What if your understanding of the cannabis industry could be transformed with a single podcast episode? Buckle up, because we're about to dissect the implications of the recent Health and Human Services' recommendation to reclassify cannabis from Schedule 1 to Schedule 3. We're thrilled to have Pamela Epstein, the CCIA board president and chief legal and regulatory officer for Terpene Belt Farms, shedding light on the potential benefits this could bring to the industry and challenging the present regulations around hemp and THC-A.
Imagine a world where synthetic and semi-synthetic cannabinoids are the norm, completely revolutionizing the industry. We rummage through the complex regulations surrounding the cannabis plant, the potential of uniting the plant to free the plant, and the confusion spurred by the Farm Bill of 2018. Amidst the chaos, Pamela Epstein delves into the intriguing intricacies of hemp, THC-A, and Delta 9, and the potential deception faced by customers buying flower products with more THCA than Delta 9. We ponder the possible effects of THC inflation in the market, and the crucial role of consumers' education in ensuring properly regulated products.
Ever wondered about the fairness of cannabis and hemp taxation and regulation? We're exposing the inequity of taxation between these two products, questioning how the current regulations actually discourage people from complying. As we touch upon the critical baseline set by Prop 64 and AB 195, we're stirring up a debate on how the federal government can create a fair taxation of a larger marketplace. Engage in our thought-provoking conversation, share your insights, and remember: stay curious, stay informed, and keep your spirits high!
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Welcome to High Spirits Live, where we're serving up unfiltered insights, revealing our insider's perspectives and illuminating transformative strategies for people. You who are trying to make sense of the cannabis industry. Let's go, anna Rae how are you doing? Today.AnnaRae Grabstein:
Hey, I am so good. I am thrilled to have today's conversation. That's going to be good and I'm looking forward tonight to going to this really awesome event in San Francisco called Women in the Weeds. So for any woman, cannabis yeah that wants to come out in San Francisco tonight from six to nine. Message me on LinkedIn, I'll send you the invite. You can find it on event high as well. My good friend, hannah O'Brien is putting on the event for women in the industry, so super pumped.Ben Larson:
Very good, I love it. Yeah, I'm just having like an incredible week. I don't know. My kids went back to school this week, got to drop them off at the same school for the first time in their lives and I don't know, I just even this week feeling some semblance of a schedule. You know, shipped them off to school this morning and I even got a little workout in. So I'm just I'm feeling like a human being again, which is pretty excellent.AnnaRae Grabstein:
So, yeah, I relate to that so deeply. I've got to say for all the parents out there and I know there's a lot of us, can't a parent? So shout out to all of you for making it through the summer. There's so many people to talk about with parenting. You know about how important it is to keep your kids regulated and not regulated the way cannabis is, but like the alternative of dysregulated. You know, like balanced and healthy and happy. And I realized when my son went back to school I was like shit. I have been dysregulated all summer, so I feel you've been. It's so good to be back focused on work. Really good, congratulations.Ben Larson:
Yeah, and you know our industry is going through regulatory discussions, if we can try to do a little bit of a transition here. Yeah, I mean big news. This week HHS makes their recommendation to the DEA that we move cannabis from schedule one to schedule three. And you know we have an incredible guest today. I'm just going to say it Like. I want to fast forward it into our conversation as quickly as possible because I don't know if we're going to be able to fit it all into an hour. Pamela Epstein. She's the CCI board president, chief legal and regulatory officer for for terpene belt farms. Just a total mention the industry. Pamela, welcome to High Spirits.Pamela Epstein:
Hi, I'm so happy to be here with you guys. Thank you for having me on this auspicious day after the biggest announcement in cannabis in recent years.Ben Larson:
Yeah, A little bit of a stock pop yesterday for some of the, for some of the MSOs there. I hope it'll get too excited, though it's like we've seen we've seen this happen before where the stocks go up, people get excited and then they come back down to reality.AnnaRae Grabstein:
Pam, what's your take? Tell us about what just happened yesterday.Pamela Epstein:
What happened yesterday was HHS, or we got indications that HHS is recommending that we move down the schedule not off the schedule, but movement within the schedule. It is if the DEA should act. So we should say that this is part of a very long process. That process started last year when Biden directed specifically that we engage in this conversation about where cannabis should be scheduled or if it should remain on the schedule, and directed HHS to go through this process. So this is the first milestone we've seen. It means not that we're de-scheduled or rescheduled today, that this is a milestone marker and we still need the DEA to respond and the Attorney General to weigh in. We can get into the weeds of it all of. What does it mean for the regulated industry?Ben Larson:
I will say that it's been a long time since we've had any good news. So, starting off on a high note, at least we're getting some movement from the federal level. One thing I did see in my LinkedIn feed recently was that some people are feeling like this is similar to when Biden made the part-ins. It was like, okay, good news, good headline, but is it really just for him to drive support or votes and how much impact is there really? And I know there's been a lot of us that have been in the de-schedule or bust camp and where do we sit on this? Is this like that radical incrementalism that we often fight for in the industry? That is the next step and then we just take it to the next step after that, or is there a pitfall there?Pamela Epstein:
I'm of the camp of being cautiously optimistic. I think that you have to stop. Smell the roses, celebrate the win. This is good momentum for a push for de-scheduling. I think we have to take a step back and remember we live in a cannabinoid world. People want cannabinoids. The only difference is where they come from. Is a regulatory distinction without a difference? We're both sides of the same cannabis, sativa, alcoine. When you think about the hemp market and the cannabis market and you think about the world today, we live in an ironic situation. On one hand, we are on the schedule and we're schedule one. Those same compounds, the same exact ones on the hemp side of the line are fully de-scheduled.AnnaRae Grabstein:
And pulled out of the USA so wild, yeah Well. So I love that you said to stop and smell the roses. I think that that's really important. So thinking of this purely for the cannabis operators out there and the cannabis side of the industry, before we jump into the hemp side, on the rosy side, let's say that Schedule 3 was to move over and the DEA said we agree with the FDA's recommendation and the whole thing, hhs's recommendation and the whole piece. We do know that 280E would no longer be an issue for operators. That is a massive win. I have been really skeptical that this would happen, because I look at 280E right now as the unofficial tax that the federal government gets on our industry, and so it has made me think like, wow, all right, if somehow we end up in Schedule 3, maybe this would fast track some type of federal program, because the government's still going to want to get their money from us somehow. But I guess let's talk about 280E going away and just what you think about that, pam, and what impact that will have on the industry. Oh, it's huge.Pamela Epstein:
It's an onerous impact that prohibits businesses from truly functioning like businesses right. Taking off your SG&A is something that every legitimate non-canabis business does without thinking. It's not even something that you would ever consider. So it's a huge boon to normalization. But really, this is the thing. What does it mean? Is the IRS going to retroactively forgive cannabis taxation? No, if you are in a payment plan, is it going to absolve you? It goes on the go forward from the time that rescheduling would occur if it happens in the middle of a tax year. Are you prorated? There's a lot of questions that I have around it, but it's a general marker of development within the space. It's huge. It allows us to do offer and compromise in a meaningful way, and anybody that's dealt with the IRS knows that that's a particularly important function where you can make an offer and get out of that sticky wicket. But it also doesn't say to me that the IRS can't go back and audit the tax years that you were subject to 280D. So a lot of these things are the devil in the details. It's a really important movement forward, but the industry should take some critical time to think about what it is they need from the IRS and to engage in a conversation and see what their temperament is going to be like. Because I think we all know from regulated cannabis that pulling back a tax is difficult and what is going to be supplemented as a tax and that sort of pivots us into this difference between medical and adult use, because one of the areas of California that I would say we missed the mark was ensuring that medical patients weren't being taxed on medicine, and so if we're going to go on to a schedule and have to deal with all of those other elements, that scheduling means we shouldn't have a tax being applied to a medical marijuana product.AnnaRae Grabstein:
So I that's super insightful and I agree as someone that spends all my time in California. I live here. The medical market is basically gone and we are seeing as new states are bringing adult use on that. They're doing different things to try to keep their medical programs intact. But okay, so schedule three is inherently saying that there is some type of medical benefit to cannabis. But what happens to adult use? And does this mean that the state adult use programs are threatened? Do they get to go on Like what needs to happen here?Pamela Epstein:
I think setting the stage about what the scheduling is is important here. Right? Think about your cohort class, that you now become a part of the drugs that currently say in schedule three that they're most utilized are ketamine, anabolic steroids and codeine mixed with acetaminophen, or are in that class. So you're not gonna belly up to a bar right and get hit Academy or Little Wayne and Cesar bright like that's not what schedule three drugs are. Schedule three drugs are typically sold exclusively at a pharmacy and you have to have a prescription, typically by a doctor that would have a DEA level license, because, remember, we're not scheduled one or two, but four is where Xanax lives, right, so you're not off the schedule, you're in schedule three and Schedule three is the domain of the FDA, which is not something that we've typically had to deal with. So if you weren't an approved drug from the DEA and you are in fact, a Adult use cannabis provider, this isn't necessarily going to solve the other part of the financial coin, which is capital market access or banking, because you would still objectively Be federally illegal without that check mark from the FDA, being that you're on the schedule. So that would mean that we would need something more akin, a more robust coal memo to continue to allow. Oh, go ahead, ben Sorry.Ben Larson:
No, I was just gonna say it's like so if we do go the route of the coal memo, is that more just perpetuating whatever the status quo is and kind of? So we I mean status quo for the, for the, for the recreational market? I guess the big conflict might occur between the established medical markets and what would kind of formulate in the favor of pharmaceuticals, and so we would have kind of like a pharmaceutical medical market and then kind of status quo state-by-state Legal cannabis markets and then whatever's happening in the hemp world which we could right I want a cool memo that would allow a cool Estile memo that's going to allow interstate commerce, because what this is is very clearly intentionally.Pamela Epstein:
Biden has said many times throughout his presidency and before that, he believes in medical marijuana and, as a medical patient myself, this is a very huge and monumental step towards enshrining a federal medical marijuana program, access to insurance, the ability for doctors to really invest. So let's not minimize the importance, but from a true adult use framework, this doesn't get you there, right, there's still a huge disconnect. How does interstate commerce work of a schedule three substance in a Recreational setting? Right, we all have seen Minnesota and we want that, that robust model. Right, we want to truly invest in a adult use Environment. If we look at our friends over at alcohol, alcohol is a base material and a great many medicines, but it itself is not classified on the schedule or as a drug.AnnaRae Grabstein:
Pam, did you just say that you envision a world where a cold style memo could allow not only for state Adult use programs to continue to exist, but also for adult use interstate commerce?Pamela Epstein:
I Don't know. That's what the devil in the details is is about. Here we need to understand what life post a rescheduling looks like, because we know what we want as an industry and Kind of, how are we gonna finesse the big benefits a medical while still in shrining the what the legacy of holistic cannabis is, which is an adult use marketplace? And I think we're gonna have to try to test the waters and understand how much we can get out of that, because it is going to become, as it is now, a state's rights Issue, because you're still gonna be federally illegal unless you have that approval from the FDA. Right, and the FDA is gonna look at it from a medical use, because that's what schedule 3 is. So when we look at him, right, the proverbial difference, without a distinction right all the sudden adult use Cannabinoid hemp marketplaces Because they're already siphoned out from the schedule. How does that? How does that work between these two processes moving forward, especially when we have now legal challenges across the country?AnnaRae Grabstein:
So I think a lot of our listeners know a lot about cannabis and hemp, but I also don't want to presume that anybody knows quite as much about the science of all these cannabinoids that you're talking about as you do, and so will you just break down for a second when you say that there are cannabinoids that are on the schedule and that also are not on the schedule like what, explain that?Pamela Epstein:
Totally All right, I'm taking a big step back. This may be and I'm hoping this is an opportunity to engage in a conversation with our Regulators, legislators and government that cannabis sativa L Doesn't necessarily need to be on the schedule at all. It is an agricultural Crop. It's an agricultural plant. When we talk about the concerning elements that require regulation, we're talking about cannabinoids. The most ubiquitous of those that most people know are CBD and THC, but there's over a hundred naturally occurring phyto cannabinoids that occur in the plant, and then there's things like semi synthetic and synthetic cannabinoids that Are made through a chemical conversion process. So, for example, we don't see poppies Living on the schedule, but yet we know that in opium and derivatives thereof do live on the schedule. So what we have is cannabis sativa L right genus can't change botany. We have a regulatory distinction where point three percent on a dry weight basis of Delta 9 THC Controlled, whether or not you fall into regulated marijuana or you are hemp. Mm-hmm and there's two completely different tracks and treatments between the two. So in 2018, the farm bill said that if you meet the definition and it's a very broad, all-encompassing definition Cannabis sativa L, the seeds thereof, the extracts, the derivatives, the isomers, the acids, the salts of acids, whether growing or not, with a point three percent tetrahydrocanvide, all concentration on a dry weight basis, and we're gonna take that whole concept and all of those Substances and we're gonna pull them out of the controlled substances act and they are now fully descheduled. And so that's the interesting World that you live in. Is that Delta 9 THC from hemp Descheduled?Ben Larson:
Delta 9 THC from cannabis schedule one so this Hemp market that has cropped up and I, you know, we have some Personal exposure to that, you know, with Bertosa and dealing with a lot of beverage companies, because the beverage categories seemingly has really kind of benefited from this. We see Brands operating both in the regulated cannabis space but also operating in this hemp space, and I Think there's there's a lot of conversations to be had about, you know, the, the intersection of this and and and how we continue to lobby forward, but it has, like created just a very confusing place to live. Where is this conversation gaining any traction with the regulators like? Is there an understanding, at least with some of them, that, yeah, maybe we should reassess, like, how we're looking at this from a scheduling perspective, because, you know, we're just in this really weird place where we we from a from a biological perspective like guided the plant to produce very little amounts of THC and Now we're trying to extract as much THC from it as possible because it's federally legal, yet without a clear framework, and so it's, you know, the, the, the lines have become more blurred, I think you like saying that we're a cannabinoid industry has me thinking, and and you know, forgive me if I'm speaking out of trim from an NCIA perspective. But it's like there's these national organizations like Attach and NCIA and this is like maybe we as an industry need to figure out how to come together so we can go out at the regulators from a single perspective. And I guess building that intersection internally first is going to be the biggest challenge.Pamela Epstein:
We're stronger together and I think that we need to start recognizing how we can support one another in bringing cannabinoids to the forefront and uniting the plant to free the plant. And so when I say that, I mean true industrial hemp is typically grown for seed, fiber and grain. It is not grown for its cannabinoid production. Modern hemp, as I would contend, is grown specifically for its cannabinoid production. It is grown for high CBD, because CBD is then taken by a downstream manufacturer and potentially converted into delta 9, thd, into delta 8, into CBN. And when we talk about semi-synthetic conversions because my goal is never to vilify a cannabinoid we do not know today what these amazing compounds are capable of THCP, which is a synthetic cannabinoid and is 33 times stronger, arguably, than delta 9 THC at its binding affinity, so its ability to be potent. We don't know what that is, but I do know that somebody like Pfizer may be able to work through an FDA process and that could be a treatment for Parkinson's who knows right? That is why it's so important to have more ability to do study. But what that also means is we shouldn't be commercializing those cannabinoids before we understand what they're going to do, so semi-synthetic things that are more comparable in structure, or things like CBN and delta 8. As the plant naturally goes through its life cycle and decays, these cannabinoids become available. They're not commercially viable in the plant itself. Right, if you had to wait for the plant to decay, you want to speed up that process. So that's where we've seen, both in the regulated and in hemp, the uptick in things like delta 8 or CBN. Most consumers wouldn't know, but most of the CBN or I would contend almost all of it is converted. So conversion isn't equal bad, but what it does equal is a difference between phyto cannabinoids and converted cannabinoids, just like the difference between organic and non-organic foods. As a consumer, you deserve to know that. So, if we are looking between the hemp and the cannabis space. If we unite there, then we can get better to descheduling. We can say consumers want cannabinoids. They want them in every form factor, in almost every touch of your life. Right, they can go into a topical, into a staff, into a medicine, into a beverage and beverages. I love a cannabis beverage. So all of you beverage manufacturers out there, I'm fighting for you. You are the tip of the spear. We do most of our life over breaking bread and cheersing over beverages and we even have a line of sight on you cheers with sparkling apple juice with your family at a big, momentous occasion. If somebody doesn't drink or if they're a child, you've got like mommy juice versus like kids juice. These are concepts that are embedded into the fabric of what it means. Beverages drive our society. They turned us in from hunter-gatherers into people that gather together, right Like the agricultural segment. So you've like hit it.Ben Larson:
I'm going to package this off and I'm going to use this for marketing.AnnaRae Grabstein:
So you know hemp modern hemp as you call it and I love the distinction between modern and industrial hemp Super CBD rich, and that CBD richness opens up the door for lots of conversion from that CBD into lots of other synthetics, as you just explained. And in that world, on the hemp side of the cannabinoid industry, we're seeing a ton of innovation, particularly with companies that are sort of leaning into what some people consider loopholes in the way that hemp has come to market. Other people see them as just straight up opportunities, and I think Minnesota is a great example of that with the way that low-dose THC beverages from THC derived from hemp are now in many different kind of more commercially available channels at gas stations and up MMO and through alcohol distributors and things like this.Ben Larson:
And this is a positive Right. Can I interrupt really quick yeah?AnnaRae Grabstein:
Ben, you can talk.Ben Larson:
I want to just jump onto the word loophole, because I do want to draw a clarification around this. So Minnesota, not a loophole, right, because they've legalized a framework. How it got done was a little atypical, we all acknowledge that, but that now exists as a fully legal market and, I guess, further backed by the Farm Bill. Pamela, earlier on you were talking about the Farm Bill and how it descheduled cannabis, and so is loophole as a word or a label. Is that a misnomer or are we just in kind of like a more questionable area now?Pamela Epstein:
Look, what was Congress's intent in 2018? That was to. If you think about the origin story of the Farm Bill, it came from Mitch McConnell and Kentucky, because we were seeing fallowing of tobacco field, Right, and they wanted to give back diversity to farmers and they wanted to give stability to non-cannabinoid products, seed stock, fiber, things of that nature. So I don't believe that we had the intention to have this marketplace. Now, this marketplace developed because of ambiguity or broadness or you know, a loophole within the law. Now can we turn that loophole into something that is non-harmful and beneficial and a new iteration? Yes. Do we have to do it with more care? That's been done? Yes, so I gave you sort of a lens on what it could be, because we're regulating, we're giving safety, but the idea that when you so, farming is farming and 0.3% was meant to be de minimis Right. That is what a consumer believes. If a product has 0.3% of THC in it or 0.3% of anything, you innately think that that is not harmful. Government isn't licensing and intoxicating or authorizing the intoxicating substance right. We just break down language. What's really happening is we only are required and the USDA is the only one that pulmonary graded a full set of rules and you had to have a state plan that's approved. We only test hemp once in the field, pre-harvest. It is never federally required again to be tested before it's a final form product. We have a lot of state operators that take great pains in doing that, but that creates a difficulty and an incompatibility with the rule. So at these local levels where Minnesota and other states are putting guardrails around what is now arguably an adult use hemp cannabinoid marketplace Tennessee right, that's what they're doing. They're using regulation from what was the loophole. But then you have other areas of the country that either are saying no because they have cannabis programs, or aren't seeing anything at all. So it's really a disservice to the consumer and the larger ecosystem because you're only as strong as your weakest link and right now we don't have standardization or stability. And when you break it down, think about function of weight and measurement. So if we express cannabis concentration in milligrams and we express traditional CPG or food and beverages are in grams, that means an average chocobar that weighs 50 grams is 150 milligrams at 0.3% of concentrated Delta 9. They don't particularly think that that's what Congress was envisioning when they set out to do this. We want to have sensible regulation, which is Minnesota right. They're putting a cap on it. They're not saying that if you have a beverage that's 12 ounces, you can have over a thousand milligrams of concentrated cannabis. They're coming back in and providing that safety and that measure. But really, who should be doing that? Who should be setting the floor Is the federal government, because otherwise, in the borderless ubiquity that is our interstate commerce transactions right now and e-commerce, the consumer isn't being served. But I think it's really important to zero in that, whereas in cannabis we treat manufactured goods with this broad brush, every manufactured good is the same. Beverages are not. Beverages are consumed. You're not going to smash six cans to your face the same way that you are trained to eat.Ben Larson:
You're going to hang out with me in college.Pamela Epstein:
So it's really important, though, when it comes down to rule and regulation and onboarding, or this idea that low cannabinoid hemp should be part of our ecosystem, that beverages are carved out separately than other edible formats.Ben Larson:
But part of me wants to believe that Mitch McConnell purposely made it ambiguous so that the farmers that he was supposedly supporting had an out for all that CBD that they were producing that wasn't being consumed. I'll just leave it there and, Aray, I cut you off earlier, so I'm going to let you have the floor.AnnaRae Grabstein:
Oh, that's okay. I mean I think we've gone somewhere else. But what I will say is I hear that you are delineating between beverage and non-beverage products and within the hemp space there has been this movement over the past, really I'd say six months. I'm starting to see a lot more hemp-derived DTC products coming from traditional cannabis brands outside of beverage, and I know Cookies is doing it with their THCA site. I've heard that Cureleaf is looking at putting select into more DTC channels using the THCA and kind of definition through the Farm Bill, and it really it's the same. It's by weight. When you explained the difference by 0.3% versus milligrams and things like that. Is this progress or does this threaten regulated cannabis? I know for myself and that I have always worked on the regulated cannabis side of the industry and so I have been very protectionist of the cannabis cultivators that are working so hard to survive in this regulated market and to see this free-flowing THCA getting mailed through the USTS. It just feels wrong to me. But at the same time, is it short-sighted or small-minded to not see that as a legal outlet and to take advantage of it if it's right in front of us today. What do you think, pam?Pamela Epstein:
Well, if we want to break down THCA, we can do that, because THCA, to me, is very different and it is an abusive, illegal, 100%. It is fraud on the consumer, if you want my honest opinion. Because let's talk about what THCA is THCA if it is not isolated, and we're talking about THCA flower specifically. First, it is the precursor to Delta 9. As soon as you light it, it becomes Delta 9. And so in the USTS regulations, when I, as a hemp farmer, have to test my hemp in the field, the calculation that is used is THCA plus Delta 9 equals total THC, and that's where you get to that 0.3%. Is it that calculation? What is happening? What cookies and the Rod Kite legal opinion is saying is you can break. The reason why you're going to ultimately have track and trace, even in hemp, is going to draw back to this moment in time, because you are there running a retail ready COA to demonstrate that that product is hemp compliant. So they're running the same test that we would run on flower at any dispensary that you pick up, and they're breaking Delta 9 from THCA, because most of the flower that you will go into any dispensary shelf actually has more THCA than it does Delta 9. And that's why, even in the department's regulations, that's the calculation that you have to use to express total THC on your package. So it is absolutely a sleight of hand and if a consumer thinks that they're consuming a flower profile that has 23 or 30% THCA and this de minimis amount of Delta 9, they are smoking cannabis flower, they are smoking Delta 9. And that is a sleight of hand that then devalues and decredibilizes both industry lines. So I specifically have a problem with THCA because it is a bait and switch. It's marijuana.Ben Larson:
Let's not do, do we do? We think that has the potential to force the cannabinoid conversation Like I'm trying to put a positive spin on this a little bit, but it's just like from a high level. It's like clearly, like this is so obvious, right. And I was talking to someone when I was out in Chicago for the cannabis drinks expo. He was actually representing a flower grower, but you just asked him point blank. It's like, well, isn't this just THC? And basically the response was like yeah, we don't say that out loud.Pamela Epstein:
That in and of itself is the problem, because that means that all the nefarious things they say about the cannabis industry that they're not honest, that they're not credible brokers, that we're ushering you know drugs to people unsuspectingly All of that negativity that the regulated industry has had to slog through and prove that we are honest brokers of this plant gets devalued overnight. So I am a positive person. I like to have like a good optics. This, to me, isn't the way that you get regulators to believe that you are honest actors and that you deserve to have an open playing field. Alcohol doesn't hide how much alcohol is in their product in order to sell it.AnnaRae Grabstein:
It's so interesting because you know, when we were first entering adult use markets and transitioning legacy markets into a regulated space, there was quality control issues that were happening in the illicit marketplace, like with vapegate. That happened in 2019 and that had ripple effects on the legal market, and people were saying, oh, maybe vapes aren't safe, when really the unsafe vapes were not in the regulated market and we're not seeing that push and pull in the same way between the illicit market products and the legal products now. But I do see how what's happening on the hemp side of the market compared to the regulated cannabis side of the market really does have the potential. The irony is and last week we had Josh Werzer from SC Labs on and we are talking about THC potency inflation in the market and how THC really has become a bit of a currency and that you need to have really high THC if you're a brand and you want to get your product on the shelf, and this is sort of the opposite. That's. The irony is that now we're trying to say actually there's no THC in the product or a de minimis amount, and so it's legal to sell on the internet and to be sent through the mail, and somehow that's working too. So in some ways it undercuts the argument that the consumer is only out for THC or the high THC results when, when these brands are choosing to market in other ways that are not focused on THC, that's a optimistic, hopeful. Maybe THC inflation isn't the only path forward here.Pamela Epstein:
Right, if you look at the advertisements on these THC websites, they say it gets too high. Right, like there's undertones and most of the people who are purchasing those products know exactly what they're they're getting. But you have to regulate for the average person, which, in the law, is like the dumbest person. You know town tube pigs, right, why do we have to write hot coffee on hot coffee? But that's what you regulate for and you regulate for the most vulnerable in your society. And so if somebody were to purchase these, you know 5000 or I think Benoit has a 20,000 milligram, the largest legal THC. You know chocolate bar, it's got 20,000 milligrams and it's from hemp and they're, like it's Farm Bill compliant, right. I think you can look no further to Arizona. I was in a discussion in a Senate bill where I was told Miss Epstein, do you believe that you can get high from hemp? That's like drinking o' duels, thinking you're going to get drunk. And that was from a state senator. So they don't understand. And they do believe that the federal government and the Farm Bill did not intend to regulate an intoxicant. I mean, that's the rope, not dope argument, right, the rope, not dope. Unfortunately, or fortunately, because now we know how much cannabinoids are desired by consumers. The consumers need to stand up and be educated that they want to unite the plant to free the plant. I want cannabinoids, I want them to be regulated sensibly, I want them to be taxed lower and I want to have wide adoption. If we look at our friends in alcohol and I would suggest that every cannabis and hemp operator read toward liquor control, which was the seminal work in the 1930s by JD Rockefeller, who was a tea toddler, didn't believe in alcohol, thought that alcohol made smart men dumb, but he recognized the opportunity and he hired two economists to do a report about what it meant to de-skep-right to 90 schedule at that time but to regulate and end prohibition, and they came up with two really important fundamental core principles. One nationwide prohibition is a failure. Schedule three is still arguably part of a prohibition. They also said that in order to destabilize a well-entrenched like bootlegger and moonshiner culture, which is our illicit marketplace actors, you had to set taxes purposefully low and licensing fees low, lower the barriers to entry so that you could have wide adoption and social change. That could not be more true on the precipice of being 100 years old 90 years old this year, as it was in 1933. When I say that we should move toward cannabinoid control, you have to bring this plant together. You have to regulate in a restraint-based continuum, otherwise we're going to keep having these infights and we're not going to develop over time. When you take too much of a liberal stance, like THCA flower, which the USDA, when hearing chatter, is going to come out with guidance, that is not what they believe that you should be doing. That somehow that calculation doesn't pull all the way through Goes back to what we were talking about at the top. I want to see the devil in the details. I want to see this eight-factor analysis. What is the FDA talking about? Are they talking about phyto cannabinoids? Are they getting into the weeds of conversion? What is this recommendation from HHS? We haven't seen it. We've seen an interpretation. We haven't.Ben Larson:
Yeah, it's very strange that we haven't. I think this whole talk about the cannabinoids and just like THCCBD, like THCA, it gets me to really think it's something that I believed in for a while is hemp cannabis. It's all one market, it's one consumer base that people are being met with. Different products at different access points, different retailers. I'm going to take it selfishly into the direction of beverage, just because we are seeing a lot of interesting opportunities here, the further that this ambiguity persists. I think we at least have the opportunity to observe how people are treating these different products. One of the things that we've recognized in the space is that in the highly regulated, overtaxed to your point in the cannabis channel, we see products like on Colonies where you have 100 milligrams of THC at a very low price. If you go to Headset and look at the top selling beverages in California, the top five is what they now publicly report. It used to be 10, now it's five, but those are all 100 milligram beverages, all sub $10. What we don't see on that list are products like this, where it's like five milligrams of THC, which is sessionable. You're not going to smash six of them and get too high. We're witnessing brands get worked out of the regulated cannabis market because the low dose consumers are not going to the dispensaries to purchase these products. It's created this bifurcation, at least in the beverage category, where you're not leveraging the loophole of THCA, it is leveraging those rules that were passed with the FarmDale. You have this proliferation of low dose beverage brands going direct to consumer or leveraging markets like Minnesota. It's almost kind of created two different product categories. I guess my question is is there an opportunity where this is kind of like a kind of two-pronged approach to legalization, if we do somehow remain completely separate through all of this?Pamela Epstein:
Yeah, I think you raised an interesting point In the world of a Schedule 3, what is that going to mean? I think Josh raised a good point about THC inflation of potency In a regulated market. When you're paying a 15% excise tax, you're looking for price deals Consumers in a time of unprecedented inflation and also you have less choice of low dose beverages in the regulated market. That's again why I go to you got to tease out the manufactured goods, because five milligrams for those of you listening that have read the US Brown Tables White Paper, that I do not disagree with and I'm not going to mince words about it but five milligrams just allowed in any hemp product without any product cap or package cap, isn't what I think the responsible low dose beverage makers want and I think it's going to be really important to separate those things out, because when you look at a state like California and this is where the rubber is going to have to hit the road and we're going to have to have some uncomfortable conversations with each other about how we get to the next step looking specific to where I operate in California you have a $650 million baseline that we have to meet in order to not have an increase of our excise tax to consumers from 15 to 19 percent, when we are already taxed the highest in the country and that tax is completely out of line with other adult use intoxicants like tobacco or alcohol at like.Ben Larson:
Can you explain that $650 million baseline really quick? Is that a static number that we signed onto with Prop 64 or like what is that?Pamela Epstein:
So Prop 64 gave the industry a requirement to give tier three recipients a certain amount or percentage of our tax that generated revenue from cannabis sales. Then in AB 195, we agreed to for the tax simplification, so removing the cultivation tax and moving the tax collection to retail from distribution. Part of that negotiation was that we had a baseline that was put in, so we had to meet $657 million that would go to tier three recipients. So youth groups, environmental groups, things of that nature. That came out of 64. But in 64, there was no promise of how much money they were supposed to get. This was something that has recently been introduced. Now it was taken as an average. But when you think about when this bill was coming out in late 22, you had 2020 and 2021. What happened in 2020 and 2021? Covid panic buying. You had people sitting at home with sales or great they didn't have. So if you take an average of what California was doing in sales also interesting to know intoxicating hemp cannabinoid hemp really did a hockey puck up during that timeframe as well. So then you see a re-regulation of the marketplace and year over year, month over month, we're seeing cannabis losses. So, even though we set a baseline based off of this number, we now this year are $150 million short, or we're over $150 million short of reaching our goal. That was a difficult situation. We did compromise in California to make sure that that increase wasn't supposed to go into effect until, I want to say, 2025. If my numbers are all right, there's so much. But now for discussion that since we've exhausted the $150 million slush fund in the general fund, which is supposed to hold us over, what does that mean? So when I say yes, beverages are only 2% of the California marketplace, 2% when you have a threshold that's that high is still a lot of taxation. So this gets us into a conversation around. When we look at the federal government, what is a fair taxation of a larger marketplace? You can lower taxes if you have more to tax right. Quantity versus quality. This is the discussion around that, and if we are all in a room together talking about what this industry looks like from an adult use perspective. How can we support one another? I don't want to be treated like cannabis. I want to be treated like hemp. Hemp needs a little bit more treatment of cannabis to ensure that all of those products are meeting quality control metrics. That if you're converting products, they're standardization. I think there's really good, a lot of good that can come out of this, but there needs to be a recognition that both of those supply chains cannot function independently and thrive. They have to find that middle ground, and beverages is a great example of where a low dose product is truly meaningfully low dose.AnnaRae Grabstein:
Reading between the lines. What I hear that you're highlighting, though, is the inequity of whether it's a low dose beverage or not, that is, on the hemp side, it not being subject to the same tax that that product would be if that same low dose beverage was being sold in a dispensary, and I think that that is just is a really important element of this conversation about what is driving, because if this is a podcast of people that are out here trying to survive a business and people are playing by different rules, creating very similar products for the same consumer base, it is really challenging, and we want to incentivize people to come into compliance, and right now, I think that we're actually de-incentivizing it, and a lot more people who are looking at this space as opportunistically are probably being like maybe we should look at hemp, because this whole cannabis side of it seems real messy. And while I believe, yeah, go ahead, ben.Ben Larson:
I was just going to say. I mean, like I feel like they're winning Damn it. It's like the regulators, like they're creating like this infighting. It's like we're all like, because if you talk to like a hemp operator, it's like they are following the rules right. And it's like and you talk to someone that's doing both sides and they're just trying to make their business viable, and I mean top beverage products in California have worked their way out of the market because it's not viable, because it's overtaxed, because they're taxing us 20 times the rate of alcohol and it's just. I'm like they have us like quarreling over, like ourselves, when, like, the real issue is that we're being just completely unfairly taxed and underrepresented.Pamela Epstein:
Look, if it's a sin product, it's a sin tax and it should be a sin tax in concert with every other federally regulated responsible actor of an intoxicant. And that should be the unifying factor here that if you're pushing for regulation of low dose products, you should also be pushing for a reasonable potency based tax that can then lever in to the regulated market and bring us together. But to say that we're different and we deserve different treatment. That's where you're going to see the disconnect and the real knee jerk reaction of absolutely not. You should have zero, zero THC in any hand product. That comes from the lack of parity and recognition because, look, I believe $900 to cultivate and, ray, you're in California and our rates that's a. What would that do to a farmer? And Ben, to your point earlier about cannabinoids CBD farmers have a year over year losses. They are seeing the lowest that they are being remunerated. It can cost you more to grow than you're going to make and yet as soon as you convert it downstream and turn it into a higher potency product, that's where the money is. So we have to give some stability and parity and fairness throughout the entire supply chain on both sides cannabis and hemp and bring them together and regulate cannabinoids, because I we, as an industry, need to do a better job at educating the regulators around the science, the facts and the and just the overall knowledge that consumers want cannabinoids, and the largest mover of intoxicating products in this country is the United States Postal Service, fedex and UPS.Ben Larson:
Mic drop.AnnaRae Grabstein:
Well, ben, do you have any last questions, cause I think we're going to move to wrapping.Ben Larson:
Let's man. There's so many, pamela, we're going to have to do a V2 down the road. Thank you so much. This is very enlightening, thank you.AnnaRae Grabstein:
So our regular listeners know that we like to close our show with our last call. This is the ending, where we give our guest, pam, an opportunity to make a poll for whatever you want. Your business, call to action, your choice. Pam, what's your last call?Pamela Epstein:
Well, a thank you very much, and B for all of you that are looking to scale and have good flavoring, I say check out Turpanbal Farms. We want to support all of you with our steamed distilled non cannabinoid terpenes that we have there. So check out terpenebeltfarmscom and if you want to have any conversation around anything we talked about, feel free to hit me up. Always there, and thank you so much. Have a fabulous day and keep in high spirits.Ben Larson:
Amazing Just doing our job Very good. Well, this has just been an awesome conversation. I hope you guys all enjoyed it very, very much. Pam, I can't thank you enough. Look forward to our next conversation. An array always a blast. Thank you, I think this was a good one, all right, everyone. Well, as we wrap up, remember that the dialogue doesn't have to end here, and we invite you to continue these conversations, and we'd love to hear your thoughts. Who would you like to see on the show? What topics would you like us to discuss on the show? We're as much here for you as we are for ourselves, so more for you. Actually, we are immensely grateful for you. If you enjoyed this show, please like, comment, share, friends, family, coworkers really just trying to get this thing started. We're going to be launching the podcast soon officially, so you can find us on Spotify and Apple. Stay tuned for that. As we send you off, remember, stay curious, stay informed but, most importantly, keep your spirits high.