruled a ban on the public consumption of cannabis, which many considered a stepping stone toward full legalization. Recently, Colombia became one of the first countries in the world to extend national health insurance for patients requiring medical cannabis as a first-line therapy.

Khiron Life Sciences (TSXV:KHRN) was the first firm in Colombia authorized to sell both high and low THC formulations of medical cannabis. The company owns a telehealth platform that has accounted for over 5,600 medical cannabis prescriptions issued to date. Additionally, in June 2020 the company’s Doctor Zerenia telehealth platform was responsible for 14 percent of Khiron’s total medical consultations.

Since becoming the first company to fill medical cannabis prescriptions in Colombia, Khiron reports that 92 percent of its patients have experienced a marked improvement in their primary condition after four months of treatment. In light of these results, the Government of Colombia issued a directive that Khiron’s medical cannabis products and clinic services be covered by the country’s major health insurance providers. While countries such as Germany and the Czech Republic have taken similar legislative actions, a key difference in Colombia is that cannabis is considered a first line therapy with a vast array of applicable medical conditions. With more than 94 percent of Colombia’s population carrying health insurance policies, Colombia is quickly becoming one of the most favourable jurisdictions in the world for patient access; moreover, it has been shown that patient uptake is significantly increased by insurance coverage.

The next step forward for telehealth platforms includes opportunities such as virtual patient education and the fast, reliable delivery of essential drugs such as medical marijuana. Virtual care is also expected to expand across different types of patients, including those requiring intensive care. In the wake of the COVID-19 pandemic, many long-term care facilities have already adapted remote patient monitoring to maintain the safety of staff and patients.

The focus: Accessibility and improving patient outcomes

Medical marijuana has the power to improve patient outcomes across demographics. In the wake of groundbreaking research, patients, physicians and retailers are working together to increase the drug’s accessibility for patients who require relief from a range of health conditions. Telehealth platforms have been instrumental in not only increasing accessibility to medical marijuana, but also in improving quality of life across diverse populations of people.

A recent study completed by Canopy Growth (NASDAQ:CGC,TSX:WEED) in November 2020 found the absence of long-term toxicity despite long-term usage of CBD in a preclinical model, supporting the advancement of recent initiatives aimed at discovering CBD’s full range of therapeutic benefits. While CBD and tetrahydrocannabinol (THC) offer many of the same benefits, high levels of THC are responsible for most of cannabis’s psychoactive effects.

While the chronic pain segment dominated the medical cannabis market in 2019, application toward mental illness is expected to witness the fastest growth over the seven-year forecast period. Worldwide, a growing number of people suffer from depression, anxiety and other debilitating mental conditions with few low-risk pharmaceutical alternatives.

Medical cannabis is also becoming more popular among older adults. A recent study highlighted that cannabis use among individuals aged 65 and older has been steadily increasing, a trend that is consistent with reports from physicians who recommend cannabis in their daily practices. In the face of growing public acceptance and reduced stigma, we are beginning to see an increasing number of older adults rely on cannabis for relief against chronic pain, insomnia, neuropathy, anxiety and other conditions that traditionally call upon pharmaceuticals.

Much of the momentum in the medical cannabis market can be owed to the rise of telehealth platforms and health digitization efforts, increasing ease of access and promoting transparency. Over the next decade, legalization, increased awareness and the rise of remote medicine are expected to facilitate growth, creating lucrative opportunities for market stakeholders.

Takeaway

Telehealth platforms represent one of the easiest ways for patients, providers and retailers to collaborate remotely and fulfill needs faster. As more physicians and policymakers begin to recognize digital health tools as an advantage for maximizing efficiency and safety in health care, existing medical cannabis platforms are well-positioned to take advantage of a large-scale digital transition.

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Crop yield is a useful metric when measuring the scale and success of a cannabis cultivation operation. 

Cannabis companies with large-scale greenhouses love to talk about the size of their operations, however, recently cannabis companies have begun to focus on measuring cannabis crop yield as a more important performance indicator. Grow space numbers are often impressive and easy to understand, but they don’t necessarily tell the full story. Major cannabis cultivation facilities are often economies of scale that prioritize quantity over quality, resulting in a standardized end product that can be produced at large volumes.

In Canada, demand for high-quality cannabis has created an opportunity for craft cannabis producers that specialize in offering cannabis products grown in small batches in order to ensure the greatest quality. These operations often focus on unique strains capable of producing unique effects and can require extra attention when compared to large-scale cannabis production operations. For craft cannabis companies that have embraced a smaller operational footprint, yield can be a critical metric when analyzing how efficiently the company is utilizing its cultivation space.

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Artificial selection and cannabis production variables

In order to grow a premium cannabis product, cultivators aim to design and implement efficient systems capable of controlling every possible input. For cultivators, there are a number of variables at play that can greatly influence the quality of the resulting product, beginning with the strain selected. Cannabis strains all contain the genetics of their “parent” plant. These genetic properties are passed down from generation to generation, enabling cultivators to select and reproduce the plants that produce the optimal traits for each desired use. This process is referred to as artificial selection and has been commonplace in farming for centuries.

Once a strain is selected for production, there are a number of factors during the cultivation process that can influence the yield and quality of the resulting product. Facility design, lighting, irrigation, air quality and soil quality can all play a significant role in the resulting plant depending on the properties of the strain being grown. Due to the unique properties of cannabis strains commonly grown around the world, the growing conditions must be adapted to the preferences of the strain being grown. Each strain can respond differently to environmental inputs, leaving growers to fine-tune their operations based on the desired result. For example, according to Leafly strains such as Hash Plant and Critical Kush are known to grow into smaller plants, while strains like OG Kush and many “OG” varieties require specific nutrients with a higher quality of calcium and magnesium in order to return the best quality flower.

To many in the cannabis industry, the size and setup of a cultivation facility can have a major impact on the quality of cannabis grown there. The larger the grow space, the harder these inputs are to control, and the harder it is to keep the facility clean of pests and pathogens. According to Flowr CEO Vinny Tolia, the decision to optimize cultivation is a key aspect of the company’s business strategy. “Our entire thesis is based on maximizing yield and thereby reducing the marginal costs of production using purpose-built, highly efficient and extremely clean indoor growing facilities,” Toila told INN in 2019. Flowr is one of Canada’s leaders in cannabis crop yield according to Sean Williams of Nasdaq.com.

Cannabis companies optimizing crop yield

There are a number of cannabis companies taking different approaches to optimize quality and yield, with licensed producers and researchers coming together to improve the overall potential of the industry. Upstream at the strain selection level, Canadian cannabis company PacRoots Cannabis (CSE:PACR) has formed a strategic partnership with cannabis breeder Phenome One to give PacRoots access to some of the world’s best cannabis genetics. Phenome One holds the licenses to over 350 strains with varying remedial benefits, making it one of the largest genetic cannabis libraries in Canada.

“By filtering through as many as 600 plants in order to derive a specific phenotype, Phenome One allows us to tailor elite cultivars that can be designed for both indoor and outdoor cultivation,” said PacRoots CEO Patrick Elliott. “Cultivators demand the efficiency to produce better yields and products for the end-user while maintaining product integrity and potency. Suitable genetics, articular process, and data collection to optimize yield for specific climates are essential to compete in this new global cannabis industry.”

At the cultivation level, innovative tech companies including SunPath are working to improve the capabilities of the cannabis industry through its patented collection of fiber optic technologies that are capable of delivering 10 times the energy of traditional PV solar panels that drive LEDs. The company believes improving the artificial light used to grow cannabis plants has the potential to reduce operating costs while improving plant growth.

Takeaway

The cannabis supply chain offers a number of opportunities for innovative companies to optimize conditions in order to deliver the best possible product. For traditional cannabis cultivators, there are a number of critical factors that inform the cultivation process, from upstream influences such as the strain and its genetics to downstream influences such as growing conditions, fertilizer, and water quality.

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The proliferation of legal cannabis across North America has underscored the importance of cannabis genetics and artificial selection.

The legalization of cannabis across major jurisdictions in North America has created a new marketplace for consumer goods. In the modern cannabis industry, we have seen exponential growth in product diversity, including innovative concentrated forms such as oils, soft gel pills, shatter and vape pen cartridges. When it comes to the cannabis flower itself, which also serves as an input for oils and concentrates, the quality and genetic makeup of each strain have become even more important, with major corporations and innovative cannabis companies working to improve their base product. Driven by cannabis connoisseurs and medical users in need of strains that produce unique remedial effects, the legalization of the cannabis industry has caused an explosion of innovation when it comes to cultivating the optimal cannabis plant.

Driven by this product variety, a number of cannabis cultivators and researchers have begun creating uniquely-tailored strains optimized for each particular use-case through the process of artificial selection. Artificial selection has been common practice in farming for centuries, with farmers routinely selecting the best plants and breeding their superior genetics after each crop rotation to improve the following harvest. In the cannabis space, the art of artificial selection and marker-assisted breeding have enabled cultivators to optimize the size, color, smell, density and texture of the resulting cannabis crop. The diversity of cannabis strains currently known to cultivators and researchers has created a new field within the cannabis industry, with licensed producers working alongside researchers and product designers to optimize strains for their unique use-cases and subsequent requirements.

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Cannabis genetics and artificial selection

You don’t have to be a master grower to understand that premium-quality flower is necessary to create premium-quality cannabis concentrates. Just as premium grapes are necessary to create the finest wines, so too are premium flowers a necessary input to create a quality concentrate product. “The starting material is the most important factor in determining the end quality of each extraction. A cannabis plant’s genetics are the starting material and hold extreme value for each strain to reach its potential,” said Will Hyde, cannabis strain specialist and co-host of Leafly’s “What Are You Smoking?” podcast. In addition to the optimal effects enjoyed by recreational uses, the emergence of the medical cannabis market has further emphasized the importance of artificial selection in pursuit of medical strains designed for specific medical needs.

When it comes to quality cannabis flower, consistency is paramount. Due to regulatory requirements and product standards commonly found in North American cannabis markets, major cannabis brands with large-scale operations often select consistent, high-quality cannabis strains for their product lines. The effect, potency, aroma, taste and yield of a cannabis crop can all largely be informed by genetics. “Genetics hold the key to your bud’s effects, flavors, vigor and growth attributes,” said Hyde on his podcast. “Every strain carries a unique genotype that serves as a blueprint for its growth, as well as a specific phenotype that is influenced by its environmental factors and affects a range of strain attributes like color, smell, structure and potency.”

Cannabis genetics enabling strain development

Strategically-minded cannabis producers have recognized the importance of genetics, with a number of licensed producers across the continent working to secure the strains and genetics that can be applied to unique new product designs. In British Columbia, upstart cannabis company PacRoots Cannabis (CSE:PACR) has finalized an agreement to collaborate with cannabis experts at Phenome One, with complete access to the company’s database of over 350 unique cannabis strains that have been carefully field-tested and artificially selected over 30 years of research. “This is a major opportunity for PacRoots to be positioned to offer customers an extensive collection of cannabis cultivars. At PacRoots, we pride ourselves and our customers with quality and we are thrilled with the opportunity to partner with Phenome One, establishing a robust strain portfolio that compares favorably with others in the Canadian cannabis space,” said Patrick Elliott President and CEO of PacRoots.

Phenome One’s extensive database includes proprietary high-THC strains, cannabidiol-dominant strains with rare terpene profiles, and custom strains finely tailored for medical purposes. Moving forward, PacRoots intends to leverage Phenome One’s intellectual property relating to the growing, breeding, and cloning of cannabis cultivars to optimize its offerings. Recently, the COVID-19 pandemic has put a spotlight on efficient operations in the cannabis industry, which PacRoots believes could cause cannabis companies to focus on the genetic profile of their inputs. “The ‘new normal’ has amplified our business, as cultivators demand the efficiency to produce better yields and products for the end-user while maintaining product integrity and potency. Suitable genetics, articular process, and data collection to optimize yield for specific climates are essential to compete in this new global cannabis industry,” said Elliott.

Major producers such as Canopy Growth (NYSE:CGC,TSX:WEED) have long recognized the importance of cannabis genetics in establishing efficient operations. “You can get more yield off of a plant if you can refine the genetics and that allows us to have more grams, more kilograms coming out of this place per year,” said Jordan Sinclair, Canopy Growth’s vice president of communications, during a 2019 interview at the company’s Tweed Farms operations. Following in the footsteps of major producers like Canopy, cannabis genetics specialists such as PacRoots have an opportunity to secure a unique foothold in the cannabis industry by applying science at the greenhouse level.

Takeaway

Whether for medical or recreational use, cannabis companies of all sizes are working to optimize cannabis strains to produce effects tailored to specific use-cases. At the cultivation level, the artificial selection of cannabis strains has also enabled companies to maximize the size of their crops, enabling more efficient operations with every harvest.

This article was originally published by the Investing News Network in July 2020. 

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The emergence of CBD in Europe could be informed by lessons taken from the North American marketplace. 

Driven by the increasing amount of jurisdictions that have legalized the sale of cannabis, the explosion of the CBD market across North America has spawned a number of subsectors within the industry including nutritional foods, topical products, sports supplements, and more. Driven by the increased amount of legal research and development regarding cannabidiol and its potential remedial effects, the CBD market in the United States grew to reach US$1.9 billion according to BDS Analytics.

With lower regulatory hurdles to clear than psychoactive cannabis, CBD product sales have grown at a faster rate than overall dispensary sales, indicating the potential for cannabidiol as its own major industry. “We’re witnessing CBD maturing from a cannabis sub-category into a full-blown industry of its own,” said Roy Bingham, Co-Founder and CEO of BDS Analytics. While the growth of the CBD market and its many applications have come with regulatory complications, early breakthroughs in North America have the potential to inform emerging cannabidiol markets around the world. Following a similar trajectory, CBD in Europe has already grown to become its own major industry.

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Regulating CBD in Europe

Home to more than 740 million people, Europe has twice the population size of Canada and the US combined. The legal status of psychoactive cannabis varies across Europe, but cannabidiol has proven to be more easily accepted across the continent. Products containing CBD are currently considered a “novel food” under European Union regulations. Novel foods in the European Union are recognized as foods that had not been used for human consumption to a significant extent before May 15th, 1997. While CBD’s novel food status could pose challenges to the European CBD market, analysts at Brightfield Group estimated the industry reached $318 million in 2018.

“CBD is just starting to take hold in Europe, with both product availability and consumer awareness still quite limited. This is a great opportunity for developed brands to enter and expand through Europe with far less competition than we’re seeing in the US,” said Brightfield Managing Director Bethany Gomez. “With the Novel Foods Act, it is a challenging legal environment to operate in, but impending regulatory changes are likely to smooth the way for significant mid-term growth.”

Medical cannabis and CBD in Europe

As shown by the early proliferation of the North American CBD market, the remedial benefits of cannabidiol can be applied to a variety of existing products including cosmetics, nutritional foods and beverages. While these products have shown significant potential, the unique wide-ranging applications of cannabidiol can pose a variety of challenges to regulators and businesses.

From the perspective of cannabis companies, the various designations can have a significant impact on how CBD in Europe is defined and regulated. “The CBD industry, like any consumer market, is subject to a range of generic regulations governing food, cosmetics and medicines, and the end product category determines the rules by which those products can be produced, distributed and marketed,” said a 2019 report on CBD in the UK written by the Centre for Medicinal Cannabis.

While the unregulated nature of the UK CBD market could pose early challenges for the industry, the market has already reached a total of $374 million in 2019 according to Nate Erskine, the head market analyst at CBD-Intel. In pursuit of the emerging opportunity in the United Kingdom, a number of cannabis companies have begun to make inroads in the country’s medical cannabis and cannabidiol industries. In 2019 cannabis titans Canopy Growth Corp’s (TSX:WEED,NYSE:CGC) pharmaceutical business, Spectrum Therapeutics, received the first UK license for a storage and distribution facility dedicated to medical cannabis. The company is working to serve new medical cannabis patients in the UK.

Targeting the UK CBD industry, medical cannabis investment company World High Life (OTCQB:WRHLF,AQSE:LIFE) acquired Love Hemp, a leading provider of CBD-based products in the United Kingdom, in 2019. “Our mandate was to find the innovators positioned where the Canopy’s of the world were 5-7 years ago. Most importantly, we were looking for leaders who were passionate about the industry and their business, people who had a vision and were seeking both capital and expertise to realize that vision. With Tony Calamita and Tom Rowlands, founders of Love Hemp, we met all of our criteria for success,” said World High Life CEO David Stadnyk.

Love Hemp offers CBD-based oils, edibles, cosmetics and vaporizer products that are distributed in over 2000 retail locations across the United Kingdom, including stores such as Ocado, Holland & Barrett, WH Smith and the company’s online retailer, CBDOilsUK. Love Hemp recently announced it had increased its online sales by 39 percent month-over-month since January of 2020 and is now in the process of negotiation with some of the UK’s largest retailers for potential product listings in September 2020.

Takeaway

Following in the footsteps of the North American market, many European authorities have prioritized cannabidiol and medical cannabis over the recreational use of THC. While regulatory questions left to be answered could pose challenges for both businesses and governments, companies capable of establishing a foothold in these nascent markets could benefit from a first-mover advantage in the European cannabis space.

This article was originally published by the Investing News Network in June 2020.

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The US legal cannabis industry is finding new legitimacy with each passing year, but cannabis is still far from federally legal in the US.

From a consumer’s perspective in legal jurisdictions like Colorado and California, it’s easy to forget that cannabis is not yet legal as far as the federal government is concerned. However, for cannabis businesses and the ancillary services they rely on, cannabis’ complex legal status can be problematic. Ever since the first legal medical cannabis shops opened in California in the 1990s, cannabis businesses have had difficulties accessing many of the basic financial services that other businesses take for granted.

As the US cannabis industry continues to grow, federal lawmakers are beginning to enact changes that will allow these businesses to operate safely. Legislative breakthroughs could create new opportunities for money handling services built specifically for cannabis retail.

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According to New Frontier Data, the US legal cannabis market is expanding at a compound annual growth rate of 14 percent and is expected to be worth US$30 billion by 2025. The retail cannabis space is growing by leaps as new jurisdictions legalize every year. With major markets like New York and New Jersey likely to legalize recreational sales in the near future, cannabis retailers should see significant opportunities to gain first-mover advantage in these large, affluent markets.

Cannabis industry breakthroughs

Throughout the history of the legal cannabis industry, financial institutions have been understandably hesitant to work with cannabis businesses. Banks that do work with cannabis companies risk being accused of money laundering or other illegal activities by the federal government. Despite this, a small but growing number of US banks and credit unions are beginning to see that the benefits of the cannabis industry outweigh the risks. According to federal data, there were 715 banks and credit unions in the US actively serving cannabis businesses as of the third quarter of 2019. These institutions represent a small fraction of the US financial industry, and most of them are smaller, single-state institutions operating exclusively in legal cannabis states. Financial institutions that do work with cannabis companies tend to be audited frequently and their transactions are monitored under close scrutiny. As a result, cannabis businesses are often subject to significantly higher fees than other businesses.

Historically, cannabis retailers have been forced to operate on a cash-only basis, a situation that has been far from ideal for all involved. Operating as a cash-only business can become a pain point in the cannabis retail experience, limiting what would otherwise be a service advantage for the legal industry over the black market. More importantly, businesses dealing exclusively in cash are at risk of robbery, putting retail employees and customers at risk. Cash-only retailers need to arrange for secure transport and storage of large amounts of cash, which usually involves hiring armored trucks and armed security personnel at significant expense. A lack of federally recognized guidelines for the handling of cannabis industry finances has become a major expense and a very real safety concern for industry stakeholders.

Lawmakers on both sides of the aisle have recognized the importance of ensuring safety for cannabis employees and consumers. In late 2019, the House of Representatives proposed two pieces of legislation meant to rectify the situation, both with bipartisan support. The Secure And Fair Enforcement (SAFE) Banking Act would prevent federal regulators from penalizing financial institutions for working with cannabis-related businesses, allowing cannabis companies to access financial services unimpeded. The Marijuana Opportunity Reinvestment and Expungement Act would go even further by removing cannabis from the controlled substances act and expunging prior federal cannabis convictions. The SAFE Banking Act was passed by the House on September 25, 2019, and the Marijuana Opportunity Reinvestment and Expungement Act was approved by the House Judiciary Committee two months later on November 20 and will go to the floor for a full House vote in the near future. Both acts will need to clear the Senate.

Cannabis industry moving past cash only

These legislative breakthroughs could lead to a surge in cannabis retail development, creating opportunities for companies providing point-of-sale (PoS) services for the cannabis space. In the meantime, the list of financial institutions willing to work with the cannabis industry is rising despite the lack of guidelines. As the cannabis retail space continues to grow, an increasing number of retailers are gaining the ability to conduct non-cash transitions. PoS platform builders have an opportunity to foster adoption now with retailers making the early switch away from cash-only, positioning themselves for rapid expansion as more financial institutions begin to do business with cannabis companies.

“The point of sale industry for cannabis is growing rapidly as more and more states require full compliance and integration into the state’s seed-to-sale tracking systems,” said Ryan Hamlin, POSaBIT Systems (CSE:PBIT,OTC Pink:POSAF) co-founder and CEO. “These state systems require that all sales be registered and all product inventory changes submitted in near real-time. The majority of traditional retail point of sale systems lack this significant compliance feature.”

PoS services not only facilitate debit and credit transactions, but also help retailers track useful product and customer data that could help cannabis companies stay compliant and competitive in the evolving regulatory landscape. Cannabis businesses that face intense regulatory pressure to keep track of their products have an opportunity to improve transparency and regulatory standards using PoS systems. Cannabis retail PoS platforms can be easily configured to ensure customers are legally allowed to buy cannabis, whether through recreational or medical licenses.

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POSaBIT Systems Corporation (CSE:PBIT,OTC:POSAF) is a fintech company that has developed a unique and innovative blockchain-enabled payment processing and point-of-sale (POS) system for cash-only businesses.Send me an Investor Kit

Legal cannabis jurisdictions such as California have imposed daily sales limits that can be difficult to enforce. PoS systems have the ability to track how much product a particular consumer has bought on a given day, ensuring only legal sales are finalized. PoS systems can also be configured to maintain a detailed record of a store’s inventory, helping retailers to manage stock, respond to recalls or evaluate which products are most popular. Detailed product descriptions housed on PoS databases could help retailers make recommendations for specific customer needs.

“The cannabis industry has evolved over the last several years and so too has the software required to support it,” Hamlin stated. “The cannabis point of sale system needs to not only register sales but track inventory, provide customer loyalty programs, run online and offline menus and even manage pickup or delivery services.”

Few customer service businesses these days rely on analog cash-only transactions when they have a choice. A number of developers are looking to become first-movers in the cannabis PoS space as more of the cannabis industry switches over from cash-only. Companies like POSaBIT, Green Bits and IndicaOnline have developed full-service systems specifically for the needs of cannabis retailers. POSaBIT has deployed its full-service platform for more than 120 cannabis retailers in well-established legal states as well as new medical markets like Arizona and Oklahoma. By the time national legalization does occur, the company hopes to have established the platform as a standard for cannabis retail PoS. In addition to payment processing, POSaBIT’s system includes a range of features like customer profiles and purchase history, loyalty, inventory management and product education services.

Takeaway

The cannabis retail landscape is changing fast, and many of the limitations faced by cannabis businesses are beginning to fade away. As more cannabis retailers gain access to the full suite of financial services, more retailers could be incentivized to move away from cash and into the 21st century. PoS service providers have an opportunity to establish themselves early with full-service platforms that cater to the unique needs of the cannabis industry.

This article was originally published by the Investing News Network in January 2020. 

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A cannabis health product category could enable the fair and accurate regulation of new markets, including CBD-based consumer packaged goods.

CBD’s reported therapeutic properties along with regulatory changes such as the US Farm Bill and the removal of CBD from the federal Controlled Substance list have provided CBD companies with a foot in the door to the US$4.2 trillion health and wellness market. In 2019, major US retailers such as CVS Pharmacy (NYSE:CVS), Walgreens (NASDAQ:WBA), Rite Aid (NYSE:RAD) and Kroger (NYSE:KR) began carrying CBD topicals including creams, sprays, roll-ons, oils, lotions and salves. Major clothing and beauty retail brands such as Urban Outfitters (NASDAQ:URBN), Ulta Beauty (NASDAQ:ULTA) and Authentic Brands Group (which now owns Sports Illustrated) have also signed agreements with cannabis companies to give shelf space to CBD derived products.

Now that CBD-infused edibles and topicals are legal in Canada, consumers can expect to see new offerings of CBD health and wellness products, including from CBD sports supplements and recovery brands. Cannabis companies such as Sire Bioscience (CSE:SIRE,OTC Pink:BLLXF,FWB:BR1B) are already working to serve this trend. The company holds a Health Canada hemp license and in May announced the acquisition of leading sports supplement company, Fusion Nutrition Inc., which offers brands carried by Canada’s top five sports nutrition retailers. “We see Fusion as a natural fit in the mainstream CBD market across North America,” said Sire Biosciences CEO Brian Polla. “The acquisition provides us with a natural entry into the broader US market, specifically the sports supplement sector.”

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Sports supplements represent a major arena for CBD to show its true potential, with a number of high-profile athletes turning to CBD for its remedial benefits. However, before CBD focused companies can further penetrate the Canadian market, Health Canada will need to set out clearly defined regulations regarding what can and cannot be labeled a health product.

CBD companies are hoping Health Canada’s proposed cannabis health product category will open up a new market for CBD products.

Athletes driving adoption of CBD-based supplements

CBD interacts with receptors found throughout the body to encourage the increased production of endocannabinoid molecules, which help the body to regulate various functions including the response to pain and inflammation. These therapeutic properties are well aligned with the sports supplements market. It’s still too early to forecast the potential size of the market for CBD infused sports supplements, however, the global sports nutrition market was valued at US$50.84 billion in 2018 and is expected to reach US$81.5 billion by 2023.

Across the professional sports world, there is a growing interest in CBD sports recovery products. Big names in sports are already entering the CBD space as a testament to its potential. For example, Sports Illustrated recently announced its partnership with a CBD company Sentia Wellness to create a line of Sports Illustrated-branded products including 500 milligram pure CBD recovery creams. Samples of the products made their way into gift baskets at this year’s Sports Illustrated Super Bowl party.

The CBD sports market also has champions in former NHL player Mike Cammalleri, Edmonton Oilers captain Connor McDavid, Pro-Bowl tight end Rob Gronkowski and former NBA player Al Harrington. In fact, the World Anti-Doping Agency removed CBD from its list of prohibited substances in 2018, giving Olympic athletes the green light to use CBD sports recovery products during the Tokyo 2020 summer games.

In October of 2019 cannabis industry giant Canopy Growth (TSX:WEED,NYSE:CGC) made a big play in the CBD sports market by purchasing a majority stake in Toronto-based BioSteel Sports Nutrition, which distributes sports nutrition and hydration products throughout the US, Canada and Europe. BioSteel has a number of partnerships with national sports organizations. The two companies have subsequently launched a line of CBD sports supplements that includes CBD-infused protein powder and CBD isolate sports hydration mixes.

“The use and acceptance of CBD-based products in the professional sports landscape has changed. We have witnessed the negative effects of prescription painkillers and athletes are looking for healthier alternatives,” said Michael Cammalleri, Co-founder and Co-CEO of BioSteel Sports Nutrition.

Safety, efficacy, and the health product category

One of the drawbacks to the rising popularity of CBD products is the rush to put CBD in everything like it’s Frank’s RedHot Sauce. According to a report by Healthline, the financial incentives at play create the potential for abuse. “The wellness industry is going to do what the wellness industry does best: try to make money. And CBD is proving to be a great way to do that. As a result, CBD is unnecessarily ending up in some cosmetic and wellness products.” Some of these unnecessary products include CBD mascara, CBD shampoo and CBD toothpicks. Chew on that for a moment, and you can begin to see why regulatory agencies such as the US FDA and Health Canada might have a few reservations about this new market.

While adding CBD to such products as mascara and toothpicks is most likely benign, throwing a compound like CBD (known to have an impact on regulatory functions in the human body) into topicals and ingestible products without any agency oversight is a public health disaster waiting to happen. Unsurprisingly, the FDA has issued warnings to companies making false advertising claims on CBD products in violation of the Federal Food, Drug and Cosmetic Act.

To the north, Health Canada may have legalized the sale of cannabis-based edibles, beverages, topicals and extracts in October of 2019, but under the Cannabis Act, CBD remains a controlled substance on the prescription drug list and is still not allowed in over-the-counter drugs or natural health products. Companies who want to manufacture and sell any CBD-derived products with health claims are subject to prescription drug pre-market authorization requirements. On top of that, these products can only be sold with a prescription from a health-care practitioner by a provincially or territorially-authorized cannabis retailer or a federally-licensed seller of cannabis for medical purposes.

Despite Health Canada’s strong regulations, black market CBD products continue to make it to consumers, driven by a wide price differential and a supply deficit of legal CBD products on store shelves.

A number of major cannabis companies have recognized the importance of making health and safety a top priority for consumers, with Health Canada expected to play a critical role regulating the sale and marketing of CBD derived products. “The most important consideration in dealing with anything cannabis-related is proof of safety. Health Canada has already been through the rigors of regulation in the nutraceutical space and from that experience we are confident they will allow safe and effective products into the market,” said Polla. “What we are seeing now in the CBD space looks very familiar to the nutraceutical space 15 years ago. Developing consumer trust alongside alignment with pricing is what’s needed to make a dent in the black market.”

The cannabis health product category

Cannabis companies with a focus on CBD-derived health and wellness products may have a faster route to revenue down a potential new legal pathway. Health Canada is now working on developing a regulatory category for health products containing cannabis that would allow for sales without a prescription.

In the summer of 2019, the Canadian government conducted a consultation to seek feedback on the introduction of cannabis health products. This new cannabis product category is expected to be governed by the Food and Drug Act and as well as the Cannabis Act, meaning any health claims and cannabis-based ingredients would need to be supported by scientific evidence. Under the proposed new regulations, provinces and territories would have the power to authorize where cannabis health products could be sold.

“The results of this preliminary consultation will help Health Canada to better understand the potential market for these products and to inform the development of a potential regulatory pathway,” Health Canada spokeswoman Tammy Jarbeau told Hemp Industry Daily in February 2020. The next steps for the proposed cannabis health products category include establishing an external scientific advisory committee that will be tasked with determining the appropriate level of scientific evidence needed to prove safety and efficacy. “Following the publication of the summary report and the establishment of the advisory committee, the department will analyze available findings to determine a path forward,” said Jarbeau.

Sire Biosciences CEO Brian Polla views the potential new product category as a key milestone for the growth of the CBD health and wellness market in Canada. “The creation of this new category is so important to improving the current state of the cannabis market. It will not only allow safe access to those looking for the benefits of CBD but with different format offerings, it will help shift the perception of cannabis in our culture. Only when culture shifts will we see the maturity in this market that investors have been longing for,” said Polla.

Takeaway

A number of the biggest names from the sports world and the cannabis industry have already shown significant interest in CBD-based sports supplements and recovery products. As with most consumer packaged goods, growth in the CBD market is expected to be highly dependent on the ability of regulatory agencies to ensure consumer safety. Health Canada’s proposed cannabis health product category has the potential to clear the way for new legal CBD-infused health and wellness products.

This article was originally published by the Investing News Network in May 2020. 

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